Thank you. I’m always happy to return to MIT, an institution that means so much to me personally, and to the American nuclear community—within the military, the civilian agencies of our government and the commercial sector.

I’m here today to talk about the future of the commercial nuclear energy industry in the United States. That future looks brighter than it has for decades—partly thanks to high levels of safe, reliable nuclear plant operation sustained over many years; partly because of conditions in the energy markets; and partly because of growing concerns over climate change.

It is a new day, and we are making a new start. In the United States and around the world, we are re-launching the nuclear energy industry to help deliver the electricity America and the world will need to power growing economies, lift hundreds of millions of people out of poverty and safeguard our environment for future generations.

I want to focus on four areas in today’s lecture.

First, I want to share some thoughts on energy security, on our energy situation today and on U.S. energy policy.

Second, I want to discuss how the U.S. nuclear energy industry is positioning itself for the next wave of nuclear plant construction in the United States.

Third, I want to address some of the concerns about nuclear energy. Reasonable people still have legitimate questions about nuclear power and about safety; about new nuclear plants and how can we be sure that they will not experience the delays and cost increases that dogged many of today’s plants; and, of course, about our nuclear waste policy and our plans for used nuclear fuel.

And finally, I want to say a few words about the unfinished business still ahead of us and the strategic role that institutions such as MIT will play.

First: Energy security and national security.

I took the helm at NEI about this time last year after 38 years of service in the United States Navy because I am convinced that nuclear energy is essential to our nation’s energy security, and that energy security is a keystone of our national security.

I take a broad view of national security. National security involves more than protection against external military and terrorist threats. National security includes public confidence in our nation’s economic prospects, confidence that we can sustain economic growth, and confidence that we can create jobs and promise our people a higher standard of living.

Over the last 15 years, slowly, a little bit at a time, we have placed that security at risk.

Even before Hurricanes Katrina and Rita last fall, oil and natural gas prices were increasing, and our energy supply and delivery infrastructure were stressed. The hurricanes pushed that infrastructure beyond the breaking point.

• Through the summer of 2005, natural gas prices were in the $6 to $7 per million Btu range—high by any standards.
• Just after the hurricanes devastated the oil and gas production capacity and pipeline infrastructure in the Gulf of Mexico, prices soared to more than $15 per million Btu.
• Today, in the Gulf of Mexico, 20 percent of natural gas production and roughly 30 percent of oil production still is shutdown.
• Prices have eased somewhat, but last week, natural gas at one of the major trading hubs in Texas was still more than $10 per million Btu.
• The Energy Information Administration expects spot natural gas prices to remain close to that level this year, assuming the very best conditions—a warm winter, a cool summer and no major hurricane damage this year.

Higher energy prices ripple through the economy.

• Fuel costs for the U.S. electric sector increased 35 percent from approximately $68 billion in 2004 to $92 billion in 2005. Much of that was driven by higher natural gas prices.
• Those parts of the country that depend heavily on natural gas for electric power generation—Florida, the West Coast, New England—can expect significant increases in electricity prices. Some utilities are warning their customers of 30 percent to 40 percent increases in electricity costs this winter.
• Annual energy expenditures as a percentage of the U.S. Gross Domestic Product have increased from a little more than 6 percent in 2003 to approximately 8.5 percent today.
• Other industries that depend heavily on natural gas, either as a fuel or a feedstock, are suffering, too—chemicals, plastics, packaging, steel, automobile manufacturing. Wall Street already is warning investors away from these sectors.
• The U.S. chemical industry, for example, has lost $50 billion in business to overseas operations since 2000, closed more than 100 chemical plants and laid off more than 100,000 workers.

How did an $11 trillion-a-year economy and the world’s most powerful nation get itself into this predicament?

Since 1992, when the United States last enacted major energy policy legislation, the electric industry built more than 275,000 megawatts of new natural gas-fired generating capacity.

In the early ’90s, this was a reasonable short-term solution: Gas prices were low, and the electricity market needed quick startup, peaking capacity.

By the late ’90s, however, it was clear that gas-fired capacity also was being built to serve baseload demand.

That placed unsustainable demands on natural gas supply and exposed consumers of natural gas, and of electricity generated from natural gas, to punishing price volatility.

In that same time period, since 1992, we’ve added only 14,000 megawatts of new nuclear and coal-fired capacity—all of which started construction back in the 1980s.

Today, coal and nuclear energy together represent approximately 70 percent of U.S. electricity supply, and 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.

There’s something seriously wrong with this picture.

The American electricity business faces major challenges: rising electricity demand; more demanding environmental regulations; continuing price volatility; and a decade of chronic underinvestment in new baseload generating plants, long-distance transmission and other critical energy infrastructure.

These challenges reinforce the strategic value of generating capacity that can provide large volumes of baseload electricity, without emissions, at stable, predictable prices. More than anything else, these factors explain the renewed interest in, and commitment to, nuclear power.

The renaissance of nuclear power is rooted in a cold-blooded, businesslike assessment of the realities of today’s electricity business. It is driven by the fundamentals.

This brings me to my second major theme: How is the U.S. nuclear industry positioning itself for the future?

The Energy Policy Act of 2005 provides broad-based stimulus for investment in new electric power infrastructure, including a new generation of nuclear plants.

That investment stimulus is essential to preserve the diversity of fuels and technologies that is the strength of the U.S. energy supply and delivery system.

The legislation provides two essential building blocks for new nuclear plant construction.

It provides investment stimulus for new nuclear power plants, in the form of loan guarantees and production tax credits, to offset the higher cost of the first new nuclear plant designs that we build.

Under the loan guarantee authority, the federal government will guarantee debt financing for up to 80 percent of total project cost. This will allow companies to structure projects with a more highly leveraged capital structure than is typical of conventional regulated utility financing. Utilities will obtain debt at preferential rates and thereby reduce total project cost by several hundred million dollars.

The legislation also includes a production tax credit of $18 per megawatt-hour for up to 6,000 megawatts of new nuclear capacity. The production tax credit places emission-free nuclear energy on an equal footing with other sources of emission-free electricity—including wind power—which have received production tax credits since 1992.

The 2005 energy legislation also provides an innovative form of investment protection for the first six reactors.

This risk insurance is similar to the political risk insurance available through institutions such as the Overseas Private Investment Corp. to American companies doing business overseas.

The federal government will indemnify debt service and other costs for the first few plants if commercial operation is delayed for reasons beyond the company’s control, such as litigation or a failure by the Nuclear Regulatory Commission to meet schedules.

The new licensing process that came with the ’92 Energy Policy Act moves all regulatory and licensing approvals to the front of the process before significant capital expenditures are made.

• Plant designs are approved—or certified—in advance.
• Sites are approved before major capital investment begins.
• Companies receive a single license to build and operate the plant. That license includes measurable, quantitative criteria that—if met—will allow the plant to load fuel and start up when construction is complete.
• The threshold for intervention after the construction and operating license is issued is high, and is intended to preclude frivolous intervention, unwarranted delays and other costly mischief.

The industry believes the NRC’s new licensing process will work as intended, but no one can be completely certain until it has been tested. Delay in the regulatory process is a risk that industry cannot control. So the delay insurance will allow boards of directors to authorize multibillion-dollar investments in new nuclear plants, with some confidence that they are protected against unforeseen delays.

The financial stimulus provided by the 2005 Energy Policy Act affords the nuclear industry substantial flexibility in structuring and financing new nuclear projects and in managing the risks associated with financing.

In those states that are still operating under cost-of-service regulation, companies are likely to build new nuclear plants as rate-base projects, using a conservative capital structure of 50 percent debt and 50 percent equity. This regulatory arrangement provides substantial investment protection: Investors know that they have reasonable assurance that all costs prudently incurred can be recovered through electric rates.

Unregulated generating companies will build and finance new nuclear power plants as merchant projects, with the financing supported by long-term power purchase agreements and loan guarantees.

Today, nine companies, consortia or joint ventures have firm plans for 12 to 15 new nuclear power plants in the United States.

The companies are preparing applications for combined construction and operating licenses. The first of these will be submitted to the NRC in 2007, and should receive NRC approval in 2010 or so.

Assuming a 48-month construction period, which has been achieved routinely overseas, the first new nuclear plants will be operating in 2014–15, close on the heels of the next wave of new coal-fired capacity that now is starting construction or well along in the development process.

I’ll venture an educated guess that, by 2025, approximately 30,000 megawatts of new nuclear capacity will be operating in the United States, with at least that much under construction.

The next generation of U.S. nuclear plants is modeled on today’s plants but incorporates features designed to make them simpler, even safer and less costly to operate. Because of “first-of-a-kind” design and engineering costs—which approximate $500 million per reactor design—the first new nuclear plants will cost more than later, follow-on plants.

We recognized this back in 2000, and began to explore ways to offset the higher, first-time capital costs for the first wave of new reactors.

The Department of Energy’s Nuclear Power 2010 program helps by sharing these first-of-a-kind engineering costs equally between government and industry for the first two license applications.

The production tax credits and federal loan guarantees in the Energy Policy Act also are designed to offset the higher cost, ensuring that the first new nuclear plants will be competitive and economically viable.

Once the first few new nuclear plants are built—and the “first-of-a-kind” design and engineering costs have been recovered—later, follow-on plants will be built without federal government financial support.

As it has so many times in so many areas, MIT played a significant role in developing a credible analytical basis for the kind of investment stimulus incorporated in last year’s Energy Policy Act. MIT’s report in 2002 on the future of nuclear power—followed by similar analyses by the University of Chicago and the Secretary of Energy Advisory Board, among others—provided independent validation of the need for limited financial incentives for a limited number of new nuclear plants. Ernie Moniz and John Deutsch can rightly assert some degree of paternity over the concept of using production tax credits to stimulate private-sector investment in new nuclear generating capacity.

Third: Let me turn now to some of the concerns about nuclear energy.

There is growing recognition that nuclear power plants have three distinguishing characteristics.

First, they produce large volumes of low-cost electricity around the clock at high levels of safety and reliability.

Second, they produce electricity at a stable price, without the punishing volatility we see with gas-fired generating capacity.

Third, nuclear plants help maintain air quality.

Three attributes: Reliable, affordable electricity at low cost. Forward price stability. Clean air.

Other sources of electricity have one or two of these attributes, but only nuclear plants have all three. That is what makes nuclear energy uniquely valuable.

Our political leaders and policymakers recognize these three valuable attributes.

I think the general public does, too—how else to explain the level of public support we see in our tracking polls, which is at record-high levels?

Our most recent data show that 70 percent of Americans support nuclear energy, and the number opposed—24 percent—is at its lowest level since we began monitoring public opinion in the early 1980s.

By the way, support for nuclear energy is even stronger in the communities surrounding nuclear power plants, where 83 percent of folks support the use of nuclear energy.

But still ... thoughtful people have legitimate questions.

Yes, they’ll say, I agree with you about the benefits of nuclear power, but what about safety?

Yes, I agree with you about price stability and the fact that nuclear plants have the lowest operating cost of any source of electricity, but what about the capital cost of new nuclear plants, particularly given the cost overruns experienced by many of today’s plants?

Yes, I agree with you about the environmental benefits, but what about used nuclear fuel and our nuclear waste policy?

These are genuine, legitimate questions. They deserve serious, thoughtful responses and I want to take a few minutes to explore these issues.

First, what about safety?

After 38 years of Navy nuclear experience, I can testify that nuclear energy can be an unforgiving technology, but I also know that it can be controlled safely with proper design, maintenance, training, qualification standards and procedural compliance.

We know we operate in an unforgiving public environment where the penalties for mistakes are high and where credibility and public confidence, once lost, are difficult to recover.

Like any industry operating in a competitive market, we face challenges. As electricity markets are deregulated, we must resist pressures to shave investment in staff, in training, in preventive maintenance, in equipment. As plants age, we must devote more attention to materials issues, anticipate potential degradation mechanisms and manage them before they have an impact on plant performance or regulatory confidence.

The U.S. nuclear power industry has achieved dramatic gains in productivity, reliability and safety over the last 15 years.

We have maintained our 20 percent share of U.S. electricity supply over the last 10 years even though U.S. electricity demand has increased and the number of nuclear plants has declined.

How? By increasing our average capacity factor to about 90 percent, and sustaining that level of performance year-to-year for a number of years. Our best plants are achieving three-year average capacity factors above 95 percent.

All of the safety-related metrics tracked by industry and the NRC demonstrate similarly high levels of excellence. Unplanned shutdowns are down. Forced outage rates, unplanned safety system actuations, worker radiation exposures, events with safety implications, lost-time accident rates: All down.

Yes, all the performance metrics are good ,visible evidence of a successful industrywide process to ensure safety and achieve excellence in operations. Although I have great confidence in nuclear plant safety based on those indicators, I derive even more confidence from the process that produces those indicators, from the institutions we have created to share best practices—to establish standards of excellence—and to implement programs that hold us to those standards.

First, we have a strong, independent regulator in the Nuclear Regulatory Commission.

But how many people outside the nuclear industry know about the Institute of Nuclear Power Operations (INPO)?

How many people understand that, in INPO, the nuclear industry—unique among American industries—established an independent form of self-regulation through peer review and peer pressure?

How many people understand that INPO is empowered to establish performance objectives and criteria, and nuclear operating companies are obligated to implement improvements in response to INPO findings and recommendations?

How many people outside the close fraternity of the nuclear power sector understand that the industry has, in Atlanta, some 350 people monitoring nuclear plant operations and management on a daily basis? How many know that INPO performs a top-to-bottom evaluation of every U.S. nuclear plant every two years? How many know that INPO deploys training teams to provide assistance to companies in specific areas identified as needing improvement during an evaluation?

How many people outside the industry know that INPO maintains an industrywide database called EPIX—for Equipment Performance and Information Exchange—and that all companies are required to report equipment problems to EPIX. EPIX catalogues equipment problems and shows, for example, expected mean time between failures. This allows the industry to schedule predictive and preventive maintenance, replace equipment before it fails and avoid possible challenges to plant safety.

How many people outside the industry know that INPO also maintains a system called Nuclear Network that allows companies to report and share information about operating events to ensure that an unexpected event at one reactor is telegraphed to all, that an event at one plant is not repeated elsewhere, and to ensure high levels of vigilance and readiness?

I could go on. I could talk about INPO’s management and leadership development programs, or about the National Academy of Nuclear Training, which operates under INPO’s auspices and conducts formal training and accreditation programs for those responsible for reactor operation and maintenance.

I could tell you that when an INPO team completes its evaluation, it provides a detailed exit report of significant findings—not just to the plant manager, not just to the site vice president, not just to the chief nuclear officer, but also to the company’s chief executive officer. Access to the top has been a defining characteristic at INPO from its founding in 1979.

In fact, I could tell you of a new INPO initiative to evaluate the safety culture at the corporate headquarters level.

INPO is an institution with enormous operational oversight authority, conferred on it freely by an industry that recognizes that all nuclear companies are affected by the actions of each nuclear company.

The nuclear industry is only as strong as its weakest link and cannot, as a result, tolerate weak links.

So I take an appropriate measure of comfort from the performance indicators that demonstrate continuing improvements in nuclear plant safety. But I—and I think reasonable, thoughtful people everywhere—derive even greater confidence from the knowledge that we have dedicated institutions and disciplined, systematic programs that make those indicators possible, and that drive continuing improvement in those indicators.

A second concern: What about the economics?

I think everyone who has studied the issue agrees that today’s operating nuclear plants—with average busbar costs in the range of $23 per megawatt-hour—are not only competitive, but quite profitable.

But what about the cost of new nuclear plants? Can we avoid the cost increases and lengthy construction delays experienced by many of the plants operating today? Are we being excessively optimistic about the capital cost of new nuclear generating capacity?

These are all reasonable questions.

Can we avoid the cost increases and delays of the past?

Remember that the 103 nuclear power plants now supplying about 20 percent of U.S. electricity were built under that two-step licensing system. Under this system, electric utilities needed two permits—one to build a nuclear power plant, a second to operate it.

Many companies started construction before design and engineering was complete. This “design as you build” approach invited problems.

The NRC could not approve the plant design until the plant was built and the power company requested an operating license. Operating license proceedings were complex and contentious and caused delays in plant operation, which added hundreds of millions of dollars to the cost.

The accident at the Three Mile Island nuclear power plant in 1979 also had a major impact.

After that accident, nuclear plants were engulfed in new regulatory requirements imposed by the NRC. The changing requirements forced extensive redesign and rework at nuclear units under construction.

This stretched out construction schedules and, to make matters worse, the delays coincided with a period of double-digit inflation and national economic distress.

All this combined to drive up the cost of many of these nuclear plants to several times the original cost estimates.

Based on that painful experience, the industry resolved that future nuclear power plants would be fully designed before construction started. The change in design philosophy was accompanied by the new licensing process, which I discussed earlier, under which companies receive a single license to build and operate the plant.

The new design philosophy and the new licensing system ensure that all major issues—design, safety, siting and public concerns—will be settled up front before a company starts building a nuclear power plant and puts billions of dollars at risk.

In summary, the conditions that led to large cost increases for some operating nuclear power plants no longer exist.

In addition, construction techniques and construction management practices have evolved considerably since the last nuclear plants were built in the United States.

For example, new nuclear plants will benefit from modular construction techniques: Large subsections of the plant will be built in the factory, where labor productivity is always higher, and not in the field.

Construction management also has advanced: Tools such as 3-D CAD that did not exist in the 1970s and 1980s now are used routinely, and enable substantial improvements in efficiency and productivity.

So do we have a firm handle on capital costs? We believe so, and our belief is ratified by experience gained overseas from construction of similar nuclear plants in Japan, South Korea, China and Finland.

To be conservative, however, whenever NEI does financial analysis of the economics of new nuclear power plants, we inflate these numbers significantly—to the point that they are probably unrealistically high.

We typically assume a capital cost of approximately $2,000 per kilowatt for the first few plants built, declining to approximately $1,500 per kilowatt for the later plants.

• According to our financial analysis, the higher-cost plant would produce electricity in the first year at approximately $68 per megawatt-hour.
• The $1,500-per-kilowatt plant would produce electricity at approximately $55 per megawatt-hour.
• If we apply the loan guarantees or production tax credits provided by the energy legislation, those costs drop to $46 and $39 per megawatt-hour, respectively.
• Even with no carbon tax imposed nationally or regionally by states, these costs are fully competitive with new coal-fired capacity at $49 per megawatt-hour, with gas-fired capacity at any gas price above $6 per million Btu, or with the advanced coal-based technologies such as integrated gasification combined cycle.

Of course, if we add in the expected costs of carbon capture and sequestration, then new nuclear capacity enjoys a substantial competitive advantage over all the fossil-fueled options.

So we are quite confident that new nuclear plants will be competitive, using our cost estimates for new nuclear capacity, which we know to be extremely conservative.

The financial incentives provided by the Energy Policy Act will offset the higher capital cost of the first plants. Later units will be competitive in the electricity markets of 2015, even without government support.

The final concern I want to address—the real elephant in the room—what about used fuel? What are our plans and policies?

People who are opposed to nuclear energy say that “we don’t know what we’re going to do with the high-level radioactive waste.”

In truth, we do know what we’re going to do with it.

We’re going to follow the course recommended for decades by independent scientific organizations around the world, including our own National Academy of Sciences.

We’re going to isolate this material deep underground in stable geological formations, in a dry environment, remote from people.

We have just such a place, at Yucca Mountain in Nevada.

In 2002, a presidential finding and bipartisan affirmation by both houses of Congress determined that the Yucca Mountain site was suitable for long-term isolation of used nuclear fuel. Those steps cleared the way for the Department of Energy to start developing the application necessary to obtain an NRC license to build and operate the facility.

The determination in 2002 that Yucca Mountain was a suitable site was based on 20 years and $6 billion of scientific investigation.

The technical and scientific work included excavation of an underground laboratory at Yucca Mountain to evaluate how the geologic formation responds to certain operating conditions.

Nothing has emerged so far during the scientific investigation that would disqualify the Yucca Mountain site in any way.

In my discussions with people about used nuclear fuel management, I find many who believe that the Department of Energy is simply going to bury the used nuclear fuel at Yucca Mountain and walk away, trusting in the site’s natural geological characteristics and the engineered safety features of the containers to contain the waste by-products.

That’s not the plan, and it never has been the plan.

This facility will remain open and closely monitored for 100 to 300 years. The law requires an unspecified period of retrievability. NRC regulations require an ongoing confirmatory R&D program to verify the original assumptions based on new data and scientific development. And the Department of Energy’s Final Environmental Impact Statement describes this plan.

This period of monitoring, retrievability and confirmatory R&D should create confidence among the citizens of Nevada, and among all our nation’s citizens, that the repository is performing as designed, that public safety is assured and that the environment is protected. If there ever is a problem, the waste packages can be removed, and the problem corrected.

Extended monitoring and the ability to retrieve the casks also will allow us to recover the energy content in the fuel if it becomes cost-effective to do so, or if we choose to reprocess used fuel in order to reduce the volume and toxicity of the waste.

There is more to this issue, and I will return to it when next I discuss the unfinished business before us.

So, let me leave you with some thoughts on that unfinished business—on what industry must do to build sustainable confidence in nuclear energy.

First, we must know where we are going. We must define a long-term roadmap and vision for this technology.

Let me offer an example of a possible roadmap, with near-term, medium-term and long-term destinations.

In the near-term, we are approaching a new construction cycle for advanced light water reactors. These reactors are well-suited for bulk, baseload electricity production, and we will build many more of them well into the 21st century.

In the medium-term, starting around 2025, we should have demonstrated and started commercial deployment of high-temperature reactors, with a more varied product slate—electricity, of course, but also hydrogen production and process heat.

We can envision high-temperature reactors, using advanced hydrogen production technologies, co-located with oil refineries and coal gasification plants, providing the hydrogen they require to upgrade coal and the heavy crude oils of the future into usable products.

We can see high-temperature reactors generating process heat to produce clean drinking water, to extract oil from tar sands and for scores of other industrial applications.

And in the long-term, within the next 40 to 50 years, if economically and environmentally warranted, we should see deployment of advanced technologies to partition used fuel into its constituent elements without creating a pure stream of plutonium and thereby avoiding proliferation concerns. We’ll recover the uranium and plutonium and the other potentially fissile elements—essentially, the long-lived minor actinides—and recycle them into fresh fuel … perhaps also to transmute the fission products into shorter-lived elements. And we’ll deploy new-design fast-spectrum reactors capable of burning the new actinide fuels.

We also must ensure that our long-term technology roadmap squarely addresses major concerns about nuclear energy so that our political leaders, policymakers and the public accept the roadmap as a legitimate, necessary and credible undertaking.

If the renaissance of nuclear energy now in progress around the world is to be sustainable, it must involve a lot more than simply building hundreds of new nuclear plants.

New nuclear plant construction on the scale required by the world over the next 50 years implies a significant increase in the amount of spent fuel we envisioned a few years ago and—unless we develop next-generation reprocessing technology that can pass the economical, proliferation and environmental litmus tests—an unacceptably large number of storage and disposal facilities for nuclear waste.

So we must make plans to evaluate closing the nuclear fuel cycle in the long-term, and reduce both the volume and toxicity of the waste by-product.

Finally, although we must plan for the long-term, we must continue to act in the short-term.

The long-term technology roadmap is essential, but we cannot allow ourselves to be paralyzed in the short-term.

We cannot, for example, allow the long-term potential of advanced nuclear fuel processing and recycling technologies to distract us from the necessary short-term imperative: Developing centralized storage and disposal facilities for used nuclear fuel.

No matter how much we might believe in eventually closing the nuclear fuel cycle, no matter how great the long-term promise of used fuel reprocessing and actinide recycle and transmutation of fission products and fast reactors, this technology development is at least 35 to 50 years and tens of billions of dollars from fruition.

And even if we develop these technologies successfully, we will still need permanent disposal facilities.

So we must continue to develop the permanent repository planned for Yucca Mountain in Nevada.

We must have a credible program to develop centralized storage and disposal facilities in the near-term if we expect to retain federal, state and local support for building new nuclear power plants and renewing the licenses of our existing plants to operate for an additional 20 years.

If we hope to balance the competing imperatives of energy supply and environmental protection in the years ahead, our nation must rely on institutions like MIT more than ever, to assist in developing the proper blend of science, technology and public policy that makes sense, and put these elements to work like never before.

The future of the United States—indeed, the future of the world—rests on technological creativity and scientific innovation, and on our ability to produce political leaders and policymakers who understand that technology development is the engine that drives economic growth, increasing productivity and higher standards of living.

Institutions like MIT must stimulate the technological innovations, nurture the scientific creativity, integrate science and technology with sound public policy, and produce the next generation of political and business leaders and policymakers.

So our future is in your hands, and I am quite confident that it’s in good hands.

Thank you.