Public Policy

On behalf of the nuclear energy industry, the Nuclear Energy Institute appreciates the opportunity to provide this testimony for the record on the role of nuclear energy in U.S. energy policy, on the value of our 103 operating nuclear power plants and on the strategic importance of building new nuclear power plants in the years ahead.

NEI is responsible for developing policy for the U.S. nuclear energy industry. Our organization’s 270 member companies represent a broad spectrum of interests, including every U.S. energy 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, labor unions and law firms.

America’s nuclear power plants are the most efficient and reliable in the world. Nuclear energy is the largest source of carbon-free electricity in the United States and our nation’s second-largest source of electricity after coal. Nuclear power plants in 31 states provide electricity for one of every five U.S. homes and businesses. More than eight out of 10 Americans believe nuclear energy should play an important role in the country’s energy future.¹

Given these facts and the strategic importance of nuclear energy to our nation’s energy security, economic growth and environmental protection, NEI encourages Congress to maintain policies that ensure the continued viability of nuclear power and to provide the impetus required to expand carbon-free nuclear energy as a vital part of our nation’s diverse energy mix.

NEI’s testimony for the record will address two major areas:

• The nuclear energy industry in the United States and globally is on the verge of major expansion. As a result, the Nuclear Regulatory Commission needs to quickly adapt from an agency almost solely concerned with existing reactors to one that will effectively and efficiently regulate the design and construction of new nuclear plants. The agency faces a number of challenges that it must address to ensure a workable, efficient process for licensing new nuclear plants.
• The strategic value of America’s nuclear power plants as a source of safe, reliable, clean electricity at stable prices, coupled with the industry’s sustained high levels of nuclear plant performance, means that nearly all of our current reactors will renew their licenses. Many also will apply to increase power generating capacity. Although the NRC has made real progress in addressing licensing matters, given the need for new-plant licensing and for effective regulation of existing plants, the agency must do a better job of providing a regulatory environment that is effective, efficient, fair and transparent.

The Strategic Value of Nuclear Energy
The United States has 103 nuclear reactors operating in 31 states, including eight states that produce more than one-third of their electricity from nuclear power plants. Nuclear power represented 20 percent of U.S. electricity supply 10 years ago, and it represents 20 percent of our electricity supply today, despite the fact that we have six fewer reactors than a decade ago and total U.S. electricity supply has increased by 25 percent in that period.

Nuclear power has maintained its market share because of dramatic improvements in plant reliability, safety, productivity and management. Today’s reactors routinely operate at a 90 percent capacity factor. Improved productivity at U.S. nuclear plants has satisfied 20 percent of the growth in electricity demand over the past decade.

Increased output from U.S. nuclear plants in the past 10 years—from 640 billion kilowatt-hours in 1994 to 789 billion kilowatt-hours in 2004—is approximately equivalent to bringing 18 new 1,000-megawatt power plants into service.

Nuclear energy provides several important national benefits.

First, nuclear power plants contribute to the fuel and technology diversity that is the core strength of the U.S. electric supply system. This diversity is at risk because today’s business environment and electricity-sector market conditions make investments in large, capital-intensive technologies difficult, particularly advanced nuclear power plants and advanced coal-fired power plants best suited to supply baseload electricity.

Coal and nuclear energy represent 70 percent of our electricity supply. However, since 1992, the electric industry has built more than 275,000 megawatts of natural gas-fired power plants, and added only 14,000 megawatts of new nuclear and coal-fired capacity. All of those baseload power projects started construction in the 1980s.

The United States is now suffering the consequences of relying too heavily upon one fuel for electricity production, natural gas. Although electricity prices on the whole have increased far less than the prices of other consumer goods during the past two decades, high natural gas prices have caused dramatic electricity price increases in many regions during the past year. Natural gas also is a critical feedstock for other industries, such as chemical plants. The chemical industry has lost $50 billion in business to overseas operations since 2000, closed 100 chemical plants and laid off more than 100,000 workers. Natural gas has many desirable characteristics and should be part of our fuel mix, but over-reliance on natural gas or any one fuel source leaves consumers vulnerable to price spikes and supply disruptions in many sectors of the economy.

Second, nuclear power plants provide price stability that is not available from electric generating plants fueled with natural gas. The intense volatility in natural gas prices over the last several years is likely to continue, largely because of unsustainable demand for natural gas from the electric sector. Such price volatility also subjects the U.S. economy to potential damage. The operating costs of nuclear power plants are stable and can dampen volatility of consumer costs in the electricity market. The supply and demand characteristics of natural gas have driven hundreds of thousands of jobs offshore in those industries that relied on natural gas as a feedstock and for heat and power.

Third, nuclear power plants are a key part of our diversified electricity supply and play a strategic role in meeting U.S. clean-air goals and the nation’s goal of reducing greenhouse gas emissions. Nuclear power plants produce electricity that otherwise would be supplied by gas- or coal-fired generating capacity. They therefore prevent the emissions that fossil-fuel fired plants otherwise would produce.

U.S. nuclear power plants are essential in meeting clean-air regulations. In 2005, they prevented the emission of about 3.3 million tons of sulfur dioxide (SO₂ ) and about 1.1 million tons of nitrogen oxide (NO_X ). To put these numbers in perspective, requirements imposed by the 1990 Clean Air Act amendments reduced SO2 emissions from the electric power sector between 1990 and 2001 by about 5 million tons per year, and NO_X emissions by about 2 million tons per year.² Thus, in a single year, nuclear power plants avoid emissions nearly equivalent to those produced over an 11-year period by other sources.

The NO_X emissions prevented by U.S. nuclear plants are equivalent to eliminating NO_X emissions from six out of 10 passenger cars in the United States. The carbon emissions prevented by nuclear power plants are equivalent to eliminating the carbon emissions from nine out of 10 passenger cars in the United States. Without nuclear energy, greenhouse gas emissions from the electric power sector would be approximately 30 percent higher. This is significant, since the electricity sector is responsible for approximately one-third of U.S. greenhouse gas emissions.

Finally, nuclear energy is a secure source of energy, and the United States is not alone in recognizing nuclear energy’s importance to energy security and, therefore, national security. The decision to use nuclear power as a major energy source in countries such as France and Japan was based on energy security. The governments of all three countries recognized in the 1970s that nuclear energy protects their energy supplies from disruptions caused by political instability and protects consumers from price fluctuations caused by market volatility. France depends on 59 reactors to meet more than three-quarters of its electricity demand, while one-quarter of Japan’s comes from its 55 reactors.

Despite strong international commitment to nuclear power, evidenced by the 27 nuclear reactors under construction today around the world, the U.S. nuclear energy sector remains by far the world’s largest in terms of electricity production—larger than the nuclear sectors of France and Japan combined.

Public support for nuclear energy in the United States has grown steadily as a result of excellent plant safety and performance, as well as growing awareness of nuclear energy’s benefits. A March 2006 survey revealed that 86 percent of the general public agrees that nuclear energy will play an important role in meeting our nation’s electricity needs in the years ahead. In addition, 73 percent found it acceptable to add a new reactor at the nearest existing nuclear plant site. Overall, 68 percent of Americans surveyed support nuclear energy, while 29 percent oppose it.³

In summary, nuclear energy represents a unique value proposition. Nuclear power plants provide a tremendous supply of baseload electricity—cleanly, reliably and safely. They provide low-cost electricity for consumers and businesses today, and serve as a hedge against price and supply volatility.

Nuclear plants have valuable environmental attributes, and they help preserve our nation’s energy security. In addition, the American public supports the expansion of nuclear energy. These factors demonstrate why nuclear energy has strategic importance in U.S. energy policy.

The Nuclear Energy Industry Is on the Verge of a Major Expansion
Independent analyses by the University of Chicago and the Massachusetts Institute of Technology in 2003 and 2004, respectively, found that the first few new nuclear power plants would face unique economic and financing hurdles. The Energy Policy Act of 2005 (EPAct) addressed these hurdles with limited investment incentives for the construction of a limited number of new nuclear plants in the United States. A production tax credit, similar to the long-standing credit for wind and solar generation, and a loan guarantee program, available to all low- or zero-emission generation, were designed to improve the economics of and to facilitate financing for the first few new nuclear power plants. The legislation also provided standby support, a form of insurance, to help protect private companies against delays caused by licensing or litigation due to factors beyond their control.

The EPAct incentives are having their intended impact. A year ago, two consortia were developing applications for the licenses necessary to build and operate new nuclear power plants. Now, nine companies or groups of companies are developing applications for combined construction and operating licenses for as many as 20 new nuclear reactors. We expect those applications to be filed with the NRC between 2007 and 2008. A chart displaying the status of new nuclear plant development in the United States is attached to this testimony as Exhibit A. Companies plan to locate most of these new reactors at existing nuclear power plant sites to take advantage of existing infrastructure such as cooling water capacity and transmission lines.

A decision to pursue an NRC combined construction and operating license represents a significant investment of resources and is a major step toward the construction of a nuclear power plant. Obtaining NRC approval of such an application is a three- to four-year process and is estimated to cost from $50 million to $90 million, depending upon whether the application is based on a certified reactor design. NEI estimates that the industry is investing more than $1.5 billion to develop license applications, complete design and engineering work, and order long-lead equipment such as reactor vessels. This is convincing evidence that the construction of new nuclear plants in the United States has moved from a possibility to reality.

Increasing investment by the public and private sectors in exploring the construction of new nuclear plants has generated interested on Wall Street. Fitch Ratings is one of the Wall Street firms bullish on the prospect of new nuclear plants in the near term:

It is no longer a matter of debate whether there will be new nuclear plants in the industry’s future. Now, the discussion has shifted to predictions of how many, where and when. … New nuclear plants and baseload power plants using new coal technologies are least likely to appear in the populous and energy-hungry Northeast or in California, regions that already have significantly higher energy prices than the Southeast and Midwest. For political or geological reasons, these regions are likely to rely either on gas-fired power facilities or costly investments for other resources, such as wind or solar. These differences will tend to favor lower energy prices in the Southeast and Midwest to the disadvantage of the Northeast and California.⁴

Expansion of the nuclear energy industry has enormous positive implications for the U.S. economy and for American workers. In addition to other benefits provided by nuclear energy, building new nuclear plants will create thousands of jobs for highly skilled workers who design and build the plants, manufacture the equipment and fuel, and operate the plants when built. New nuclear plant construction also will help restore U.S. technological leadership in this high-tech field.

Leadership by the United States will be strategically and economically important as other nations consider nuclear power to meet their energy needs and announce even more ambitious plans. France has constructed dozens of nuclear plants, based on U.S. light-water reactor designs, in the past two decades. China and India have announced major expansion plans for their nuclear generation. NEI now estimates that more than 120 reactors could be constructed worldwide in the next 15 years, including up to 20 in the United States.

Contrary to widespread belief, new nuclear power plants are not expected to face significant opposition by those espousing a NIMBY, or “not in my backyard,” perspective. While public support for nuclear energy has reached record levels, that support is even stronger in the communities surrounding existing nuclear power plants. Eighty-three percent of residents near U.S. nuclear plants support the use of nuclear energy and more than two-thirds would find it acceptable to build a new reactor at the nuclear power plant closest to where they live.⁵

Last fall, the NuStart Energy consortium was in the process of selecting two potential sites for new nuclear plants. During the selection process, state, county and local officials from New York, Louisiana, South Carolina, Alabama, Maryland and Mississippi competed vigorously for construction of nuclear power plants in their area. This experience turns the NIMBY syndrome on its head.

Licensing and Building New Nuclear Plants Creates Significant Management Hurdles for the NRC
Expansion of the commercial nuclear industry will be a critical test of NRC management skills as it attempts to conduct efficient, timely rulemakings and licensing proceedings. No company has ordered a new nuclear plant in the United States for over two decades, and the last time a new nuclear plant began generating electricity was in 1996 at Tennessee Valley Authority’s Watts Bar plant. The infrastructure for licensing new nuclear plants at the NRC has been dormant.

The industry licensed the majority of today’s nuclear power plants during the 1960s and 1970s. At that time, the industry was new and the regulatory process evolved along with it. Plant designs were not standardized, and the NRC issued construction permits based upon preliminary plant designs. Safety issues often were not fully resolved until the plant was complete and awaiting start-up. Delays at that point in the process were not only common, but expensive.

To address some of the flaws in the process, the NRC established a new licensing process, codified as 10 CFR Part 52. Congress affirmed and strengthened this new process as part of the Energy Policy Act of 1992. This new licensing approach for new nuclear plants moves the major licensing and safety approvals to the front of the process: (1) approval of standard reactor designs, (2) approval of early site permits for prospective plant locations, and (3) approval of a single license for the construction and operation of a new nuclear plant. To ensure the plant is built according to the approved design, the NRC developed a package of inspections, tests, analyses and acceptance criteria it will use to confirm safety and engineering specifications.

The NRC licensing process incorporates input from the public and other stakeholders, before plant construction, at a time when such input can influence plant design and licensing issues. This process should help avoid the costly delays common to the old way of licensing a nuclear plant. The old licensing process was a two-step process that did not require the completion of the design and engineering before the issuance of a construction permit. As a result, lengthy and costly hearings often took place after the plant was built and before it was allowed to operate.

The design certification process allows plant designers to secure advance NRC approval of standard plant designs that companies will use for the next generation of nuclear plants. A company could order a plant using an approved design, license it for a particular site and build it. Following an exhaustive NRC safety review, the agency formalizes each standardized design with a rulemaking. NRC approval for design certification takes three to five years.

To date, the NRC has certified four advanced plant designs—the Westinghouse AP600 and AP1000, General Electric ABWR, and Combustion Engineering (CE) System 80+. CE is now owned by Westinghouse. One additional design has been submitted and is under review—GE’s ESBWR. Another design, AREVA’s EPR, is in the pre-certification review stage. A chart detailing the status of advanced nuclear plant designs is attached as Exhibit B.

The early site permit (ESP) process enables companies to obtain approval from the NRC for a nuclear plant site before deciding to build the plant. This process resolves any site suitability issues before funds are committed to construction. An early site permit application comprises three parts—an environmental report, a site-safety analysis and emergency planning information—that the NRC then reviews and, if appropriate, approves.

The industry is validating this new licensing process. In 2003, Dominion, Exelon and Entergy, assisted by the Department of Energy in a cost-shared program, initiated projects to obtain NRC approval for early site permits. The NRC expects to issue the permits in 2007. The permits would allow the companies to “bank” those sites for up to 20 years for possible future use, when business circumstances indicate the need and benefit of building a new nuclear power plant. However, problems have emerged concerning the finality of environmental reviews, and the industry now has serious concerns over the ESP process.

The body of regulations governing licensing, Part 52, also allows the NRC to issue a combined construction and operating license (COL). A COL application may reference a certified design, an early site permit or both. A typical COL application is a significant decision toward ordering a new nuclear plant. The application requires that companies develop detailed and extensive documentation for review by the NRC. Although no company has submitted a COL application to the NRC, the industry expects to file 10 applications within the next 30 months.

The first major decision a company must make in the sequential steps toward building a new plant is to prepare a COL application. Preparation of the initial COL application takes more than 18 months. NRC review and approval for the first COL application using a new design is scheduled to take 36 to 42 months. Around two years before a company expects approval of a COL, the company will start long-lead procurement of major components, such as reactor vessels and steam generators. The final major decision is to determine when to proceed with actual construction. This is the time when financing, purchased power agreements for electricity generated by the plant, ownership and operational considerations must be in place and other associated issues resolved.

Based in part on international experience, the industry estimates that construction of the first new nuclear reactors will take 48 months from the pouring of concrete for safety-related structures to loading the reactor with fuel. This time frame is likely to decrease to perhaps 40 months as companies gain construction experience.


The NRC Has Made Substantial Progress but Can and Must Do Better in Responding to the Challenge of Licensing New Plants
As a result of this accelerated movement toward building new nuclear plants, the NRC faces major challenges in creating a regulatory process that will address effective, efficient and timely handling of the design certifications, ESPs, COLs and generic licensing work expected in the next few years. The nuclear energy industry is committed to working with the NRC in meeting these challenges. The industry recognizes the sound advice of NRC Chairman Nils Diaz that the agency’s ability to review applications efficiently depends upon the quality of the information in the application. The industry also fully supports the NRC’s design-centered approach to reviewing the COL applications and expects that this approach will provide significant efficiencies once the agency has completed the first few reviews of each design. In fact, the industry expects this approach will decrease the review schedule from the 42 months mentioned above to less than 24 months.

The industry remains concerned, however, that the NRC still faces significant challenges. Chief among these challenges is the need for the agency to finalize its revisions to the Part 52 licensing regulation. The NRC initiated this process in 1998, nearly eight years ago, yet the agency still has not finished. Earlier this year, the NRC once again decided to revise Part 52 with a goal of approving the revision in January 2007. NEI strongly urges the NRC to complete the Part 52 rulemaking before January 2007, since the industry has begun preparing standardized COL applications and needs final guidance.

In addition, the NRC is conducting rulemakings on security and “fitness-for-duty” matters that have provisions applicable to the licensing of new plants. Timely completion of these rulemakings, including careful consideration of input from the industry and other stakeholders, will be essential. The industry urges the NRC to complete these rulemakings before June 2007 and enhance stakeholder participation by conducting public meetings as part of the process.

In addition, the NRC plans to issue a COL application regulatory guideline by the end of 2006 for companies to use as they prepare COL applications. The industry and other stakeholders have worked with the NRC for several years to help develop guidance for COL applicants. Guidance for NRC reviewers also is being updated in a separate document—the NRC Standard Review Plan. Thus, two separate documents have the same objective: providing guidance on the scope and content of an application. The need for rigid consistency between these two documents will be a major challenge for industry and NRC resources over the next eight months. To address this, the industry recommends that the NRC combine the two documents and issue the updated product as soon as possible.

The industry is increasingly concerned that regulatory guidance may not be available from the NRC in a practical form in sufficient time for applicants to complete, without delay, drafting and finalizing the extensive applications already being prepared. This issue, when coupled with the length of a license review, introduces a level of uncertainty in the business-case assessments for deployment of new nuclear plants, even for an application that references an approved site and an approved reactor design.

Based on the current estimates for at least the first few applications, it could take 10 years or more to bring a new nuclear plant on line from the time a decision is made to proceed with a COL application. This schedule must be improved so that it is equivalent to schedules being achieved in other countries—seven years or less. A critical factor that will help achieve this goal is ensuring finality in the regulatory decision-making process. Once the NRC issues a design certification, ESP or COL, its regulatory decisions should be final unless substantive information is provided that requires additional review.

Extended delays in the NRC’s review of a license application can impact a company’s decision to finance construction; thus, such delays can have a major impact upon our nation’s electricity supply.

The Environment and Public Works Committee has a critical role to play in ensuring the NRC manages the new licensing processes in a disciplined and efficient manner. The overall objective for this industry initiative is to ensure new nuclear plants can be operational by 2014-2015. This timetable is necessary to meet growing electricity demand, and it will require an aggressive industry and NRC effort to complete design, engineering and licensing work before companies can place orders and invest in construction.

Additional resources alone will not allow the NRC to fulfill this mission. The NRC must incorporate comprehensive, transparent planning and management practices that will provide the agency a framework for the upcoming expansion with meaningful input by Congress, the industry and other stakeholders.

Industry Initiatives to Increase Nuclear Energy Production
Nuclear power plants are such valuable electric generating assets that industry expects virtually all companies to pursue the option of extending their existing plant operating license. The NRC has approved 20-year extensions of operating licenses for 42 reactors and is reviewing nine additional applications for renewal. It expects to receive 27 more applications by 2012. These 78 reactors represent three-quarters of the operating reactors in the United States.

To maintain safety and reliability, and to prepare plants for an additional 20 years of operation, the industry is investing in large capital improvement projects, including the installation of new steam generators, new reactor vessel heads and other modifications to increase plant reliability, safety and generating capacity. These capital improvement projects position the plants for many years of operation and demonstrate the industry’s commitment to making the capital investments necessary to maintain safety and reliability.

The industry steadily continues to increase generating capacity—either through power uprates or, in one case, refurbishing a shuttered nuclear plant. An uprate allows the plant to produce more electricity than its original rated capacity. Uprates can increase a plant’s capacity by up to 20 percent, depending on plant design and how much capital a company is prepared to invest.

Over the past several years, the NRC has authorized power uprates representing approximately 2,000 megawatts (MW) of additional generating capacity. For instance, Entergy’s Vermont Yankee plant received approval for a 20 percent increase and recently brought that additional capacity online. Progress Energy’s Brunswick plant also completed a 20 percent capacity increase last year. Over the next five years, the NRC anticipates that companies will apply for approximately 30 more power uprates, which could add another 2,000 MW of new capacity.

In addition, the Tennessee Valley Authority is refurbishing a reactor at its Browns Ferry site in northern Alabama. This is a complex project—fully as challenging as building a new nuclear plant—and it remains on schedule and is expected to begin producing electricity in mid-2007.

The industry believes that the NRC is handling applications for license renewal and for power uprates in an effective and timely manner. The industry compliments this committee for recognizing the importance of this issue several years ago and for working with the NRC to provide resources and guidance to effectively address license renewals.

The NRC Reactor Oversight Process Has Proven Successful
Congressional oversight performs an important role in maintaining and encouraging the certainty and stability of the NRC’s regulatory process and in providing transparency on the safety of the plants to all stakeholders. Such regulatory certainty and regulator credibility are essential for today’s nuclear power facilities and are equally critical in licensing new nuclear power facilities. Several years ago, this committee encouraged the NRC to move toward a new reactor oversight process for the nation’s nuclear plants, a process based on quantitative performance indicators and safety significance. Today’s reactor oversight process is primarily designed to focus industry and NRC resources on equipment, components and operational issues that have the greatest importance to, and impact on, safety.

The NRC has six years of experience with this revised reactor oversight process. The new approach is successful in improving the transparency, objectivity and efficiency of regulatory oversight. It is a clear improvement over the agency’s previous approach to evaluating nuclear plant safety.

The reactor oversight process combines the results of performance indicators in 18 key areas and findings from about 2,500 hours of NRC inspections per reactor to determine the appropriate allocation of inspection resources across all operating plants. The most recent results, after fourth quarter 2005, are as follows:

• 85 reactors had all green (best level) performance indicators and inspection findings and will receive the baseline level of NRC inspection (approximately 2,500 hours per year)
• 11 reactors had a single white (second-best level) performance indicator or inspection finding and will receive supplemental inspection beyond the baseline effort
• seven reactors had more than one single white indicator or finding in a performance area or had white indicators or findings in different performance areas and will receive more in-depth inspection.

The industry views this trend as a substantial success and a strong example of the success of a safety-focused, performance-based regulatory approach.

Although the industry believes that nuclear plant safety and performance demonstrates the success of the reactor oversight process, it is concerned that subjectivity is creeping back into the process. In the first three years of the oversight process, the NRC identified an average of 60 cross-cutting issues per year throughout the industry. By 2005, however, that number had increased to more than 600 cross-cutting issues, a tenfold increase, even as industry performance remained at high levels. Cross-cutting issues are those findings by resident inspectors at plants that may impact important operational factors, such as human performance, problem identification and resolution, and safety-conscious work environment.

This precipitous, largely unexamined, growth in the number of identified cross-cutting issues raises concerns on the objectivity and, ultimately, the effectiveness, of the NRC’s initiative on safety culture assessment.

Another example of increasing subjectivity in the NRC’s performance is the dramatic increase of “negative observations” by resident inspectors over the past few years. A negative observation is simply a written finding that does not have enough significance to merit official action. Plant operators are nonetheless compelled to respond, even though such observations have little, if any, safety significance.

These examples identify areas that the NRC should review to ensure the effectiveness of the oversight process. Because neither the body of NRC regulations nor its inspection process incorporates safety-focused approaches, they tend to identify findings that are potentially appropriate from a regulatory perspective but are not necessarily significant from a safety perspective. The three cornerstones of the regulatory oversight process—emergency preparedness, security and radiation safety—are not safety-focused.
The oversight process as it relates to these cornerstones should be reviewed to ensure it is not misleading the public or misallocating NRC and industry resources.

The industry believes that the NRC, the industry and other stakeholders would benefit if the intent of the reactor oversight process were codified through an NRC Policy Statement, drafted by the commissioners who provided the policy guidance that established the process. This will be particularly important as changes occur within the NRC commission and staff over the next several years.

The Need for Safety-Focused, Performance-Based Regulation and a Stable Regulatory Environment
The industry strongly supports the NRC’s acceptance of the concept of safety-focused regulations. Implementing such concepts in its new reactor oversight process and for inspections demonstrates the value of safety-focused regulatory concepts.

During the past two years, NRC Chairman Diaz has articulated a sound approach to the future regulatory structure of our industry. He said, “21st century nuclear regulation needs to be anchored in realistic conservatism or conservative realism if we are to avoid the twin pitfalls of underregulation and overregulation.” Such an approach would recognize conservative defense-in-depth regulation informed by science, engineering and nearly 10,000 reactor years of experience worldwide. But achieving a fair, predictable regulatory environment requires the same predictability and realism in plant security and emergency preparedness.

The NRC is moving to incorporate safety-focused insights into federal regulation, but in developing two recent proposed rules, the agency at least initially has fallen short of this goal. The industry strongly supports the adoption of safety-focused regulation but is increasingly concerned that the NRC is reverting to a pattern of focusing on matters with very low safety significance, a situation that spurred the development of the two regulations. As a result, the implementation of new safety-focused regulation would yield few benefits if the NRC does not focus on safety-significant matters in practice.

In addition, the industry is increasingly concerned over the slow place of progress by the NRC toward placing a greater safety focus on other regulations. This initiative began nearly seven years ago, yet the NRC has addressed only two regulations. The industry urges the committee to restore a sense of urgency to this initiative.

Last year, the industry recommended that the NRC develop an integrated rulemaking plan to transform the existing deterministic regulations into a more effective, safety-focused regime. NEI continues to see a real need for such a plan that the agency can share with the committee, the industry and other stakeholders.

Finally, the NRC increasingly has used generic communications, such as generic letters, regulatory issue summaries and security advisories, to establish new requirements on licensees without the normal rulemaking process as established by the Administrative Procedures Act. The NRC’s inspector general recently reached a similar conclusion (OIG-05-A-19). This has been a particular problem in security regulations, where the NRC has repeatedly changed and increased requirements. But, it also is occurring outside of security issues.

It is essential that the NRC adhere to its formal regulatory process to ensure the effectiveness of the regulatory regime and to provide certainty for the operations of existing nuclear plants and for companies to make decisions about building new plants. As the NRC loses institutional knowledge and experience through retirements and trains hundreds of new employees, adherence to formal regulatory processes will provide the foundation upon which it can maintain its effectiveness and credibility with all stakeholders.

Congress Should Review NRC Budget and Staffing Levels
The NRC’s budget continues to increase significantly. Its fiscal 2007 budget request of $777 million is the highest ever for this agency—a nearly 60 percent increase from a $488 million budget just six years ago. The number of full-time-equivalent (FTE) positions at the NRC has increased by more than 18 percent, from 2,785 to 3,309 during the same period. In addition, the NRC recently requested that Congress provide an additional $40 million to support new-plant licensing activities and to begin hiring some 350 to 400 employees over the next two to three years.

Just last year, the NRC’s budget request was $702 million. If Congress provides the additional $40 million as requested, the NRC’s budget will have increased by over 15 percent in a little over a year. This is attributable in part to an additional $21 million added to the NRC’s budget last year to pay for site-specific risk assessments and an additional $20 million to prepare for potential COL applications.

As licensees are required to pay 90 percent of the NRC’s budget—after the deduction of Nuclear Waste Fund and security expenses—these budget increases lead to significant increases in NRC user fees to the industry. The NRC only recently announced its licensing, inspection and annual fees for 2006. Under that guideline, the fee for each power reactor will be $3.7 million, a 16-percent increase over the 2005 annual fee. If the NRC is provided the increases requested, the industry expects fees for fiscal 2007 to increase by more than 10 percent next year as well.

The nuclear energy industry recognizes that budget and staffing increases will be required to address new-plant activity. It also recognizes impending work-force issues; we support efforts to ensure the NRC is provided adequate resources to do its job. But the rapid expansion of the NRC’s budget, well above inflationary increases, imposes management challenges on the commission and economic pressure on the industry.

This committee should carefully monitor the ability of the NRC to hire qualified staff, as well as its ability to train and educate new employees for the tasks ahead.

The industry believes that the NRC must continue to be an effective and efficient regulator. The NRC should not address its managerial challenges simply by spending more money. It should look for ways to reallocate or consolidate its resources and should review its regional structure to determine if changes are needed to respond to the continued consolidation in the nuclear industry. And, as it implements new and more efficient methods of regulation, such as the ROP, it should examine whether staffing and funding efficiencies can be achieved as well.

The NRC’s budget must be more transparent and needs to provide more accessible and understandable data. Without greater transparency and additional data, it is difficult for Congress and stakeholders to analyze how the agency is utilizing its resources. For example, the industry is concerned that the NRC has not provided sufficient transparency and detail to justify its recent budget increases. When asked to explain the over $70 million increase over last year’s budget, the NRC responded with details from the 2006 budget that did not include those funds.

We urge this committee to require that the NRC provide sufficient detail, similar to the detail provided to justify the fee recovery rule each year, for such budget requests. Doing so will help initiate effective and efficient planning at the NRC and will enable the industry to provide effective comments on the planned increases.

We are encouraged by the NRC chairman’s insistence that the agency adopt “total quality management” or a similar approach. We agree and once again urge that the committee review the NRC’s structure and management. The industry believes that the NRC would benefit from an independent management assessment of the agency’s needs and plans to meet its organizational and work-force challenges.

Conclusion
The nuclear energy industry in the United States is preparing for rapid expansion—an expansion that will be an enormous boost to our nation’s efforts to ensure an adequate supply of baseload electricity to power our economy and achieve energy security. It will be difficult, if not impossible, for our nation to address its growing need for electricity and to achieve our clean air goals without a significant increase in nuclear power’s total generating capacity.

Because Congress has tasked the NRC with issuing licenses for new reactor designs and for building new nuclear power plants, the agency is at the forefront of this expansion. The NRC has responded appropriately with requests for more funds to support a large increase in staff to handle this increased activity. Although the agency has made progress, the NRC can and must address the challenges of increased licensing activities in a more timely and efficient manner.

As the NRC adjusts to the regulatory demands of new plants, it cannot and should not overlook the regulation of the existing fleet of nuclear power plants. The new reactor oversight process is a significant improvement over the NRC’s previous regulatory process. However, it is critical that the commission and NRC management ensure that the process stays safety-focused and responsive to stakeholder input. The NRC’s effort to formalize safety-focused regulations needs more attention and more discipline to ensure that it successfully completes and implements current rulemakings.

To address these issues, NEI recommends that Congress:

• Provide the NRC with adequate funding, but insist that the NRC seek management assistance, such as an independent review, that can provide the agency with advice on setting and meeting deadlines. This advice would prove beneficial for reviewing new-plant applications; it also would assist in any necessary revision of the reactor oversight process.
• Ensure the NRC utilizes its formal regulatory processes and does not rely upon informal, undisciplined or nontransparent processes for imposing requirements on existing or new plants.
• Require the NRC to provide the public with the necessary budgetary details to justify increases, particularly those requested outside the normal agency budget submittal and review process. Providing such details only after their approval does not allow for stakeholder input into the process.
• Continue its strong and active oversight of the NRC by conducting additional hearings and by requiring the NRC to continue to report to Congress at least quarterly. These reports should include information on schedules for addressing the challenges identified in this testimony and elsewhere, together with details on the agency’s progress in meeting those challenges.

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¹ Bisconti Research Inc./NOP World, May 2005, survey of 1,000 U.S. adults.
² “EPA Acid Rain Program: 2001 Progress Report,” U.S. Environmental Protection Agency, November 2002.
³ Bisconti Research Inc./NOP World, March 2006, survey of 1,000 U.S. adults.
⁴ “Wholesale Power Market Update,” Fitch Ratings Ltd., March 13, 2006.
⁵ Bisconti Research Inc., August 2005, national survey of 1,050 residents who live within 10 miles of a nuclear power plant. Margin of error is +/- 3 percentage points.