Thank you very much Arnold, for your kind introduction. I’m glad to be here in the Detroit area. There is something I’ve been curious about. I am a dedicated fan of hockey. And I have a high regard for the Red Wings. Coming from a rather staid, eastern hockey background, I’ve often wondered about one of your quaint, local hockey traditions. Why would Detroit fans throw a 50-pound octopus onto the ice to celebrate a Red Wings victory? If you do that when things go right, what happens here when things go poorly? And should I be concerned about any of you throwing anything at the end of my remarks?

Arnold Mikon, President Beth Chappell, members of the Detroit Economic Club and guests. Good afternoon and thank you for being here.

Just over a year ago, Bill Gates spoke to you about the future of technology. I realize of course that I maintain a slightly lower public profile than Mr. Gates. But my message today is no less significant than his. If we do not immediately and aggressively pursue a strong energy policy for this country, the world Mr. Gates envisions will not be possible. The robust American economy as we know it will no longer be recognizable. The question is: Are we going to be able to power America’s future?

In the time I have today, I want to focus on one area of our energy challenges—electric power. What it will take to meet America’s future power requirements? Let’s start with this point: Demand for electric power is steadily increasing—pretty much in lockstep with our economic growth. And projections indicate that demand will continue to grow substantially. Our goal must be to ensure that America continues to have reliable, affordable and sustainable electric power. Reaching that goal is going to be complicated; it’s going to be difficult; and it is going to be expensive.

Two actions can help us to reach that goal:

• First, the United States needs a strategic national energy policy.
• Second, as part of the policy, we must reduce the constraints on expanding, modernizing and diversifying America’s electric power generation and transmission system.

It’s Time to Enact a New, Comprehensive Energy Policy
Our current energy policy was enacted 12 years ago—the Energy Policy Act of 1992. Three years ago, the Bush administration put forward a comprehensive plan for a new national energy policy. The administration’s plan offered a long-term strategy to modernize and increase our domestic energy supplies. It provided a solid starting point for congressional legislation.

But for the past three years, every attempt by Congress to pass a new energy policy has failed. Failed because the proposed legislation did not stay focused on essential energy needs. Failed because proposed legislation was weighed down with irrelevant amendments. Failed because the snapshot perspectives of a few special interests became more important than the big picture. We have a new opportunity to fix this problem. The stormy election issues that gripped the nation for the past year are over.

So, this coming year, what will the Bush Administration’s second term energy agenda look like? By all indications, the President will focus on increasing domestic energy supplies and finding new solutions to old energy problems. Here are four energy priorities the Administration will pursue:

• First, to increase exploration and recovery of oil and natural gas. Greater emphasis will be placed on removing obstacles to developing new energy supplies.
• Second, to speed up efforts on clean coal technology. For example, the goal of their FutureGen project is to perfect advanced technology for new coal-fired electric power plants. The FutureGen project is aimed at building the world’s first coal-fueled power plant with zero emissions. This is technology we need sooner, rather than later.
• Third, the administration will speed up its efforts to develop hydrogen-fueled vehicles, such as the Freedom CAR, a government partnership with Ford, General Motors and Daimler-Chrysler to develop hydrogen-powered vehicles.
• And fourth, the administration will seek to stimulate construction of a new generation of nuclear power plants.

Many would argue that the election results have improved the prospects of Congress acting on comprehensive energy legislation. I certainly hope that will be the case. But I know that finding fixes to headline issues often derails efforts to set strategic policy. Winning in Iraq, the cost of health care, the war on terror, the deficit, immigration policy—these and dozens of other issues cry out for solutions—NOW.

So, it will be harder to call for urgent action to meet our future electric power needs when electricity is, for the most part, taken for granted. In a sense, our problem is that electricity is always there when we flick the switch. But, if we wait until it becomes a headline issue, it may be too late to act. And the result will be devastating. Some specific information about what’s at stake and what must be done will illustrate my point.

Meeting America’s Future Electric Power Demand
Let me begin with a personal example. My son Alex is 15 years old. As he grows, America’s demand for electricity will also grow. Although estimates vary, the EIA—the U.S. Energy Information Administration—forecasts that our demand for electric power will grow about two percent per year. That growth compounds each year. So in 2020, when Alex is 31 years old, America’s demand for electricity will have increased by an estimated 40 percent. Supplying that much additional electric power has staggering implications.
 
Over the next 16 years, we will have to add as much new generating capacity as America’s total capacity in 1970. In the next 20 years, demand for electric power could require more than 400,000 megawatts of new generation capacity. That’s three-and-a-half times the current capacity of Canada or Germany. That’s enough electricity to power 400 average size cities like Boston or Seattle. It is almost half of America’s total electric power capacity.

The new power plants we have to build will come in all shapes and sizes. And they will use different fuels. For the sake of illustration, let’s choose a mid-sized plant—one that generates 500 megawatts of electricity. Over the next 20 years, we will have to build 800 of these new generating plants to keep up with power demand. But wait, there’s even more to consider.

What about the legion of older generating facilities? Today, one quarter of our electric generating capacity is more than 40 years old. Like the baby-boomers who are retiring and need to be replaced, a growing number of power plants need to be retired and replaced. No matter how you slice or dice the size or the kind of these new power plants, this is the bottom line: We will have to build a huge number of new electric power plants in a relatively short period of time.

But that is still only half of the big picture.

While generating facilities are the heart of our electric power system, transmission and distribution systems are the arteries and blood vessels. The quality of our lives depends upon keeping both of them in top condition. We have some serious problems with the health of America’s electric power transmission system. The August 2003 blackout was the medical equivalent of a stroke. Apparently, it all began when some trees brushed against a power line in Ohio. That rapidly resulted in a domino effect that cut off electricity for 50 million people.

For the most part, America’s electric transmission system does a fantastic job, 24/7. But, an industry expert at the Electric Power Research Institute calls it a “dumb, dead, mechanical system that needs to be modernized into a high-tech, living system.” He also points out that there have been impressive innovations to improve the system. Yet, adjusted for inflation, annual spending to modernize and expand the nation’s transmission system is at its lowest point of construction spending since the Great Depression. There are a lot of valid explanations for this. But explanations will not deliver the electricity to power our future.

I said that these remedies will be expensive. How expensive? It will take an estimated $100-200 billion over the next 20 years just to modernize our electric power transmission system. It is critical that we make the investment. By any measure, it is well worth it. There is an upside for the private sector making this large investment. It could yield a larger return—an estimated $700 billion in increased productivity and reliability.
 
We Must Maintain a Diverse Energy Portfolio
In addition to the tremendous expansion of power plants that will be needed, generating electricity presents a different set of challenges. The electric power industry uses a diverse portfolio of fuels and technologies to generate our electricity. According to the latest government figures, coal and uranium are the dominant fuels that produce America’s electricity.

• Coal generates about 50 percent of our electric power
• 20 percent comes from uranium fuel used in nuclear power plants
• Natural gas generates 17 percent
• Hydro produces 7 percent
• Renewables account for 2.7 percent, and
• Oil use has been reduced to 3.3 percent.

This diverse energy portfolio draws largely on America’s own natural resources and technologies. While each energy source has its limitations and problems, taken together they provide a strong foundation to build upon. This is a powerful energy team that must be kept together and strengthened.

You may think it odd to hear a CEO of a nuclear energy company advocating increased use of coal, natural gas, wind and solar power. Let me tell you why. This past February, I participated in the World Economic Forum meeting in Davos. I attended many meetings and talked with many people. I was surprised by the number of times I heard people seriously advocating one-stop solutions to meet our future energy needs. And, I hear and read about the same kind of claims here in America.

Some insisted that energy efficiency alone can do it. Others advocated just using renewable energy sources or pursuing this or that fuel or technology is all we need. We often see and hear about these same claims in the press, in schools and elsewhere. These claims are worse than inaccurate. They are misleading and wrong. And I hope that you, as thought and opinion leaders, will help correct these misconceptions.

Simply put, from my perspective, no one or two energy sources can or should be used exclusively. It is not feasible. It is not economical. And it’s not even desirable. As we formulate our national energy policy, we need to make sure that all of these energy resources remain in our portfolio. And we need to work on resolving any and all of their problems.

For example, a great deal has been accomplished in reducing the environmental impact of burning fossil fuels to generate electricity. Billions of dollars have been spent to minimize emissions from those electric power plants. More recently, growing concerns about global warming have put the spotlight on carbon dioxide, or CO₂ , emissions. 

Necessity is the mother of invention, and America is the right place to develop inventive solutions to these problems. Government and private sector initiatives like FutureGen and the Freedom CAR are already aiming at eliminating CO₂ emissions from new power plants—and eventually from vehicles. That’s a two-front attack on the cause of global warming.

Although natural gas releases CO₂ when burned, it is the cleanest burning fossil fuel we have. Natural gas has been cheap and clean. Power plants using gas have been easy to license and to build. In fact, 95 percent of the power plants built in the last decade are fueled by natural gas. But it looks like the promise of plentiful, cheap natural gas is over. Supply problems have caused soaring prices, and risky imports of liquefied natural gas will increase. Lesson learned? We can’t continue to exclusively build natural gas fired power plants.

The alternative is to also build coal and nuclear facilities and more renewable power, such as wind and solar. While the total amount of power generated by renewables is still comparatively small, governments at all levels are stimulating their use with mandates and financial incentives.

A few decades ago wind power was an oddity. Today it is the fastest growing energy technology. The market for solar electric power units for home and commercial applications is still comparatively modest. But more international manufacturers are coming into the market and costs are coming down. We can expect renewables to increase their share in our portfolio of energy resources.

But, contrary to what many people believe, wind and solar power are not a substitute for conventional fuels or power plants. Quite the opposite is true. You can not count on steady electric power being generated by wind or solar power. The wind does not always blow, or blow steadily. The sun only shines half the time, and sometimes not even that much. And we still do not have an efficient way to store the electricity they generate when operating.

So, renewables notwithstanding, we will have to back up renewables with dependable, conventional coal, nuclear and gas power plants. These large, baseload power plants operate around the clock to meet basic demand.

Hydrogen: The Fuel of the Future?
There is another energy resource on the horizon—hydrogen. There is a lot riding on the future of hydrogen, and Detroit is right in the middle of that effort. Hydrogen is seen as an entirely new fuel for the future—a fuel that could revolutionize our transportation system and help to substantially reduce our dependence upon imported oil.

If successful, the use of hydrogen could replace gas and oil as fuels for vehicles. This is a global effort with substantial investments being made to stimulate hydrogen R&D. The big three auto makers and others have significant hydrogen-fueled vehicle projects underway. And, experimental vehicles are already being tested here on the streets of Detroit area and elsewhere. We also have a few hydrogen-powered vehicles and a filling station in Washington, D.C. 

But hydrogen isn’t just there for the taking—it must be manufactured. And while there are numerous ways to make hydrogen, many experts say the best way to manufacture hydrogen is to use electricity. If we intend to fill up our vehicles with hydrogen instead of gas and oil, it will require a lot of large scale power plants.

An MIT study concluded it would require on the order of one million wind turbines or one thousand dedicated nuclear power plants to produce that much hydrogen. This illustrates that the future of hydrogen as an energy source depends upon building a large fleet of new, electric power plants.

Nuclear Power: The Next Wave
Nuclear power is a key component in the world’s electric power production. Worldwide, 16 percent of all electricity is generated by 440 nuclear reactors in 30 countries. In America, 20 percent of our electricity is produced by 103 nuclear reactors—and none of them release any greenhouse gas emissions or CO₂ . Nuclear power plays a big role here in Michigan. One quarter of all the electricity in this state comes from Michigan’s four nuclear power plants.

Nuclear power is also getting a lot of positive media attention. You have probably noticed the avalanche of news reports about growing support for building new nuclear power plants. Public interest and support for nuclear is also increasing. A national opinion survey conducted earlier this month shows that 62 percent of the American public approves the building of new nuclear power plants. And, 71 percent say we should keep the nuclear option open.

Why this new-found support for nuclear power? Part of it reflects growing concerns about global warming and recognizes that nuclear power can help alleviate that problem. Another factor is the attractive economics of operating nuclear plants. Production costs of nuclear plants have steadily decreased over the past decade. Nuclear plant production costs are about 1.7 cents a kilowatt hour, compared to 1.8 cents for coal and 5.7 cents for natural gas.

All this adds up to a new reality. We are steadily moving closer to building new nuclear power plants in the United States. Three U.S. utility and industry groups are now studying the feasibility of building new reactors at existing nuclear sites. You don’t have to be Nostradamus to predict that new nuclear plants are in America’s future.

Federal Reserve Chairman Alan Greenspan seldom uses few words where many will suffice. But he did say a few choice words about nuclear power before the Joint Economic Committee of Congress. Greenspan said “…the advantages of nuclear power are very considerable,” and nuclear energy offers “a potential reservoir of new sources of energy which are not available by other means.” Coming from Mr. Greenspan, that sounds like rational exuberance.

Nuclear Power Advances Nuclear Non-Proliferation Goals
And speaking of a reservoir of new sources of energy, there is another benefit of nuclear power that is largely going unnoticed. Thanks to a 1993 U.S.-Russian agreement, Russia is dismantling Soviet era nuclear warheads that were once aimed at the United States. We are recycling those warheads into fuel for U.S. nuclear power plants. My company, USEC Inc., is the U.S. government’s executive agent for implementing this program. It is called Megatons to Megawatts. And it is operated on a commercial basis with our Russian counterpart.

This 20-year, 12 billion dollar program is said to be the most successful and largest nuclear non-proliferation program. To date, we have eliminated 9,000 nuclear warheads. The warhead recycling work is done in Russia, and our commercial purchases pay for the program. There is no cost to you, the U.S. taxpayer. This recycled nuclear fuel generates 10 percent of America’s electricity. And yes, several of Michigan’s nuclear power stations are using Megatons to Megawatts fuel. It is a sweet irony that warheads once aimed at Detroit and other American cities have been recycled into fuel that is now providing light and power to those same areas.

Based on the success of this program, we are proposing “The Isaiah Project,” a government and private sector partnership to build new nuclear power plants that would be fueled by recycled warhead material.

I’ve presented a lot of information to you today. I hope not too much. Here is the bottom line. In order to sustain the economic growth of the nation, we must begin a substantial effort to modernize and expand America’s electric power generation and transmission systems.

To clear the path to do so, the Congress must pass, and the President must sign, a strategic national energy policy. It must encompass a diverse portfolio of energy resources. And it must reduce constraints on expanding, modernizing and diversifying America’s electric power generation and transmission system.

We have the need. We have the know-how. And we have the resources to succeed. Our goals are clear: To ensure reliable, affordable, and sustainable electric power, and to keep our economy growing. These goals are within our reach. All things are possible if we take the steps necessary to power our future. All things are at risk if we don’t.

Thank you.