Good morning. It is a pleasure to be back in Kyoto, and speaking to such a distinguished audience, drawn from all sectors of the international nuclear industry.

I want to talk to you today about the prospects for building new nuclear plants in the United States. Those prospects depend on two factors: the state of the nuclear industry and nuclear technology in the U.S., and the state of the U.S. energy and financial markets.

The U.S. nuclear industry is at one of its strongest periods in history. A confluence of events…excellent performance, support by the public and policymakers, growing awareness of environmental benefits and the need for new generating capacity….has greatly improved the future prospects for nuclear power in the U.S.

The state of the U.S. energy and financial markets is not as good. A patchwork of marketplace regulation for the electricity sector has led to distortions, including an overreliance on increasingly scarce, high-cost natural gas. Last month’s blackout of 50 million consumers is also at least in part attributable to changing regulations in the industry.

It reminds me of the age-old story from India about the six blind men who went to see the elephant. One put his hand on the elephant’s side, and said, the elephant is like a wall. The second felt the tusk, and said the elephant is like a spear. The third blind man grabbed the elephant’s trunk, and said the elephant is like a snake.

The fourth knelt down and encircled the elephant’s leg. In his opinion, the elephant was like a tree. The fifth touched the elephant’s ear and said the elephant is like a fan, and the last yanked the beast’s tail, and said the elephant is like a rope.

That’s the U.S. energy marketplace. No one appears to have the whole picture. I believe that when we start to focus on the complete picture, nuclear energy will continue to be one of the fuels of choice. Not the only fuel, certainly, because the need for new capacity is such that we will need contributions from every available energy source...but the choice for a significant portion of our needs, based on efficiency, stable future price, fuel availability and environmental benefits.

This year marks the 50th anniversary of the commercial nuclear industry in the U.S., and it has given us the opportunity to take a look back at the early years…and to assess how far we have come.

Those early years were a mix of unbounded optimism and a surprisingly simplistic view of this wondrous new technology.

We’ve moved well beyond both of those early views — although the optimism has returned, buoyed by industry-wide performance record that has set production and efficiency records in each of the last five years.

Nuclear energy is the most economical source of large-scale electricity in the U.S. that can be expanded to meet future needs. And we have developed a unique culture in the nuclear industry, committed to the highest standards of safety and operational excellence, that has led to almost two decades of steadily escalating operating and safety.

We have witnessed a confluence of factors that have boosted our confidence that we will soon see new nuclear plants built in the U.S. At the foundation of this confidence is, of course, excellent safety and performance. Other factors are:

• solid support for nuclear energy by the administration, the U.S. Congress and the public,
• recognition of nuclear energy’s environmental advantages,
• progress toward establishing a clear, practical business case for building advanced reactors,
• the growing potential for the use of nuclear energy to make the transition to a hydrogen economy
• and the obvious need for new electricity generating capacity in the U.S. — 40 percent more over the next two decades.

Excellent plant performance is the factor that makes everything else possible. The numbers speak for themselves.

U.S. nuclear electricity output in 2002 set a record of 780 billion kilowatt-hours— one-and-a-half percent above 2001 levels. Since 1990, we’ve seen an increase in output now equivalent to 25 new 1,000 megawatt nuclear plants. That increased production sustained the U.S. economy through boom times in the ‘90s, and now stands as an important stabilizing factor in a time of economic uncertainty and international turmoil.

Nuclear energy’s contribution to the U.S. electricity sector will continue to increase. We expect to add another 4,700 megawatts from existing capacity by 2007, through uprates, and the planned reactivation of the Browns Ferry 1 plant. And 16 existing plants have already had their licenses extended, with 39 more in the queue.

Here’s how much we have improved in efficiency: The industry-wide capacity factor didn’t exceed 70 percent until 1991. A dozen years later, we’re above 90 percent for the third straight year. And we have not yet reached the limits of plant efficiency. The top quartile of industry performers operates at a three-year rolling average of nearly 96 percent, while the lowest quartile is at about 82 percent. If we can bring that trailing quartile up, we can realistically expect the industry-wide capacity factor to hit 95 percent.

And our production costs are stable while the costs of other fuel sources are increasing. Our average production cost — operating and maintenance plus fuel — in 2002 was 1.71 cents per kilowatt-hour. That’s up slightly because one plant was shut down almost all year. Without that aberration, nationwide O&M costs would have been lower again. But nuclear-generated electricity is still less expensive than coal, and far below gas-fired plants.

The combination of reliable and low-cost production makes nuclear assets more valuable than ever to owners. Because of the recent U.S. economic downturn, the electricity market has been soft for the past couple of years, and many U.S. electric companies are suffering financially. Tellingly, the ones that appear to be in the best financial shape are those with high-performance nuclear plants.

The industry’s performance and safety record have not gone unnoticed. In May, a nationwide survey of public opinion showed that nearly two-thirds of the U.S. public favors nuclear energy as an electricity source. The polls show a long trend of increased public favorability, from barely half of the public favorable in 1984, to the current levels. The percentage who say they’re opposed to nuclear energy has dropped even more sharply.

But there’s still more work to do — the number who say we should definitely build new nuclear plants has dropped from 66 percent in 2001 — during the California energy crisis — to 50 percent this year. The drop is partly explained by the economic slowdown which has eased the electricity supply problems that afflicted the U.S. in 2001. With demand growth — temporarily -- lower, people don’t see the need for new plants of any kind. And that’s part of a problem I’ll get to a little later.

The higher public favorability has helped us in Washington. In the past, many legislators who were privately favorable to nuclear energy would not support the industry because they believed their constituents did not support nuclear energy And past presidents and their administrations did not include nuclear energy in their future energy planning.

All that has changed now. There is support among Republicans and Democrats alike in the U.S. Congress. And the Bush administration understands that supply diversity is the strength of the U.S. electricity generation system, and that nuclear energy must be part of that diversity. The administration strongly supports nuclear energy in both its national energy plan and its environmental strategies.

As a result, the Department of Energy has increased funding for research into advanced nuclear technologies. DOE is also implementing its Nuclear Power 2010 initiative, aimed at construction of a new nuclear plant in the U.S. by the end of this decade.

As I mentioned, the Congress also has been extremely supportive. Last year, Congress upheld the decision by President Bush to formally select the Yucca Mountain site for a used fuel repository. Successful licensing and construction of a repository at Yucca Mountain will remove a major impediment to public support for future expansion of U.S. nuclear generating capacity.

This year, Congress has been working to develop major energy policy legislation. Different versions have passed both the Senate and the House of Representatives, and those differences are now being reconciled. A number of key Senators and Representatives are backing provisions favorable to the industry. Of particular importance are measures to provide financial incentives for new nuclear plant investment and extension of the framework for liability insurance for the industry. The outlook for some kind of incentive — tax credits or accelerated depreciation are two leading possibilities — is hopeful.

The Congress also approved ample funding for advanced nuclear energy technologies, including a nuclear hydrogen initiative and the U.S. Department of Energy’s programs for new nuclear plants, as well as its roadmap for Generation 4 plant technology.

NEI and the nuclear industry have also concentrated on making the environmental case for nuclear energy over the past several years — an effort we kicked off here in Kyoto at the U.N. conference in late 1997. You’ll hear more about our activities from NEI’s Scott Peterson later during this conference. Let me just say that the environmental value of nuclear energy is now widely acknowledged among U.S. policymakers and a growing portion of the public.

There are indications that the environmental value of nuclear energy might soon be recognized on the balance sheet, as well. The U.S. government is considering a change to its voluntary carbon emissions reporting program, which may include instituting a market based, transferable credit program. Nuclear energy is responsible for the largest share of carbon reduction in the current program, accounting for more than half the emission reductions reported, and we are working to ensure that those reductions are reflected in any emissions program that is developed.

The U.S. Congress and a number of state governments also are considering measures that would take a mandatory approach to emissions reduction, including carbon emissions, perhaps using a market-based credit program. We are working with both the federal and state governments to emphasize that a ton of emissions avoided is as good as a ton reduced, and that nuclear energy should be included in their emission credit programs.

The value of nuclear energy to the future environmental health of the U.S. and the world is undeniable. A recent study by the Massachusetts Institute of Technology and Harvard University, co-chaired by two former under secretaries of the U.S. Department of Energy — John Deutch and Ernest Moniz — concluded that “…the nuclear option should be retained, precisely because it is an important carbon-free source of power that can potentially make a significant contribution to future electricity supply.”

Plant efficiency, public and policymaker acceptance, environmental benefits all work in our favor, and NEI and the industry are working hard to make the solid economic arguments — the business case — for building new nuclear plants.

NEI’s Executive Task Force on new nuclear plants has been examining the issues that must be resolved in the minds of investors before they will commit more than one billion dollars to build a new nuclear plant. They chiefly involve, in the words of one industry executive, “having certainty in the regulatory process…and being able to predict…what your endpoint will be for completion of such a project.”

We are moving toward the needed regulatory certainty. The NRC has certified three advanced design reactors, and adopted a streamlined, one-step licensing process and early site permitting. Three U.S. companies — Entergy, Exelon and Dominion Resources — are in the process of testing the early-site permitting process. These companies will begin making application to the NRC for this fall and early in 2004. We are now able to state with some confidence that an advanced design reactor project can be completed in about four years.

We believe that when all factors are considered, there is growing investor confidence that nuclear energy stacks up very well against other potential electricity generation sources for the future.

NEI visits Wall Street each year to brief financial analysts on the state of the industry. For years, we’ve been telling the investment houses about improved nuclear industry performance, cost-effectiveness, environmental advantages, public favorability and all the other advantages in what we call nuclear energy’s value chain. We’ve also been telling them that new nuclear plants, using advanced reactor technology, are now price competitive with other electricity generation fuel sources.

We’re making our case, although we continually need to counter old-school thinking and misinformation. For example, supposedly authoritative sources such as the Congressional Budget Office are projecting nuclear capital costs of up to $2500 per kilowatt installed -- twice as much as our estimates.

Those numbers are based on old technologies, the old two-step licensing process, and construction times lengthened by many factors that no longer apply, as we’ve pointed out to them. The fact is, the industry has made tremendous strides to make nuclear capital costs competitive, so that the business risks of nuclear energy are on a par with the alternatives.

Given the amount of new generating capacity needed over the next two decades, we must take advantage of all available energy sources as part of our resource planning. We believe that a rational risk-reward assessment of options for new electricity generation will cast nuclear energy in a favorable business light.

Here’s how NEI thinks utilities and investors will eventually see the choices. Let’s start with coal. A coal plant with the elaborate environmental controls required by Clean Air legislation would cost $1,500 per kilowatt installed for the first plants, dropping as low as $1,000 per KW for later plants. Clean coal technologies will cost up to $1,500 per KW.

The benefits? The U.:S. has tremendous coal resources. And since supply is no problem, the price is fairly stable going forward. But current coal plants are still not as economical to run as today’s nuclear plants.

The risks? Largely environmental. U.S. clean air regulations are getting tougher all the time, putting increased cost pressure on new environmental upgrades to coal plants. And the global warming risk associated with carbon emissions is a growing concern around the world. So there is considerable regulatory uncertainty attached to building a coal plant. Future regulatory changes could require massive backfits and/or curtail operations. Coal plants also require large capital outlays, and take an estimated four years to build.

Natural gas is inexpensive to build at $600 to $700 per KW. And natural gas generating facilities can be put up in a year or so. That is the chief benefit — inexpensive and quick.

But the fuel supply for gas plants is the most volatile element in the power sector. Natural gas is a depleting, increasingly scarce resource, subject to severe price and supply fluctuations. Natural gas has been in short supply this year, and prices have doubled. Energy forecasters across the board — including the Department of Energy and the American Gas Association — warn of long-term natural gas shortages. Electricity from gas-fired generation could get very expensive and stay that way in the long run.

Alan Greenspan, chairman of the U.S. Federal Reserve Banking System and one of the most influential figures in the country, testified before the U.S. Congress, warning of the consequences of overreliance on natural gas in the electricity sector…including economic harm from diverting natural gas from other uses such as petrochemical feedstocks and home heating.

Among the remedies Greenspan suggested was nuclear energy, testifying that “an overall policy of energy cannot dismiss the issue of nuclear power.”

The other options are renewables such as solar and wind — emission free, but still not broadly expandable. Operating at average capacity factors below 30 percent, they can’t be depended on for baseload capacity. Hydropower, a mainstay of the U.S. generating system for more than 100 years, simply cannot be expanded.

That brings us to nuclear energy. Our analysis indicates — and the actual completed prices of reactors built in other countries confirm — a potential price of $1,400 per KW for the initial plants using advanced technologies, dropping to $1,000 to $1,250 per KW after first-of-a-kind costs are sunk.

The benefits? We all know them -- emission-free, affordable and stable fuel price; ideal for baseload capacity and grid stability; and advanced technologies that are even safer than current plants.

The nominal risks to investors are chiefly the large initial capital investment and longer construction time — about four years, if everything goes right with the new NRC licensing procedures and the early plants hit no major construction snags.

Those risks can be mitigated somewhat by measures that may be added to the energy bill before final passage, such as production tax credits or accelerated depreciation.

It is obvious to NEI — and I’m sure to you -- that an objective look at the risks favors nuclear energy in many, if not most, instances…and that advanced nuclear technologies are ready for the marketplace. Unfortunately, the U.S. marketplace is not ready for any baseload technology -- yet.

Two problems beset the U.S. marketplace, one short-term and the other chronic. The short-term problem is that the economic downturn of the past three years has dampened demand in the electricity market, so not a lot of capacity of any kind is under consideration. New capacity will be needed in the future, everyone agrees. The U.S. government’s Energy Information Administration projects the need for more than 400,000 megawatts by 2020. However, the U.S. electricity marketplace is now, and has been for some time, distorted by a short-term focus.

The long-term problem is a marketplace skewed by a decades-long change in the market structure of the electricity industry. This restructuring has undermined the historic utility resource planning process that looked a decade or more ahead at demand and the best way to meet it. Utilities now too frequently rely either on buying electricity through brokers or scrambling to meet impending shortages by building quick and easy capacity — usually natural gas turbines.

Electricity marketplace deregulation began when legislation passed in the 1970s essentially required utilities to buy power from independent producers, who would build plants wherever they saw a demand. Starting in the early 1980s, independent producers accounted for the bulk of the new capacity planned in the United States, and most of that has been gas-fired. Eighty percent of the new capacity to come on line since 1990 is gas-fired, 90 percent since 1995. That trend will continue in the near term.

The 1990s accelerated the restructuring trend, and introduced market segmentation, as some utilities decided to concentrate on transmission and delivery, others on retail marketing of electricity, and still others on electricity generation. About half the states have restructured their electricity industries — but many have not. The regulatory decisions that made it unprofitable for utilities to invest in upgraded transmission systems, and contributed substantially to last month’s U.S. blackout, also came during the 1990s.

The economic slump of the past three years has hit electricity marketers and independent generation companies hard. Some have gone bankrupt, and the electricity brokering system has collapsed.

That puts some of the responsibility for building generating capacity back on electric utilities — many of which are seeking to rebound from reduced sales. They must move their focus beyond the financial results of the next quarter, and start thinking again in terms of long-term resource planning. But as yet there is no incentive to do so — no looming shortages, because of the soft economy.

That can change quickly, however. Tight electric supply has surprised consumers repeatedly over the past 20 years, including regional brownouts. For example, California’s electric supply was curtained in 2001, and electricity prices rose sharply, costing the state billions of dollars and resulting in public outcry over energy. But when the shortage ended, so did the impetus to take meaningful action.

The August blackout has placed everyone’s attention — especially the government’s — back on the shortcomings of the electricity marketplace. Undoubtedly, Congress and the Administration will act quickly to shore up the country’s transmission grid. In the process, we hope that the government also takes steps to encourage a long-range portfolio management process in the electric utility industry. The blackout could in the long run be fortuitous, if it results in passage of major energy legislation — with provisions that set the U.S. on a sustainable energy path that includes suitable financial incentives for new nuclear plants.

The confluence of factors — excellent performance and safety, economic advantage, environmental benefit, public approval…clearly favor nuclear energy as a fuel source for electricity generation, today and for our future.

It would be ironic if a blackout were to be the means to alleviate the chronic shortsightedness of the U.S. energy marketplace. We can hope, though, that this crisis will be the one that prompts energy regulators, energy companies, and investors finally to “see the elephant” of reality and rationality, and incorporate advanced nuclear technology as a vital part of a diverse and secure energy future