News & Events

Good afternoon. It’s a pleasure to join you for this year’s JAIF conference. 

I first traveled to Japan in 1997 for the United Nations climate change conference in Kyoto. I remember that it was really the first time that nuclear power advocates from Japan, the U.S., Europe and Canada began to gain widespread recognition in the U.N. forum for the role of nuclear energy in reducing greenhouse gases.

Last year – a decade later – the United Nations’ Intergovernmental Panel on Climate Change listed nuclear energy as a key greenhouse gas mitigation tool both for today and tomorrow.  It took a substantial effort by the industry to be recognized by some leaders and groups among the technology-based solutions to climate change. 

But today, more than ever, nuclear energy’s clean air benefits are playing a significant role in OECD countries.  And that carbon-free electric production is attractive to developing nations that are exploring nuclear power as part of their energy future.

Carbon reduction.  Energy security.  The need for baseload electric supply.  Energy diversity.  Economic electricity production.  These are just some of the attributes that are prompting the global resurgence in nuclear energy.

They also are many of the same attributes that drove the rapid expansion of nuclear energy in this country, in the United States and in other nations, like France, after the Middle East oil embargoes of the early 1070s.

U.S. energy companies are again considering construction of advanced nuclear power plants because the fundamentals of the electric power business demand it.  The need for new baseload generating capacity is unmistakable.  In fact, four of the countries’ regions are dangerously below accepted reserve margins for electric capacity.

Moreover, the U.S. electric sector’s dependence on natural gas exposes our customers to unnecessary price volatility, and our companies to unwelcome political stress and regulatory pressure.  And uncertainty over future controls on carbon emissions will cast a cloud over coal-fired power generation for as long as we avoid our responsibility to address the climate change issue squarely.

It is crucial that as the U.S. industry pursues new reactor construction, that all leaders in the industry, in the policy community and in the financial community share a reasoned perspective on the business risks of new nuclear plant construction.

That perspective should not overstate or understate the challenges facing companies developing new nuclear projects.  We must be analytical and dispassionate.

A dispassionate assessment of new nuclear plant construction must acknowledge the large financial challenges associated with a capital project that may cost around 7 billion dollars and represent a substantial portion of a company’s market value.

A dispassionate assessment must recognize the major challenges associated with bringing such a venture to completion without delay and within budget.

But a dispassionate assessment also shows that many of the conditions that led to cost increases and construction delays for many U.S. operating nuclear power plants no longer exist, that the remaining risks are reasonably well-understood, and that the industry has taken steps and created mechanisms to manage and contain those risks.

My focus today is on U.S. policy and the strategic plans for long-term energy security and environmental protection and the expected role of nuclear power in pursuing those goals.

I want to begin framing that issue with a brief summary of last year’s nuclear power plant performance, then turn to where U.S. companies stand with new nuclear plant development, and what we can reasonably expect going forward.

We approach the business of new plant construction as a risk-management exercise, and the industry has worked together over the last several years to identify, understand and manage the business risks associated with new nuclear plants.

And although we have wrung much of the risk out of the business, it’s impossible to drive all risks to zero, so I’ll conclude with some thoughts on challenges still ahead of us.

The performance of U.S. reactors in 2007 was outstanding.

We continue to see average capacity factors sustained at very high levels.  Our preliminary data show that the fleet last year operated at almost 92 percent, the highest ever.

This obviously reflected excellence in plant management and operations, and management of outages.

We estimate output was at record levels, about 807 billion kilowatt-hours – mostly the result of high capacity factors, but also partly due to more capacity available, both because of power uprates and the restart of Browns Ferry Unit 1 last May.

Although nuclear power represents slightly more than 10 percent of installed electric generating capacity, 104 reactors generate nearly 20 percent of U.S. electricity.

High output obviously drives economic performance.  We estimate production cost last year at $16.80 per megawatt-hour—a record low.

That implies a total busbar cost of around $22 to $23 per megawatt-hour – comfortably below where all major U.S. electricity markets cleared.

So these plants generate substantial income and drive earnings for their owners and will continue to do so.

U.S. nuclear plants clearly represent a solid platform from which to launch the next generation of reactors.  Let me summarize where the U.S. industry stands and what we expect over the next several years.

Seventeen companies or groups of companies are preparing license applications for as many as 31 new nuclear reactors.  Seven applications for construction and operating licenses (COLs) have been filed with the Nuclear Regulatory Commission through the end of March.  Another 9 to 13 are expected this year.

We expect the first new reactor license approvals in late 2010, early 2011.

Two advanced reactor designs have already been certified by the NRC.  Two were submitted for certification last year.  One has been submitted this year. 

A reasoned perspective on the “renaissance” of nuclear power in the United States suggests that it will unfold slowly over time.  We expect four to eight new plants in commercial operation by 2016 or so.

The exact number will, of course, depend on many factors – 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, and more.

If those first nuclear plant projects are built on schedule, within budget estimates, and without licensing difficulties, a second wave could be well under construction as the first wave reaches commercial operation.

The confidence gained by success with the first projects will support the decision-making process for follow-on projects.

We should expect changes to project schedules, project ownership and project structure as companies get closer to decisions to build new reactors.  New combinations of companies may line up behind certain projects.  And some companies will decide not to move forward. 

The companies developing these projects will not move forward unless they are confident that they have the risks identified and removed or mitigated. 

Many of the nuclear plants commissioned in the 1960s and early 1970s completed construction in 4 to 5 years with construction costs around 500 million dollars.

But by the late 1970s and early 1980s, construction of nuclear power plants in the United States averaged 10 to 12 years, and construction costs ranged as high as 5 billion dollars.

In retrospect, several factors drove cost and schedule uncertainty of U.S. reactors in the 1970s and 80s.  The nuclear plants built after the early 1970s were built under the most unforgiving conditions – caused by four major factors converging at roughly the same time.

First, nuclear technology in the United States scaled up quickly – probably more quickly than was prudent.  The industry was transformed from the first 200-megawatt-scale plants to 1,000-megawatt-plus plants in just a few years.

Second, as reactor technology was evolving, so too were regulatory requirements.  Throughout the 1970s, the nuclear industry and its regulators learned some painful lessons. 

Third, the fire at Browns Ferry Unit 1 in 1975 revealed vulnerabilities and led to new fire protection requirements. 

And fourth, the accident at Three Mile Island Unit 2 in 1979 revealed operational and design-related issues never previously imagined. 

After the accident, operating plants and those under construction were swamped in new regulatory requirements.  Most of the nuclear plants under construction were overwhelmed by the changing requirements, which forced extensive redesign and rework, stretched out construction schedules and drove up 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 only drivers of cost increases and schedule delays.

The industry did not appreciate the scale and complexity of nuclear projects, did not recognize the importance of project management, and was not well-positioned to manage construction.

And finally, we were building under difficult business and economic conditions.  Growth in electricity demand slowed from 6 to 7 percent a year to 1 to 2 percent.  Many utilities intentionally slowed construction.  The prime lending rate for financing hit 20 percent in the early 80s.  As project schedules stretched out, costs increased and companies were forced to borrow more money at double-digit interest rates.

The 1980s were somewhat dark days for nuclear power.  Remember that back then, the average annual capacity factor of U.S. nuclear plants was in the mid-50-percent range.  Refueling outages ran, on average, more than three months. 

The companies operating nuclear plants in the United States today, and preparing to build new ones starting in the next decade, are operating to higher standards.

Today’s nuclear industry has learned from the experiences of the past – including many lessons learned and good practices from this country – and those lessons inform everything we do.

The U.S. industry is positioned well for growth today because the industry started many years ago on a systematic program to identify the business risks of building new reactors and to develop ways to eliminate or manage those risks.

In some areas, like licensing, we assembled several hundred industry personnel to review the NRC’s new reactor licensing process, under which designs and sites would be approved up front and companies would receive a single license to build and operate.  The industry review identified ambiguities and potential uncertainties, and developed techniques to eliminate them.  The result is a stable, workable platform for new nuclear plant licensing and construction.

Last year, NRC finalized its new plant licensing regulations, and those revisions were subject to review and comment by all stakeholders, including the nuclear industry.

We followed the same approach in other areas – financing, for example.

For the industry, the loan guarantees in the 2005 Energy Policy Act are critical to new nuclear plant financing.  I would guess that hundreds of industry experts have been working in earnest since 2000 developing tools, techniques and programs to manage the risk of new nuclear plant construction.

We have mobilized experts in licensing and regulation, financing, construction management, political affairs, public support, supply chain, and work force.

Seventeen entities developing license applications for up to 31 new reactors did not just happen. It has been carefully planned.

The new licensing process is markedly different from the old.

The process is restructured to ensure that all major issues – design, safety, siting and public concerns – will be settled before a company starts building a nuclear plant and puts billions of dollars at risk.

The technology is mature.  The next plants are light water reactors like the 104 plants operating today.  The regulations are stable, well-understood, workable and defined in great detail.  Equally important, NRC staff and the industry share a common understanding of how to comply with its terms and conditions.  Nothing like this existed when today’s plants were licensed.

All applications for licenses to build a specific reactor design will be identical – virtually word for word – except for site-specific variations.  When the NRC staff has reviewed an issue once, that issue should not be reviewed again in subsequent applications.  This produces greater regulatory certainty.

The new licensing process includes a system by which the NRC and the project sponsor can verify that the plant has been built in accordance with the design.  As construction proceeds, the project sponsor will perform the tests necessary to demonstrate that this acceptance criterion has been met, and provide written documentation to that effect to the NRC staff. 

The NRC staff will review and verify that they have, in fact, been satisfied.  This more disciplined verification process improves the efficiency and certainty of the licensing process.

And finally, the NRC licensing process establishes a high threshold and a narrow focus for intervention after the COL is approved and construction begins.

Here is the new NRC licensing process for new reactors in the U.S.

Before the license application is approved and before major capital investment has occurred, the NRC must offer the public an opportunity for a hearing and will review the staff’s conclusions in what is known as mandatory hearing.

There is one opportunity for a second hearing as the date for fuel load and initial plant operation approaches.  But this hearing, if it occurs, is narrowly focused, and the Commission itself will review contentions to determine whether or not they are admissible.

For a hearing to be granted, petitioners must provide evidence that one or more of the acceptance criteria were not, or will not be, met.  Interveners cannot raise issues or contentions already decided in earlier proceedings, nor will vague and unsubstantiated claims be admitted.

The new process provides appropriate opportunities for public participation while protecting project sponsors from inappropriate delays.

The interest in new nuclear plants has led to questions about whether there is an adequate supply chain and work force infrastructure to meet the near-term needs of the industry. 

Market studies indicate that the manufacturing supply chain should be adequate for the first wave of new nuclear plants.

Forgings, particularly the ultra-heavy forgings used to fabricate the reactor pressure vessel, are the most visible constraint and the one that has received the most attention. As you know, only Japan Steel Works currently has the capability to make these 350-ton-plus forgings.

The ultra-heavy forgings for the first wave of U.S. nuclear plant construction have already been manufactured, ordered or companies have reserved a place in the manufacturing queue.

Companies also are taking the first steps toward rebuilding U.S. capability for nuclear-grade component manufacturing.  Many have taken steps to obtain certification to produce nuclear-grade components and equipment, and conduct nuclear-grade construction. 

We are 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.

We are promoting nuclear energy careers and employment opportunities among younger people.

And we’re making progress.

As one measure of this progress, at the university level, enrollment in nuclear engineering has quadrupled in recent years.

In the areas of radiation protection, operations, and maintenance, 17 industry-community college collaborative training programs have been launched, most within the past three years, to bring younger workers into these fields.

To attract workers to skilled craft careers and provide appropriate training and education, the industry has participated in the formation of 10 consortia and other collaborative arrangements among state governments, industry and academia.

Like all new generating capacity in the United States, there is considerable uncertainty about the capital cost of new nuclear generation.  As with virtually all projects today, we are working in an evolving cost environment for basic commodities and labor. 

New baseload generating capacity – nuclear or coal – will be expensive.  These are large, capital-intensive projects.

Financial analysis shows, however, that new nuclear plants can deliver electricity in the range of $70 to $80 per megawatt-hour, when they come to market starting around 2016, assuming limited credit support from the federal government in the form of loan guarantees or supportive cost recovery policies at the state level. 

Analysis by NEI and other organizations show that this would be competitive with other options – coal-fired or gas-fired.  Analyses by some of NEI’s member companies demonstrate that nuclear power plants are the most economic option for large-scale electricity production for the next decade.
I will conclude my remarks with a few thoughts about the path forward for the U.S. nuclear energy industry.

Like any industry, and especially those working to meet future energy requirements, we face uncertainties.

We have a high degree of confidence that the new nuclear plant licensing process is well-structured and will work as designed, but it has never been tested and we cannot guarantee zero risk.

We face major changes in the U.S. government in the next year, with the election of a new president and elections for members of Congress.

We do not anticipate a significant impact on our current reactors as a result of a new president after the November elections.  During the campaign, Senator John McCain has been a strong supporter of nuclear energy. 

Democrats Hillary Clinton and Barrack Obama have said that nuclear energy needs to be an option that is considered for the future.  That is a significant shift for Democratic candidates from the 2004 campaign when most Democrats were against nuclear energy.  It reflects the linkage between our energy and environmental imperatives and the fact that there is only a 5 percentage point gap in favorability of nuclear energy among Republicans, who are highest at 69%, and Independents and Democrats, who are 66% and 64%.

In the next administration, the industry wants to be sure that important programs continue to move forward, particularly limited incentives for new reactors, regulatory certainty in licensing those reactors and the licensing process for the Yucca Mountain repository.

We find ourselves operating in an evolving cost environment, which makes it more difficult for generating companies, reactor suppliers and engineering, procurement and construction contractors to come to contract terms.  But we are getting there with precision.

And finally, these are large capital projects relative to the size of the companies that will build them, which brings additional complexity to the table. It will require creative partnerships and joint ventures as the U.S. prepares to invest some one trillion dollars in electricity sector expansion and environmental compliance technology between now and 2020.

On the other hand, we think the uncertainties are manageable.

The licensing process is indisputably more efficient and predictable than when we last built nuclear plants in the United States. We understand what went wrong the last time and we’ve taken steps to remove or mitigate those risks.

There’s no doubt the U.S. needs new baseload generating capacity.

We enjoy good bipartisan political support, and strong support from the public.  About two-thirds of Americans favor the use of nuclear power and support is strong in local communities that stand to benefit from new reactor projects.  In some communities, a new acronym for facility siting – PIMBY, or Please, In My Back Yard – has emerged as a symbol of their support for new reactors.

And we see growing acceptance of nuclear power in the environmental community, driven by concerns over climate change and carbon emissions.

There is a growing political imperative to take national action on climate change issues.  Many states and regions already have established protocols to reduce carbon dioxide and other greenhouse gases, but the industry believes that the United States must have a consistent national policy on greenhouse gas mitigation that includes all sectors of the economy.

This political imperative is supported by a significant public expectation for action.  Congress will continue to hold hearings on climate change legislation this year, but we don’t believe that members of Congress will finish action this year.

The presidential election field is narrowed to candidates who support federal action on climate change, so we expect legislation to be passed within the first two years of a new administration. It will be complicated legislation, as you might expect, and we believe that nuclear energy will be part of a solution.  Our industry needs to be leaders in developing a smarter and greener energy portfolio that drives economic growth and protects our environment.

Our view of the future, then, is positive and grounded in reality.

We understand the risks associated with new nuclear plant construction.  We have taken steps, implemented programs and, where necessary, overhauled the system to mitigate and remove those risks.

We will take a measured approach to new nuclear plant construction.

Better to do it right than do it fast.

In our view, the uncertainties associated with nuclear energy are no larger than the risks facing the other options for baseload electricity. 

New coal-fired capacity has its own challenges, and only some of those are identified and understood.  That helps explain why 28,500 megawatts of coal-fired capacity was announced in the United States in 2006 and 2007, and all but about 6,000 megawatts of coal-fired capacity was postponed or cancelled.

But since new nuclear power plant construction will ramp up slowly, and since companies cannot predict future constraints on carbon emissions, we see the United States burning growing volumes of natural gas to meet demand for electricity.

This is not an ideal energy policy for the U.S. More gas-fired generation will place additional strain on natural gas supply and will drive even more jobs in the chemical and fertilizer industries offshore.
As we move toward construction of new nuclear plants, our stakeholders and consumers can count on two things. 

First, we will maintain our commitment to continued safe and reliable operation of our current fleet. 

Second, as policy on climate change continues to evolve, nuclear energy will be a vital part of any energy portfolio that addresses the dual goals of energy supply and reduction of greenhouse gases.

To paraphrase the World Economic Forum’s report on 2008 global business risks, for some the objectives of secure, reasonably priced energy and reductions in emissions of greenhouse gases seem both out of reach and in conflict.  But failure to develop a clear holistic policy approach to managing energy security and reducing carbon emissions may end up threatening both objectives.

Thank you.