Introduction
Thank you, Marv, and thank you, Joe Sheppard, for taking the time to welcome us to Texas and for your opening remarks.
 
And my thanks also to you in the audience for supporting this annual conference jointly sponsored by the Nuclear Energy Institute and the World Nuclear Association. I know I speak for my partner, John Ritch, when I wish you all a productive time here in San Antonio.
 
We live in some very interesting times—in the nuclear fuel business, across the entire nuclear energy industry, across the electricity business as a whole.
 
We face immense challenges in balancing our industry’s pressing short-term needs and longer-term imperatives, as we try to accommodate urgent tactical issues that scream out for attention and could easily consume 24 hours of every day, yet also address critically important strategic issues that, left unmanaged, will frustrate all the good work we do in the short-term. Stephen Covey’s tension between the urgent and the important is alive and well in our industry.
 
So, that’s what I want to talk to you about today—about short-term needs and longer-term imperatives and the necessity of managing both, without compromising either.
 
Stable, reliable supply of nuclear fuel at reasonable cost is, and always has been, one of our industry’s major strengths. It must remain so, and I know that all of you are dedicated to ensuring that.
 
I would not presume to suggest to this group that I have any unique insights into the nuclear fuel business. There may be nothing that I can tell you that you have not already thought about and worried about and incorporated into your business planning.
 
You know better than I that we are moving from a buyers’ market to a sellers’ market, that we are leaving a 20-year period during which many buyers benefited from large inventories of uranium, and could afford not to worry too much beyond the next few core reloads.
 
We all knew that this situation was not sustainable for the long-term, that having uranium requirements exceed production, as they have since 1985, could not last forever.
 
We know that private fuel inventories, particularly in the United States, are low, and that inventories currently in government hands are not a panacea.
 
We know that we are entering a period in which new sources of primary uranium supply must be developed to avoid price volatility and, potentially, shortages. We also know that new conversion capacity and new enrichment capacity must be developed to ensure maximum flexibility throughout the front end of the fuel cycle, and to permit appropriate balancing of uranium feed and separative work.
 
We know that the market has started to recognize this, which is why uranium prices have increased rather dramatically in the last 18 to 24 months. And we see the nuclear fuel sector responding to these challenges—investing in new sources of primary production and in new enrichment facilities, here and abroad.
 
These times of transition are extraordinarily difficult, both for suppliers of fuel and services and for buyers.
 
They test our partnering ability to achieve the appropriate balance between the legitimate desire of buyers to minimize short-run costs and to operate an efficient, competitive and profitable business on the one hand and, on the other hand, the equally legitimate need to pay a premium in order to hedge our forward supply and price risks.
 
I would not presume to counsel you on how to strike a balance between your short-term and long-term imperatives. I can tell you, however, that you are not alone in this endeavor.
 
The Electricity Business Today
The U.S. electricity business is paying the price today for our inability to strike that balance between what was expedient and easy in the short-term, and what was prudent and more difficult in the long-term. We are paying the price today for 10 to 15 years of neglect of longer-term imperatives.
 
We spent much of the 1990s restructuring, in about 50 percent of our states, the electric power business in the United States.
 
In the process, we achieved some substantial gains.
 
In the nuclear business, for example, state restructuring led some companies to divest generating assets, including nuclear power plants. As a result, ownership and operating responsibility for our nuclear plants is increasingly consolidated in the hands of large nuclear generating companies for whom nuclear power is a core business—companies with the resources and capabilities to achieve much higher levels of safety, reliability and productivity than ever before.
 
Deregulation and the resulting competition also created a powerful incentive to renew nuclear plant licenses. Think about it: Under cost of service regulation, a power company’s earnings are based on its rate base—to a large extent its total investment in plant and capital equipment.
 
Because a 40-year-old nuclear unit would be fully depreciated—and thus not a major part of the rate base—it would have limited earnings potential under cost-of-service regulation. In a deregulated, competitive business environment, however, a fully depreciated nuclear plant, with virtually no capital investment to recover, is an extremely valuable asset and has significant earnings potential.
 
But we lost something, too, as we experimented with competition and restructuring. For all its flaws, the structured, regulated system produced a coordinated joint planning process among companies and state public service commissions that ensured consideration of longer-term issues like the need for fuel and technology diversity, transmission investment, energy security and stability of electricity prices.
 
We lost that long-term planning with deregulation and restructuring. With restructuring, we turned resource decisions over to that invisible force called “the market.” We must accept that restructuring cannot be undone, but we must also figure out how to recreate the long-term planning function.
 
It’s clear that “the market,” absent policy guidance from federal and state governments, has yet to produce a balanced and diverse supply portfolio.
 
Since 1992, when the U.S. last enacted major energy policy legislation, the industry has built approximately 270,000 megawatts of new gas-fired generating capacity.
 
By contrast, only 14,000 megawatts of new nuclear and coal-fired capacity have entered service. That includes 4,355 megawatts of new nuclear capacity and 9,560 megawatts of new coal, all of it planned and under construction long before 1992.
 
Coal and nuclear energy together represent approximately 70 percent of U.S. electricity supply. They provide the highest degree of price stability, but investment in new nuclear and coal-fired power plants has virtually disappeared in the last 10 to 15 years.
 
Instead, we are placing unsustainable demands on natural gas supply, exposing consumers of natural gas and electricity from natural gas to punishing price volatility, and forcing large industrial users of natural gas to move jobs and production offshore because they cannot afford $6 gas as a feedstock.
 
Why did we build such massive amounts of gas-fired generating capacity over the last 12 years?
 
Partly because when that “build” cycle started, natural gas cost $2 to $2.50 per million Btu.
 
Partly because we came out of the 1980s heavy on baseload capacity, and we needed intermediate and peaking capacity, and single-cycle and combined-cycle gas-fired plants are well-suited to that role.
 
But mostly, we built 270,000 megawatts of gas-fired capacity because it represented the lowest investment risk at a time when restructuring had unleashed a large number of significant business risks and uncertainties.
 
Those uncertainties include: 

• significant questions about market design and the division of authority between the Federal Energy Regulatory Commission and state public service commissions;
• uncertainty about electric sector restructuring and deregulation in those 25 states that have not restructured;
• uncertainty about ownership of electric transmission and who is responsible for investing in, and profiting from, new transmission capacity;
• and lack of certainty about recovery of investment in new baseload generating capacity.

 
These uncertainties, and others, inhibit capital investment in long-lead-time, capital-intensive new technologies—notably, advanced nuclear power plants and advanced “clean coal” technologies like integrated gasification combined cycle—that provide the highest degree of forward price stability.
 
The numbers also tell us that companies are not investing in new, cleaner, more efficient generating capacity. Nearly 200,000 megawatts of electric generating capacity in the United States is 30 to 40 years old. Approximately 100,000 megawatts is 40 to 50 years old. Together, these aging assets represent roughly one-third of our 900,000 megawatts of installed capacity.
 
The problem is clear: We are not investing enough in our nation’s critical energy infrastructure—not only new baseload coal and nuclear plants, but also new electricity transmission, storage and distribution.
 
Given the long lead times involved in building new infrastructure, including new baseload generating capacity, it will take years to dig ourselves out of this hole.
 
Given that, we must manage the short-term urgent damage and muddle through as best we can. But we must also manage the long-term important needs so that the short-term damage control does not become a chronic drain on our nation’s economic growth and prospects.
 
Electric power sales represent 3 to 4 percent of our gross domestic product. But the other 96 to 97 percent of our $11-trillion-a-year economy depends on that 3 to 4 percent. We cannot afford to gamble with something as fundamental as energy supply, and the biggest problem we face with nuclear energy is not having enough of it.
 
Balancing Short-Term and Long-Term Needs in the Nuclear Business  
Fortunately—finally—after two periods of extreme price volatility in the natural gas markets in five years, and with oil prices seemingly out of control, policymakers and political leaders seem to be recognizing our energy investment crisis.
 
Many of them accept that a major purpose of energy policy legislation must be to provide broad-based stimulus for investment in new energy infrastructure. This investment stimulus is essential if we hope to preserve the diversity of fuels and technologies that is the core strength of U.S. energy supply and delivery system.
 
Equally encouraging, a bipartisan consensus has emerged on the strategic importance of nuclear energy in our national energy supply portfolio. Whether they agree with it or not, policymakers can see steadily tightening environmental requirements on carbon-based fossil-fueled generating capacity.
 
In nuclear energy, many now see an emission-free, zero-greenhouse gas technology that can meet new electricity demand and, at the same time, provide headroom under emission caps for our coal-fired partners and for economic development.
 
Even with the emerging awareness that we’ve neglected long-term energy priorities for more than a decade, our industry faces significant challenges ahead. We have an aggressive legislative agenda and, frankly, we need all of it.
 
We must assure increased funding by Congress for Yucca Mountain. We must fully fund the program for FY 2006 and beyond as annual budget requirements approach $1 billion. And Congress must pass a permanent fix to the funding mechanism, to ensure that ratepayer contributions to the Nuclear Waste Fund expressly for Yucca Mountain aren’t raided from the Federal treasury any longer.
 
We must keep that program moving forward—and the next major milestone is the filing of a license application this year by the Energy Department. We’re confident that work can proceed this year, even as challenging issues remain—such as resolving a radiation protection standard for Yucca Mountain.
 
Congress should closely monitor the licensing of new advanced nuclear designs and the early site permitting, along with combined licensing of construction and operation of these new plants—to ensure the Congressional intent of the 1992 Energy Policy Act to facilitate these processes really happens in execution.
 
There are significant challenges associated with building the next nuclear plants. We must find ways to offset the higher cost of the first new nuclear plant designs. We must find ways to contain the perceived risks of an untested licensing process. We must find ways to assure debt and equity investors that their investment is sound and secure, and that they stand a reasonable opportunity to realize investment returns commensurate with the risk that they are undertaking.
 
We must find ways to address factors—like earnings dilution—that tend to make corporate boards reluctant to approve large equity investments in long-lead, capital-intensive-projects.
 
While these challenges are significant, we must successfully manage them.
 
We must manage them partly through government-backed investment incentives and investment protection to offset the higher costs and business risks associated with the next nuclear plants we build. We’re seeking a portfolio of tax credits, loans and loan guarantees—together with support for testing new licensing processes and completing first-of-a-kind engineering.
 
We need limited federal investment, in a limited number of new plants, for a limited time period. This approach was endorsed earlier this year by a panel drawn from the investment community and other stakeholders in a report to the secretary of energy.
 
We are not unique, by the way. You will find that other energy technologies have or are seeking similar levels of government investment and support.
 
We must have renewal of Price-Anderson legislation that provides prompt, no-fault compensation to anyone injured by an accident at a nuclear plant, and is clearly the best third-party liability program in the world.
 
But even as we mobilize our resources to shape our long-term future, we cannot afford to lose sight of short-term imperatives. Safe and reliable operation of nuclear plants worldwide generates the public trust and is obviously the foundation on which new nuclear plants will be built. Any lapse in vigilance could compromise performance, and damage our political, investor and public support, which is at an all-time high.
 
We all share responsibility for making sure we haven’t lost touch with the fundamentals of our business—namely, that this is a unique technology that demands discipline, operating standards and management higher than any other industrial undertaking.
 
The Nuclear Fuel Sector: What the Nuclear Industry Needs From You
As we create the business conditions that will allow our industry to order and build new nuclear plants in the United States, the nuclear fuel sector has a central role to play.
 
Given the challenges and uncertainties that we cannot avoid, we must do everything possible to eliminate other challenges that can be avoided. And that’s where you come in.
 
I urge you as a community to do everything in your power to ensure that nuclear fuel supply does not become a significant uncertainty or a major challenge to operation of existing nuclear plants or to the construction of new nuclear capacity.
 
I know that is easier said than done. I would not presume to tell you how to achieve stability in your business, how to ensure that supply and demand remain approximately in balance or how to balance your equally legitimate short- and long-term needs.
 
I urge you to do so, however, because there’s a lot at stake.
 
We all know that western uranium production fell below reactor requirements in 1985 for the first time in history and has continued to do so for 20 years.
 
We know that material from Russia bridged part of the gap between supply and demand in the United States, and that there is some uncertainty about whether that arrangement will extend past the expiration of HEU I in 2013. Without HEU II, we could face a significant shortfall.
 
We also know that prices for most of the uranium delivered during the past five decades were significantly higher than today. But now we’ve grown accustomed to uranium prices at the low end of the scale—in the $15- to $20-per-pound range—during the past 20 years when we lived off inventory. We know that prices during the period leading up to 1984, when supply came almost entirely from production, were much higher.
 
If, in fact, the era of inventory drawdown is over, we must transition to a supply system based on new sources of primary production in which buyers are prepared to make long-term commitments to hedge their supply and price risks. Commensurate with this commitment, prices must reflect the long-term marginal cost of new primary supply.
 
It is very reasonable to expect commercial operation of the next new nuclear plants in the United States in the front half of the “20 teens” time frame. But our goal is not just to build a few plants. Our goal is sustained capital investment and commercial deployment of tens of thousands of megawatts of new capacity.
 
We can see into the future of increased demand for feed, conversion and enrichment services. We need to make sure that the front end of the fuel cycle does not become a source of chronic uncertainty at the same time we’re bringing the first new nuclear plants in the United States into service for the first time in decades.
 
We have had events over the last several years—a major mine flood that resulted in lost production, a prolonged shutdown at a conversion plant, an interruption in supply from Russia—that led to market perturbations and reminded us that we are more vulnerable to uranium price volatility than we would like to be.
 
And yet we also see encouraging signs. Nuclear fuel is now truly a worldwide business, and we see steady growth in demand, from south Asia and the Pacific Rim in the near-term, from the United States and other nations in the medium-term.
 
We see renewed investment in new mines in response to growing demand and higher prices. We see commitments to new enrichment facilities, two of them in the United States. Licensing of those facilities will serve as a useful test of the licensing process as we prepare to license new power reactors. Our Congress is watching closely.
 
Yes, we face some short-term supply, reliability and price challenges. But I am fully confident that your companies can, and will, manage the tensions between short-term and long-term, that we will balance the legitimate interests of sellers and buyers and that we will have a fuel supply market that allows competitive nuclear electricity production and supports investment in new mines and new facilities.
 
Conclusion: Hold the Line!
I want to leave you with a second request. We must have industry consensus as we move forward with our legislative agenda, as we pursue the policy initiatives necessary for our long-term future, and as we strike the balance between short-term and long-term priorities.
 
Many of you may recall the movie “Gladiator” from several years ago. At the beginning, the Roman general Maximus is preparing his army for a final attack against a pagan tribe in middle Europe. He sends his infantry against the enemy in a frontal assault, then joins his cavalry to engage their flank. The cavalry charge is wonderfully compelling. You can hear the havoc of battle and the thundering of the horses and, in the middle distance, the sound of Maximus exhorting his men, over and over again, to “Hold the line!”
 
Well, we need to hold the line, too, but we do not always do so.
 
For example, the industry is seeking a portfolio of investment incentives for new nuclear plants—a limited number of options based on what suits our members’ business models. We know that different companies have different needs and that we must try to accommodate all those needs.
 
On this issue, on all issues, we must be statesmanlike as we pursue our agenda. We cannot afford to undermine one another. We must work together for what’s in the industry’s best interest or, I can assure you, we will waste valuable political capital, erode the political support we now enjoy and end up wasting this wonderful window of opportunity.
 
Similarly, in the area of used nuclear fuel management, we face several challenges—resolving the EPA radiation protection standard, passage of legislation to reform the funding process for Yucca Mountain and others. These are significant challenges, but they are not insurmountable. The program is not irretrievably broken.
 
We hear of alternatives. What alternatives? Indefinite interim storage? Let’s be honest: There are no viable alternatives to the long-term mission, to the law of the land, which is to demonstrate our ability to manage the entire nuclear fuel cycle. I know it is difficult to confront yet another challenge and summon up the will to wrestle it into submission. For some it might be easier to throw up our hands and declare defeat prematurely. But we must do the difficult thing. To do otherwise is to place our operating plants at risk and compromise, perhaps fatally, our hopes to build new plants and thus the future of our entire industry.
 
Let me leave you then with this thought: In all we do—fuel supply, used nuclear fuel management, operational issues, new plant deployment—let us resolve to do this: In private, let’s debate and contest among ourselves and, through that process, define the common ground. Let’s work together to define what should be done for the greater good of the industry as a whole. Let’s learn to accept a 90 percent or 80 percent or 70 percent victory that sustains our momentum to the ultimate goal of new plant construction.
 
But in the end, publicly and with policy-makers, we must work together to hold the line.
 
Above all else: Hold the line.
 
Thank you