Mr. Chairman, Ranking Member Bingaman, members of the Committee, thank you for the opportunity to appear before you today. I have a prepared statement for the record and ask your permission to enter that statement in the record and provide a short summary here this morning.

I am Michael Wallace, executive vice president of Constellation Energy and president of Constellation Generation Group. I want to take just a moment to tell you about Constellation Energy. Constellation Energy, a Fortune 200 company based in Baltimore, is the nation’s leading competitive supplier of electricity to large and industrial customers and the nation’s largest wholesale power seller.  Constellation Energy also manages fuels and energy services on behalf of energy intensive industries and utilities. The company delivers electricity and natural gas through the Baltimore Gas and Electric Company (BGE), its regulated utility in Maryland. We are the owners of 107 generating units at 35 different locations in 11 states, totaling approximately 12,500 megawatts of generation capacity. In 2004, the combined revenues of the integrated energy company totaled more that $12.5 billion, and we are the fastest growing Fortune 500 Company over the past two years.

Our portfolio, based on electricity produced, is approximately 50 percent nuclear, 35 percent coal-fired, 7 percent gas-fired and 5 percent renewables. We own and operate the Calvert Cliffs nuclear plant in Maryland, and the Nine Mile Point and Ginna nuclear stations in New York State.

Constellation is part of the NuStart consortium that is preparing an application to the NRC for a license that would allow us to build and operate a new nuclear plant. Additionally, in December 2004, we submitted a proposal to the Department of Energy (DOE) for studies that could lead to an application to the Nuclear Regulatory Commission for an Early Site Permit as part of the Nuclear Power 2010 program. So, as you can tell, we have a vested interest in the continued success of Nuclear Power 2010, and we’re bullish on the future of nuclear power.

Although I am here testifying today on behalf of Constellation, this testimony is supported by our trade association, the Nuclear Energy Institute (NEI).

The United States has 103 reactors operating today, which represent 20 percent of our electricity supply. Over the last 10 to 15 years, these plants have achieved dramatic improvements in reliability, safety and productivity.

Despite the impressive gains in reliability and output, however, the time has come to create the business conditions under which we can build new nuclear power plants in the United States. We believe there are compelling public policy reasons for new nuclear generating capacity.

New nuclear power plants will help maintain the fuel and technology diversity that is the core strength of the U.S. electric supply system. New nuclear power plants provide future price stability that is not available from electric generating plants fueled with natural gas. And finally, new nuclear power plants will play a leading role in meeting U.S. clean air goals and reducing greenhouse gas emissions.

The Department of Energy’s Nuclear Power 2010 program is an essential foundation in the joint government/industry partnership to build new nuclear power plants. This committee and, in particular, you, Mr. Chairman, deserve great credit for your leadership in ensuring adequate funding for this program in the 2005 Fiscal Year.

Nuclear Power 2010 is designed to demonstrate the new licensing system for nuclear power plants, including the process of obtaining early site permits (ESPs) and combined construction/operating licenses (COLs), and resolving generic combined licensing issues. It is an industry-DOE cost-shared program that includes sharing the cost of the detailed design and engineering work necessary to prepare COLs. This work is essential because it allows industry and the NRC staff to identify and resolve technical and regulatory issues that must be settled before companies can undertake high-risk, capital-intensive construction projects like new nuclear plant construction.

The Nuclear Power 2010 program is the springboard that launched a tangible and visible industry commitment to new plant construction. The industry’s commitment to Nuclear Power 2010 includes a planned investment of $650 million over the next several years on design, engineering, and licensing work, which will create a business foundation for decisions to build. Three companies have applications for early site permits under review at NRC.  In addition to these three, Constellation and possibly one other company are also considering ESP applications. The industry is developing at least three applications for construction/operating licenses; the first will be filed in 2007, the second and third in 2008.

As you know, the administration has proposed $56 million for the Nuclear Power 2010 program in the 2006 fiscal year. The $56 million funding proposed for 2006 is sufficient for the ESP and COL demonstration projects already underway. It is not adequate, however, to cover more recent expressions of interest from Constellation and others, and additional resources will be needed to ensure this program is viable into the future.

It is also important to recognize that Nuclear Power 2010 is a multi-year undertaking. Certainty of future funding and program stability are a big concern for industry. However, our biggest frustration with the Nuclear Power 2010 program surrounds the time it has taken the DOE to award the grants. In the case of NuStart, we submitted our application in April 2004 and we were not notified that we received the grant until November 2004. As for Constellation’s ESP application, we submitted it almost four months ago and have yet to hear from DOE.

The Department of Energy’s Nuclear Power 2010 program is a necessary, but not sufficient, step toward new nuclear plant construction. We must address other challenges as well.

Limited federal investment in a limited number of new plants for a limited period of time is necessary and appropriate to overcome the financial and economic hurdles facing the first few plants built.

It’s important to understand why federal investment stimulus and investment protection is necessary and appropriate.

Federal investment stimulus is necessary to offset the higher first-time costs associated with the first few nuclear plants built.

Federal investment protection is necessary to manage and contain the one type of risk that we cannot manage — namely, the risk of a regulatory failure (including court challenges) that delays construction or commercial operation. Only the successful licensing and commissioning of several new nuclear plants can demonstrate that the licensing risks and uncertainties have been resolved. Industry and investor concern over these potential regulatory impediments may require techniques like the standby default coverage and standby interest coverage contained in S. 887, introduced by Sens. Hagel, Craig and others.

We recommend that the federal government’s investment include incentives identified by the Secretary of Energy Advisory Board’s Nuclear Energy Task Force in its recent report. That investment stimulus includes:

1. secured loans and loan guarantees,
2. transferable investment tax credits that can be taken as money expended during construction,
3. transferable production tax credits,
4. accelerated depreciation.

This limited portfolio of incentives is necessary because it’s clear that no single financial incentive is appropriate for all companies, because of differences in the marketplace—namely, whether the markets they serve are regulated or competitive.

In addition, I would be remiss if I did not thank the chairman for his support for three additional programs/provisions that will assist in the construction of new nuclear power plants in the United States:

1. Sustained progress with the Yucca Mountain project is essential. This includes the funding necessary to maintain the schedule, ensure timely filing of the license application and access to the full receipts of the Nuclear Waste Fund.
2. Renewal of the Price-Anderson Act, which provides the framework for the industry’s self-funded liability insurance.  I am pleased to note that this is included in the recently House-passed energy bill.
3. Updated tax treatment of decommissioning funds that would provide comparable treatment for unregulated merchant generating companies and regulated companies. This provision, included in the energy tax legislation passed recently by the House, would allow all companies to establish qualified decommissioning funds and ensure that annual contributions to those funds are treated appropriately as a deductible business expense.

The U.S. electricity business and our nation are paying the price today for our inability to strike an appropriate 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 and the oversupply of base-load generation in the 1990s.

The United States faces a critical need for investment in energy infrastructure, including the capital-intensive, long-lead-time advanced nuclear and coal-fired power plants that represent the backbone of the U.S. electricity supply system.

While some may not realize it, the United States faces an imminent energy crisis today.

Electric power sales represent 3 percent to 4 percent of our gross domestic product. But the other 96 percent to 97 percent of our $11-trillion-a-year economy depends on that3 percent 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.

Thank you again, Mr. Chairman and the other members of the committee and your outstanding professional staff, for your strong support for energy policy initiatives, for nuclear power and for your continued and strong support for the Nuclear Power 2010 program.