[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




  NATIONAL ENERGY POLICY: THE FUTURE OF NUCLEAR AND COAL POWER IN THE 
                             UNITED STATES

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON ENERGY AND POWER

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 8, 2000

                               __________

                           Serial No. 106-131

                               __________

            Printed for the use of the Committee on Commerce


                    U.S. GOVERNMENT PRINTING OFFICE
66-466CC                    WASHINGTON : 2000





                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
                                     BILL LUTHER, Minnesota
                                     LOIS CAPPS, California

                   James E. Derderian, Chief of Staff

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                    Subcommittee on Energy and Power

                      JOE BARTON, Texas, Chairman

MICHAEL BILIRAKIS, Florida           RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               KAREN McCARTHY, Missouri
  Vice Chairman                      TOM SAWYER, Ohio
STEVE LARGENT, Oklahoma              EDWARD J. MARKEY, Massachusetts
RICHARD BURR, North Carolina         RALPH M. HALL, Texas
ED WHITFIELD, Kentucky               FRANK PALLONE, Jr., New Jersey
CHARLIE NORWOOD, Georgia             SHERROD BROWN, Ohio
TOM A. COBURN, Oklahoma              BART GORDON, Tennessee
JAMES E. ROGAN, California           BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ALBERT R. WYNN, Maryland
HEATHER WILSON, New Mexico           TED STRICKLAND, Ohio
JOHN B. SHADEGG, Arizona             PETER DEUTSCH, Florida
CHARLES W. ``CHIP'' PICKERING,       RON KLINK, Pennsylvania
Mississippi                          JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York                (Ex Officio)
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Bailey, Paul C., Vice President, Environment, Edison Electric 
      Institute..................................................    77
    Ebel, Robert E., Director, Energy and National Security, 
      Center for Strategic and International Studies.............    43
    Gehl, Stephen M., Director of Strategic Technology Alliances, 
      Electric Power Research Institute..........................    84
    Graham, James J., President and CEO, Converdyn...............    27
    Klein, Dale E., Vice Chancellor for Special Engineering 
      Programs, University of Texas System.......................    22
    Kripowicz, Robert S., Principal Deputy Assistant Secretary, 
      Office of Fossil Energy, U.S. Department of Energy.........    62
    Lawson, Richard L., President and CEO, National Mining 
      Association................................................    69
    Lochbaum, David, Nuclear Safety Engineer, Union of Concerned 
      Scientists.................................................    40
    Magwood, William D., IV, Director, Office of Nuclear Energy, 
      Science and Technology, U.S. Department of Energy..........     6
    McNeill, Corbin A., Jr., Chairman, President, and CEO, Peco 
      Energy Generation..........................................    14
    Schobert, Harold, Director, the Energy Institute, 
      Pennsylvania State University..............................    89
Material submitted for the record by:
    Uranium Producers of America, prepared statement of..........   107

                                 (iii)

  

 
  NATIONAL ENERGY POLICY: THE FUTURE OF NUCLEAR AND COAL POWER IN THE 
                             UNITED STATES

                              ----------                              


                         THURSDAY, JUNE 8, 2000

                  House of Representatives,
                             Committee on Commerce,
                          Subcommittee on Energy and Power,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:07 p.m. in 
room 2123, Rayburn House Office Building, Hon. Joe Barton 
(chairman) presiding.
    Members present: Representatives Barton, Largent, Burr, 
Whitfield, Norwood, Shimkus, Wilson, Bryant, Boucher, Sawyer, 
and Strickland.
    Staff present: Kevin Cook, science advisor; Karine Alemian, 
professional staff member; Elizabeth Brennan, legislative 
clerk; Sue Sheridan, minority counsel; and Rick Kessler, 
minority counsel.
    Mr. Barton. The subcommittee will come to order. We are 
going to go ahead and proceed. A number of members have 
indicated that they are on their way. Hopefully, if I give an 
extremely long-winded opening statement, they will be here by 
the time I conclude.
    Today is the second in our series of subcommittee hearings 
examining our national energy policy. On May 24, the first 
hearing addressed the supply of oil and natural gas.
    Today's hearing will look in detail at nuclear power and 
coal. These two energy sources form the mainstay of our current 
electricity generation capacity, with approximately 20 percent 
of our electricity coming from nuclear reactors, and a little 
over 50 percent coming from coal-fired power plants.
    In the near term, we can not afford to lose the generating 
capacity represented by coal and nuclear power. There is no 
ready replacement for 70 percent of our electrical power. Yet, 
there are pressures from various directions to reduce our 
present reliance on nuclear and coal.
    The most significant impediment to nuclear power in the 
near term is the lack of a centralized facility for the 
permanent disposal of spent nuclear fuel. The Federal 
Government has failed to fulfill its legal obligation to 
dispose of spent nuclear fuel, beginning in 1998.
    The earliest that the Department of Energy says it can open 
a repository at Yucca Mountain is the year 2010, 12 years late. 
Yet, the Clinton Administration has blocked every attempt by 
Congress to accelerate that schedule. This delay in solving the 
disposal question impacts the continued operation of nuclear 
reactors in this country. It increases the price of electricity 
generated by nuclear power, and it delays the clean up of 
decommissioned reactor sites.
    Most damaging, perhaps, the government's inaction on the 
Yucca Mountain repository affects public confidence in nuclear 
power. It suggests that there is a major technical hurdle yet 
to be resolved, when the real problem is a lack of political 
will regarding the siting of the repository.
    Looking beyond the next decade, we have to ask what role 
nuclear power should play in our future energy portfolio. As 
concerns increase about greenhouse gas emissions causing global 
climate change, we ought to rethink our assumptions about 
nuclear power in this country.
    Until fusion power becomes real, if ever, we may need to 
rely on the next generation of advanced reactor technologies 
for safe and climate friendly electrical power. Such advanced 
reactor technologies may also represent a significant export 
market for the U.S. companies.
    The near term challenge for coal revolves around air 
quality, and controlling the emissions of sulphur dioxide, 
nitrogen oxides and particulates; all pollutants presently 
regulated under the Clean Air Act.
    The long term focus will also be on air quality that may 
shift, limiting the omission of greenhouse gases, particularly 
carbon dioxide, from the combustion of coal.
    The answer to both the near-term and long-term challenges 
for coal may lie in advanced coal technologies that will enable 
a cleaner and more efficient use of coal in electrical power 
generation. However, we need to be sure that the Department of 
Energy is making the right policy decisions and technology 
investments today to support such a future for coal.
    The larger question here is how this country goes about 
establishing and implementing a comprehensive, long-term 
national energy policy. What is our energy policy today? Where 
do we go? Where do we want to go in the future, and what long-
term policies will enable us to get there? What is the process 
we use to resolve conflicts and stay on course for our long-
term objective?
    Some of these questions need to be addressed at the end of 
our series of hearings on energy policy, but some are very 
relevant to the particular challenges of nuclear and coal 
power.
    For both energy sources, it seems to me that the short term 
political and environmental issues dominate over any coherent 
long-term policy. It is not clear to me that we know, as a 
country, where we are headed with nuclear energy and coal 
power, but I am hopeful that our hearing today will shed some 
light on that question.
    I want to welcome our witnesses before us on this panel and 
the next panel. I look forward to your testimony.
    Does the gentleman from Georgia wish to make an opening 
statement?
    Mr. Norwood. Mr. Chairman, I will submit it for the record. 
But I want to thank you for holding this hearing. I think it is 
very appropriate that you keep our attention on the future, 
particularly of nuclear, which I am a big supporter of. I think 
we need to, as you pointed out eloquently, deal with our 
problem of storage of it.
    I hope we will just keep focusing away on this, until we 
finally wake up and set a policy for our future. With that, I 
thank you.
    Mr. Barton. Does the gentleman from Kentucky wish to make 
an opening statement?
    Mr. Whitfield. Mr. Chairman, I am just delighted that we 
are having these hearings. As you know, nuclear and coal 
provides about 72 to 75 percent of the electrical power in 
America. I think it is vitally important that we have this 
hearing, listen to these experts, and obtain a better 
understanding of where we are going and what we can do to 
maintain a reliable nuclear energy and coal industry in the 
U.S.
    Thank you.
    Mr. Barton. Does the gentleman from Ohio wish to make an 
opening statement?
    Mr. Sawyer. Thank you, Mr. Chairman. I have a longer 
statement. I would welcome the chance to insert it in the 
record, as you always make room for.
    Mr. Barton. Without objection.
    Mr. Sawyer. Let me just make an observation, and I hope 
that in the course of our afternoon that we will hear from you 
regarding this.
    With coal, it is a concern. With nuclear, it is of critical 
importance that among the transitions that we are going through 
today, both State by State and nationally, is the movement away 
from universal service territory, rate of return regulation, in 
which the investment in continuous maintenance and the cautious 
management of generating capacity is a part of the allowable 
rates to be charged.
    In an arena in which competition and the ability to provide 
low cost as one dimension of the service that will be a factor 
in that competition, it seems to me that the safety and 
security of our generating capacity is very much at stake. I 
hope that you will speak to that in the course of your 
testimony today.
    With that, I will yield back the balance of my time. Thank 
you, Mr. Chairman.
    Mr. Barton. The Chair would ask unanimous consent that all 
members not present have the requisite number of days to insert 
an opening statement in the record, at this point in the 
record. Is there any objection to that?
    [No response.]
    Mr. Barton. Hearing none, it is so ordered.
    [Additional statements submitted for the record follow:]
 Prepared Statement of Hon. John Shimkus, a Representative in Congress 
                       from the State of Florida
    Good morning, Mr. Chairman and to all who have shown up this 
afternoon. I am looking forward to this hearing today. I very much 
wanted to keep my opening statement rather short, which I'm sure would 
please the Chairman. Unfortunately for him, this hearing today will 
focus on the future of two important energy sources to my home state of 
Illinois.
    Coal is a vital part of the growing Illinois economy, it is the 
state's 3rd largest industry. 27 Illinois mines employ more than 5,000 
miners, and generate roughly 25,000 spin-off jobs.
    Illinois coal is used for power generation all over the world. The 
top 7 utility users of Illinois coal are: PSI Energy, Illinois Power, 
Tennessee Valley Authority, Central Illinois Public Service, Northern 
Indiana Public Service, Tampa Electric and Union Electric.
    There are many concerns across the country about the pollution 
caused by burning coal. The future of coal hinges on whether clean coal 
technologies become commercially available to coal-burning utilities. 
In Illinois, we are continually working to find cleaner ways to burn 
coal. The Illinois Clean Coal Institute's clean coal research 
activities focus on the needs of coal users and producers in meeting 
the standards of the Clean Air Act Amendments of 1990. The ICCI spends 
over $3 million a year on research designed to make energy-rich 
Illinois coal environmentally sound. It is the largest state-supported 
coal research program in the country. The Illinois coal industry has a 
powerful future, one that's worth fighting for!
    Nuclear power also plays on important role in Illinois because my 
home state generates about 40-45% of its power from nuclear reactors, 
almost twice the national average. We depend on nuclear power. Almost 
without a doubt, nuclear energy is and should be here to stay.
    However, at a time when the future of nuclear energy looks brighter 
than it has in many years, there is a dark cloud hanging over our own 
domestic nuclear fuel capabilities.
    My own state hosts the nation's sole remaining uranium conversion 
facility. Every indication is that this facility is now on the brink of 
going out of business. To make matters worse, the loss of this facility 
and capability will be a further serious blow to both the uranium 
mining and processing industries and to the U.S. enrichment 
enterprise--all of which are already on the ropes.
    I happen to think that our nation should not rely only on just one 
energy source such as natural gas, coal or wind to generate power, but 
all of these sources. It is the smart thing to do over the long haul. 
Just like any good retirement portfolio, our energy industry should be 
diversified.
    Again, thank you for having this hearing today Chairman Barton and 
focusing on two issues that are extremely important to my home state. I 
yield back the balance of my time.
                                 ______
                                 
    Prepared Statement of Hon. John B. Shadegg, a Representative in 
                   Congress from the State of Arizona
    Chairman Barton, thank you for holding this hearing on one of the 
most vital aspects of our nation's energy policy: the role of nuclear 
power in electricity generation. This is an issue of special 
significance to me since Arizona is the home of Palo Verde, the 
largest, as well as one of the newest, safest and most efficient, 
nuclear power plant in the United States. It is also an issue which, as 
today's witnesses are likely to explain, different policies are working 
at cross purposes to hinder the further development of this important 
energy source.
    This hearing is very timely for a number of reasons. First, the 
Energy Information Administration (EIA), an independent federal agency, 
has estimated that nuclear generation capacity in the United States 
will begin declining in approximately ten years, and will continue to 
decline with no prospect of a subsequent revival. The EIA estimates 
that 674 billion kilowatt hours of electricity were produced by nuclear 
energy in 1998 and projects that, by the year 2020, nuclear generation 
will have declined to only 427 billion kilowatt hours per year.
    Second, the demand for electricity is projected to grow at a rate 
of between one and two percent per year for the next twenty years. This 
growth cannot be met solely by increased use of renewable energy 
sources and conservation. As an illustration, Energy Secretary Bill 
Richardson announced an initiative on June 21, 1999 that calls for 
generating five percent of electricity from windmills by the year 2020. 
In fact, the EIA has projected that windmills will only produce one 
quarter of one percent of electricity generation by 2020. The EIA 
projection is bolstered by the fact that, depending on weather 
conditions, it would take between 121,309 and 181,963 windmills of some 
of the largest type (750 kilowatts) currently in active use to produce 
the five percent of electricity called for by the Administration, while 
there are only five of these windmills currently in operation. This 
shows that, despite the optimistic hopes of the present Administration, 
we will continue to rely on non-renewable sources of energy for the 
vast majority of our electricity supply.
    Finally, there is continued worry about air quality issues, 
including the role that combustible fuels play in emitting air 
pollutants. I strongly support the continued use of coal and natural 
gas for electricity production but these energy sources, while more 
clean burning now than ever before, do emit air pollutants including 
carbon dioxide, sulfur dioxide, and nitrous oxide. Nuclear power, of 
course, does not emit any pollutants into the environment.
    It is in the environmental arena that there is the greatest 
disconnect between environmental protection policies and policies 
towards nuclear power. The current Administration expresses tremendous 
concern about the theory of global warming and the role which emissions 
of so-called ``greenhouse gases'' like carbon dioxide may play. The 
Administration has gone so far as to sign the Kyoto Protocol under 
which it agreed to hobble the United States economy by reducing 
emissions of these gases by seven percent from 1990 levels by the year 
2012. Despite its professed concerns for air quality and global 
warming, the Administration continues to discourage the use of the 
largest non-emitting source of energy, nuclear power, by vetoing 
legislation which would safely dispose of nuclear waste.
    Mr. Chairman, nuclear power is a safe, clean, efficient source of 
energy production. Countries like France, which produces over three 
quarters of its electricity from nuclear power, recognize this but this 
logic escapes the Administration. Nuclear energy is needed now and will 
become even more necessary as energy consumption increases during the 
next twenty years. It is more important than ever that a policy be 
developed that will encourage its continued use and future development.
                                 ______
                                 
 Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
    I commend Chairman Barton for convening this second in a series of 
hearings on national energy policy. The first hearing focussed on oil 
and gas supply issues. We want to be sure our country has an energy 
policy that addresses not only the ``crisis du jour,'' but positions 
the United States for a stable and secure energy future.
    Today's hearing looks at two more vital energy sources: nuclear 
power and coal. Combined, nuclear energy and coal account for over 
seventy percent of the electricity generated in this country. With 
serious reliability concerns facing us this summer, it is essential 
that we maintain our existing nuclear and coal generating capacity over 
the near-term. Looking further down the road, we have to ask what role 
nuclear and coal power should play in our future energy portfolio.
    New technologies will be key, to our energy future. Such 
technologies will enable this country to use its enormous coal 
resources in a way that does not harm the environment. Advanced 
technologies may also bring us a new generation of safer and more 
efficient nuclear reactors.
    Today's hearing, along with the other hearings in this energy 
policy series, will inform us whether the federal government is taking 
the right near-term and long-term actions to prepare us for a secure 
energy future. I look forward to the testimony of our distinguished 
witnesses today.

    Mr. Barton. We want to welcome our first panel. It is going 
to focus on nuclear energy. We want to especially welcome Mr. 
William Magwood, who is the Director of the Office of Nuclear 
Energy, Science, and Technology, at the U.S. Department of 
Energy.
    It is our normal policy, when we have Administration 
witnesses to put them on a separate panel. We also have a DOE 
witness on the second panel, because we have so many people. If 
I had to go to four panels as opposed to two, it would take a 
lot longer.
    It is not disrespectful that we have asked you to be with 
the rest of the group, but it expedites the efficiency of the 
hearing. So I want to let you know that there is absolutely no 
disrespect meant. Normally, you would be on a panel all by 
yourself. But because of the number of people and the time we 
are starting the hearing, we have done this in two panels.
    We are going to recognize you first. We would ask that you 
summarize your written statement, and we thank you for having 
it in on time. I have been chastising some of my Administration 
witnesses for being tardy. I want to compliment you for being 
on time.
    We will give you 7 minutes, and then we will go through the 
rest of the panel. So welcome, Mr. Magwood. You are recognized 
for 7 minutes.

   STATEMENTS OF WILLIAM D. MAGWOOD, IV, DIRECTOR, OFFICE OF 
  NUCLEAR ENERGY, SCIENCE AND TECHNOLOGY, U.S. DEPARTMENT OF 
 ENERGY; CORBIN A. MCNEILL, JR., CHAIRMAN, PRESIDENT, AND CEO, 
  PECO ENERGY GENERATION; DALE E. KLEIN, VICE CHANCELLOR FOR 
SPECIAL ENGINEERING PROGRAMS, UNIVERSITY OF TEXAS SYSTEM; JAMES 
   J. GRAHAM, PRESIDENT AND CEO, CONVERDYN; DAVID LOCHBAUM, 
  NUCLEAR SAFETY ENGINEER, UNION OF CONCERNED SCIENTISTS; AND 
ROBERT E. EBEL, DIRECTOR, ENERGY AND NATIONAL SECURITY, CENTER 
            FOR STRATEGIC AND INTERNATIONAL STUDIES

    Mr. Magwood. Thank you, Mr. Chairman.
    I appreciate your remarks about having our testimony in on 
time. I would like to thank my staff for working so hard to get 
that done.
    Also, Mr. Chairman, I would like to say that I am actually 
very proud to serve on a panel with these illustrious gentlemen 
to my left, and particularly, Mr. McNeill, Dr. Klein, and the 
others down the row. I know most of them very well, and 
appreciate the opportunity to testify with them today.
    I am William Magwood, Director of the Department's Office 
of Nuclear Energy, Science and Technology. To begin, let me 
also thank you and congratulate you for holding this hearing, 
and for the series of hearings you have held on the subject of 
energy security. I think that this hearing is a very important 
opportunity to focus on these issues, and to get a lot of facts 
on the table.
    This is an appropriate time to address the subject of 
nuclear energy. We, at DOE, are working hard on many aspects of 
nuclear technology, and believe that the United States has some 
very important choices to make about the future of nuclear 
power.
    That said, I believe that the approach to energy that our 
Nation has employed over the last 20 years, reliance on a free 
market, has served us very well. Unlike many other nations, the 
United States has a wide range of energy options to choose 
from. We have been able to apply coal and nuclear and other 
sources to fuel America's homes and businesses.
    Currently, about half of our electric power, as you noted, 
is derived from coal, the subject of the next panel; and 
nuclear provides about 20 percent, overall.
    Many people are surprised to learn that the United States 
continues to increase its use of nuclear-generated electricity. 
Last year, because of the increased efficiency of our 103 
nuclear power reactors, the U.S. added the equivalent of seven 
new nuclear power plants to the grid.
    While the amount of U.S. electricity derived from nuclear 
power is now at an all time high, we have not started 
construction of any new nuclear power plants for some two 
decades.
    This fact should be seen as a decision by the market; a 
decision first, based on the fact that the United States has, 
in recent decades, enjoyed a relative surplus of supply of 
electricity; and second, on the uncertainly utilities faced in 
controlling the cost of constructing the last set of nuclear 
power plants in the late 1970's and 1980's.
    The future, I believe, has great potential for resurgence 
of new market prospects for new U.S. nuclear power plants. This 
is because of many encouraging and interesting dynamics that 
are taking place right now.
    First, U.S. nuclear utilities are not only producing more 
electricity than ever before, but they are doing so more 
economically, as well. The U.S. nuclear power plants are now 
some of the most cost effective generators of electricity on 
the market. The average nuclear power plant is producing 
electricity at 1.9 cents per kilowatt hour, which is quite an 
achievement.
    For this reason, operating nuclear power plants has become 
a sought-after commodity in today's market. In all, 23 nuclear 
units are on the market, or have been sold, since last July. 
Most recently, two plants in New York, representing over 1,700 
megawatts of efficient capacity were purchased for 
approximately $1 billion.
    These trends are most interesting in that they demonstrate 
that the electricity industry can and will make significant 
investments in nuclear power plant capacity, and highlights the 
desire of some companies to pursue a supply strategy that 
specializes in nuclear generation.
    Further, the march toward renewing the licenses of U.S. 
nuclear power plants continues. Just 5 years ago, some analysts 
were predicting the mass closure of U.S. nuclear power plants 
in the face of relatively low natural gas prices and 
electricity competition.
    Even our own Energy Information Agency predicts a 
significant downturn of electricity, coming from nuclear power 
in the next few decades. Reality, however, is overtaking these 
projections.
    In March, the NRC granted permission for Calvert Cliffs to 
extend its reactor operation for additional 20 years. Just last 
week, Duke Power's Oconee Plant followed in Calvert Cliff's 
footsteps and became the second plant to receive a 20 year 
extension. These renewals have come at a fraction of the 
projected costs, and years earlier than many predicted.
    Our consultations with utility executives confirm that the 
overwhelming majority of the Nation's nuclear power plants can 
be expected to apply for and receive license renewals for 
continued operation well into the middle of the century.
    The operation of our nuclear power plants have helped many 
states deal with their obligations to meet Clean Air Act 
targets, while still increasing the electricity supply.
    In 1999, operation of the Nation's nuclear power plants has 
provided the great share of clean energy in the United States. 
Seventy percent of America's emission-free generation was 
provided by nuclear power, with most of the rest coming from 
hydroelectric resources.
    This presents a challenge to the future. Even with dramatic 
improvements in efficiency, the EIA projects that U.S. energy 
consumption will increase substantially by 2020, with about 
300,000 megawatts of new generating capacity required to meet 
demand and replace retiring capacity.
    As a result, if the U.S. is to simply maintain its current 
proportion of non-emitting capacity, we will have to build 
about 108,000 megawatts of new capacity from hydroelectric, 
non-emitting renewable or nuclear power.
    It is therefore important that nuclear remain a viable 
option for the future, and helping assure that this future is 
possible is part of the role of government.
    The NRC, the Nuclear Regulatory Commission, has done its 
part. They have done an outstanding job, in my opinion, in 
becoming a very efficient regulatory agency with whose safety 
oversight, utilities can work to plan for the future.
    The negative experiences of the past have not been replayed 
by NRC's successful implementation of license renewal. Many in 
industry now believe that NRC could also be a good partner in 
the construction of new nuclear power plants under the new, but 
untested, ``one step licensing'' rules possible for the three 
certified advanced light water reactors.
    We, at DOE, are doing our part, as well. We are reasserting 
U.S. leadership in international exploration of nuclear power 
technologies. We have successfully reinvigorated the U.S. 
nuclear R&D with our peer reviewed Nuclear Energy Research 
Initiative, and our new industry cost-shared Nuclear Energy 
Plant Optimization Program, where we receive about 60 percent 
of the funding for the program through the Electric Power 
Research Institute.
    We are also planning with our international partners for 
the long-term future by engaging in discussions in what have 
become known as Generation IV nuclear power systems. Generation 
IV systems are next-generation advanced technologies that will 
be economically competitive with the most efficient natural gas 
system, and will be deployed over the next 20 years.
    DOE initiated this consideration in January, when we 
sponsored a workshop with representatives of the Governments of 
Argentina, Brazil, Canada, France, Japan, South Africa, South 
Korea, and the United Kingdom, to begin discussing the 
interests of other countries in the future of nuclear power. We 
have provided a copy of a joint statement issued by that 
meeting for your use.
    Our advisory committee, the Nuclear Energy Research 
Advisory Committee, or NERAC, is helping us shape the future, 
as well. Interacting with the broad resource community, NERAC 
has made recommendations to shape the future of R&D activities.
    Like the President's Committee of Advisors on Science and 
Technology before it, NERAC calls for significant increases in 
the Federal investment in nuclear R&D. Its recommendations are 
modest and carefully targeted.
    There are many other challenges to be dealt with. We must 
move forward with dealing effectively with the disposition of 
spent nuclear fuel, as you stated in your opening statement, 
Mr. Chairman. While we would all like to see things move 
faster, they are moving, and this forward momentum is an 
essential element in the long term future of nuclear energy.
    We must preserve and enhance our education system, as well. 
The decline in numbers of students graduating with nuclear 
engineering degrees has been startling, down two-thirds over 
the last decade or so. But we have also seen positive signs in 
this area.
    DOE's increased focus on our university programs has paid 
some dividends by reversing the precipitous decline in the 
numbers of students graduating with nuclear engineering degree. 
Clearly, this is just a start, but it is movement in the right 
direction.
    In this, as in other areas, we have been making 
considerable progress. but there is a lot of work to do. With 
your support and guidance, we hope to do more.
    With that, I look forward to the other witnesses' 
statements, and to your questions.
    [The prepared statement of William D. Magwood IV follows:]
Prepared Statement of William D. Magwood, IV, Director of the Office on 
   Nuclear Energy, Science and Technology, U.S. Department of Energy
    Mr. Chairman and members of the Subcommittee, I am William D. 
Magwood, IV, Director of the Department of Energy's Office of Nuclear 
Energy, Science and Technology. I am pleased to be here today to 
discuss the important role of nuclear energy for over forty years in 
helping deliver reliable and competitive energy to the Nation--energy 
that meets our national interests and values for energy security, 
diversity of supply, and environmentally sustainable energy. I will 
also address what we see as the need for nuclear energy, the 
challenges, the opportunities ahead, and what the Administration is 
doing to advance nuclear energy technology to meet today and tomorrow's 
energy needs.
    Over the last decade, the United States has experienced 
unprecedented economic growth and prosperity. To a large extent, the 
prosperity we see today is made possible because of access to reliable, 
diverse, and affordable energy supply options. The country's energy 
strategy over the last twenty years, has been one of market reliance--
that is, of reliance on a competitive market to meet supply and 
demand--it is a strategy that has worked. The fact that new nuclear 
energy plants have not been built in the U.S. in recent years should be 
seen as a decision by the market. This decision is based first on the 
fact that the United States in recent decades has enjoyed a 
considerable surplus in electric supply options and second, on the 
uncertainties utilities faced in controlling the costs of constructing 
the last set of nuclear plants in the 1980's. I will comment further on 
both of these factors later.
    We believe that Government's role in the energy sector is primarily 
to assure that the Nation has at its disposal for the future, a range 
of energy technology options to provide diverse, economic, and 
environmentally responsible energy choices to fuel our economy in the 
twenty-first century. As reflected in detail in our DOE Research and 
Development Portfolio (February 2000), the Administration supports a 
wide range of energy production options, each with unique strengths and 
challenges. It is our job to make these options available. We leave 
their final selection and implementation to the market.
  importance of nuclear energy to today and tomorrow's energy security
    By all indicators, 1999 was a banner year for nuclear power in the 
United States. Nuclear power plants surpassed the peak operating 
performance records last set in the 1970's, increasing plant capacity 
utilization to 85.5 percent. Despite the closure of some inefficient 
nuclear units, nuclear energy delivered 20 percent of the Nation's 
electricity, second behind coal, which provided 51 percent of 
electricity.
    Nuclear's share of the electricity market continues to increase as 
plants increase availability and achieve greater operating 
efficiencies, in 1999 adding the equivalent of seven 1,000 megawatt 
plants to the grid. Contrasting this to 1990, when plant capacity 
averaged 66 percent, nuclear plants have made dramatic progress in 
improving efficiency and economic competitiveness, while at the same 
time reducing the amount of waste generated and worker exposures. U.S. 
nuclear power plants now produce electricity at an average of 1.9 cents 
per kilowatt-hour and represent some of the most cost-effective 
generation of electricity on the grid today.
    In fact, operating nuclear power plants have become a sought-after 
commodity in today's market. In all, 14 nuclear plants are on the 
market or have been sold since last July, representing 23 reactor 
units. Most recently, two plants in New York representing over 1,700 
megawatts of efficient capacity were purchased for approximately $1 
billion. We expect vibrant bidding for the Nine Mile Point reactors, 
which are also located in New York. These trends are most interesting 
in that they demonstrate the willingness of U.S. utilities and 
independent power operators to make significant investments in nuclear 
plant capacity, and the willingness of some companies to pursue a 
supply strategy that specializes in nuclear generation.
    Further, the march toward renewing the licenses of U.S. plants 
continues. Just five years ago, some analysts were predicting the mass 
closure of U.S. nuclear plants in the face of relatively low natural 
gas prices and electric utility competition. Even our own Energy 
Information Agency predicts a significant downturn in the electricity 
coming from nuclear power in the next few decades. Reality is 
overtaking these projections. In March, the Nuclear Regulatory 
Commission (NRC) granted permission for Calvert Cliffs to extend 
reactor operations another twenty years. Just last week, Duke Power's 
Oconee plant followed in Calvert Cliff's footsteps to become the second 
plant to receive a license extension. These license renewals have come 
at a fraction of projected costs and years earlier than many predicted. 
Our consultations with utility executives confirm that the overwhelming 
majority of the Nation's 103 operating plants can be expected to apply 
for and receive license renewals and continue operating safely, 
reliably and economically well past 2030.
    Finally, the operation of the Nation's existing nuclear power 
plants have helped States meet the Clean Air Act while increasing 
electricity supply to meet demand. In 1999, operation of the Nation's 
existing nuclear power plants provided the greatest share of clean 
energy in the United States--70 percent of America's emission-free 
electricity generation (with most of the rest coming from hydroelectric 
resources). Between 1973 and 1998, the use of nuclear energy avoided 
87.2 million tons of sulfur dioxide and 40 million tons of nitrogen 
oxides (pollutants under the Clean Air Act). Without nuclear power 
plants, the states covered by Title IV of the Clean Air Act, located in 
the Eastern and Midwest United States, would be hard-pressed to meet 
the targets required by the law.
    U.S. nuclear plants also avoid the release of 165 million metric 
tons of carbon annually which plants. Cumulatively, more than two 
billion metric tons of carbon has been avoided in the years since 1973. 
In the future, without the avoided carbon from nuclear energy, the 
United States would have to reduce greenhouse gas emissions by over 325 
million tons annually--double the current, already ambitious target--in 
order to reach the 1990 baseline under the United Nations Framework 
Convention on Climate Change. In the decades ahead, nuclear power will 
remain an essential part of the Nation's diverse energy resource 
portfolio, fueling our economy with a secure, domestic source of 
electricity. The safe, long term operation of these plants serves our 
national interest by providing for energy security and diversity and 
providing for reliable and affordable energy--a fundamental 
underpinning of our economic prosperity.
    The Energy Information Agency projects U.S. energy consumption will 
increase substantially by 2020, with about 300,000 megawatts of new 
generating capacity required to meet demand and replace retiring 
generating capacity. As a result, if the U.S. is to maintain its 
current proportion of roughly 30 percent non-emitting electricity 
supply, about 108,000 megawatts of this new capacity must be renewable, 
hydroelectric, and/or nuclear power capacity.
    Clearly, the recognized benefits of nuclear energy are prompting 
new discussions about the future of nuclear power in the United States 
as attention focuses on the nexus between reliable competitive 
electricity, clean air and preserving the earth's climate. Market 
decisions on whether to deploy new nuclear capacity, will be decided in 
large part based on the economics. We believe that nuclear power can 
play an important role in meeting future U.S. energy needs. We have 
seen the success industry has had in reducing operating costs. While 
work continues to be needed to reduce construction costs, we have great 
cause to be optimistic.
    First, the Nuclear Regulatory Commission has done an outstanding 
job in becoming an efficient regulatory agency under whose safety 
oversight, utilities can successfully plan for the future. The negative 
experiences of the past have not been replayed in NRC's successful 
implementation of license renewal. Many in industry now believe that 
NRC could also be a good partner in the construction of new nuclear 
plants under the new but untested ``one-step licensing'' rules possible 
for the three certified advanced light water reactor designs. The 
Department looks forward to working with NRC to bring advanced, 
performance-based, risk-informed regulation into reality, with promises 
of additional improvements in oversight.
    Second, much of the new advanced light water reactor technology has 
been implemented and proven overseas. The successful construction and 
operation of Advanced Boiling Water Reactors in Japan is the salient 
example. This experience demonstrates that these technologies can be 
built in a timely, cost-effective manner and result in power plants of 
high quality, reliability, and economic competitiveness.
    In order for nuclear energy to be competitive in the U.S. in the 
twenty-first century, however, challenges to its expanded use much be 
satisfactorily resolved. The high construction costs seen in the late 
1970s and early 1980s must be avoided, concerns about generation and 
disposal of nuclear waste must be finally resolved, remaining public 
concern about safety must be addressed, and issues associated with 
proliferation must be dealt with. In great part, focusing on the 
technical aspects of these issues has become a primary mission of my 
office.
            nuclear energy research--50 years of innovation
    Beginning in the 1950's, DOE's predecessor agency, the Atomic 
Energy Commission (AEC), with its scientific infrastructure, sponsored 
development of prototypes for reactor technologies that are in 
commercial use today. This activity continued through the 1960's as the 
AEC assisted in the design and construction of several more civilian 
nuclear power plants. However, as less and less startup support was 
required from the Federal government, the AEC began to focus more 
sharply on other potential applications for nuclear technology, 
including space reactors, radioisotope production, nuclear medicine and 
different types of advanced power reactors that offered theoretical 
advantages over established light water reactor technology.
    Today, as a result of this early partnership between government and 
industry, 103 light water reactors are operating in this country--a 
technology which operates safely, and predictably, providing almost 23 
percent of the Nation's electricity. This is an impressive success 
story. With a Government R&D investment of about $2 billion (roughly 
$7.6 billion in FY 2000 dollars) over the last forty years, utilities 
have put in place a $200 billion nuclear plant infrastructure which is 
economic, reliable, and safe. More recent investments the Government 
has made in this technology, after the commercial nuclear plant 
business was launched (75% of the U.S. Government investment in 
commercial light water reactor technology was made prior to 1980), have 
successfully increased efficiency of nuclear fuel by 50 percent, 
reduced generation of spent fuel by a third, reduced plant worker 
exposure by 67 percent, and made a whole new generation of certified, 
advance light water reactors available to the world. These follow-up 
investments not only improve the environmental performance of nuclear 
plants and enhance worker safety, but will save billions of dollars for 
the U.S. economy over the life of our operating plants.
    Despite, or perhaps because of this success, the Government's 
investment in nuclear technology declined substantially in the 1980's 
and 1990's. With completion of the Advanced Light Water Reactor (ALWR) 
program in 1997, the funding for nuclear energy R&D declined to zero in 
1998 and the Department took this time to reshape our approach to 
fission research to realign research with the key challenges to the use 
of nuclear energy and to goal of preserving the Nation's nuclear 
science and engineering education and facility infrastructure. This 
shift was based on the Administration's Comprehensive National Energy 
Strategy (1998), the DOE Research and Development Portfolio (February 
2000), and by the recommendations of the President's Committee of 
Advisors on Science and Technology (PCAST).
External Advice in DOE's Nuclear Power Program
    PCAST identified nuclear energy as among the technologies that 
could address a number of energy challenges, including reducing 
dependence on foreign oil, diversifying the U.S. domestic electricity 
supply system, expanding exports of U.S. energy technologies, and 
reducing air and water pollution, including greenhouse gas emissions. 
PCAST recommended that the Department reinvigorate its nuclear energy 
R&D program; this was followed by a second report last summer, in which 
PCAST recommended additional investments in the Department's nuclear 
R&D program to enable the program to expand its cooperation with the 
international community.
    Using the PCAST recommendations as a roadmap, we have begun the 
recovery of the Federal nuclear technology program. In 1998, Secretary 
Richardson, took additional steps to guide the future direction of the 
Department's nuclear energy research, to ensure successful 
implementation of the PCAST recommendations, including identifying 
promising research that warrants additional investment. He did this 
primarily by establishing the Nuclear Energy Research Advisory 
Committee, or NERAC.
    NERAC, chaired by Dr. James Duderstadt, former President of the 
University of Michigan, is comprised of independent policy, science and 
technology experts from universities, national laboratories and 
industry, with expertise ranging from reactor operations and nuclear 
engineering to biological sciences, nuclear medicine, environmental 
sciences, economics and strategic planning. I am pleased to note that 
one of NERAC's most active members, Dr. Dale Klein, is seated here with 
us today.
    PCAST and NERAC have helped us reinvent the Federal role in nuclear 
energy research and development. Recognizing the realities of today's 
constrained budgetary environment, we have reorganized how we conduct 
research, how best to accelerate innovation and how to assure the best 
return on the investment for the Nation. We have returned to a more 
focused Federal role in conducting R&D--that is, investing most of our 
research portfolio on long term, higher risk basic research aimed at 
reducing or eliminating significant barriers to future use of nuclear 
energy. This is research that typically is not within the shorter-term 
planning horizon of industry.
Current Nuclear Energy R&D Activities
    NE's largest research activity, the Nuclear Energy Research 
Initiative (NERI), reflects this fundamental shift in the way in which 
research projects are selected, funded, conducted, and evaluated. 
Focused on obstacles to long-term use of nuclear energy, NERI promotes 
investigator-initiated, peer reviewed research, enabling us to consider 
a broad range of innovative ideas brought forth from universities, 
industry, and our national laboratories to address issues such as plant 
economics, waste, and proliferation. Last year, 46 research projects 
were launched under NERI, involving 21 universities, eight national 
laboratories, 16 private sector organizations, and one federal agency. 
This year, 10 new projects will begin, involving seven universities, 
five national laboratories, and one government agency. Many of these 
projects also include significant collaboration by international 
research organizations.
    Another major area of focus for the NERI program this year, and an 
area of growing interest in the U.S. and with the international 
research community, are Generation IV nuclear power systems. Generation 
IV systems are next generation advanced technologies that will be 
economically competitive with combined cycle gas fired systems and 
deployed over the next 20 years. In January, the Department sponsored a 
workshop with representatives of the governments of Argentina, Brazil, 
Canada, France, Japan, South Africa, South Korea, and the United 
Kingdom to begin discussing the attributes of Generation IV reactor 
systems. The workshop included observers from the International Atomic 
Energy Agency, the OECD Nuclear Energy Agency, the U.S. Department of 
State, American Nuclear Society, and DOE's Nuclear Energy Research 
Advisory Committee. Following the conclusion of the workshop the 
participants issued a joint statement agreeing to pursue Generation IV 
nuclear power systems as a potential next generation energy option. 
There have been other meetings since January, refining concepts for 
effecting multilateral cooperation and setting general technology 
targets for next-generation nuclear power systems.
    In fiscal year (FY) 2000, another major shift in our research 
priorities occurred with the initiation of the Nuclear Energy Plant 
Optimization (NEPO) program. Recognizing the important role that the 
nation's existing nuclear power plants continue to serve over the next 
several decades in meeting demand for electricity in an environmentally 
sound manner, $5 million was provided in FY 2000 for NEPO research 
conducted in cost-shared cooperation with the Electric Power Research 
Institute, the research arm of the electric power industry, for the 
purpose of improving existing plant operations, safety, and 
reliability.
    This $5 million represents a Federal investment in intermediate 
term, higher risk research that is needed to increase the pace of 
innovation for developing new technologies for today's nuclear power 
plants. While industry's $85 million annual investment is focused on a 
short term horizon, funding ``just-in-time'' solutions to problems for 
existing plants, our investment serves to leverage Federal research 
dollars with industry's matching funds in order to expedite and conduct 
intermediate term generic research needed by all of the nuclear utility 
industry to continue safe, economic, and reliable operation of the 
Nation's nuclear plants.
    All of the work conducted in this program is reviewed by 
independent experts, including the NERAC, the Nuclear Regulatory 
Commission, and U.S. universities and is guided by a detailed DOE/EPRI 
Joint Strategic R&D Plan for Operating Nuclear Power Plants. Further, 
this program is cost-shared with the private sector; about 60% of the 
work planned for this year will be funded by industry.
University Programs--Preparing for the Future
    Government, industry, and academia alike face similar challenges in 
sustaining our critical nuclear science and technology 
infrastructures--our research facilities and human resources. Like much 
of the industrial base that emerged during and after World War II, the 
nuclear industry is a mature industry that is challenged by an aging 
workforce and research facility infrastructure. This is echoed by the 
Nation's universities, which are challenged by declining enrollments 
and aging facilities.
    Nuclear engineering programs and departments with an initial 
emphasis on fission were formed in the late 1950's and 1960's from 
interdisciplinary efforts in many of the top research universities, 
providing the manpower for this technical discipline. In the same time 
period, for many programs, university research reactors were 
constructed and began their operation, providing facilities for 
research and training of students. Over the last decade, U.S. nuclear 
science and educational infrastructure has stagnated, and started to 
decline. The number of independent nuclear engineering programs and 
number of operating research reactors have fallen by about half since 
the mid 1980's. In contrast, demand for nuclear-trained personnel is 
increasing to meet the needs of operating nuclear power plants and new 
initiatives in radiation science in collaboration with industrial and 
medical researchers as well as new bio-technologists. Finally, nuclear 
science and engineering continues to be needed in national security as 
well as providing the U.S. Navy with effective, safe nuclear 
propulsion.
    In order to meet the increasing demand for nuclear scientists and 
engineers in this century to support advancements in all of these 
areas--medicine, management of nuclear waste, nuclear technologies--in 
1997, the Department re-instituted a university and reactor assistance 
program, and now provides about $12 million of direct support each year 
to 47 educational institutions in 28 states. With scholarships and 
fellowships to outstanding students, research and infrastructure 
grants, and other programs, the Department has become the sole Federal 
agency to address the challenges in this vital sector of our education 
system.
    We have seen some success. With the modest federal investment, we 
have been able to help reverse the precipitous decline in the number of 
students earning nuclear science and engineering degrees at the 
Nation's universities. However, we recognize that more needs to be done 
if we are to preserve this irreplaceable, world-leading education 
infrastructure for the future needs of the United States.
Future Directions
    NERAC has several very active subcommittees examining various 
aspects of nuclear technology. Relevant to this discussion, the 
Committee has recently issued two reports that address the future of 
nuclear energy, the Long-Term Nuclear Technology Research and 
Development Plan, to guide nuclear energy research out to the year 2020 
and a report from a Blue Ribbon Panel on The Future Direction of 
University Nuclear Engineering Programs.
    The Long-Term R&D Plan, developed by NERAC with significant 
interaction from the wider research community, recommends that R&D 
budget levels be increased in order to enable the Nation to gain 
further advantages and value from our currently operating nuclear 
plants; provide for economic technologies and approaches to build 
enhanced advanced light water reactors in the U.S.; complete a 
prototype design for a Generation IV nuclear power system, and support 
a range of enduring missions within the Department. Although motivated 
in part by the need for new nuclear reactor system designs, clearly, 
such an investment would have a far-reaching impact elsewhere in 
engineering and technology. NERAC sets a goal of conducting $240 
million in nuclear energy research by 2005.
    Both the Long Term R&D Plan and the Blue Ribbon Panel report 
recognize that the ability to advance nuclear innovation in the future 
is not only tied to research but to the health of the education and 
scientific research infrastructure in the U.S. Without a continued 
supply of new graduates in nuclear energy-related areas, we will not be 
able to provide society with the benefits associated with the many 
applications of nuclear technology and U.S. leadership in this 
essential area of science and technology will slip away. Recognizing 
the vital nature of this issue, and the fact that the U.S. nuclear 
education infrastructure is in serious trouble, the NERAC recommends 
the Federal investment in nuclear science and technology programs at 
U.S. universities be increased to approximately $45 million, including 
a new program to fund improvements in university research reactors 
through peer-reviewed awards for research, training and other 
educational activities. With this increase, the Committee believes, the 
United States will be able to maintain a strong and vibrant nuclear 
science and engineering infrastructure well into the twenty-first 
century, providing the Nation with a realistic nuclear power option and 
well-trained engineers and scientists who can address important 
technical challenges in areas such as nuclear medicine, nuclear waste 
treatment and cleanup, and enhancing international nonproliferation.
                              conclusions
    Deployment of nuclear technology which occurred largely in the 
1970's, paved the way for expanded use of nuclear power in lieu of oil-
fired electricity supply, thus enabling oil to be concentrated in the 
transportation sector. Nuclear power was also deployed at a time of 
considerable debate about deteriorating air quality in the Nation's 
cities leading to enactment of the Clean Air Act. This strategy, 
increasing energy security and diversity, while supporting 
environmental objectives, prevails today and demonstrates the important 
role that nuclear energy can serve in meeting our Nation's need for 
electricity in a manner that is consistent with our environmental 
values and objectives--that energy use, economic growth and 
environmental protection need not be mutually exclusive.
    Today, we are at a time of tremendous opportunity where the 
research and policies we engage in now will define the technologies 
that are deployed over the next 20 years when demand for energy is 
expected to increase substantially. The decisions we collectively make 
today can significantly influence energy supply options and 
environmental control outcomes over the next fifty years. It is my hope 
that support for advancing nuclear energy technologies will grow as the 
Nation recognizes the important role that nuclear energy can serve in 
safely, reliably, and cost-effectively meeting demand for electricity 
in the future in a manner that is consistent with the nation's 
environmental values and objectives.
    I look forward to discussing the benefits on nuclear energy and the 
important role that nuclear energy continues to serve in providing for 
energy diversity, security, and reliability and in securing our 
Nation's environmental future. I would be happy to answer any questions 
you have.

    Mr. Barton. Thank you, Mr. Magwood.
    We now want to hear from Mr. Corbin McNeill, Jr., who is 
the Chairman, President, and Chief Executive Officer of PECO 
Energy Generation in Philadelphia, Pennsylvania. He is a 
graduate of the U.S. Naval Academy, and had a distinguished 
career in the United States Navy before going into the private 
sector. His company is making major moves into generating power 
by nuclear means.
    Welcome to the committee.

               STATEMENT OF CORBIN A. MCNEILL, JR.

    Mr. McNeill. Thank you very much, Mr. Chairman. As you 
said, I am Corbin A. McNeill, Jr., the Chairman, President, and 
Chief Executive Officer of PECO Energy Company of Philadelphia.
    PECO Energy currently owns or operates six nuclear reactors 
at three sites in Pennsylvania and New Jersey. Additionally, 
PECO's AmerGen partnership with British Energy, the nuclear 
generating company in Great Britain, owns and operates two 
reactors, and has agreements in place to acquire two additional 
reactors.
    Finally, PECO and the Chicago-based corporation, Unicom, 
the parent company of Commonwealth Edison, are intending to 
merge later this year, and once the final regulatory approval 
is received, our combined company, which will be known as 
Exelon Corporation, will own and/or operate 20 of the Nation's 
103 commercial nuclear reactors.
    I am here today to provide the perspective of the nuclear 
energy industry, representing all 103 nuclear power plants, 
which safely produce 22 percent of our Nation's energy, 
electricity.
    As the electricity industry is deregulated in Pennsylvania, 
and my experience is that Pennsylvania was one of the first to 
deregulate, it will be essential to have a comprehensive, 
updated nuclear energy policy. Only such a plan will guarantee 
that policymakers have the basis to make sound decisions for 
assuring a safe, clean, reliable, and economic supply of 
electricity for the future, and one that ensures energy through 
fuel diversity.
    Unfortunately, the existing Federal policy toward nuclear, 
as you expressed earlier, can best be described today as one of 
neglect. This is distressing, given that nuclear energy is our 
largest source of emission-free electricity, and the second 
largest generator of electricity, overall.
    Despite a cumbersome approach to a national energy policy, 
there has been progress in policies that will position the 
industry, as well, as we enter the new century.
    As Mr. Magwood mentioned, the Nuclear Regulatory 
Commission's regulatory reform efforts, paired with 
consolidation of ownership of nuclear power plants, will help 
ensure the continued safe, reliable, and economic operation of 
the vast majority of today's nuclear plants.
    While the continued operation of these plants and the 
development of advanced reactor designs rely on nuclear powers' 
economic viability in a deregulated electricity market, the 
Federal Government has a responsibility to provide a stable and 
predictable regulatory environment; to avoid artificial 
distinctions that may disadvantage nuclear energy in the market 
place; to uphold its contractual commitment to manage used 
nuclear fuel, and to help dispel what I believe are unwarranted 
public concerns about the perceived risks related to nuclear 
energy.
    Three other policy changes are appropriate to ensure that 
otherwise economical plant consolidations are not necessarily 
burdened. For instance, revision of Section 468A of the 
Internal Revenue Code, which addresses the tax treatment of 
nuclear decommissioning trust funds; the repeal of the Public 
Utility Holding Company Act; and the elimination of the 
statutory requirement that the Nuclear Regulatory Commission 
conduct an anti-trust review, when conducting a license 
transfer proceeding, would be helpful.
    The most important of these is the decommissioning issue, 
which relates to the need to update the current tax code, to 
recognize that in a deregulated environment, nuclear plants may 
be owned and operated by an entity that is unregulated in a 
historic cost of service sense.
    Section 468A currently provides for the tax-free transfer 
of qualified nuclear decommissioning funds, as a part of a 
plant sale or license transfer, when a plant is transferred 
from one regulated entity to another.
    While the IRS has used its discretionary authority to 
permit a tax-free transfer of these funds in Private Letter 
Rulings, related to the three plant sales which have been 
completed to date, Congress should amend Section 468A to make 
it clear that plant sales to unregulated entities should not 
trigger a taxable event when decommissioning trust funds are 
transferred.
    I believe that the future is very bright for nuclear energy 
in the United States, but that future will be realized only if 
industry and government, working together, can meet the long 
term challenges facing the industry. These challenges can be 
successfully addressed if Congress and the Administration have 
the political will to act.
    Let me be clear that the industry's future should not be 
based on government subsidies. It is the ultimate 
responsibility of the industry to ensure that a new generation 
of nuclear plants be safe, reliable, efficient, and acceptable 
to the public.
    Nevertheless, there is an important role for the Federal 
Government to play, if we are to benefit from the extended 
operation of today's nuclear plants in a new generation of 
emission-free plants.
    First, the Federal Government must continue to move toward 
a safety-focused regulatory system. In addition, Congress 
should eliminate the duplicative regulation that has allowed 
the Environmental Protection Agency to become involved in 
issues that are more appropriately a subject of NRC authority.
    Second, the Federal Government must treat nuclear power 
like any other electric technology, and should not make 
arbitrary distinctions that disadvantage nuclear energy in 
competitive markets.
    Nuclear energy must be treated consistent with other fuel 
sources, whether it be in regulation of radiation at all 
electric production facilities, or to the disclosure of 
benefits and adverse impacts in consumer labeling of 
electricity sources.
    This means that the Federal Government should also 
recognize in its environmental policies, the clean air benefits 
of nuclear energy. Nuclear energy is a source of electric 
generation that emits no air or water pollution, and should 
benefit from any Federal incentives awarded to other generation 
sources, because of their clean air and clean water 
characteristics.
    Third, the Federal Government, as you had mentioned, Mr. 
Chairman, must meet its statutory commitment to develop a 
repository for permanent disposal of used nuclear fuel.
    Finally, the Federal Government should strive in its public 
education programs to emphasize the reality that the risk for 
nuclear energy is small, compared to other risks in society.
    In that regard, I would like to respond to Mr. Sawyer's 
request to address the issue of deregulation, and its impact on 
safety.
    While conventional thought might relate cost pressure to 
declining safety, in fact, the reverse is true. In a 
deregulated environment, my company bears the risk of a poor 
safety record, much more so than it did in a regulated 
environment. If equipment failures or regulatory shutdowns were 
to occur, my shareholders will bear all of the cost of that 
shutdown, and that is unacceptable.
    Therefore, as the Chief Executive Officer, I must ensure 
that the highest levels of safe, reliable operation are 
maintained.
    In my personal experience, and that of the industry, we 
have found that safety and economic costs are not mutually 
exclusive. Over the last decade, we have demonstrated that the 
lowest cost plants in terms of operation, in fact, have the 
best safety records. This has been the promise of nuclear 
energy since its inception, and one that is now proving to, in 
fact, be the reality.
    To condense the rest of my statement, Mr. Chairman, to stay 
on time, I just would tell you that we do have a bright future. 
Mr. Magwood has mentioned that the Department of Energy has 
supported the Nuclear Plant Optimization Program and the 
Nuclear Energy Research Initiative. In fact, we see the promise 
of potential new reactors in the next 5 years, whether they be 
the currently licensed new generation or whether they be small 
modular designs.
    In closing, as you prepare, in the next several years, to 
address the Price-Anderson Act renewal, one of the things that 
I would suggest to you is that with small modular designs, they 
need to be treated differently than the large reactors, and 
that, in fact, we might look for ways to fund Price-Anderson 
liabilities in a different manner than we do today on a pro-
reactor basis; but maybe on a capacity basis.
    That concludes my remarks, and I thank you very much, Mr. 
Chairman.
    [The prepared statement of Corbin A. McNeill, Jr. follows:]
 Prepared Statement of Corbin A. McNeill, Jr., Chairman, President and 
              Chief Executive Officer, PECO Energy Company
    Mr. Chairman and Members of the Committee: I am Corbin A. McNeill, 
Jr., and I am the Chairman, President, and Chief Executive Officer of 
PECO Energy Company of Philadelphia. PECO Energy currently owns and/or 
operates 6 nuclear reactors at three sites in Pennsylvania and New 
Jersey. PECO's AmerGen partnership with British Energy owns and 
operates two reactors and has agreements in place to acquire two 
additional units. Finally, PECO and Unicom Corporation, the parent 
company of Commonwealth Edison Company, have announced our intention to 
merge later this year. Once final regulatory approval is received from 
a myriad of federal and state agencies, our combined company--to be 
called Exelon Corporation--will own and/or operate 20 of the nation's 
103 operating nuclear reactors.
    Thank you for the opportunity to appear before you today to discuss 
the current challenges facing nuclear energy and the role nuclear 
energy can play as part of the nation's long-term National Energy 
Policy.
    As the electric utility industry is deregulated, it will be 
critically important to have a comprehensive and up to date National 
Energy Policy in place. Only such a plan will guarantee that policy 
makers will have the information necessary to make sound decisions for 
assuring a safe, clean, reliable and economic supply of energy for the 
future.
    Electricity growth over the last 25 years has largely paralleled 
economic growth in the United States. Thus, assuring an adequate supply 
of electricity is vital both for our nation's economic growth and for 
the quality of life of all Americans. Nuclear energy can and, I 
believe, will continue to play an important role in providing that 
electricity.
    My comments today will focus on three themes:
    First, existing Federal policy towards nuclear energy can best be 
described as one of neglect. This is distressing since nuclear energy 
is the second leading source of electric generation.
    Second, the NRC's current regulatory reform efforts, paired with 
the consolidation of companies owning nuclear plants, will help ensure 
the continued safe, clean, reliable and economic operation of the vast 
majority of the nation's existing reactors.
    Third, while the continued operation of existing plants and the 
development of a new generation of plants will depend upon nuclear 
power's ability to compete in a deregulated electric market, the 
Federal government has a responsibility to provide a stable regulatory 
environment, to avoid artificial distinctions which disadvantage 
nuclear energy, to uphold its commitments to manage used nuclear fuel, 
and to provide honest and objective information to the public to dispel 
public unwarranted concerns about risks related to nuclear power.
                         current federal policy
    The Federal government's existing policy toward nuclear energy can 
best be described as one of neglect, bordering at times on open 
hostility. While this assessment may seem harsh, the facts speak for 
themselves:

 With few exceptions, Federal policy makers completely 
        disregard the role of nuclear energy in meeting the nation's 
        energy needs. It is a constant source of amazement and 
        frustration to read or listen to speeches by the nation's 
        leading energy policy makers--both within the Administration 
        and within Congress--which address energy and electricity 
        policy without once mentioning the word ``nuclear.'' As 
        recently as May 24, during this Subcommittee's first hearing on 
        National Energy Policy, the Department of Energy's written 
        statement, which was 20 pages long, mentioned nuclear energy 
        only once, and then only as part of a laundry list of research 
        and development initiatives.
 In nuclear power, we have a mature baseload technology that 
        generates billions of kilowatts of electricity annually without 
        emitting any of the pollutants associated with acid rain, smog, 
        haze, ozone, or global climate change. Yet, nuclear power is 
        rarely credited with its role in emissions avoidance or cited 
        as a source of future avoided emissions. To put the role of 
        nuclear power in perspective, if the U.S. closed all 103 
        nuclear plants and replaced them with fossil fired plants, we 
        would have to remove 90 million cars from America's highways 
        just to maintain the air quality at its current level.
 Just two years ago, funding for the Department of Energy's 
        research and development program for improving commercial 
        nuclear power plants was completely eliminated. In fiscal year 
        1998, not a single Federal dollar was spent on research and 
        development for an energy source that provides over 20 percent 
        of the electricity generated in the U.S. Funding for this 
        important program was begun again, at a modest level, in 1999 
        and continues today. But increased funding is necessary to 
        avoid significant negative impacts on efforts to recruit and 
        sustain an educated workforce to design and operate nuclear 
        plants in the future.
 The nation's management program for used nuclear fuel is at 
        least 12 years behind schedule. The Federal government's 
        failure to meet its contractual and statutory deadline to begin 
        accepting used fuel by 1998 threatens the continued operation 
        of some of the nation's best run nuclear power plants. The 
        Clinton Administration has failed to offer a concrete plan for 
        addressing the crisis faced by these plants, while Congress has 
        failed to reform a flawed funding process that will lead to 
        even more delays if the problem is not resolved soon. President 
        Clinton's veto of recently-passed used fuel legislation ignored 
        what has traditionally been broad, bipartisan support for 
        addressing this issue.
    Given these facts, it is hard to argue that Federal policy toward 
nuclear energy can be characterized as anything but neglectful at best.
    Nuclear power, as with all energy sources, is not without its 
challenges, but those challenges can be addressed successfully and 
should not overshadow the significant positive contribution of nuclear 
energy in meeting America's energy needs.
                 continued operation of existing plants
    Contrary to conventional wisdom just a few years ago, the future 
for the existing fleet of nuclear reactors in the United States is 
bright. While some forecasters predicted that dozens of current plants 
would shut down prematurely and that dozens more would shut down at the 
end of their current licenses, many of those same analysts are today 
predicting that only a handful of plants will close prior to the 
expiration of their licenses and that the vast majority of plants will 
seek 20 year renewal of their current licenses. In fact, some studies 
now are predicting that total electric output from nuclear plants will 
increase, even without new reactors coming on line, as a result of 
productivity gains by current reactors.
    What has sparked such a dramatic reassessment of the industry? In 
addition to tremendous strides in operational efficiency, outage 
reduction, and plant improvements, regulatory reform and the movement 
towards consolidation of nuclear power plant ownership have presented 
the nuclear energy industry with new and exciting opportunities to 
compete in the electric marketplace.
    From 1990 to 1999, increases in output as a result of plant 
upgrades, increased capacity factors, and shorter maintenance outages 
were the equivalent of adding 16 new 1,000 megawatt plants. These 
dramatic improvements in plant performance have made nuclear plants 
increasingly competitive economically.
    Two other factors are key to maintaining the current nuclear 
capacity in the U.S.: the Nuclear Regulatory Commission's transition to 
a stable, safety-focused regulatory regime and the trend toward plant 
consolidation in the industry.
    The NRC in recent years has served as a model of regulatory reform, 
adopting a new oversight process that relies on performance-based, 
objective indicators to judge acceptable levels of plant operations. 
The new process is more transparent and open than the old system and 
uses quantitative performance indicators. Revised inspection and 
enforcement programs have been integrated into this process as well.
    This new approach enhances safety by focusing management and 
regulatory attention on areas with the greatest safety significance. 
The NRC is to be commended for implementing this new system.
    Consolidation of nuclear plants will also have a significant impact 
on efforts to retain the current capacity of nuclear plants by allowing 
many plants that may be marginally economic on a standalone basis to 
continue to operate as part of a much larger nuclear organization.
    Consolidation achieves savings by having one organization handle 
operations, maintenance, outage planning and administration for a 
number of plants. These costs can be spread over a number of plants 
instead of being borne by a single unit.
    This consolidation is occurring through plant purchases, mergers, 
and operational arrangements. PECO's AmerGen partnership with British 
Energy has completed the purchase of two plants and has agreements in 
place for the purchase of two additional units. Entergy Corporation has 
completed one purchase and has an agreement to purchase two other 
plants. Other companies have expressed serious interest in purchasing 
nuclear plants in the U.S., and seven plants in the Midwest, belonging 
to five different utilities, are now being operated by a newly formed 
nuclear operating company. The number of plant transfers is expected to 
increase as states deregulate their electric generation markets.
    Three policy changes are important to remove potential barriers to 
permitting otherwise economical plant consolidations: revision of 
Section 468A of the Internal Revenue Code which addresses the tax 
treatment of nuclear decommissioning trust funds, repeal of the Public 
Utility Holding Company Act (PUHCA), and elimination of the statutory 
requirement that the Nuclear Regulatory Commission conduct an anti-
trust review when conducting a license transfer proceeding.
    The decommissioning trust fund issue involves the updating of the 
current tax code to recognize that--in a deregulated environment--
nuclear plants may be owned and operated by an entity that is 
unregulated in a historic cost of service sense. The tax code currently 
provides for the tax-free transfer of Qualified Nuclear Decommissioning 
Funds as part of a plant sale or license transfer when a plant is 
transferred from one regulated entity to another. These provisions were 
written in 1984, a time when Congress did not envision the possibility 
of a nuclear plant being sold to an unregulated entity. While the IRS 
has used its discretionary authority to permit a tax free transfer of 
these fund in Private Letter Rulings related to the three plant sales 
completed to date, Congress should amend Section 468A to make it clear 
that plant sales to unregulated entities should not trigger a taxable 
event when decommissioning trust funds are transferred.
    Legislation has been introduced in the House by Congressmen Jerry 
Weller and Ben Cardin (H.R. 2038) and in the Senate by Senators Frank 
Murkowski and John Breaux (S. 1308) to address this issue. The 
provisions of the Weller-Cardin bill are also included in H.R. 2944, 
Congressman Barton's Electricity Competition and Reliability Act. Some 
of the provisions of H.R. 2038 were included in H.R. 2488, the 
Financial Freedom Act of 1999, and some provisions were included in 
President Clinton's FY 2000 budget proposal.
    Repeal of PUHCA, as you know, is a primary feature of nearly every 
bill pending before Congress to address the restructuring of the 
electric utility industry. PUHCA is an outdated law that has outlived 
its usefulness, as evidenced by even the Securities and Exchange 
Commission's report a few years ago advocating its repeal. To the 
extent that PUHCA concerns prevent utility mergers, consolidation of 
nuclear plants will be less likely.
    Finally, the NRC has recommended as part of a package of proposed 
amendment to the Atomic Energy Act that Congress repeal the statutory 
requirement that the Commission conduct an anti-trust review when 
conducting a license transfer proceeding. Such an analysis is 
duplicative of reviews conducted by other Federal agencies.
                 long-term prospects for nuclear energy
    Though the future is bright for nuclear energy in the United 
States, that future will only be realized if industry and government, 
working together, can meet the long-term challenges facing nuclear 
power. These challenges, while significant, can be successfully 
addressed if Congress and the Administration have the political will to 
act.
    Let me be clear that the nuclear energy industry's future in the 
United States should not be based on inappropriate government 
subsidies. It will be the ultimate responsibility of the industry to 
ensure that a new generation of nuclear plants will be safe, clean, 
economic, reliable, efficient, and acceptable to the public.
    Nevertheless, there is an important role for the Federal government 
to play if the United States is to benefit from extended operation of 
our current nuclear plants and a new generation of nuclear power 
plants:

 first, the Federal government must continue to move towards 
        safety-focused regulation;
 second, the Federal government must treat nuclear power like 
        any other electric generating technology and should not make 
        arbitrary distinctions that disadvantage nuclear energy (this 
        includes the recognition in Federal environmental policies the 
        non-emitting benefits of nuclear energy);
 third, the Federal government should meet is statutory 
        commitment to develop and operate a repository for the 
        permanent disposal of used nuclear fuel; and
 the Federal government should strive in its public education 
        programs to emphasize the reality that the risk from nuclear 
        energy is small compared to other risks in society.
Safety-Focused Regulation
    The Federal government must continue to move toward true safety-
focused regulation that provides objective and transparent standards 
for assessing the performance of nuclear power plants. As I stated 
earlier, the Nuclear Regulatory Commission's efforts in this regard 
deserve particular recognition as a model of regulatory reform
    The NRC must continue to adapt to a maturing industry and to 
develop an effective, safety-focused regulatory framework. The NRC has 
made substantial efforts to reform its regulatory approach by 
implementing an innovative regulatory oversight process that is more 
safety-focused and performance-based and, more broadly, by developing 
risk informed, performance-based regulations.
    While the industry supports the NRC's ongoing efforts to develop a 
more effective regulatory regime, Congress should continue its 
oversight of the NRC to ensure that the agency's actions recognize 
outstanding industry safety levels and that the NRC implements sound 
budgeting practices and long-term strategic planning.
Consistent Regulatory Treatment
    Retaining nuclear energy as part of a sound national energy policy 
requires that nuclear energy be treated in a manner consistent with 
other fuel sources, whether it be in regulation of radiation at all 
electricity production facilities or disclosure of benefits and adverse 
impacts in consumer labeling of electricity sources. Nuclear energy can 
compete today and in the future, but policy makers must treat nuclear 
energy as they would any other energy source and apply the same rules 
to all competitors in the newly deregulated electricity market.
    In the coming years, the federal government and its administrative 
agencies must pursue policy initiatives to address issues that will 
have a significant impact on the industry's future. Those issues 
include recognizing the value of nuclear energy as an emission-free 
source of electricity and eliminating duplicative and conflicting 
regulation.
    Policy makers must explicitly recognize the intrinsic economic 
value of nuclear power as a greenhouse gas emission-free energy source. 
Maintaining nuclear power's emission free capacity is necessary to 
prevent increases in the emission-reduction requirements imposed on 
emitting power sources, such as natural gas or coal. Policy makers 
should (1) consider ways to allow nuclear energy to capture the clean 
air compliance value produced by emission-free sources of generation, 
(2) ensure that nuclear energy is fairly labeled, and (3) ensure that 
nuclear energy is treated equally with other non-emitting grid capable 
electric generating sources if an emission-free portfolio standard is 
adopted.
    The Energy Information Agency reported in Utility Fossil Fuel 
Receipts and Costs--The Year 1999 in Review, that ``a 1-percent 
increase in the annual nuclear plant capacity factor . . . translates 
into a reduction in annual consumption of either approximately 4.3 
million short tons of coal, 14 million barrels of petroleum, or 89 
billion cubic feet of gas. Most likely, it would be a combination of 
each.''
    According to EIA data, the capacity factor for nuclear plants in 
1999 was 86 percent, compared to 78 percent in 1998. Clearly, nuclear 
energy offers a tremendous value in helping make our air cleaner. In 
fact, it would be difficult, if not impossible, to meet Clean Air Act 
emissions standards in some parts of the country without nuclear power.
    Nuclear energy, as a source of electric generation that emits no 
air or water pollution, should benefit from any Federal incentives 
awarded to other generation sources because of their clean air and 
clean water characteristics.
    Congress must eliminate duplicative regulation that has allowed the 
Environmental Protection Agency to become involved in issues that are 
more appropriately subject of NRC authority. (For example, EPA has 
threatened to overturn NRC's regulatory decisions by seeking 
remediation under Superfund for sites decommissioned in accordance with 
NRC requirements. Another example of unnecessary and unproductive dual 
regulation is the application of the Resource Conservation and Recovery 
Act to commercial mixed wastes.)
Meeting Commitments on Used Fuel Management
    The federal government must fulfill its longstanding obligation to 
provide for central storage of used nuclear fuel. The national policy 
for management of used fuel was codified in the Nuclear Waste Policy 
Act of 1982 and in 1987 amendments to the Act. Although DOE currently 
is evaluating the suitability of a repository at Yucca Mountain, 
Nevada, the program will not yield timely results without additional 
legislation, forcing many plants to build temporary onsite storage at a 
cost of millions to consumers at each plant. The government's breach of 
its contractual obligation is creating a taxpayer liability that could 
eventually cost taxpayers billions of dollars.
    In addition to programmatic changes, it is imperative that Congress 
address the budgetary mechanism for funding the Department of Energy's 
used fuel program. If Yucca Mountain is designated as the site of the 
permanent repository, the program budget will need to increase 
tremendously to keep the project on its revised schedule. It is 
difficult to imagine Congress appropriating the necessary funds given 
the current budgetary constraints on the program. Congress should take 
steps to place program spending on the mandatory side of the budget so 
that it is not subject to the budget caps. (Money collected from the 
Nuclear Waste Fund is scored as mandatory receipts.)
    Energy Secretary Bill Richardson should be applauded for his 
efforts to address, at least partially, the financial burden placed on 
utilities due to DOE's failure to meet its contractual obligations by 
offering to enter into settlement agreements as directed by the Federal 
courts. Under such agreements, utilities could be compensated for costs 
incurred as a result of DOE's delay in accepting used fuel from reactor 
sites beginning in 1998. Nevertheless, compensating utilities for the 
costs of on-site storage is not a long-term substitute to centralized 
storage of used fuel. Congress and the Administration should work 
together to put this program--which is already 12 years behind 
schedule--back on track.
    Developing an integrated solution to managing used fuel is a 
political, not a technical, problem. The issue is not how to manage 
used fuel, but where to manage it.
Public Education
    The federal government can and should play an important role in 
educating the public about the very low and manageable risks related to 
commercial nuclear power as compared other endeavors in society. DOE's 
public education efforts should clearly convey the relative risks 
associated with all energy forms and uses.
    Similarly, DOE should respond aggressively to correct 
misinformation regarding the risks and safety record of the commercial 
nuclear energy industry. Whether it is a television network developing 
a made-for-TV movie featuring a runaway train with atomic fuel on board 
that ``explodes,'' or an irresponsible allegation that nuclear fuel 
shipments are the equivalent of ``mobile Chernobyls,'' the Department 
of Energy should publicly denounce such misinformation.
    The public looks to the federal government for guidance on complex 
issues, and while DOE should not be an advocate for nuclear energy, it 
should be responsible for challenging characterizations that 
deliberately mislead the public.
new technologies to improve efficiency and reduce environmental impacts
    Mr. Chairman, one of the issues the committee asked witnesses to 
address was the potential for new technologies that would improve 
efficiency and reduce environmental impacts.
    The good news is that such technology already exists in the form of 
today's commercial nuclear reactors. Efficiency improvements have 
increased dramatically over the last decade, and I have cited in detail 
the environmental benefits to be gained from continued reliance on 
nuclear energy. Nuclear energy accounts for nearly two-thirds of all 
the emission-free electricity generation available to the U.S. electric 
grid today.
    In terms of the long-term outlook, the next generation of nuclear 
reactors has already been designed and is being built in overseas 
markets. The Nuclear Regulatory Commission has certified three advanced 
reactor designs--the Westinghouse AP600, the GE Advanced Boiling Water 
Reactor, and the ABB System 80+. While I personally believe that the 
future of current advanced light-water designs in the emerging 
competitive U.S. marketplace is uncertain, I would note that these 
advanced plants are being built today in Asia.
    My personal view is that the next generation of plants to be built 
in the United States will be modular reactors as small as 100 megawatts 
in size. These ``Generation IV'' plants, as they have been called by 
some, may offer great opportunities for both increased safety--in that 
such reactors could remove the risk of severe fuel damage--and 
appropriate cost and market risk features that would make such plants 
attractive to investors. These plants could be technically and 
economically feasible within the next five years.
    In anticipation of the development of a small, modular reactor 
design, Congress should consider changes to the Price-Anderson Act when 
it is renewed to reflect these design advances. Specifically, Price-
Anderson's annual premium should be based on plant size (``per 
megawatt'') rather than levied as a flat ``per reactor'' fee. As you 
know, Price-Anderson is scheduled to be reauthorized during the next 
Congress. I would urge the Committee to begin its review of Price-
Anderson soon to ensure timely reauthorization of this important 
legislation.
                               conclusion
    Mr. Chairman, this is not an exhaustive list of the Federal changes 
needed to ensure nuclear energy's continued role as part of the 
nation's diverse and secure energy supply, but it addresses some of the 
major concerns facing the industry.
    The nuclear energy industry fully recognizes that in a competitive 
marketplace, it will have the primary responsibility for ensuring the 
viability of nuclear technology. The industry must be responsible for 
making sure that nuclear plants are operated safely, cleanly, reliably, 
and economically. At the same time, the Federal government has a vital 
role to play, a role that industry cannot. These government 
responsibilities include: providing a stable regulatory environment, 
avoiding artificial distinctions in its environmental and other 
policies which arbitrarily disadvantage nuclear energy, upholding its 
commitments to manage used nuclear fuel, and providing honest and 
objective information to the public to dispel public unwarranted 
concerns about risks related to nuclear power.
    Mr. Chairman, thank you again for the opportunity to appear before 
you today. I will be happy to answer any questions that you may have.

    Mr. Barton. Thank you, Mr. McNeill.
    We now want to hear from Dr. Dale Klein, who is Vice 
Chancellor for Special Engineering Programs at the University 
of Texas. He is on the Department of Energy's Nuclear Research 
Advisory Committee, and is the Subcommittee Chair. He is very 
active with the Pantex facility up in Amerillo, and is an 
expert in nuclear in nuclear issues.
    You are recognized for 7 minutes, and your entire statement 
is in the record in its entirety.

                   STATEMENT OF DALE E. KLEIN

    Mr. Klein. Thank you, Chairman Barton, and thank you, 
members of the subcommittee.
    I would like to acknowledge and thank you also for holding 
these hearings. I appreciate the opportunity to comment on a 
national energy policy that has to do with both coal and 
nuclear power.
    As Chairman Barton indicated, I am a professor of 
mechanical engineering, and have been at the University of 
Texas since 1977. Even though I have tenure, I should make 
comments that while I am giving an academic perspective, they 
do not reflect any position by the University of Texas or the 
University of Texas system.
    One of the things that we should certainly recognize is 
that we have one of the best electrical generation systems in 
the world, and we need to certainly take positive steps to 
maintain that activity.
    As you know, the current base load generation of 
electricity comes from primarily three fossil fuel sources and 
two non-fossil fuel sources. The fossil fuel sources are coal, 
natural gas, oil, the non-fossil or nuclear and hydroelectric.
    As Chairman Barton indicated in his opening comments, 
nuclear accounts for about 20 percent; coal, about 52 percent. 
These numbers will not change significantly over the next few 
years, simply because it takes too long to get significant 
plants in operation today.
    There are five areas that I would like to address briefly 
today, and just first talk about the importance of nuclear and 
coal in our electrical generation; briefly, about regulatory 
reform; talk about the spent nuclear fuel program; the low 
level waste; and the need to maintain a nuclear power 
infrastructure.
    As we indicated earlier, nuclear and coal account for over 
70 percent of our electrical generation. Both of these sources 
are extremely important for our national security and our 
economic viability. It is not a question of which one of these 
sources do we need for the future. We need both.
    It does not take long for all of us to realize the 
importance that electricity plays in our lives today. I grew up 
on a farm in Central Missouri. I have seen firsthand what the 
importance of electrical supply has done for the average farm 
family.
    When we look around in our daily lives, and we see the use 
of stereos, air conditioners, robotics, computers, just the 
very mention of high tech implies an increased electrical 
utilization. Therefore, it is important that we maintain that 
supply, so that we do have a robust and strong economy.
    In terms of nuclear issues, there is certainly a lot of 
mis-information on this involving radiation. There is a House 
bill before you during this time, House Bill 4566, that deals 
with issues of radiation, in terms of the metals industry. I 
would encourage you to look at regulation standards, and as you 
address some of these issues, to base nuclear issues on fact, 
rather than fears, so that we can move forward in a positive 
way.
    Another positive way that we have been moving forward, 
certainly in the nuclear arena, is with initiatives undertaken 
by Bill Magwood, at the Office of Nuclear Energy, Science and 
Technology.
    The Generation IV concept that he is proposing has 
certainly captured the interest of a lot our students. It is an 
area in which we can address and hopefully move forward in a 
very positive manner.
    On the front of regulatory reform, I think the NRC should 
be complimented in moving toward a safety-based form of 
regulation environment. We do not want to spend all of our time 
counting paperclips. We need to look at the issues that make a 
difference, do them right, and do them carefully.
    I think the NRC is moving forward in a positive way. One 
activity that I believe Congress could examine, as they look at 
the NRC budget, is currently the Nuclear Regulatory Commission 
is required to do 100 percent cost recovery. These fees put the 
burden on all the licensees.
    There is a significant fraction of the NRC's budget that is 
not directly attributable to the licensees' activities, that 
involve international programs and others. I think it would be 
helpful if the Congress would take a look at the NRC's budget, 
and fund those parts that really are the responsibility of the 
Federal Government, rather than put the burden on the current 
licensees.
    I will just briefly comment on the spent nuclear fuel 
disposal. As Chairman Barton indicated, we have not moved 
forward on a centralized storage facility. I was one of three 
Commissioners that served on a central storage review committee 
in 1988/1989.
    Our commission recommended that a centralized storage 
facility be constructed, and that the importance of a 
centralized facility enhanced as the repository was delayed, 
and as reactors shut down prematurely, both of which have 
occurred. Therefore, I think the Federal Government does need 
to move forward in an expeditious manner to solve the high 
level waste program.
    One activity I believe this committee could pursue is in 
its oversight responsibility to hold DOE accountable for the 
schedule in making the decision on Yucca Mountain.
    In terms of low level waste disposal, this is an area in 
which work began in 1980 with the Low Level Waste Authority 
Act. Several compacts were created to address the low level 
waste issue. That issue has not moved forward in a positive 
manner. No new sites have been selected.
    Again, it is a very complicated issue, from the standpoint 
of citing. But unless we make some positive decision on moving 
forward with low level disposal, it has a very negative impact 
on our research universities and on medical facilities that are 
users of isotopes.
    I would now like to comment on one of the most important 
issues. That is, maintaining a strong nuclear infrastructure 
within the United States. There is an overwhelming majority 
among the scientific community, government regulators, 
industrial individuals, that believe that nuclear power should 
remain one of our options as we proceed forward.
    Therefore, the United States needs to have a strong nuclear 
infrastructure in order to speak on global issues, and to have 
an influence worldwide, as well as in the United States arena.
    It is very important that the facilities at the 
universities and at the national laboratories are maintained 
and expanded, so that we can make decisions from a scientific 
and strong position, rather than one of weakness and 
intimidation.
    There are several recommendations that I would like to make 
in terms of maintaining a viable nuclear power option, the 
first of which is to maintain that current infrastructure and 
expand it. The second is to increase the nuclear R&D budget, 
primarily through the offices of Bill Magwood at NE, so that we 
are funding research and development on the order of $200 
million to $300 million per year.
    We need to increase our engineering educational support to 
over $20 million a year, and we need to support our university 
reactors at a level of over $20 million a year.
    We also need to fund research and development programs in 
isotope production, both with accelerators and new reactors. We 
need to enhance graduate student support, so that our best and 
brightest continue to pursue these exciting fields, rather than 
just go into area where they get stock options.
    In summary, I would like to commend Congress for taking a 
lot of positive actions in the past. I know Chairman Barton and 
others on the committee have been very supportive of long range 
issues. We need to make some very positive aspects and include 
regulatory reform, solve the high level and low level waste 
that is used, and maintain a strong nuclear environment.
    I would like to thank you for these comments. I look 
forward to your questions. Thank you.
    [The prepared statement of Dale E. Klein follows:]
    Prepared Statement of Dale E. Klein, Vice Chancellor of Special 
          Engineering Programs, The University of Texas System
    Chairman Barton and members of the subcommittee. I thank you for 
the opportunity to present comments on National Energy Policy: The 
Future of Nuclear and Coal Power in the United States. My name is Dale 
Klein. I am currently a Professor of Mechanical Engineering (Nuclear 
Program) at The University of Texas at Austin and Vice Chancellor of 
Special Engineering Programs at The University of Texas System. I have 
been a faculty member at The University of Texas at Austin since 1977. 
While my comments are from an academic perspective, they do not 
represent any official position by either The University of Texas at 
Austin or The University of Texas System. I have been involved in 
energy issues for over 25 years and welcome the opportunity to comment 
on how we can continue to maintain one of the best electrical 
generation systems in the world.
    As you know, our current base load electrical generation system 
consists of three (3) fossil fuel sources (coal, natural gas, and oil) 
and two (2) non-fossil sources (hydroelectric and nuclear). Renewable 
sources, primarily photovoltaics, geothermal, and wind, are not 
currently major sources of electrical generation and are not likely to 
be major sources for several decades unless there are some major 
technological advances.
    During 1999, the electrical generation for the U.S. consisted of 
the following:

------------------------------------------------------------------------
                                                                       %
------------------------------------------------------------------------
Coal................................................................  52
Nuclear.............................................................  20
Natural gas.........................................................  15
Oil.................................................................   3
Hydro electric......................................................   8
Renewable...........................................................   2
------------------------------------------------------------------------

    These numbers will not significantly change for the next several 
years because of the time it takes to add incremental supplies.
    There are 5 (five) areas that I would like to address today: 
importance of nuclear and coal electrical generation, regulatory 
reform, spent nuclear fuel disposal, low level waste disposal, and the 
need to maintain a nuclear power infrastructure.
Importance of Nuclear and Coal Generation
    Nuclear and coal provide over 70% of our electrical generation. 
Both of these sources are extremely important for our national security 
and economic stability. It is not a question of which of the sources 
are needed for future power plants--both are needed.
    It does not take long for each of us to realize the importance of 
electricity in our daily lives. I grew up on a farm in Central Missouri 
and observed first hand the positive aspects that electricity makes on 
the lives of farmers. We can all look at our use of electricity and see 
that our dependence on electricity grows each year. Today it is 
difficult to imagine life without electric lights, television, 
stereo's, washing machines, dishwashers, microwaves, robotics and 
computers. The mere mention of--high tech--implies the expanded 
utilization of electricity--from manufacturing, to the use by 
individuals. Therefore, it is extremely important to our national 
security and economic competitiveness that we have a safe, reliable, 
and economic electrical generation and distribution system. It would be 
helpful if the U.S. Department of Energy would develop a public 
education program, to explain our current electrical generation methods 
and what the major sources will be for the next decade. Others 
testifying today, will address the issues related to electrical 
generation and the use of coal. My comments are primarily directed 
towards actions we should take to enhance the safe, reliable electrical 
generation by nuclear power.
Regulatory Reform
    The U.S. Nuclear Regulatory Commission (NRC) has made significant 
progress in moving to a ``risk informed'' regulatory process. I was 
part of a study, conducted by the Center for Strategic and 
International Studies, entitled ``Nuclear Regulatory Processes.'' The 
study provided several specific recommendations where enhancements to 
the regulatory process can be made, with no compromise on safety, so 
that the consumer can benefit from these positive changes. The 
electrical generation by nuclear power has several decades of 
experience and it is appropriate to re-examine the regulatory process 
that was developed when the industry was just beginning.
    One specific action that Congress should address is the current 
100% cost recovery for the NRC. Currently, the nuclear licensees pay 
for part of the NRC budget that is the responsibility of the federal 
government
Spent Nuclear Fuel Disposal
    When I speak to various groups on nuclear power, the dominant 
question is ``What is the solution to the disposal of the spent nuclear 
fuel?'' Many members of the general public are not familiar with the 
spent nuclear fuel program in the U.S. Most of these individuals are 
not concerned about the technical details of spent nuclear fuel 
disposal, they simply want to know that there is a plan and that it is 
safe. In 1988-1989, I served on a Congressional Commission to examine 
the central storage for spent nuclear fuel. This commission concluded 
that there was no single discriminator for a central facility, but when 
considering all the factors, a central storage facility was 
recommended. The advantages of a central storage facility increased if 
the permanent repository was delayed and if some nuclear plants were 
shut down early--both of which have occurred. The alternative to a 
central storage facility was for each reactor site to develop 
additional ``at reactor dry storage.'' This results in the consumers of 
nuclear generated electricity paying twice--once for the permanent 
disposal site and again for additional facilities at the power plants. 
There is a need for continued, timely progress the permanent site and 
for the development of a central storage facility. Regardless of where 
the permanent disposal site is located, there will need to be a central 
storage and processing facility. In addition, there is a need to ensure 
that the funds paid by the consumers of nuclear generated electricity 
be allocated to the disposal of spent nuclear fuel.
    A specific activity for this committee is to exercise oversight 
responsibility and hold DOE accountable for the schedule to make a 
decision on Yucca Mountain.
Low Level Waste
    The 1980 Low Level Radioactive Waste Disposal Act has not been 
successful in achieving the goal of adding new sites for low level 
radioactive waste (LLW) disposal. Most states have been successful in 
joining a compact with other states or have established procedures for 
licensing a LLW facility in their own state. However, no compact or 
individual state has been successful in obtaining a license for a new 
LLW facility. To further complicate this issue, the Barnwell, LLW 
facility in South Carolina will likely reduce the ability for non-
compact members disposal states to use this facility. The uncertainty 
regarding availability and the high cost of LLW disposal has had a 
negative impact on university researchers and medical isotope users.
Nuclear Infrastructure
    There is an overwhelming majority among individuals in the 
scientific community, government officials, and elected officials that 
believe the U.S. should maintain a nuclear power option. In addition, 
there is a strong belief that the U.S. needs to have a significant 
nuclear program in order to influence global nuclear policy. It is 
difficult for the U.S. to promote nuclear policy issues globally, if 
the U. S. is not a world leader in nuclear technology.
    A major area of concern for the national laboratories, government 
agencies and industry in the supply of nuclear trained individuals. 
Many highly skilled nuclear workers are reaching retirement age and 
there is not a coordinated plan to replace these individuals. It is 
important that the United States retain core scientific, engineering, 
and technical skills to maintain a viable nuclear power option. Several 
nuclear programs at the university level have been closed as well as 
shutting down many university nuclear research reactors. Since the 
early 1970's, about half the nuclear programs have been terminated and 
half the university research reactors have shut down. Students today 
are focusing on careers in computer science/engineering and micro-
electronics. A major program needs to be developed to attract students 
to pursue careers in the nuclear services and nuclear engineering.
    The following are specific recommendations for maintaining a viable 
nuclear power infrastructure. This includes consideration for a new 
research reactor and an accelerator designed to meet the expected long-
term research needs. These two facilities should be designed to include 
the production of research isotopes and medical isotopes.

1. Maintain the existing nuclear research infrastructure at the 
        national laboratories and universities
2. Increase nuclear R&D to a yearly level of over $200-300 million by 
        2005
3. Increase the nuclear engineering educational research to $20 million 
        per year and university research reactor support to $20 million 
        per year
4. Increase the R&D program in research for both fundamental research 
        and isotope production using accelerators and nuclear research 
        reactors
5. Enhance graduate student support for advanced degrees in nuclear 
        science and engineering
Summary
    The generation of electricity using nuclear power is an option the 
United States should vigorously maintain and expand. There are many 
specific actions can be taken by Congress to help maintain the nuclear 
option without compromising safety. These include regulatory 
improvements, positive action for the safe disposal of both HLW and 
LLW, and maintaining a robust nuclear power infrastructure at the 
national laboratories and at universities.
    With these positive actions by Congress, future generations will 
have a better life similar to the improvement we are seeing today from 
past investments in nuclear technology.
    Thank you for the opportunity to present these comments.

    Mr. Barton. Thank you, Doctor.
    We now want to hear from Mr. James Graham, who is President 
of ConverDyn. Is that how you say it?
    Mr. Graham. Yes, sir.
    Mr. Barton. That is a joint venture between Honeywell and 
General Atomics. Mr. Graham currently serves on the Board of 
Governors of the World Nuclear Fuel Market, and is the past 
Chairman of the Nuclear Energy Institute's Nuclear Fuel Supply 
Forum.
    We welcome you to the committee. We would ask you to 
summarize your written statement in 7 minutes.

                  STATEMENT OF JAMES J. GRAHAM

    Mr. Graham. Thank you, Mr. Chairman and members of the 
subcommittee.
    As stated, my name is Jim Graham. I am, indeed, the 
President and CEO of ConverDyn, the Nation's sole remaining 
uranium converter. I would like to thank you for the 
opportunity today to speak on behalf of the U.S. domestic 
nuclear fuel supply industry. As stated for the sake of time, I 
will summarize my key points that can be found in my written 
testimony.
    The conditions and outlook of our business have never been 
worse in the United States. In fact, market conditions are so 
serious that uranium mining, uranium conversion, and even 
enrichment are on the brink of disappearing in this country. If 
this situation were merely a normal business cycle, I would not 
be here today, giving this testimony.
    Sadly, it is beyond any reasonable doubt that several key 
decisions and actions by the Federal Government over the past 
several years have created this precarious position.
    We have heard today that nuclear power accounts for over 20 
percent of the U.S. electrical power production, and makes a 
substantial contribution to U.S. energy and national security. 
This is because at this present time, we have within our own 
borders the capability to mine, convert, enrich, and fabricate 
uranium into nuclear fuel.
    But the in U.S, capabilities in the entire fuel cycle are 
presently under extremely duress, because of recent actions 
taken by the U.S. Government. Two of these major actions would 
be the 1998 privatization of the U.S. enrichment corporation, 
and USEC's aggressive sales of large volumes of uranium and 
conversion, transferred at privatization by DOE, at zero cost, 
which has been clearly documented to have helped drive the 
market price for uranium and conversion to near record lows.
    In 1993, the U.S. and Russian governments signed an 
agreement calling for the U.S. to purchase up to 500 metric 
tons of HEU from Russian weapons over a 20 year period of time. 
This HEU, which has been blended down to LEU, contains 
enrichment, conversion, and uranium.
    This large source of additional material in the U.S. has 
also greatly depressed the market price for the components. 
Taken together, these actions have resulted in overwhelming 
amounts of the three materials, uranium, conversion, and 
enrichment entering the U.S. market, with devastating impacts 
on the domestic fuel supply capabilities.
    As examples, for mining we see that since 1998, 
expenditures for uranium exploration and mine development has 
declined by almost 59 percent. In 1999, three uranium 
processing facilities closed, two in Texas, one in Louisiana. 
Employment in the U.S. uranium exploration mining and milling 
has decreased by almost 30 percent.
    In conversion, we see that in 1999, production at the 
ConverDyn facility in Metropolis, Illinois was cut back by 25 
percent, and employment reduced by over 12 percent.
    Sales are expected to decline by another 10 percent in 
2000, while at the same time, the price of new contracts moving 
forward has dropped well below production costs. Short of 
timely government intervention, it is very doubtful that the 
ConverDyn facility will remain in business much longer.
    With enrichment, we have seen employment at Paducah and 
Portsmouth enrichment facilities substantially reduced. 
Profitability is declined by hundreds of millions of dollars 
annually. The value of USEC stock has plummeted since 
privatization.
    Needed upgrades to existing plants can no longer go 
forward, due to lack of capital, and USEC is rumored to be 
shutting down one, if not both, of their existing plants in the 
near future.
    The end result of the actions taken to implement various 
U.S. Government policies has been to force the domestic nuclear 
fuel cycle to the brink of collapse.
    The issue of maintaining complete nuclear fuel cycle 
capability in our country is very, very important, both for 
U.S. energy and national security reasons. If the Federal 
Government agrees with this statement, then it must act 
immediately to ensure that this capability is preserved.
    We would like to table several proposed recommendations for 
the action by the government. Firstly, we should level the 
playing field for domestic uranium and conversion supplies by 
enforcing the provisions of the USEC Privatization Act that 
calls for the maintenance of a viable domestic nuclear fuel 
supply industry.
    Second, it is clear that the privatization of USEC has been 
a massive failure. Absent any viable alternative, the 
enrichment industry should be re-Federalized.
    Third, to ensure continuation, and I stress continuation, 
of the HEU agreement, the government should consider purchasing 
all of the HEU fee component to prevent further deterioration 
of the domestic uranium conversion industry.
    Mr. Chairman, in the past decade, our Nation has gone to 
war in the Middle East over energy. We invest billions of 
dollars annually to ensure secure oil supply from the Middle 
East and elsewhere.
    Ironically, at home, the Federal Government has unwittingly 
been taking actions that have seriously undercut the ability of 
key domestic industry to do its part in support of our national 
energy security.
    Given the importance of a secure energy supply to our 
economy and to national security, it is very important that the 
Federal Government take timely action and steps to reverse the 
damage that has been done, and to ensure a viable domestic 
industry.
    Mr. Chairman, thank you for the opportunity to address this 
subcommittee today on behalf of the domestic nuclear fuel 
supply industry.
    [The prepared statement of James J. Graham follows:]
 Prepared Statement of James J. Graham, President and CEO of ConverDyn
    Mr. Chairman and Members of the Subcommittee, my name is Jim Graham 
and I am the President and CEO of ConverDyn--the nation's sole 
remaining uranium converter. For the record, I am also the President 
and CEO of Nuclear Fuels Corporation, a US uranium marketing company. I 
would like to thank you for the opportunity to speak before you today 
on behalf of the U.S. domestic nuclear fuel supply industry.
    The people and businesses at the front end of the nation's nuclear 
fuel cycle very much appreciate the Subcommittee's holding a hearing on 
the future of nuclear energy at this time. The conditions and outlook 
for our business have never been worse in the U.S. In fact, market 
conditions are so serious that uranium mining, uranium conversion and 
perhaps even enrichment are on the brink of disappearing in this 
country.
    If this situation were merely the normal course of business cycles, 
I would not be here today giving the testimony that I am about to give. 
But sadly, it is beyond any reasonable doubt that several decisions and 
actions by the federal government over the past few years have created 
this precarious situation. My testimony will focus on these actions and 
I will also make some suggestions as to how the federal government 
could begin to reverse this situation.
    The facts about the importance of nuclear power are probably quite 
familiar to most Members of the Subcommittee: it represents 23% of the 
nation's electrical production; it has become extremely economically 
competitive with other sources of power; and it produces no atmospheric 
emissions. Further, given the staggering projections for energy demand 
world wide, nuclear energy's superior environmental characteristics 
almost by necessity make it the source of choice for the future.
    But there is another important fact about nuclear energy: at the 
present time, we in this nation are not subject to foreign cartels on 
nuclear energy or price fixing because we have the ability to mine and 
process the fuel within our borders. It is this element of national and 
energy security that is endangered today.
    At this time, I would like to describe three main actions by the 
U.S. federal government that have had a devastating impact on U.S. 
suppliers:

1. The privatization of the U.S. Enrichment Corporation;
2. The Russian HEU agreement; and
3. The lifting of the Kazak Suspension Agreement.
                         1. usec privatization
    The Energy Policy Act of October 1992 created the United States 
Enrichment Corporation (USEC), which took over all uranium enrichment 
activities of the government. On April 26, 1996 the USEC Privatization 
Act was passed which resulted in the privatization of USEC on July 28, 
1998 by an initial public offering (IPO). The IPO is a misnomer here 
since USEC had to borrow $500 million to match the higher industry 
bidder. Therefore, the privatization should be called an LBO. I believe 
this committee has copies of the various testimonies, including mine, 
given on April 13, 2000 during the hearing conducted by the 
Subcommittee on Oversight and Investigations of the Committee on 
Commerce. The evidence presented at that hearing documents in full 
measure the concerns with, among other things, how USEC was privatized. 
However, this committee should consider the continuing problems 
stemming from the privatization of USEC which are:
    Aggressive sales of natural uranium inventories owned by USEC. Upon 
privatization, USEC was granted control of 28,609 metric tons of 
natural uranium in the form of uranium hexaflouride (UF6), 
an intermediate product in the production of nuclear fuel. 
UF6, as a commercial product, has two components: natural 
uranium concentrates (U3O8) produced from the 
mining and milling of uranium ore and the conversion services necessary 
to chemically transform those concentrates into UF6. All of 
this material was transferred to USEC from the U.S. Department of 
Energy (DOE) at no cost. DOE had accumulated most of this material as a 
result of purchases by its forerunner, the U.S. Atomic Energy 
Commission, during the ``Cold War'' era.
    Transfers to USEC were made for several purposes, but mainly to 
capitalize the to-be-privatized company without having to commit 
hundreds of millions of scarce budget dollars. At the time of 
privatization, USEC's uranium endowment was valued by USEC at $745.5 
million. Many industry observers and analysts were somewhat surprised 
at the magnitude of the endowment since they had focused on transfers 
of 12,000 metric tons of uranium as UF6 made pursuant to the 
privatization agreement and publicized in that agreement. What was less 
visible to the industry prior to privatization, was an existing 
inventory of 12,145 metric tons of UF6 which was carried over from 
USEC's predecessor, the Uranium Enrichment Enterprise of the U.S. DOE.
    USEC released details of its uranium inventory and its plans to 
sell most of that inventory by 2005 in its June 29, 1998 S-1 filing 
with the U. S. Securities and Exchange Commission. Information 
appearing in the industry press at the time indicated that USEC planned 
to sell a total of 33,562 metric tons of UF6 by 2005 with 
maximum sales of 8,100 metric tons of UF6 in 2002. The 
difference between its original endowment of 28,609 metric tons of 
UF6 and its ultimate sales of 33,562 metric tons of 
UF6 was to have been created by a process of 
``underfeeding'' its enrichment plants.
    In July 1998, USEC assured the U.S. government that it would ``sell 
its uranium gradually in a flexible manner that first and foremost 
supports a healthy, stable market, and with a view towards fulfilling 
its commitment to the HEU agreement.'' USEC's President & CEO further 
stated several months later that its inventories would be disposed of 
``in a gradual market-sensitive manner.'' USEC's scheduled sales of 
uranium dwarf current and projected U.S. uranium production as 
illustrated in Figure 1. USEC's scheduled sales cut the market in half 
for ConverDyn, the sole private provider of conversion services in the 
U.S. as set forth in Figure 2. Figures 3 and 4 provide a perspective on 
uranium and conversion prices. Each of these figures show clearly the 
devastation wreaked upon the U.S. industry by sales of USEC's 
inventories. USEC's inventories were accumulated without cost to USEC. 
On this basis it's quite easy to undercut bids made by legitimate 
producers with real costs for labor, materials, and electricity.
    Lack of a new enrichment technology. Prior to privatization USEC 
management touted the fact that a government-backed laser enrichment 
program, called AVLIS, would be the future of enrichment technology 
since it would drastically reduce the power required and therefore the 
cost of enrichment services. This was essential for the future to 
compete with European and Russian competitors who had more cost 
effective centrifuge technology compared to USEC's gaseous diffusion 
plants. However, within one year after privatization, the same 
management at USEC said that AVLIS technology would not be commercially 
viable and killed the program after almost two billion dollars had been 
spent on it. It is interesting to note that the two private consortia, 
who also made bids to take over USEC during the dual-track 
privatization process via the M&A route, stated that they did not feel 
AVLIS was ready for commercialization in the time frame projected by 
USEC's management. At the present time USEC does not have any viable 
alternative to the aging and high cost gaseous diffusion plants for 
enrichment. This is a serious setback to U.S. interests in keeping a 
viable and reliable domestic enrichment capability.
                        2. russian heu agreement
    In February 1993 the United States and the Russian Federation 
signed a government-to-government agreement concerning the disposition 
of and purchase of 500 metric tons of highly enriched uranium (HEU) 
extracted from Russian nuclear weapons. First shipment of low enriched 
uranium (LEU) obtained from the blending down of HEU was received in 
June 1995. Through March 1, 2000 a total of 2,385 metric tons of LEU, 
blended down from 81 metric tons of HEU have been delivered to the U.S. 
This is equivalent of 24,000 metric tons of natural UF6 or 
62 million pounds of U3O8 and over 14 million 
SWU.
    The domestic nuclear fuel cycle industry has consistently supported 
the foreign policy and non-proliferation initiatives of the U.S. 
government. However, the time has now come for us to jointly and 
cooperatively ensure that the cost of such laudable objectives, which 
benefit all Americans, are not disproportionately borne by the handful 
of U.S. companies still active in providing a domestic source of goods 
and services to the U.S. nuclear fuel cycle.
    The sale of the U3O8 in the natural feed 
component from the delivery of LEU under the HEU agreement is 
constrained by the USEC Privatization Act, as shown in Table 1. 
However, this material is primarily meant for sales to U.S. utilities 
and as such the physical stockpile of Russian-owned UF6 that 
is building up in the U.S. is having a severe impact on the market for 
U3O8 and conversion. Further, it is important for 
this committee to note that at the current rate of yearly deliveries, 
Russian HEU feed material is equal to ConverDyn's current and projected 
annual production of 9 million kgs. Also, there are no restrictions on 
the sale of the conversion component. Nevertheless, it is worth noting 
that in 2000 the quota for sales of Russian HEU-derived 
U3O8 into the U.S. market at 6 million pounds is 
already 30% higher than U.S. production of 4.6 million pounds in 1999.
                  3. kazak suspension agreement lifted
    In July 1999 the Department of Commerce's International Trade 
Commission voted to end the antidumping investigation against 
Kazakstan, with the result that Kazak uranium is free to be imported 
directly into the U.S. market without duties or other obstacles. While 
Kazak uranium production is considered to be small, at about 2.4 
million pounds annually, it does represent another source of material 
that can add to the oversupplied U.S. market, since our market is the 
largest for spot sales by determined sellers. Furthermore, an 
unresolved question is the fate of Kazak enriched uranium product 
containing about 2 million SWU and 9.3 million pounds 
U3O8 equivalent. This material was enriched in 
the former Soviet Union, but now resides in Kazakstan and should it be 
determined to be of Kazak origin, then it can enter the U.S. freely and 
thus further depress prices for all components, that is 
U3O8, conversion and SWU.
    Mr. Chairman, having now described the causes of the industries' 
troubles, I will now describe in more detail the actual state of the 
mining, conversion and enrichment industries themselves.
                    reduction in u.s. uranium mining
    The Energy Information Administration (EIA) publishes an annual 
report on the status of the U.S. uranium industry. Last month the EIA's 
``Uranium Industry Annual 1999" became available. It presents a 
depressing picture of the current state of uranium mining and milling 
in the U.S. Since the privatization of USEC in July 1998, all aspects 
of the domestic uranium industry have suffered tremendous declines, as 
evidenced by the following facts:

 expenditures for uranium exploration and development decreased 
        by 59% from the 1998 level to $9.0 million;
 mine production of uranium declined by 5% from the 1998 level 
        to 4.5 million pounds;
 three uranium processing facilities closed during 1999, 2 in 
        Texas and 1 in Louisiana;
 employment in the U.S. uranium raw materials industry overall 
        decreased by 24%, but in the key sectors of exploration, 
        mining, milling and processing the decrease was almost 30%;
 see also Table 2 for salient statistics;
    While uranium production from foreign sources will meet a large 
share of the U.S. nuclear utilities needs, the existence of a viable 
domestic source of supply is invaluable in keeping the price of fuel 
competitive. If the few remaining domestic producers are forced to 
close and reclaim their mines, and the industry continues to 
consolidate, uranium will become a seller's market with market 
conditions unfavorable to U.S. utilities that would then be fully 
dependent on imported uranium. It is imperative that a domestic supply 
be maintained to keep the price of uranium competitive with operational 
costs.
    This subcommittee is very familiar with the problems the American 
people have faced due to over reliance on foreign oil imports. The loss 
of the front end of the nuclear fuel cycle would likewise be injurious 
to electrical consumers. The domestic uranium industry has established 
a considerable resource that will be lost if nothing is done to 
resurrect this industry. An investment of approximately $6 billion 
dollars has been made to create our current uranium resource base. As 
producers close their operations, records, land positions, skilled 
human resources and permits will be irretrievably lost. At this point 
only significant price escalation, such as those that resulted from the 
Westinghouse/cartel debacle, will fire interest in restarting the 
domestic industry. However, given that it can take in excess of ten 
years to permit a new mine and resource development may be forced to be 
created from ground zero, the ability of U.S. producers to create 
competitive uranium production when needed is questionable at best. 
Permitting is an extremely time consuming process and the investment 
needed would require assurance that a reasonable price would be in the 
offing for a significant period of time.
                      reduction in u.s. conversion
    ConverDyn is the sole manufacturer in the U.S. uranium conversion 
industry. Conversion represents less than 4% of the fuel cycle cost, 
but it is a critical step in the production of nuclear fuel for 
electric power production. Our facility in Metropolis, Illinois is the 
only remaining production facility in the U.S. and represents 
approximately 60% of the conversion capacity that exists in North 
America. Until 1992 there were two such facilities, but due to the 
depressed state of the uranium industry, the other facility was closed 
and all production was transferred to the Metropolis unit. During the 
next several years a considerable sum of money was invested to expand 
output at Metropolis to the current capacity of 12.7 million kgs per 
year. This rate of production was achieved in 1998, but shortly 
thereafter the market collapsed due to aggressive sales by the 
privatized USEC of zero-cost government inventories and the HEU feed 
material stockpile build-up. The available new business reached a peak 
of 53 million kgs in 1997 and has steadily decreased since then to 
under 20 million kgs in 1999 and even less in 2000. Thus, we were 
forced to cutback production last year at Metropolis by 25% to 9.3 
million kgs per year and employment was reduced by 50 to 350. Sales are 
expected to decline a further 10% in 2000, while the prices for new 
contracts in 2000 are averaging 30% below 1999 levels, which itself was 
20% below 1998. Furthermore, the published prices for spot and long 
term conversion are now at near historic lows of $2.45-3.25 per kg, and 
it is doubtful that the sole U.S. converter can survive much longer at 
these kinds of operating rates and revenues. See Figure 5 for a time-
line of major events associated with the deterioration of conversion 
prices.
                      reduction in u.s. enrichment
    The hearing by the Subcommittee on Oversight and Investigations 
last April closely examined the dire state of the sole U.S. provider of 
enrichment services, USEC. For the record I will summarize here the 
following key points:

 employment at the two enrichment facilities at Portsmouth and 
        Paducah have already been reduced by 500 immediately after 
        privatization, and there are now plans to lay off an additional 
        625 this July, bringing the total cuts to almost 30% of the 
        pre-privatization level;
 USEC profitability is projected to decline to $35-45 million 
        in fiscal 2001 compared to an estimated $110-115 million in 
        fiscal 2000;
 USEC stock has lost about $1 billion dollars in value since 
        privatization just two years ago;
 USEC has no viable alternative new technology to replace its 
        high-cost, outdated production technology;
 USEC lacks the capital for upgrades at its existing facilities 
        or obtain new technologies without selling out its contract 
        backlog;
 USEC is rumored to be close to shutting down one if not both 
        of the enrichment facilities still operating in the U.S;
 the recent attempts by USEC to increase its purchases of SWU, 
        this time on commercial terms, and its efforts to partner with 
        another enricher in Europe or Russia, suggest that it will more 
        and more just be a broker of international supplies.
    These facts and statements do not bode well for the continuation of 
a strong and viable domestic enrichment supply in its current form.
    The result of these U.S. government actions are two key impacts: 
First, national security is at risk because of the decrease in U.S.-
based and U.S.-owned capability to provide, maintain and further 
develop the requisite skills in each step of the nuclear fuel cycle, be 
it uranium mining, conversion or enrichment; secondly, energy security 
is jeopardized since over 20% of U.S. electric generation from a clean, 
non-polluting source like nuclear is now dependent on foreign supply 
for most, if not all, of its fuel needs. At a time when there is rising 
concern about the import levels for other energy sources, notably oil, 
and nuclear is called upon to increase its output to cope with 
environmental commitments, it is imperative that this Subcommittee take 
a hard, close look at the future viability of the domestic nuclear fuel 
cycle supply situation. Clearly the nation's electrical needs and the 
utility industry would be better served to maintain the current fuel 
cycle infrastructure, than hoping to start it from scratch a few years 
in the future. The expenditure of funds today to preserve this industry 
from the misadventures caused by misuse of surplus government uranium 
stockpiles seems prudent if not essential.
                               conclusion
    The various actions of the U.S. government that I have discussed 
today, were all taken to accomplish different political goals. Each 
action by itself, and taken solely in its own context, was probably the 
best one to further U.S. interests. Unfortunately, when the results of 
these individual actions are viewed in totality, and with the benefit 
of time and hindsight, then it is clear that the domestic nuclear fuel 
cycle providers and their employees have indeed suffered enormous 
hardships to further the broadest definition of U.S. strategic 
interests, whether it is free trade or non-proliferation or helping 
totalitarian command societies to become free market democracies.
    The end result of the actions taken to implement various U.S. 
government policies has been to force the domestic nuclear fuel cycle 
to the brink of collapse. Embedded in the Enrichment Privatization Act 
is the concept that domestic mining, conversion and enrichment 
capabilities are important and should not be impacted. However, to 
date, no mitigating actions have been taken by either Congress or the 
President.
    Mr. Chairman, just in the past decade our nation has gone to war in 
the Middle East over energy. We invest billions of dollars annually 
essentially to ensure a secure oil supply from the Middle East and 
elsewhere. Among others, a recent report of the Hart-Rudman Commission 
has made it clear that energy looms even larger in our future national 
security. Meanwhile it is ironic that at home, the federal government 
has unwittingly been taking actions that have seriously undercut the 
ability of a key domestic industry to do its part in support of our 
energy security.
    Given the importance of ample and secure energy supplies to our 
economy, to national security and to our well being, it is very 
important that the federal government take timely steps to reverse the 
damage that has been done and to ensure a viable domestic uranium 
industry.
                            recommendations
    Mr. Chairman, I would propose that this Subcommittee consider the 
following measures to alleviate the serious damage to the domestic 
nuclear fuel cycle players.
    First, the playing field should be leveled for the domestic 
suppliers by enforcing the provisions of the USEC Privatization Act, 
which calls for the maintenance of a viable domestic industry. Also, a 
level playing field can be supported by continuing restrictions on 
foreign dumping, specifically by extending the lives of the Russian and 
Uzbek suspension agreements, and ensuring that Kazak EUP is determined 
to be of Russian origin.
    Second, it is clear that privatization of USEC has been a massive 
failure in almost every respect and in the absence of any viable 
alternative mechanism, the enrichment industry should be re-federalized 
so that a long-term solution to outdated enrichment technology can be 
found, and the U.S. can once again be the world leader in this field.
    Third, to ensure the continuation of the government-to-government 
HEU agreement between the U.S. and Russia, the HEU material should be 
taken into long-term government inventory, as was done for the 
deliveries in 1997 and 1998. The commercial agreement which the current 
administration facilitated is clearly not working, not least because of 
USEC's own actions. To prevent further deterioration of the market, I 
strongly suggest that the U.S. should take back all unsold uranium 
inventory at USEC.
    Finally, Congress must create a program to get the producers and 
converter through the next three to five year period when the market 
can work off the artificial components now experienced and fuel costs 
will once again reflect reasonable production costs. We would very much 
welcome the opportunity to work with Congress to accomplish this 
important task.
    Mr. Chairman, thank you for giving me the opportunity to address 
this subcommittee today.

                                                     Table 1
                                   Russian HEU Agreement: Deliveries and Sales
----------------------------------------------------------------------------------------------------------------
                                                                      U3O8       UF6               U3O8 Quota (M
                                                                      equiv     equiv      SWU     lbs, per USEC
                     Year                       HEU (mt)  LEU (mt)  (Million  (Million  (Million)  Privatization
                                                                      lbs)      kgU)                    Act)
----------------------------------------------------------------------------------------------------------------
1995 to 3/1/2000.............................        81+     2,385        63      24.5        14+            6
2000.........................................        30        915      23.7       9.1       5.5             6
2001.........................................        30        915      23.7       9.1       5.5             8
2002.........................................        30        915      23.7       9.1       5.5            10
2003.........................................        30        915      23.7       9.1       5.5            12
2004.........................................        30        915      23.7       9.1       5.5            14
2005.........................................        30        915      23.7       9.1       5.5            16
2006 through 2014............................       270      8,235     213.3      81.1      49.5          174
----------------------------------------------------------------------------------------------------------------
Note:
1. Sale of the conversion component of the HEU feed material is NOT restricted, whereas the U3O8 component is
  restricted as per the quota established under the USEC Privatization Act.
2. USEC is free to sell the SWU component as it pleases.
Source: USEC and USEC Privatization Act


                                                     Table 2
                                             U.S. Uranium Statistics
----------------------------------------------------------------------------------------------------------------
                                       Employment   Production
                Year                    (Person-    (1,000 lbs    Canadian   U.S. Prices      Events of Note
                                         Years)       U3O8)       Imports
----------------------------------------------------------------------------------------------------------------
1999................................          649        4,611       12,489       $10.17
1998................................          911        4,705       14,366       $10.56  USEC Privatized
1997................................          794        5,643       16,713       $11.98
1996................................          689        6,321       19,093       $15.40
1995................................          534        6,043       16,799       $11.45
1994................................          452        3,352       14,613        $9.82
1993................................          380        3,063           na       $10.61
1992................................          682        5,645           na        $9.19
1991................................        1,016        7,952           na        $9.45  Dissolution of the
                                                                                           Soviet Union
1990................................        1,335        8,886           na       $10.66
1989................................        1,583       13,837           na       $11.34  NAFTA in effect as of
                                                                                           1/1/89
1988................................        2,141       13,130           na       $17.54
1987................................        2,002       12,991           na       $22.38
1986................................        2,120       13,506           na       $21.66
1985................................        2,446       11,314           na       $19.03
----------------------------------------------------------------------------------------------------------------
Source: U.S. D.O.E. Energy Information Administration ``Uranium Industry Annual''; 1995, 1996, 1997, 1998, 1999



[GRAPHIC] [TIFF OMITTED] T6466.001

[GRAPHIC] [TIFF OMITTED] T6466.002

[GRAPHIC] [TIFF OMITTED] T6466.003

                         The Nuclear Fuel Cycle

What are the steps in the nuclear fuel cycle?

    There are four major steps in the production of nuclear 
fuel. These steps are components of the nuclear fuel cycle and 
are illustrated herewith.
    1. Uranium Production--Uranium is a naturally occurring 
element in the earth's crust. When sufficiently concentrated by 
natural physical and chemical forces, it may be economic to 
mine the ore by open-pit or underground methods. Uranium is 
typically recovered from the ores by alkaline or acid leaching. 
Uranium is also produced by in-situ leaching and as a by-
product of phosphate fertilizer, gold, and copper. The final 
product of uranium mining and processing is usually a mixture 
of uranium oxides referred to as either natural uranium 
concentrates, U3O8, or ``yellowcake.'' 
Natural uranium concentrates contain 0.711 percent G5235U, the 
active isotope in the nuclear process. The remaining 99.3 
percent is the inactive isotope 238U.
    2. Uranium Conversion--Natural uranium concentrates in the 
form of U3O8 are converted to natural 
uranium hexaflouride (UF6) in order to provide an 
appropriate feed material for the next step in the nuclear fuel 
cycle: enrichment. The conversion process includes feed 
preparation, reduction with hydrogen to UO2, 
hydrofluorination to UF4, fluorination to 
UF6 (which is a gas at moderate temperatures), and 
purification. Uranium in this form retains the natural isotopic 
concentration of 235U of 0.711 percent. Importantly, 
there is only one uranium converter left in the U.S.
    3. Uranium Enrichment--Enrichment is a process of 
concentrating the 235U isotope to higher levels of 3 
to 5 percent in order to increase the efficiency of the fuel 
for nuclear reactors. Concentration of the 235U 
isotope occurs by molecular weight in the gaseous diffusion 
process used in the U.S. and Europe, as well as in the 
centrifuge process used in Russia and Europe.
    4. Fuel Fabrication--Enriched uranium hexaflouride is 
converted by fabricating companies to UO2, 
pelletized, and inserted into zirconium alloy tubes which are 
then combined into bundles of nuclear fuel.
    Each of these steps must be completed in order to produce a 
final product. Each step in the production process has a 
different character, different participants, different regional 
distribution, and a different value. These characteristics are 
referred to as the ``Industry Value Chain.'' It is notable that 
most of the world's nuclear fuel cycle participants are 
foreign-owned, yet the U.S. is the world's largest user of 
nuclear fuel with over one hundred operating nuclear units.
[GRAPHIC] [TIFF OMITTED] T6466.004

[GRAPHIC] [TIFF OMITTED] T6466.005

    Mr. Barton. Thank you, Mr. Graham.
    We now want to welcome Dr. David Lochbaum, who is with the 
Union of Concerned Scientists, and is a nuclear safety 
engineer. Dr. Lochbaum has been personally responsible for 
pointing out a number of safety problems at operating nuclear 
plants around the country, and insisting, at some peril to his 
career, that those problems be corrected.
    Your statement is in the record in its entirety. We welcome 
you to summarize it in 7 minutes.

                   STATEMENT OF DAVID LOCHBAUM

    Mr. Lochbaum. Thank you, Mr. Chairman and members of the 
committee. Thank you for inviting the Union of Concerned 
Scientists to provide our views on nuclear power's future.
    The future of the nuclear industry will depend on the 
credibility and commitment of the industry and its regulators 
to nuclear safety. That future could see existing plants 
retired prematurely, or see many licenses extended, or perhaps 
even see new nuclear plants. To succeed in the future, however, 
nuclear power must contain something that has been absent from 
its past, an effective regulator.
    The nuclear industry's worst enemy has always been the few 
corner cutters that have focused public attention on unresolved 
safety problems. The past has shown that the key difference 
between safe and unsafe plants was plant owners effectiveness, 
meeting minimum safety standards.
    The Nuclear Regulatory Commission is supposed to establish 
minimum standards and enforce them. The NRC has simply not done 
its job. As a direct result, millions of Americans have been 
placed at undue risk. Eventually the failure to enforce the 
standards is exposed. Costly repairs are required, but the 
damage to the industry and the NRC's credibility, which is 
still in need of repair, is likely to be the greatest long-term 
cost.
    Three years ago, the General Accounting Office reported on 
how the NRC handled three troubled nuclear plants: Cooper in 
Nebraska, Millstone in Connecticut, and Salem in New Jersey. 
Salem was closed for over 2 years. The NRC had a list of 47 
items that had to be fixed before the plant could resume safe 
operation.
    The NRC knew about 42 of the items before Salem shut down. 
If each item had to be fixed before Salem could safely restart, 
why were they not addressed when the plant was running?
    Salem is not an isolated case. UCS released a report last 
October listing 23 nuclear reactors that have been shut down 
for longer than a year, since 1984. The Donald C. Cook plant in 
Michigan, for example, has been closed since September 1997.
    Among the items being fixed at Cook are things that have 
been wrong since it first started up in the early 1970's. Thus, 
this plant has always operated below the NRC's minimum 
standards. How far below; the plant's owner spent nearly 3 
years and over $500 million to get up to the minimum standards.
    Fire protection is another example. Following the 1975 fire 
in the Browns Ferry plant in Alabama, the NRC implemented more 
rigorous fire safety regulations. But the NRC has failed to 
enforce these regulations. Instead, the NRC has granted more 
than 1,000 exemption and waivers to 103 plants.
    In 1992, the NRC testified to this Congress about temporary 
measures that would be used by plant owners for about 6 months, 
until fire safety problems could be fixed. Eight years later, 
those temporary measures are still being used at U.S. nuclear 
plants, instead of meeting the minimum standards.
    Nuclear power's past is dismal, but its future could be 
even worse. As Americans get older, we see medical 
professionals more often and spend more money on health care. 
As America's 103 operating nuclear plants get older, they see 
fewer safety inspectors and have less money spent on 
maintenance.
    The NRC is allowing plant owners to cut back on safety 
inspections, based on performance data, compiled over the past 
two decades. Unfortunately, the NRC is neglecting a well-known 
fact that applies to light bulbs, computers, and nuclear plant 
components.
    Equipment fails most often during the break-in and the 
wear-out phases. The NRC is using data taken from the peak 
performance period to allow plant owners to cut back on safety 
checks, ignoring the fact that failure rates will increase as 
components enter the wear-out phase. It could be a recipe for 
disaster.
    Nuclear power can have a future only if its has an 
effective regulator. The agency has yet another plan to 
increase its effectiveness, but deeper changes to the NRC's 
culture will be needed to implement it successfully.
    When nuclear plants are shut down for extended periods, a 
culture of complacency has often been identified as the root 
cause.
    There are always senior management changes. New senior 
managers, or at least mentors, are recruited from outside the 
company, not because they have the missing plan, but because 
they have a proven track record for taking the actions required 
for any plan to be successful, and because new leadership is 
essential for changing the corporate culture.
    The NRC's culture of complacency has been documented by the 
GAO, the NRC's Office of the Inspector General, and many 
others. The NRC's senior managers have strong technical 
backgrounds. Most are well intentioned, but they lack the 
experience and the independence to lead the broad-based 
transformation of the agency.
    New managers are needed to shake up a system that has long 
accepted excuses instead of compliance, promises instead of 
performance, and luck instead of vigilance. Congress should 
compel the NRC to bring in the experienced management talent it 
needs to complement the capable technical talent it already 
possesses.
    This new NRC management might determine it needs short-term 
budget increases to fund the agency's transformation. Congress 
must ensure that the NRC has the budget it needs to do this 
change.
    Congress must also ensure that the NRC's transformation is 
achieved to restore its credibility and provide any hope for a 
nuclear future.
    Thank you.
    [The prepared statement of David Lochbaum follows:]
Prepared Statement of David Lochbaum, Nuclear Safety Engineer, Union of 
                          Concerned Scientists
    Mr. Chairman and Members of the Committee, thank you for inviting 
the Union of Concerned Scientists to provide our views on nuclear 
power's future.
    The future of the nuclear industry will depend on the credibility 
and commitment of the industry and its regulators to nuclear safety. 
That future could see many existing plants retired prematurely, or see 
many licenses extended, and even perhaps see new nuclear plants. To 
succeed in the future, however, nuclear power must contain something 
that has been absent from its past--an effective regulator.
    The nuclear industry's worst enemy has always been the few corner-
cutters that have focused public attention on unresolved safety 
problems. The past has shown that the key difference between safe and 
unsafe plants was plant owners' effectiveness meeting minimum safety 
standards. The Nuclear Regulatory Commission is supposed to establish 
minimum standards and enforce them. The NRC has simply not done its 
job. As a direct result, millions of Americans have been placed at 
undue risk. Eventually, the failure to enforce standards is exposed. 
Costly repairs are required. But the damage to the industry and the 
NRC's credibility--still in need of repair--is likely to be the 
greatest long-run cost.
    Three years ago, the General Accounting Office reported on how the 
NRC handled three troubled nuclear plants--Cooper in Nebraska, 
Millstone in Connecticut, and Salem in New Jersey.1 Salem 
was closed for over two years. The NRC had a list of 47 items that had 
to be fixed before the plant could resume safe operation. The NRC knew 
about 42 items before Salem shut down. If each item had to be fixed 
before Salem could safely restart, why weren't they addressed before 
the plant shut down?
---------------------------------------------------------------------------
    \1\ United States General Accounting Office, ``Nuclear Regulation: 
Preventing Problem Plants Requires More Effective NRC Action,'' GAO/
RCED-97-145, May 1997.
---------------------------------------------------------------------------
    Salem is not an isolated case. UCS released a report last October 
listing 23 nuclear reactors that have been shut down for longer than a 
year since 1984.2 The Donald C Cook plant in Michigan, for 
example, has been closed since September 1997. Among the items being 
fixed at Cook are things that have been wrong since it first started up 
in the early 1970s. Thus, the plant had always operated below the NRC's 
minimum standards. How far below? The plant's owner spent nearly three 
years and over $500 million to reach the minimum standards.
---------------------------------------------------------------------------
    \2\ David Lochbaum, Union of Concerned Scientists, ``The NRC's New 
Oversight Process: On the Road to Effective Regulation?'' October 1999.
---------------------------------------------------------------------------
    Fire protection is another example. Following the 1975 fire at 
Browns Ferry in Alabama, the NRC implemented more rigorous fire safety 
regulations. But the NRC failed to enforce those regulations. Instead, 
the agency granted more than a thousand exemptions and waivers. In 
1992, the NRC testified to Congress about temporary measures that would 
be used by plant owners for about six months until their fire safety 
problems could be fixed. Eight years later, those ``temporary'' 
measures are still being used at US nuclear plants instead of meeting 
the minimum standards.
    Nuclear power's past is dismal, but its future could be worse. As 
Americans get older, we see medical professionals more often and spend 
more money on health care. As America's 103 operating nuclear power 
plants get older, they see fewer safety inspectors and have less money 
spent on maintenance.
    The NRC is allowing plant owners to cut back on safety inspections 
based on equipment performance data compiled over the past two decades. 
Unfortunately, the NRC is neglecting a well-known fact that applies to 
light bulbs, computers, and nuclear plant components. Equipment fails 
most often during the break-in and wear-out phases. The NRC is using 
data taken from the peak performance period to allow plant owners to 
cut back on safety checks, ignoring the fact that failure rates 
increase as components enter the wear-out phase. It could be a recipe 
for disaster.
    Nuclear power can only have a future if it also has an effective 
regulator. The agency has yet another plan to increase its 
effectiveness, but deeper changes to the NRC's culture will be needed 
to implement it successfully. When nuclear plants are shut down for 
extended periods, a culture of complacency has often been identified as 
a root cause. There are always senior management changes. New senior 
managers, or at least mentors, are recruited from outside the company. 
Not because they have the missing plan, but because they have a proven 
track record for taking the actions required for the plan to be 
successful, and because new leadership is essential for changing the 
corporate culture.
    The NRC's culture of complacency has been documented by the GAO, 
the NRC's Office of the Inspector General, and many others. The NRC's 
senior managers have strong technical backgrounds. Most are well-
intentioned. But they lack the experience and independence to lead a 
broad-based transformation. New managers are needed to shake up a 
system that has long accepted excuses instead of compliance, promises 
instead of performance, and luck instead of vigilance.
    Congress should compel the NRC to bring in the experienced 
management talent it needs to complement the capable technical talent 
it already possesses. New NRC management might determine that it needs 
short-term budget increases to fund the agency's transformation. 
Congress must ensure that the NRC has the budget it needs. Congress 
must also ensure that the NRC's transformation is achieved, to restore 
its credibility and any hope for a nuclear future.

    Mr. Barton. Thank you.
    Next we will go to Mr. Robert Ebel, Director of Energy and 
National Security, Center for Strategic and International 
Studies.
    Welcome, and your full testimony is inserted in the record. 
If you would summarize, you have 7 minutes.

                   STATEMENT OF ROBERT E. EBEL

    Mr. Ebel. Thank you very much, Mr. Chairman.
    Mr. Chairman, at CSIS, we are nearing the completion of the 
detailed examination of the geopolitics of energy out to the 
year 2020. This is a study which is co-chaired by former 
Senator Sam Nunn and by James Schlesinger. We have four 
Congressional co-chairs: Senators Murkowski and Lieberman, and 
Representatives Taucher and Gilman.
    I would like to share with you this afternoon our 
preliminary findings and policy considerations, inasmuch as 
they have particular relevance to current and future U.S. 
energy policy, and in particular, to future nuclear power 
policy.
    Let me begin with our key findings. By the year 2020, the 
developing countries of the world will be consuming more 
energy, in absolute amounts, than the industrialized countries 
of the world.
    In relative terms, the share of oil, coal, and nuclear 
power, in terms of total energy consumed, will each decline. 
The share of renewables, largely hydropower, will be unchanged, 
while the share of natural gas will increase.
    By the year 2020, two-thirds of all the oil produced in the 
world will come from the Gulf, as compared with just 41 percent 
this year.
    Global warming is attracting increasing attention. That, 
combined with the energy appetite of the developing world, 
holds tremendous implications for all of us.
    I would like to isolate a particular finding. Our estimates 
indicate that electricity will be the most rapidly growing form 
of energy use during the coming two decades. This growth, not 
surprisingly, will be concentrated in the developing countries, 
where electricity use will more than double.
    As these countries enter the electricity age, a particular 
concern emerges. Can adequate electricity supply be developed 
in these countries, while at the same time protecting the 
environment? What can we do to help assure that the developing 
world has the full range of energy options available to them?
    Clearly, we will all benefit if developing countries have 
access to clean, adequate, and secure sources of energy. At the 
same time, these countries are not going to place environmental 
policy ahead of economic growth. To assist these consumers, it 
is essential that clean coal technology is a viable option, 
given their high coal consumption.
    Equally important, nuclear power must be promoted as a 
viable option in the developing world to supply electricity in 
rural areas, and to promote general industrialization.
    Let me ask, does the United States have a forward-looking 
plan for nuclear power? No, it does not. Does Russia? Yes, the 
Minister of Atomic Energy recently stated that there are plans 
to quadruple the generation of nuclear electric power by the 
year 2030.
    Does China? China today has 10 nuclear reactors under 
construction or planned, and will build 20 nuclear power 
stations by the year 2020. Does Japan, despite a recent shift 
in public opinion? Yes, the government currently plans to add 
20 new reactors by the year 2010.
    Mr. Chairman, I can visualize our leadership slipping away. 
The nuclear option faces a difficult choice: exercise the 
nuclear option through government support, and it is our 
judgment that that alone will not do it, or accept that 
pollution will worsen.
    I noted earlier that the relative share of nuclear electric 
power in the worldwide consumption of energy will decline over 
the coming years. This decline will lead to a commensurate 
increase in worldwide carbon emissions, at a time when the 
world is increasingly aware of the need for remissions-free 
energy, and at a time when the developing world is confronted 
with dramatically large future energy requirements.
    How can we respond? We propose a government/private sector 
partnership, to fund R&D efforts to design a fourth generation 
of nuclear reactors: smaller in size, producing less toxic 
waste, using a nuclear fuel having little military application.
    We look at our assessments as a whole through the year 
2020. We find that the stress prospects for instability and 
interference in energy supplies, but we do this only to alert 
policymakers as to just how fragile timely supplies of energy 
really are.
    What lies beyond the year 2020? I can not say with any 
particular degree of certainly, other than anticipating 
mounting pressures on adequate supplies of energy, and 
particularly energy with minimal pollutant levels. That means 
nuclear, hydro, and other renewables.
    Unfortunately, the future for hydroelectric generation is 
rather dim. Whenever an oil supply crisis emerges, a call for 
the greater use of solar, wind, geothermal, and biomass 
inevitably arises. Their future is always just around the 
corner, but we have yet to turn that corner. I cannot say for 
certain that we ever will.
    That leaves the nuclear option. The nuclear industry is far 
more regulated than are competing forms of energy. With 
electricity becoming more essential to our way of life, is it 
now time to develop a set of criteria to measure the 
effectiveness of the individual forms of power generation, to 
give nuclear energy the benefit of a level playing field.
    Thank you, Mr. Chairman. I look forward to your questions.
    [The prepared statement of Robert E. Ebel follows:]
  Prepared Statement of Robert E. Ebel, Director, Energy and National 
        Security, Center for Strategic and International Studies
    Thank you, Mr. Chairman.
    Mr. Chairman, we at CSIS are nearing completion of a detailed 
examination of the geopolitics of energy out to the year 2020, a study 
cochaired by former Senator Sam Nunn and by James Schlesinger, former 
Secretary of Energy and of Defense. There are four Congressional 
cochairs: Senators Murkowski and Lieberman, and Representatives Taucher 
and Gilman.
    I would like to share with you our preliminary findings and policy 
considerations, inasmuch as they have particular relevance to current 
and future U.S. energy policy and in particular to future nuclear power 
policy.
    Let me begin with our key findings:

 By the year 2020, the developing countries of the world will 
        be consuming more energy, in absolute amounts, than the 
        industrialized countries of the world.
 In relative terms, the share of oil, coal and nuclear power, 
        in terms of total energy consumed, will each decline. The share 
        of renewables, largely hydropower, will be unchanged. The share 
        of natural gas will increase.
 By the year 2020, two-thirds of all the oil produced in the 
        world will come from the Gulf, as compared with just 41 percent 
        this year.
 A growing influence of non-governmental organizations (NGOs) 
        on energy supply and demand will come at the expense of host 
        governments.
 Terrorism as threat to physical infrastructure and 
        cyberterrorism as a threat to operating infrastructure will be 
        of increasing concern.
 Global warming is attracting increasing attention and that, 
        combined with the energy appetite of the developing world, 
        holds tremendous implications for all of us.
    I want to isolate a particular finding. Our estimates indicate that 
electricity will be the most rapidly growing form of energy use during 
the years 2000 to 2020. This growth, not surprisingly, will be 
concentrated in the developing countries, where electricity use will 
more than double. As the developing countries enter the electricity 
age, a particular concern emerges:

 Can adequate electricity supply be developed in these 
        countries while at the same time protecting the environment?
 What can we do to help assure that the developing world has a 
        full range of energy choices available to them?
    Clearly, all will benefit if developing countries have access to 
adequate, clean, and secure sources of energy. At the same time, they 
will not place environmental policy ahead of economic growth. To assist 
these consumers, it is essential that clean coal technology is a viable 
option, given their high coal consumption.
    Equally important, nuclear power must be promoted as a viable 
option in the developing world, to supply electricity in rural areas 
and to promote general industrialization, while keeping nuclear power 
as a viable option in the developed world.
    Let me ask, does the United States have a forward-looking plan for 
nuclear power? No, it does not. Does Russia? Yes, the Minister of 
Atomic Energy recently stated that there are plans to quadruple the 
generation of nuclear electric power by the year 2030. Does China? 
China today has 10 nuclear reactors under construction and will build 
20 nuclear power stations by the year 2020. Does Japan, despite a 
recent shift in public opinion? Yes, the government currently plans to 
add 20 new reactors by the year 2010.
    I can visualize our leadership slipping away.
    The nuclear option faces a difficult choice: Exercise the nuclear 
option, through government support (it is our judgment that the market 
alone won't do it). Or Accept that pollution will worsen.
    I noted earlier that the relative share of nuclear electric power 
in the worldwide consumption of energy will decline over the coming 
years. This decline will lead to a commensurate increase in worldwide 
carbon emissions, at a time when the world is increasingly aware of the 
need for emissions-free energy, and at a time when the developing world 
is confronted with dramatically large future energy requirements.
    How can we respond? We propose a government/private sector 
partnership, to fund R&D efforts to design a fourth generation of 
nuclear reactors--

 Smaller in size
 Producing less toxic waste
 Using a nuclear fuel having little military application.
    Our assessments through the year 2020 stress prospects for 
instability and interference in energy supplies, but only to alert 
policy makers as to just how fragile timely supplies of energy really 
are.
    What lies beyond the year 2020? I cannot say with any particular 
degree of certainty, other than anticipating mounting pressures on 
adequate supplies of energy, particularly energy with minimal pollutant 
levels. And that means nuclear, hydro and other renewables.
    The future for hydroelectric generation is rather dim. Little 
unexploited potential remains. Indeed, there are pressures even today 
to remove hydropower dams in place because of various environmental 
concerns. And whenever an oil supply crisis emerges, a call for greater 
use of solar, wind, geothermal, and biomass inevitably arises. Their 
future is always just around the corner but we have yet to turn that 
corner and I cannot say for certain that we ever will.
    That leaves the nuclear option. The nuclear industry is far more 
regulated than are competing forms of energy. With electricity becoming 
more essential to our way of life, is it not time to develop a set of 
criteria to measure the effectiveness of the individual forms of power 
generation, to give nuclear energy the benefit of a level playing 
field?
    Thank you, Mr. Chairman.

    Mr. Shimkus [presiding]. Thank you, Mr. Ebel. I appreciate 
your testimony. I will start with my 5 minute round of 
questions and discourse.
    I am just going to add to part of your opening statement, 
Mr. Ebel. Not only do we not have a nuclear national policy for 
the foreseeable future, we really do not have a fossil fuel 
strategy. We do not have hydroelectric, we do not have really a 
biofuels strategy.
    This is our second hearing. This is the fourth year on the 
committee, for myself. And the national energy policy that is 
aforecited is lacking. I think that came out in our hearing. So 
I appreciate your testimony.
    I would first like to turn to Mr. Graham. Since I am a 
southern Illinois Representative, I do not represent 
Metropolis, but my good friend, David Phelps does, and has 
great concerns over the facility there.
    Would you explain how the closure of the Converdyn facility 
would impact the enrichment facilities at Paducah and 
Portsmouth?
    Mr. Graham. Yes, sir, right now, 100 percent of what we 
produce in the form of conversion services are delivered to the 
U.S. Enrichment Corporation across the river.
    At the rate of 8 million SWU a year, which they are 
currently producing, or at least they did in 1999, that 
represented approximately 75 percent of their fee component.
    Should our facility in Metropolis close, then for the long-
term prospects, the Paducah facility would rely on inventories 
and foreign supply. Once those inventories are depleted, it 
would be relying 100 percent on foreign supply.
    There is not enough excess foreign supply to feed the U.S. 
Enrichment Facility. As I have stated before in prior 
testimony, we would be the first domino default in a nuclear 
fuel cycle in the states.
    Mr. Shimkus. You testified that your present contracts are 
below the cost of production. Is that correct?
    Mr. Graham. That is correct, sir.
    Mr. Shimkus. If this is correct, how are you going to stay 
in business?
    Mr. Graham. What we have is going forward. The market is 
such that any new contracts we sign today are below our costs. 
I will not say that for the record, but it is substantially for 
our operating costs.
    As we look forward, new contracts make a larger percentage 
of our base load. There will reach a time, and we are 
forecasting by the end of this fiscal year, that the economics 
will be so detrimental that unless we can see something on the 
horizon, we can not afford to incur these substantial losses, 
and are facing closure.
    Mr. Shimkus. Thank you.
    I would like to turn to Mr. McNeill, and first say, ``Beat 
Navy.''
    Second, Admiral Nimitz was the father of the nuclear Navy--
is that correct?
    Mr. McNeill. Admiral Rickover.
    Mr. Shimkus. Rickover, that is right.
    I am sure you listened to the opening statements, as most 
of us here did. Can you respond to Dr. Lochbaum's claim of 
safety concerns, because I think in your testimony you, in 
essence, stated how safe the industry has operated. I would 
like to give you an opportunity respond to those accusations.
    Mr. McNeill. Yes, well, first of all, I am a promoter of a 
strong safety regulator in the industry. Clearly, the public is 
best served with the technology with a safe regulator.
    Some of the examples that he has given, at least in his 
oral testimony, and I have not read the written testimony, but 
in the written testimony, they are factually correct. I think 
there are some interpretations of those, though, that bear at 
least some counter interpretations.
    First of all, let us say, where his general comment is, it 
is that a large number safety deficiencies had been identified 
prior to a shutdown, and then the plant was not allowed to 
startup until those safety issues had been corrected.
    I think, in general, and clearly we could debate individual 
cases here, but in many cases you would find that a large 
number of those safety deficiencies were minor to modest in 
nature, and may not individually, but to some extent 
collectively, have warranted the shutdown of the plant.
    What they really should have done is focused management 
attention upon correction of those deficiencies. I think his 
observation was that when plants do run into trouble, you 
frequently see changes in management, as within most business 
organizations that have difficulty.
    I think that is the clear message here, that each 
individual nuclear organization needs an internal renewal 
structure, so that it does not get complacent, and so that 
safety issues are addressed before they are collectively too 
large.
    But we, in fact, have a very strong defense in depth. Even 
if you did not correct a certain deficiency here, and it caused 
a small problem, there are probably four other defensive 
measures in place that would prevent an accident from 
occurring. Clearly, there are even more than that, that would 
prevent endangering the general public.
    Mr. Shimkus. Thank you. I would move on, but with respect 
to my colleagues, I think I will now move to my colleague from 
Ohio, for his 5 minutes.
    Mr. Sawyer. Thank you, Mr. Chairman.
    Mr. McNeill, thank you very much for your comments with 
regard to who bears the cost of an inefficient operation. It is 
comforting to know that that is the case, coming from a sound 
operator.
    I do not know how widespread Dr. Lochbaum's corner cutters 
are, but I suspect that that is where the problem lies, and the 
reason that you would be such a strong advocate for a strong 
safety regulatory structure.
    Can you describe the structure that you think would be 
effective in that regard?
    Mr. McNeill. Yes, the concept is that it is risk based and 
it is predictable. That is the fundamental essence of what we 
need.
    In its early years, when we had the Three Mile Island 
accident, and Browns Ferry, which was referenced, we did not 
have a historical perspective of operations and operational 
difficulties that, in fact, provided a basis for design that 
would have prevented those, to some extent.
    After they did occur, this was about the time I entered the 
civilian industry, which was shortly after TMI.
    Mr. Sawyer. Was that 1979?
    Mr. McNeill. Well, 1979 was Three Mile Island, and actually 
I retired from the Navy in 1980, so it was shortly thereafter.
    I entered the industry at a time that there was near 
pandemonium in responding to just series after series of 
requirement changes that were placed upon the industry, in 
response to the accident at Three Mile Island, and had come 
into place as a result of the fire at Browns Ferry.
    We could not manage that, very candidly. That is why costs 
went up in operations. The temporary staffing levels of 
consultants at plants just grew by orders of magnitude and 
things of that nature. You could not manage it correctly.
    Fortunately, as we have implemented those changes, and most 
of them were done by the end of the 1980's, the technical 
issues and the training issues around plant operation really 
sort of stabilized. However, the regulatory climate was such 
that it responded to all deficiencies in a similar manner, 
whether they were really important or not.
    In fact, the examples that Mr. Lochbaum has outlined here, 
to some degree, were regulatory failures, where things were 
allowed to get out of hand. Millstone is clearly one of those 
particular instances, which there was not a proper regulatory 
response. But there was a lot of activity at the NRC at that 
point in time.
    Mr. Sawyer. Can I assume that at least from a historical 
perspective that Dr. Lochbaum's assertion that the NRC has not 
been an effective safety regulator in that regard has some 
merit?
    Mr. McNeill. It has some merit. I would not go as far as he 
has, and I think the NRC has recognized some of those 
deficiencies along the way.
    But we have moved to understanding more of what is 
important with respect to safety of the general public, how to 
measure that, and how then to identify, both from a regulatory 
standpoint and from an operator standpoint, where to focus our 
attention, at any particular point in time, to sustain reliable 
and safe operation.
    Mr. Sawyer. Dr. Lochbaum, could you comment on Mr. 
McNeill's observation?
    Mr. Lochbaum. Well, first, I need to point out that prior 
to joining UCS, I was a consultant at one of Mr. McNeill's 
facilities, the Limerick plant in Pennsylvania. PECO had at 
that time, and still has, a very fine organization.
    Your question was, what is the gap between fine line 
organizations and others. It is quite large, because I also was 
a consultant at some facilities that Mr. McNeill did not run, 
and there is a distinct difference.
    There has been a problem at the NRC. They recognized the 
regulatory failure. They made the cover of Time in 1996, and 
not for good things, and they have made a lot of changes. So 
they are now facing the right direction, but they need some 
help in ensuring they have reached the right goal.
    That was the theme of my comments, that they can not just 
have a plan to get to the right destination. They need some 
help in making sure that plan is successful.
    I think they need some help from the outside, because the 
people they have are very good technically, but they have never 
overseen or led such a dramatic change that they are going to 
have to go through to downsize and still perform efficiency.
    Mr. Sawyer. Would that mesh well with Mr. McNeill's 
observation, if I could paraphrase what you are saying, that 
there was not a sense of perspective in differentiating among 
large needs and small?
    Mr. Lochbaum. I think that needs to happen. You have to 
focus on the right areas. I am concerned that the NRC's process 
for focusing on the right areas is still flawed, and it is 
still reactive, rather than proactive.
    They need to get a better balance. They have to react to 
problems. I am not saying that. But they need to do a better 
job of preventing problems from occurring, like the Millstones 
and any other problems plants that we have had.
    Mr. Sawyer. Thank you for your patience, Mr. Chairman.
    Mr. Shimkus. The gentleman yields back. I now turn to my 
colleague from Kentucky, Mr. Whitfield, for 5 minutes.
    Mr. Whitfield. Thank you, Mr. Chairman.
    Mr. McNeill, could you tell me what percent of your 
enriched uranium or SWU comes from domestic sources?
    Mr. McNeill. I do not have a specific number, but it is a 
large percentage. I would think it is in the neighborhood of 
above 75 and probably closer to 85 percent.
    Mr. Whitfield. Mr. Graham and others, who are not on the 
panel today, have expressed some concern that the U.S. may be 
heading to a position where there may not be a domestic source 
of enriched uranium. Is that of concern to you?
    Mr. McNeill. To some extent, yes. I am torn on this issue, 
because the more turmoil there is in the marketplace in the 
short term, the lower cost I get, and the more economic it is 
for me to generate electricity.
    But if I put a long term perspective on that, I think there 
is value to a balanced approach to maintaining a viable energy 
supply, or at least a North American energy supply. Let us put 
it that way. I do not know specifically that it has to be 
purely U.S., but let us say a North American, I think, supply 
would be viable.
    Mr. Whitfield. Now how would you feel if the Commerce 
Department grants an exemption to the suspension agreement and 
allows USEC to purchase commercial SWU from Russia?
    Mr. McNeill. I think, while it is not on the record, I 
think in the press you have seen at least excerpts of a letter 
that I wrote to both the Secretary of Energy and Secretary of 
Commerce, objecting to that particular thing. It is mostly 
around making USEC the monopoly controller of a low cost 
supply.
    Mr. Whitfield. So basically, your position is that if the 
Commerce Department does that, they should not make USEC the 
sole source?
    Mr. McNeill. Right, that source ought to be available to 
all users.
    Mr. Whitfield. Mr. Magwood, I know you have been very much 
involved on issues relating to USEC. What is your position on 
whether or not the U.S. should have a policy that guarantees a 
domestic source of enriched uranium?
    Mr. McNeill. That is a very difficult subject, Mr. 
Whitfield. I think that one of the things that we certainly try 
to do, in creating USEC and in privatizing USEC, is to find a 
way to have a long term solution to having a viable enrichment 
enterprise.
    If you recall, back in 1992, when the law was passed to 
form USEC, there was a great deal of concern in Congress and, 
in fact, on this panel, about the future of the Enrichment 
Enterprise, and the need to do something.
    The fact that we are now seeing reasons for concern, I do 
not think all that original policy was made jointly by the 
Administration at the time, and also by the Congress. I think 
what it does, it does call into some clarity the fact that a 
lot of things have happened in the nuclear fuel market at the 
same time, and these have led to significant problems, such as 
Mr. Graham had outlined.
    I think that there are very, very real reasons to want to 
have, from a government perspective, a domestic enrichment 
capability. How we actually go about doing that and how we make 
sure that that stays in place is a very complicated issue that 
the Secretary has asked the Enrichment Oversight Committee to 
think about. I think you are familiar with that, and we are 
continuing to study that. The Secretary has asked us to look at 
a lot of options about that.
    So it is something that is being looked at actively in the 
government right now, and I do not think we have a clear path 
forward, at this point. It is a very complicated issue.
    Mr. Whitfield. Well, you know, Mr. Graham, from his 
testimony today, it sounds like the uranium mining industry is 
not going to be around very long, unless some action is taken, 
relatively soon. Do you agree with that?
    Mr. McNeill. Well, I think that Mr. Graham's assertion was 
really focused on the future on ConverDyn. I have met with Mr. 
Graham, or at least his employees at ConverDyn, to talk about 
this issue. I take them at their word that if action is not 
taken, that ConverDyn could well shut down before the end of 
the year, and I think that is a very serious matter.
    The uranium issues are a little more complicated. But 
ConverDyn is the only domestic converter. I think that really 
crystallized the issue, when the CEO of the only domestic 
converter tells you that he is going to shut his plant down, 
unless action is taken. So it is something that we take 
extremely seriously.
    That said, it is not clear what the government role here 
is. It is clear that we are concerned about it. It is not clear 
that the Department should ask Congress for money to sustain 
ConverDyn. It is not clear that the Congress would do that if 
we ask for it. But it is something that I think the Congress 
and the Administration have to work on together. We have to do 
so very quickly, obviously, from Mr. Graham's comments.
    Mr. Whitfield. You know, for the third time in less than 2 
years, the shipments under the Russian HEU agreement have been 
interrupted, and most recently by the lawsuit by the Swiss 
trading company, which I think they won in their courts, and 
now they have filed suits in New York and Kentucky. If they win 
those lawsuits, what will the impact of that be?
    Mr. McNeill. Well, I guess I should not speculate on the 
lawsuits at this point.
    Mr. Whitfield. I am not asking you to speculate. But do you 
have any idea, if they win, what would the impact be?
    Mr. McNeill. If they win, I am not sure I know all the 
impacts, quite frankly. I think there are lots of ways that 
enrichment could flow.
    There are lots of questions about moneys that come into 
question with those lawsuits. It does not necessarily mean that 
the flow of enrichment would stop coming to the U.S. from 
Russia, if these lawsuits were to be successful. It simply 
means that somebody would have to pay money to somebody else.
    I think that the crux of your point is, is Russia a 
reliable supplier? I think that is something that all of us 
have to wrestle with over time.
    I think that if you look at the history of the HEU 
agreement, it has actually been rather successful. While there 
have been problems, we have converted 80 metric tons of 
hydrogen enriched weapons taken out of Russia.
    From a national security and non-proliferation perspective, 
I think you have to say that, in many ways, the HEU agreement 
has been very successful.
    That said, it is also clear that there continue to be needs 
for the government stay involved very carefully and to watch 
the process, and to continue to guide USEC and the Russian 
executive agent, as the process goes forward.
    That is what we are doing right now. The government is very 
involved in the negotiations. We are working very closely to 
understand what is happening, what the proposals are, and 
evaluate the proposals, and we are staying engaged.
    Mr. Whitfield. Mr. Chairman, thank you.
    Mr. Shimkus. The gentleman yields back his time. I will now 
turn to my colleague, Heather Wilson.
    Mr. Whitfield. I did not yield back time. My time had 
expired, Mr. Chairman.
    Mr. Shimkus. Well, the gentleman's time has expired. With 
that, I will move to Congressman Heather Wilson for your 5 
minutes.
    Ms. Wilson. Thank you, Mr. Chairman; beat Army.
    I have a couple of questions.
    Mr. Shimkus. The gentlewoman's time has expired.
    Your time has expired.
    Ms. Wilson. Thank you, Mr. Chairman.
    Mr. Graham, last week, some folks from the USEC agreed to 
members of Commerce Committee staff on the SWU plan, on the 
purchase of commercial SWU from Russia. Their general view was 
that the plan would get a better price on the SWU that USEC 
purchased under the U.S./Russian HEU agreement.
    What I would like you to do, if you can, to the extent you 
are aware of this proposal, is tell us about this proposal and 
how it would affect the domestic uranium and conversion 
industries.
    Mr. Graham. I will do my best, Congresswoman Wilson.
    It is our understanding that the agreement with USEC and 
the Russian counterpart is one to fix the price going forward, 
such that the current agreement and the current pricing for 
USEC does not place USEC under such duress. The current price 
is almost equal to their operating cost.
    What it does, when we bring additional material into the 
market place, be it any form through government action, it will 
continue to add more material to an already over-supplied 
market.
    By conditioning their long-term agreement on a short-term, 
what they call sweetener, to bring more SWU in for them to 
sell, that SWU is transported as EUP. Of course, EUP has all 
three components, the uranium, conversion, and enrichment.
    So, in summary, what it does, it just enters into the 
market, with no or little restrictions, more material that 
would further stress the uranium market, both domestic and 
internationally, and quite definitely, the conversion market, 
putting us at greater risk to exit the market earlier.
    Ms. Wilson. Mr. Magwood, I wonder if you would comment on 
that and on the SWU agreement, and what you think this 
agreement does, in terms of U.S. energy security. I recognize 
there is a balance here with national security and non-
proliferation.
    Mr. Magwood. Let me say, in response to that, when we 
learned of the proposal, it certainly was something we were 
very concerned with, because of the issues that you raised.
    This is an issue that is really an open item in the 
government right now. It is something that is being looked at 
very closely. The Secretary is looking at it, personally.
    My understanding is that USEC was instructed not to 
finalize the agreement until there was further review by the 
government, because of these issues. For that reason, it is 
still under investigation. At this stage, we are trying to 
understand what the impacts are, and what path forward to 
choose.
    Ms. Wilson. Thank you. Also, Mr. Magwood, I had another 
question on a slightly different subject, on your projections 
for U.S. electricity demand over the next 20 years and beyond, 
and your long-range strategy for keeping nuclear power as a 
viable long-range option.
    I was struck by some of the charts and the testimony and 
the comments about the fact that current nuclear reactors are 
not going to be replaced, and the sense, in various pieces of 
testimony, that this is going to be a dying source of 
electricity for this country.
    What will replace that, and is there any strategy to keep 
this as a viable part of U.S. energy supply?
    Mr. Magwood. One the things that we have always found very 
interesting is to try to look at projections to the future. I 
think that one of the practices that I have always enjoyed is 
simply going back in history and seeing how accurate 
projections, 20 years out, have been. In general, they are not 
very good.
    I am aware that there are projections that show that 
nuclear disappearing in 20 or 30 years. While we understand how 
those projections were arrived at, we do not agree with them.
    We think that their projections underestimate exactly how 
many nuclear power plants will be relicensed. We think they 
overestimate the cost of relicensing a nuclear power plant.
    It is my understanding, as I stated in my testimony, that 
the vast majority of nuclear power plants will seek new 
licenses, and with those 20 years extensions, U.S. plants can 
be expected to operate well into the middle of the century.
    For our part, we are working closely with the industry to 
find technologies to keep existing nuclear power plants in 
operation, as long as they can be safe and economic.
    We are finding ways to make them more efficient than they 
are now. We are finding ways to incorporate advanced control 
technologies, and we are working very closely with EPRI, the 
Electric Power Research Institute, to do that.
    Beyond that, we are also working with our international 
partners to explore next generation nuclear power technologies; 
technologies beyond our advanced light water reactor 
technologies, which are currently being built overseas. We 
would like to see some of them built here, but right now, they 
are being built in places like Japan and Korea.
    We think that there will first be opportunities for next 
generation nuclear power and for advanced light water reactors 
to be built in this country, some time over the next 10 years. 
It is up to people like Mr. McNeill to see if the economic case 
is there. I think that there are certainly reasons to look at 
nuclear power as an option.
    Beyond 10 years, we want to try to find these new 
technologies, and explore these new approaches to nuclear power 
that can be much more efficient to what is available, and 
certainly safer and more reliable. These are things the 
Department is currently actively working on.
    Let me say, just in response to an early comment that I 
think Mr. Ebel made, that simply because the U.S. does not set 
out a target for how many nuclear power plants we want to see 
built, and the government does not issue targets, it does not 
mean we are not interested in nuclear power. It simply reflects 
the fact that our role as government is to promote research and 
development technology, and provide options for industry to 
make the choices.
    So it really is not up to the government to build nuclear 
power plants. It is up to the government to make sure the 
technology is available, if industry wants to build nuclear 
power plants.
    Mr. Wilson. I would ask unanimous consent for one 
additional question.
    Mr. Shimkus. Without objection, the gentlewoman may 
proceed.
    Mr. Wilson. Thank you.
    I find your answer to be startling. You talk about this 
investment in research and development, and the appropriate 
Federal role. Yet, in your testimony on page 9, nuclear energy, 
research, and development has collapsed in this country.
    How can we talk about these things in general terms, 
without making the R&D investment? And do you believe that the 
R&D investment in nuclear energy is sufficient?
    Mr. Magwood. ``Collapse'' is really good word for it. Yes, 
our R&D investment in nuclear energy fell completely down to 
zero in 1998, I was with the office which it happened. It was a 
very disconcerting event.
    Since that time, and since the time I have been the 
Director of the office, we have been working very hard with the 
Congress and within the Administration to reverse that.
    We have brought nuclear R&D back, somewhat. While we do not 
have the high levels of the past, we are up to about $50 
million in research and development activities, right now.
    Our Nuclear Energy Research Advisory Committee, as Dr. 
Klein indicated, has recommended that that be increased from 
about $50 million now, to about $200 million to $300 million, 
out about 5 years from now.
    We certainly would like to work toward higher levels of 
nuclear R&D funding, and I think that if we do get funding like 
that, we will be able to show real value for it, for the 
country.
    Mr. Chairman, I would like to note that Mr. McNeill was 
trying to get attention.
    Mr. Wilson. My time has expired. Thank you, Mr. Chairman.
    Mr. Shimkus. I will ask unanimous consent for 1 additional 
minute for you, so Mr. McNeill can give his response to the 
question.
    Mr. McNeill. In this response, I speak for myself, 
personally, and not representing the industry.
    Right now, the competitive prices of electricity do not 
really support the projected cost of a new light water reactor. 
They are too large. They are 1,200 to 1,400 megawatts in size. 
That kind of plant, in my opinion, only fits in a controlled 
economy like China, Taiwan, Japan.
    In light water reactors, you have to have significant 
safety systems and containment. They take too long to build. 
Historically, they have taken up 10 or 12 years. But even if 
you were to build one today, it would probably take you 6 
years, and you are building new gas-fired plants in 2 or 2\1/2\ 
years.
    I think the promise looks at smaller, let us say, 120 
megawatt plants that are modular in design. There are some 
designs that are under consideration at MIT, here in the United 
States and in South Africa. They do have the promise of both 
lower cost and, in fact, the elimination of the threat of fuel 
meltdown which, you know, was the event that occurred at Three 
Mile Island.
    But we are several years away from having a confidence in 
that design with which we could undertake an investment of it 
right now. I am not so sure that extensive research is required 
for that specific purpose today. It is an engineering effort, 
more than anything else.
    Mr. Shimkus. The gentlewoman yields back her time. We are 
going to a second round of questions, for those who want to 
stay. Then we will move to the second panel.
    I would like to first just make some observations, and talk 
about, one, part of the initial nuclear growth was based upon 
energy productions, or energy demand, that really did not 
occur; and part of the energy dereg debate that states have 
addressed are the stranded costs issues to address the growth. 
So as much as we have projections of demand, based upon my 
short time, looking at this debate, they do not always fulfill.
    But I am concerned, and consistently discuss energy 
security. So I would like to ask Mr. Ebel, if the sealanes were 
closed today, and I know this is mostly the nuclear table, but 
let us just assume that that is true for the importation of the 
fuel that we are receiving from Russia, and the fact that we 
have one facility, what would that do to demand and cost, 
simplistically?
    Mr. Ebel. Well, I know you have had hearings on oil and 
gas. I am sure, during those hearings, you have touched upon 
the rising dependence of this Nation on oil. Our dependence on 
oil reaches, let us say, 56 percent, and is growing, and it is 
unlikely to ever come down.
    Now I have listened to the testimony today about the 
generally deplorable status of our domestic nuclear fuel supply 
situation. Here we have an opportunity to maintain a healthy 
domestic fuel supply situation, to keep us from becoming overly 
dependent on foreign sources of supply. We should not miss that 
opportunity to do so.
    We did not have that opportunity, when it comes to oil. Our 
supply of oil simply is declining physically at a time when 
demand is growing.
    So I think this country would be remiss and would stand at 
risk if we were to let our domestic nuclear fuel supply 
industry decline. If the shipments were to stop today, I would 
presume that the domestic industry could respond. But 10 years 
from now, it probably could not.
    Mr. Shimkus. Thank you. I am also intrigued by the 
discussion of the smaller units and the modular design. I was 
under the impression that part of the high cost of nuclear 
power has been the fact that no two plants are the same.
    With regulatory changes as the industry grew, who has any 
assurance that a modular design, even of a small plant, would 
be accepted and not pose the same risk as previous nuclear 
plants, Mr. McNeill?
    Mr. McNeill. Well, I think this is one of the lessons that 
the industry has learned. In fact, it had learned that toward 
the tail end of the last construction cycle when, in fact, the 
SNUPSS plants, or the Standard Nuclear Unit Power Supply 
System, had been designed. In fact, we built two of them, and 
there were a whole bunch of them on the drawing boards, when 
the Three Mile Island happened.
    So I think we understand now that the essence of 
standardization and, in fact, licensing activities that 
occurred in the 1980's, of licensing a design, is an 
appropriate mechanism to ensure that we were able to use that, 
without extensive changes during the construction process.
    So you have got a pre-approved design by the NRC. You then 
go license a site, and you build the plant. We have not tested 
all that licensing process yet, but that is what is in the 
regulation, to date.
    Mr. Shimkus. Thank you, and I wanted not to leave Dr. Klein 
out. But in your testimony, you talked about the importance of 
a centralized storage facility; am I correct? I hope I am still 
remembering that correctly, and that is not from any notes.
    Mr. Klein. You are correct.
    Mr. Shimkus. I would reiterate the importance of that, and 
the failure of us, as a body, and the importance of that, 
really, the costs and the safety issues involved in probably 
over 60 sites across the Nation, because we do not have a 
centralized site.
    Mr. Klein. There were about 72 sites. What happens is, as 
each facility becomes full with nuclear fuel, they will have to 
build additional storage facilities at their sites. So what you 
end up is having 72 additional dry cask storage facilities, or 
one centralized storage facility.
    In our commission's view, and in subsequent analysis, it 
shows that it is much better to have one facility, designed to 
handle that spent fuel, rather than put that burden on each 
utility site to store that fuel. So it is both an operational 
and an economic advantage, to have one centralized facility.
    Once we get to a repository, we will have to have a 
centralized storage and processing facility, anyway. It would 
be beneficial if we could do that, as soon as possible, so that 
additional reactors do not have to build at reactor. So it is 
both operational and economic.
    Mr. Whitfield [peresiding]. Mr. Sawyer?
    Mr. Sawyer. Everybody is bailing out here. Thank you very 
much, Mr. Chairman.
    Mr. Graham, you spoke about three events and their 
devastating impact on the American nuclear industry. The one 
that struck me most was your portrayal of the effect of the 
privatization of USEC.
    Is it your sense that it ought to be re-Federalized and, if 
so, what form should that take? Would it be a stock buy-back? 
Would it involve full price? If that is the problem, what is 
the solution? That got your attention, did it not?
    Mr. Graham. Yes, Congressman Sawyer, that is a difficult 
question. You know, I had testified in an earlier hearing 
regarding the U.S. Enrichment Corporation, and had stated that 
of the events occurring in our industry, had one or the other 
of the two significant events, the HEU and privatization, 
occurred, the industry could have handled it. We could have 
worked it into the ongoing operations of the industry. Both of 
them occurring simultaneously is devastating us.
    When we look at the U.S. Enrichment Corporation, and the 
aspect of re-Federalizing it, I know for a fact that in our 
industry, we are not incurring such pain, prior to the 
privatization.
    The method of returning it to where it came, I think, would 
return us to where we have a level playing field and a 
competitive market place. That is really all we are asking for, 
to level the playing field.
    The mechanism to get it, we have thought about. We have 
looked at it ourselves. It would be difficult, I think, at this 
point, because of the deterioration of the corporation. A lot 
of value has been lost. A lot of infrastructure has been lost.
    But I think our recommendation is that the government and 
industry get together and tackle the problem, and come up with 
a solution. Without it, I think the long term, as Mr. McNeill 
has indicated, is in jeopardy.
    Mr. Sawyer. Are you suggesting it might be easier and more 
efficient to start from the ground up, and rebuild that 
capacity?
    Mr. Graham. If you are referring to the technology, I think 
not. It is there. It is what it is. I think it is outdated. It 
is not the best. It is not the most economical.
    I think one would have to look at the value of the company 
as it is today. I think the capitalization is $450 million, and 
probably the debt is another $500 million.
    I think the U.S. Government received $1.9 billion. There 
would be a slight profit in taking it over again, but I think 
it would be a difficult procedure to do. But I think it can be 
done, again, in conjunction with the industry.
    Mr. Sawyer. Thank you.
    Mr. Ebel, you spoke in terms of government support to 
expand the nuclear industry.
    Mr. Ebel. Yes.
    Mr. Sawyer. Can you expand upon what you were talking 
about; what forms that might take if, in fact, the market is 
not sufficient?
    Mr. Ebel. Well, yes, it is our judgment that the market, by 
itself, will not do it. It will require government support.
    We would recommend in our study that a joint government 
private sector partnership in the development of a kind of 
reactor that would meet the needs of today, which is reduced 
proliferation, to try to be proliferation-resistent, low cost, 
modular.
    That is modular, in part, because it needs to respond to 
the needs of developing countries, where you could build, as 
their demand for electricity grow. That would be moral support, 
yes; but financial support, also.
    Mr. Sawyer. Do I hear you correctly, that you are talking 
largely about research and development, in terms of that, or 
are you talking about capitalization?
    Mr. Ebel. Well, there are, I think, available some thoughts 
about what a fourth generation reactor would look like, and we 
should proceed from that basis.
    Mr. Sawyer. Are there other comments?
    [No response.]
    Mr. Sawyer. Thank you, Mr. Chairman.
    Mr. Whitfield. Yes, Mr. Ebel, I was pleased to hear your 
comment that we are quite dependent upon foreign oil. Many of 
us are concerned about becoming dependent upon enriched uranium 
from foreign sources.
    I think, Mr. McNeill, you also said you would be concerned 
about that, but not so much, as long it was a North American 
source. How many sources are there in Canada, for example?
    Mr. McNeill. Well, there are mines in Canada. They process 
unenriched uranium. There are no enrichment facilities there. I 
do not know the extent to which there are conversion 
facilities.
    My issue was around, we have a fairly stable political 
climate in North America. I do not think we are subject to the 
risks that we are by going to Europe or Asia for supplies.
    Mr. Whitfield. But if you did have to rely exclusively on 
Europe or Asia, you would be more concerned?
    Mr. McNeill. I would be more concerned, yes. I think from a 
national security perspective, I would be concerned.
    Mr. Whitfield. Mr. Magwood, if the Secretary of Commerce, 
Mr. Daley, called this afternoon and asked, would you support 
the exemption to the suspension agreement, so that USEC would 
be able to buy this commercial grade uranium from Russia, what 
would be your position?
    Mr. Magwood. I would probably refer him to Secretary 
Richardson.
    Mr. Whitfield. Do you have any idea what he might say?
    Mr. Magwood. I said earlier that this is really under 
active analysis. I think Congress and DOE are working together, 
to some degree on this. I expect that we will be able to have 
some position on that, fairly soon.
    Mr. Whitfield. What is the status of the RFP for the 
construction of the two uranium hexoflouride conversion 
facilities in Paducah and Portsmouth?
    Mr. Magwood. We have made a commitment, and we are on track 
to meet that commitment, to have that RFP in final form, on the 
streets, in October. We are still on track to do that.
    Mr. Whitfield. Okay, thank you. I have no further 
questions. Mr. Burr?
    Mr. Burr. Thank you, Mr. Chairman. I have just a few 
general comments. I apologize, because I can not see names, so 
I am going to try to ask you questions that are open to all of 
you.
    Mr. Chairman, as I sat here and heard the questions about 
the possible re-Federalization of USEC, the one thing that went 
through my mind was, I wondered whether we could afford the 
buy-out of Mr. Timber's contract, based upon his parachute that 
is there. But I am sure that is something we will tackle. I 
would not want him to think, because he was not here, that I 
had forgotten about him.
    If I understand the participation of nuclear to our overall 
market, it is about 16 percent. Am I accurate? Is it not?
    Mr. McNeill. I think it is closer to 20 percent.
    Mr. Burr. It is closer to 20 percent. That is even more 
important.
    Will the absence of a permanent disposal facility for spent 
reactor fuel accelerate the closure of nuclear generation in 
this country? I would open that to anybody that would like to 
respond. Yes, sir?
    Mr. McNeill. I am not so sure that it will accelerate the 
closure. I think that the impacts of the government's failure 
to fulfill its responsibilities under the Waste Policy Act 
clearly increases the cost of electricity from nuclear power 
plants, because we have to provide alternative mechanisms of 
storage, rather than moving it directly to the permanent 
storage.
    This is probably the risk. In Minnesota, for instance, 
there is a State law which limits the amount of temporary 
storage there is. If that is not resolved, it could force the 
shut down of plants in that state.
    Also, you are exposing the Federal Government to 
significant legal liabilities, because it is under contract to 
take this material, and it is going to fail to do that. It is a 
contract law resolution issue that that could be.
    There are several other impacts here that are, to some 
extent, more psychological, such as the failure to resolve that 
issue provides a forum for idea logs that do not like nuclear 
power, to argue that we ought to shut the plants down, or we 
should not develop new plants, and things of that nature.
    Mr. Burr. But if I understand what you have said, if plants 
who meet capacity in their pool file for an expansion of their 
pool, and that expansion is not granted, whether it is the 
pressure within the community or the approvals that they have 
to go through, then it would accelerate the closure of the 
facility, because of the lack of storage.
    Mr. McNeill. If there is no other alternative, yes.
    Mr. Burr. And with the exception of the permanent site, or 
the pools that they currently use, there is no other option 
right now, is there?
    Mr. McNeill. Well, the other option is temporary cask 
storage onsite.
    Mr. Burr. And we have sort of talked about that up here, 
and it was received about like some of the President's budget.
    Mr. McNeill. Well, I just got done building one. I am 
moving my first fuel there, next month.
    Mr. Burr. Is there anybody that would agree that this 
stands a chance of accelerating closure of facilities?
    Mr. Klein. I think it certainly does. I think the plant 
that Mr. McNeill referred to, Prairie Island, is a classic 
example. I think there are other States that could implement 
similar situations that could cause a difficulty.
    I think the bottom line on not moving forward with the 
centralized storage facility and a permanent repository, and we 
will need them both at some point in time, is that the 
ratepayers are paying twice. They are paying for a permanent 
facility, and then they have to pay additional costs for 
additional reactor storage.
    Mr. Burr. How many people at the table believe by 2010 that 
the Department of Energy will have taken spent fuel? Is there 
anybody at the table from the Department of Energy?
    It really concerns me when you do not believe that the 
Department of Energy will take spent fuel by 2010. Did you just 
not hear my question?
    Mr. Magwood. I think Mr. McNeill was trying to distract me, 
so I would not hear the question.
    I think that we are on track to do that. I think that the 
Department has a plan to go forward to open Yucca Mountain in 
2010. I do, however, think that it will require a great deal of 
hard work, from both the Administration and Congress, to get 
the money to do that.
    The funding profile for the Yucca Mountain project is 
going, by I think 2003 or so, to begin to accelerate pretty 
dramatically. If the funds to move this along are not 
available, we are going to be in trouble.
    Let me say that just since the 1998 viability assessment 
came out on Yucca Mountain, the funding for the Yucca Mountain 
project is about $100 million behind what the projections were, 
back in 1998.
    So, on the path we are on now, we are not going to make it. 
I think it is going to really take more resources to make this 
happen, but I do think it is possible.
    Mr. Burr. You have got five gentlemen sitting beside you. I 
would assume that they all pay Federal taxes. They live in some 
member's district. None of them believe that you will have 
taken this by 2010, and there are many more of them that live 
in the districts of each of us who say, how is this money being 
spent?
    We have got some accountability that is tied to the release 
of funds, that says there has to be an expectation that there 
is an end point to this; that we can, with confidence, turn to 
an industry and say, it will be taken, not it might be taken, 
or it might be taken if we do this. It will never be taken, 
would probably be better situation than what we are in right 
now.
    But we understand the statement you are making. We know 
that at some point, we have to work to make sure that more of 
that money, on the annual basis, is appropriated. We just have 
to have a belief that there is a will at the Department of 
Energy to live up to the date, and I guess you are telling me 
that there is.
    Mr. Magwood. My understanding is that the Director of the 
Office of Civilian Reactor Waste Management, Mr. Ritkin, will 
be up here in 2 weeks to talk about this in great detail.
    He and I did confer before this hearing. He is very 
confident that they are on a track to take spent fuel, on the 
schedule that they have projected. He is, however, concerned 
about the funding.
    Let me just add one last thought. That is that I believe 
that while there are a few plants that could become endangered, 
because of the delay in taking spent fuel in the original 
schedule, I think that the forward motion of the program 
provides some confidence to people that are operating plants 
right now that there is a plan to take care of it.
    I think that that is as important as the actual taking of 
spent fuel, when you look at the longer term. Hopefully, those 
who did not rise to the occasion and support the Department, in 
saying that they are sure that the Department will meet the 
schedule, at least believe that we are moving in the right 
direction, and doing the best we can if they do not believe we 
are doing the best we can, we certainly hope they will come 
back and tell us how we can do better.
    Mr. Burr. Well, I can assure you, I think that as the time 
goes on and as the money gets to be more, I think that the 
Congress will weigh in, even more boisterous than we have. I 
have given up the belief that I ever participate in a hearing 
in Congress where somebody from a Federal agency walks in and 
says, ``You gave me too much money.'' Clearly, I expect the 
request for more.
    This is my last question. This is to the whole group, Mr. 
Chairman. A 20 percent loss, over some period of time, of 
generated electricity; what replaces it? Is there anybody that 
believes that new nuclear is going to be built?
    [No response.]
    Mr. Burr. Okay, then I would assume that your answer to 
that replacement is new not nuclear. For the other four, what 
replaces that lost nuclear generation?
    Mr. Klein. I think in the short term, what we will see to 
meet that capacity, as others have said, is the additional 
burning of natural gas, because it is quick, and those costs 
will be passed on to the consumer.
    I think the difficulty that we have in planning is that we 
do not look as far, long term. When you talk about building 
baseload coal and nuclear plants, you end up taking time. It 
takes time to build them and get them licensed.
    We are making decisions now on the short term for things 
that we can accomplish fairly quickly. We need to have an 
infrastructure and a policy in place that will let us make 
these long term decisions for a stable electrical supply, that 
will not be subjected to rapid increases of costs, with an 
interuptable supply.
    For example, if there is an interruption of oil, as we had 
seen previously, that will impact the cost of natural gas. Then 
we will see those costs immediately passed on to our 
electricity bill.
    So I think, as a country, we need to look at long-term 
energy strategies that include nuclear and coal as our base 
load.
    Mr. Barton. I am told that the gentleman's time had expired 
about 5 minutes ago.
    Mr. Burr. The gentleman's time had expired about 5 minutes 
ago. The gentleman from Kentucky was very generous to me.
    Mr. Barton. He told me he liked North Carolina.
    Mr. Burr. I would just say to the chairman, I am very 
enlightened at the fact that the Department of Energy raised 
their hand in the belief that we would build new nuclear, and I 
have not heard that out of the Department of Energy before 
today.
    Mr. Barton. Did they say what century we will build new 
nuclear?
    Mr. Burr. Clearly, I was not quite that crafty.
    Mr. Barton. Okay.
    Mr. Burr. Thank you, Mr. Chairman.
    Mr. Barton. Does the gentleman from Virginia wish to ask 
questions?
    [No response.]
    Mr. Barton. Has the gentleman from Ohio been given a chance 
to ask questions? He has been given two chances?
    Well, I have some questions, but I am going to submit them 
for the record. We still have a coal panel, and we really want 
to give them an equal opportunity.
    I want to thank you gentleman for coming. It is obvious 
there is a lot of interest in the nuclear industry. We look 
forward to working with you in the coming years to revitalize 
our industry. This panel is released.
    If we could have our next panel come forward, as soon as 
the first panel has vacated the witness table.
    This is our second panel. We want to welcome Mr. Robert 
Kripowicz, who is the Principal Deputy Assistant Secretary in 
the Office of Fossil Energy, from the Department of Energy.
    Like I told your contemporary on the first panel, we 
appreciate your willingness to appear on a panel with private 
sector employees. It does facilitate our hearing. We want to 
thank you for having your testimony in on time. We appreciate 
that.
    So we are going to recognize you, Mr. Kripowicz, for 7 
minutes. Your statement is in the record. Then we are going to 
go to General Lawson, Mr. Bailey, Mr. Gehl, and Dr. Schobert. 
So welcome to the committee.

 STATEMENTS OF ROBERT S. KRIPOWICZ, PRINCIPAL DEPUTY ASSISTANT 
SECRETARY, OFFICE OF FOSSIL ENERGY, U.S. DEPARTMENT OF ENERGY; 
     RICHARD L. LAWSON, PRESIDENT AND CEO, NATIONAL MINING 
   ASSOCIATION; PAUL C. BAILEY, VICE PRESIDENT, ENVIRONMENT, 
    EDISON ELECTRIC INSTITUTE; STEPHEN M. GEHL, DIRECTOR OF 
    STRATEGIC TECHNOLOGY ALLIANCES, ELECTRIC POWER RESEARCH 
INSTITUTE; AND HAROLD SCHOBERT, DIRECTOR, THE ENERGY INSTITUTE, 
                 PENNSYLVANIA STATE UNIVERSITY

    Mr. Kripowicz. Thank you, Mr. Chairman and members of the 
subcommittee. I appreciate the opportunity to represent the 
Department of Energy, and to discuss our views on the future of 
coal.
    Rather than address every point in my prepared statement, 
in the interest of time, I would like to focus on one key 
aspect of the future of coal, and that is technology.
    Coal is our most abundant fossil fuel resource. Its low 
cost is one of the major reasons why the consumers of this 
Nation benefit from some of the lowest electricity rates of any 
free market economy. But abundance and low cost alone do not 
guarantee coal's future. Environmental acceptability has been, 
and will continue to be, the key factor in the future in the 
use of coal.
    I am convinced, and I believe my colleagues on this panel 
share this view, that advanced technology can overcome concerns 
about coal's impact on the environment.
    For the last 30 years or more, the use of coal has been 
challenged with increasingly stringent environmental 
requirements. Each time, the Nation's coal scientists and 
engineers have responded.
    For example, when the 1970 Clean Air Act was passed, many 
utilities installed scrubbers, but scrubber technology was 
expensive and unreliable.
    Today, because of our investment in technology, scrubbers 
are one-fourth as expensive as those of the 1970's, and 
reliability is no longer a serious concern. That investment 
alone has saved American ratepayers more than $40 billion since 
1975 in reduced compliance costs.
    Nitrogen oxides are another example. When acid rain and 
urban smog became major environmental issues in the 1980's, we 
had very limited technology to control nitrogen oxide 
pollutants or NOX.
    But we invested in research and in the Clean Coal 
Technology Program, and today we have advanced burners that 
reduce NOX at one tenth the cost of controls in the 
1980's. Nearly 75 percent of today's coal-fired generating 
capacity use these lower-polluting burners.
    Today, as a result of technology, we can burn coal in a 
fluidized bed boiler, and eliminate 95 percent of the sulphur 
and nitrogen pollutants inside the combustor, removing the need 
for a scrubber.
    We now have entirely new ways to use coal to generate 
electricity; by gasifying it, rather than burning it. One of 
the cleanest power plants in the world operates outside of 
Tampa, Florida. At its heart is a coal gasifier and a system 
that produces coal-derived gas with virtually the same 
environmental characteristics as natural gas. It is a product 
of our Clean Coal Technology Program.
    The future of coal is a future driven by technology. At the 
Energy Department, we are developing new technology for coal 
that could produce a virtually pollution-free energy plant by 
the year 2015.
    I have displayed on the easel an artist's concept of such a 
plant. We call it our ``Vision 21'' concept. I have brought 
this drawing to make one key point: the coal plant of the 
future may not look at all like ``your father's power plant.''
    A Vision 21 plant would be capable of processing a wide 
range of fuels; coal alone, or coal mixed with petroleum coke; 
or in this concept, coal mixed with municipal waste from a 
major metropolitan area.
    It would gasify this fuel, or combust it in an advanced 
combustion process. Perhaps it would incorporate fuel cells or 
turbines, or a hybrid combination of the two.
    In one concept, it would generate only electric power. In 
other configurations, it would produce multiple products, 
processing some of the coal to make liquid fuels or high value 
chemicals, in addition to power.
    As a power plant, a Vision 21 plant would incorporate 
technologies being developed today that could double the 
efficiency of power generation. That would reduce carbon 
emissions by 40 percent or more; a major step forward in 
greenhouse gas control.
    As a fuel producer, we estimate that such a plant could 
produce liquid petroleum substitutes in the $20 per barrel 
range. That would be a major step forward in reducing our 
growing dependence on foreign oil.
    Most importantly, a Vision 21 plant would have near zero 
emissions of today's regulated air pollutants. That means it 
could be sited near urban centers where future demand for 
electric power is likely to be the greatest. To make that point 
in the artist's concept, our engineering team configured a 
plant for Roosevelt Island in the East River in New York City.
    Let me stress that this is not ``pie-in-the-sky'' 
speculation. Each of the major components of a Vision 21 plant 
has either been demonstrated, or is in the development stage 
today. The key will be to link them together in a commercially 
viable concept, competitive with natural gas.
    Skeptics might say, ``Okay, you have solved the air 
pollution problem, but what about global climate change?'' The 
plant still uses coal, albeit, much more efficiently, and it 
still emits carbon dioxide, a greenhouse gas.
    That is where the second of our major coal priorities will 
play a role. Carbon sequestration is a relatively new part of 
our program, but it holds significant promise. Carbon 
sequestration is the capture and either storage or recycling of 
carbon gases to prevent their buildup in the atmosphere.
    There are a variety of ways to do this, but virtually all 
will require more research before they are proven reliable, 
affordable, and environmentally safe. That research is recently 
underway, and industry, to its credit, is coming to the table.
    In one of our first major competitions, we received more 
than 60 proposals with private sector cost-sharing averaging 
around 40 percent. Within the next few weeks, we will announce 
the first set of winning projects. In almost all of them, the 
industry contribution will be above the 40 percent mark. This 
is a very positive development, and beyond our original 
expectations.
    So, Mr. Chairman, we do not see coal as a fuel that has 
seen its better days. Coal has faced challenges before, and it 
faces them today. But we have called on technology before to 
meet those challenges, and we believe we can call on 
technology, again.
    That concludes my opening statement.
    [The prepared statement of Robert S. Kripowicz follows:]
 Prepared Statement of Robert S. Kripowicz, Principal Deputy Assistant 
         Secretary for Fossil Energy, U.S. Department of Energy
    Mr. Chairman and Members of the Subcommittee. I appreciate the 
opportunity to discuss the important role that coal--and especially 
cleaner coal technology--can play in continuing to strengthen our 
nation's economic future while at the same time, improving our 
environment.
    Today, coal is an indispensable part of our nation's energy mix. 
Because of its abundance and low cost, coal now accounts for more than 
half of the electricity generated in this country.
    Coal is our nation's most abundant domestic energy resource. One 
quarter of all the world's known coal supplies are found within the 
United States. In terms of energy value (Btus), coal constitutes 
approximately 95 percent of U.S. fossil energy reserves. Our nation's 
recoverable coal has the energy equivalent of about one trillion 
barrels of crude oil--comparable in energy content to all the world's 
known oil reserves. At present consumption rates, U.S. coal reserves 
are expected to last at least 275 years.
    Coal has also been an energy bargain for the U.S. Historically it 
has been the least expensive fossil fuel available to the country, and 
in contrast to other primary fuels, its costs are likely to continue to 
decline as mine productivity continues to increase. Between 1988 and 
1997, minemouth coal prices (in real 1992 dollars) declined by $9.40 
per ton, or 37 percent; between 1998 and 2020, prices could decline by 
another $5.00 per ton (1998 $), or about 1.5 percent a year. The low 
cost of coal is a major reason why the United States enjoys some of the 
lowest electricity rates of any free market economy.
     coal consumption for electricity projected to continue rising
    America's coal industry--81,000 miners working in 25 states--
produces approximately 1.1 billion tons of coal per year. Just under 
950 million tons goes to U.S. power plants (the rest is used for 
industrial purposes, such as steelmaking, or is exported). According to 
the Department's Energy Information Administration (EIA), domestic coal 
demand could increase by 20 percent by 2020, growing to 1,316 million 
tons, primarily because of increasing coal use for electricity 
generation.
    As this chart shows, although coal's overall contribution to the 
nation's electric power supply is projected to decline somewhat--from 
52 percent in 1998 to 49 percent in 2020--the substantial growth in 
U.S. power consumption means that the U.S. will mine and use more coal 
in the foreseeable future.
[GRAPHIC] [TIFF OMITTED] T6466.006

    A key element in EIA's projection is that very little new 
capacity is planned during that time period, about 7% of 
existing capacity (or around 21 gigawatts). Most of the 
increased generation from coal-fired units will come from 
existing plants increasing their hours of operation. The 
primary barrier to construction of new coal-fired power plants 
will be intense competition from natural gas combined cycle 
powerplants. These natural gas-fired plants have much lower 
capital costs than coal plants and are very low pollutant 
emitters.
    Electricity restructuring is another important development 
in the industry. Using authorities provided by Congress in the 
Energy Policy Act of 1992 and other statutes, the Federal 
Energy Regulatory Commission has taken action to make wholesale 
electricity markets more competitive. To date, 25 states have 
taken action to introduce competition into retail electricity 
markets and many others are considering this option. The 
Administration sent its own comprehensive legislative proposal 
to Congress more than two years ago. Both the House Commerce 
Committee and the Senate Energy and Natural Resources Committee 
have announced plans to mark up legislation this month to 
update the federal statutory framework for the electricity 
industry. A comprehensive restructuring bill will both protect 
the reliability of our electric system and facilitate the 
smooth functioning of restructured electricity markets. 
Properly implemented, restructuring will be good for consumers. 
the economy, and the environment. Restructuring can also be 
good for coal--the Administration's analysis of its 
comprehensive restructuring proposal projects that coal-fired 
generation would continue to increase through 2015 under 
competition, and that competition modestly increases coal-fired 
generation above reference-case levels in the near-term.

                        Coal and the Environment

    Largely because of improving pollution control technology, 
the nation has been able to use more coal while improving the 
quality of its air. Coal use has more than doubled since 1970 
while emissions of sulfur and nitrogen Pollutants have declined 
by 70 percent and 45 percent respectively.
    EIA's coal Projections reflect existing environmental 
regulations only. Whether expectations for future growth in 
coal demand actually materialize will depend largely on the 
nation's coal users' ability to comply with increasingly 
stringent environmental regulations. Increased compliance costs 
can lead to early retirement of a unit, or to less use of the 
coal-fired generating unit as it becomes more costly to

operate. The most critical regulations and policy initiatives 
are air pollution related and include:

 Rules to address the Regional Transport of Ozone (the ozone 
        ``SIP Call'' and related rules promulgated by EPA). The SIP 
        Call rule required 22 Eastern states and the District of 
        Columbia to reduce nitrogen oxide (NOX) emissions by 
        specified amounts by May 2003. Although the rules are being 
        revised to comply with judicial direction, the primary 
        mechanism to achieve the required reductions is expected to be 
        additional NOX reduction requirements at coal-fired 
        power plants.
 Revised National Ambient Air Quality Standards for Particulate 
        Matter and for Ozone. These revised standards were promulgated 
        in 1997, with anticipated annual compliance costs for full 
        attaimnent of $37 billion per year and $10 billion per year, 
        respectively. The Supreme Court will be reviewing the EPA 
        rules. Both are significant for power plants because they will 
        lead to additional reductions in emissions of NOX 
        and sulfur dioxide (SO2) which are precursors to 
        fine airborne particles.
 Mercury regulations. Under a court sanctioned agreement, EPA 
        is scheduled to decide by December 15 whether or not it is 
        necessary to control mercury from coal-fired power plants. If 
        EPA deems it necessary, the agency must promulgate regulations 
        by December 2003.
 Enforcement initiative. On November 3, 1999, EPA filed 
        lawsuits against seven utility companies, and issued an 
        administrative order against an eighth, charging violation of 
        new source review requirements. The civil actions, now in the 
        discovery stage, all seek retrofit of state-of-the-art control 
        technology. A total of 33 gigawatts of capacity is involved in 
        EPA's initiative--over 10% of total U.S. coal-fired capacity. 
        The basic allegation is that activities at these plants were 
        modifications requiring new source permits. In the only 
        settlement to date, the Tampa Electric Company (TECO) agreed to 
        85% reductions in NOX and SO2 by 2010, 
        retirement of significant coal capacity, and payment of a $3.5 
        million civil penalty.
    The 305 gigawatts of existing coal-fired powerplants can be 
categorized into three groups: (1) very large and relatively new 
plants, (2) very small and relatively old plants, and (3) those in 
between. The first category will probably be able to continue to 
operate economically, even with the new regulations. Many of the 
smaller plants in the middle category will not, and in fact several 
utilities have recently announced plans to replace some older coal 
units with new natural gas-fired units.
    The pivotal group is the third group--moderate size coal plants 
with significant remaining operational lifetimes. It is this group 
which will benefit most from development and deployment of advanced 
emission control technologies. The greater the success of DOE and its 
private sector partners in developing more effective, and lower cost 
mitigation technologies, the more of these plants which will continue 
to operate, and the lower the overall cost of electric power will be to 
the consumer.
    A major caveat is that none of the projections assumes the 
implementation of new regulation to address climate change concerns. 
DOE is also pursuing technologies to reduce greenhouse gas emissions 
from coal (and natural gas) power plants--both by increasing efficiency 
of the power generating process and by capturing and sequestering 
carbon gases. Although these technologies are longer term and unlikely 
to be available prior to 2015, they could allow for the use of coal as 
a fuel for new generating plants while substantially reducing or even 
eliminating emissions of greenhouse gases to the atmosphere.
    Measures to reduce greenhouse gas emissions before 2015 could lead 
to significant reductions in domestic coal use. Impacts on domestic 
coal use would likely be directly related to the amount of reduction in 
greenhouse gas emissions that takes place within U.S. borders. For a 
given level of greenhouse gas emissions commitment, provisions that 
allow the U.S. to meet the commitment by (1) relying on purchased 
emissions reductions from sources in other countries, (2) sequestration 
of carbon dioxide through forestry activities, and (3) additional 
reductions of non-carbon dioxide greenhouse gases would reduce the 
impact of any such obligation on the level of domestic coal use.
          clean coal technology--the investment is paying off
    With coal expected to remain one of the nation's lowest cost energy 
sources, its future will be determined largely by the availability of 
affordable technology that can reduce the impact of its use on the 
environment.
    In the mid-1980s, the United States began an unprecedented joint 
public-private investment in a new generation of cleaner coal 
technologies. The Clean Coal Technology Program led to 40 projects in 
18 states, over half successfully completed.

More than $5.6 billion has been committed to this program, with private 
industry and states investing two dollars for every one from the 
federal government. Today, because of the Clean Coal Technology Program 
and the research efforts that undergird it:

Pollution control costs are significantly lower.
    In the mid-1980s, the only options to reduce smog-causing nitrogen 
oxide (NOX) pollutants from coal-fired power plants cost 
$3,000 per ton of NOX. Today, technologies such as low-
NOX burners demonstrated in the Clean Coal Technology 
Program have reduced NOX control costs to less than $200 per 
ton. Nearly 75 percent of the nation's coal-fired generating capacity 
now uses low-NOX burners. The cost of selective catalytic 
reduction, which removes NOX from coal flue gases, has been 
cut in half because of technology advances.
    Similarly, in the 1970s, scrubbers--the flue gas treatment devices 
that remove sulfur pollutants from the exhausts of coal-fired boilers--
were expensive, unreliable, and posed waste handling problems. The 
Federal Govemment's R&D program (both at DOE and EPA) and DOE's Clean 
Coal Technology Program helped improve scrubber technologies. Today, 
flue gas scrubbers are one-fourth as expensive as the vintage-1970s 
units and operate much more reliably. The reduced costs, alone, have 
saved American ratepayers more than $40 billion since 1975. Today, 
advanced scrubbers produce a waste product that can be recycled into 
wallboard or easily disposed of in a safe, powder form, rather than the 
sludge of older systems.
Coal combustion is cleaner.
    In the 1970s and 80s, DOE's R&D program helped develop the 
fluidized bed coal combustor--an advanced coal-burning technology that 
removed sulfur pollutants and limited the formation of NOX 
Pollutants inside the boiler, eliminating the need for scrubbers or 
other post-combustion controls. The new technology found widespread 
acceptance in the industrial boiler market.
    The Clean Coal Technology Program helped move this clean-buming 
technology into the larger-size, utility market. Using this technology, 
coal-fired Power plants can reduce sulfur emissions by more than 95 
percent and NOX emissions by more than 90 percent, even when 
burning high-sulfur coal.
Utilities have a new option for coal-based power.
    The Clean Coal Technology Program also pioneered a fundamentally 
new way to use coal to generate electricity. Rather than burning it in 
a boiler, gasification-combined cycle technology first converts coal 
into a combustible gas, cleans the gas of virtually all of its 
pollutants, then burns the gas in a turbine, much like natural gas. 
More than 99 percent of sulfur, nitrogen, and particulate pollutants 
can be removed in the process.
[GRAPHIC] [TIFF OMITTED] T6466.007

    Moreover, heat from the turbine can be used in a 
conventional steam cycle to generate a second source of 
electricity, increasing overall power plant efficiencies.
    Because of the Clean Coal Technology Program, the nation 
now has three full-scale, pioneering coal gasification combined 
cycle power plants located in Florida,
Indiana, and Nevada. These are among the cleanest fossil fuel 
power generating facilities in the world.

Steel mills have an environmentally attractive alternative to coke 
        ovens.

    Much of the nation's coal not used by power plants is 
shipped to steel mills for use in making the coke needed for 
the steelmaking process. Coke production, however, is a 
significant source of air pollutants, including air toxics. The 
Clean Coal Technology Program demonstrated a way to use coal 
directly in the blast furnace, displacing coke virtually on a 
pound-for-pound basis. Direct coal injection offers the steel 
industry a clearly superior economical and envirom-nental 
alternative to traditional coke-making.
                               the future
    When the Department of Energy issued the Comprehensive National 
Energy Strategy in April 1998, the first of its five overarching goals 
was to:
        Improve the efficiency of the energy system--making more 
        productive use of energy resources to enhance overall economic 
        performance while protecting the environment . . .
    One of the major strategies to achieve this goal is to demonstrate 
cost-effective power systems that can achieve electrical generating 
efficiencies greater than 60 percent.
    Today's coal-fired power plants convert only about a third (between 
33-35 percent) of the energy value of coal into electricity. The rest 
is typically discarded as waste heat. The Clean Coal Technology Program 
has demonstrated new technologies that can boost efficiencies to nearly 
45 percent. Advances now in the DOE research and development program--
for example, more energy-efficient gas separation technologies, 
improved turbines, and coal-capable fuel cells could push coal power 
plant efficiencies into the 60-percent range.
    What are the benefits of a more efficient coal-fired power plant?
    Cleaner operation is one, since a coal plant that uses less fuel to 
generate the same amount of power will emit fewer emissions. Reduced 
greenhouse gas emissions is another benefit; a 60 percent efficient 
coal power plant can cut carbon dioxide emissions by more than 40 
percent. A third is cost to consumers. Improving the efficiency of a 
power plant can lower costs of the electricity generated, perhaps by up 
to 20 percent.
    The Vision 21 Concept. It may be possible in the future to 
eliminate virtually all of the environmental concerns at a coal-based 
power plant.
    DOE is developing a concept for a new fleet of energy facilities 
that would incorporate breakthrough technologies in advanced power 
generation and pollution controls. With a target date of 2015, this new 
energy concept, called Vision 21, would incorporate technologies that 
would reduce SO2 (sulfur dioxide) and NOX 
emissions to near zero, and cut in half the amount of carbon dioxide 
emitted from the plant.
    Moreover, the Vision 21 concept could incorporate various 
coproduction options--producing not only electricity but other high-
value products such as hydrogen, clean transportation fuels, chemicals 
and other commercial commodities. By developing a multi-product energy 
facility rather than just a single-product electrical generating 
plant--it may be possible to boost overall coal use efficiencies to 
more than 80 percent. Improving the efficiency of tomorrow's coalfueled 
energy facilities can be beneficial companion to improving end-use 
energy conservation efforts. For example, by raising the efficiency of 
U.S. coal-fired power plants to 50 percent, the nation could achieve 
fuel savings equivalent to weatherizing 400 million homes--more than 5 
times the number of homes in the United States.
    Carbon sequestration. Even with improved efficiencies, a future 
coal-fired power plant still may not be able to achieve the substantial 
greenhouse gas reductions that may be necessary to counter concerns 
about global climate change. Therefore, one of the keys to coal's long-
term future (and to the future of other fossil fuels) may be the 
emerging technology of carbon sequestration.
    Only a few years ago, concepts for capturing greenhouse gases at 
their point of emission, or even from the ambient air, and either 
storing them for centuries or recycling them into useful products were 
considered laboratory curiosities. Today, the opinion is much 
different.
    DOE has set a goal of developing technologies that can capture and 
sequester carbon dioxide at costs as low as $10 per ton of carbon. This 
is equivalent to adding only \2/10\ths of a cent per kilowatt-hour to 
electricity rates that today range from 4 to 12 cents per kilowatt 
hour.
    Carbon sequestration--if the technology can be successfully 
developed--could be the only option that doesn't require large-scale 
turnover of the world's energy infrastructure. Along with low-carbon 
and carbon-free energy supply technologies, such


as natural gas and renewable energy systems, and more energy-efficient 
end-uses, carbon sequestration could become an important 3rd option in 
reducing the buildup of greenhouse gases.
                               conclusion
    The United States needs a variety of energy sources to continue the 
unprecedented economic expansion that has made us the envy of the 
world. At the same time, Americans have consistently ranked 
environmental quality as one of their highest priorities for both 
current and future generations.
    While the U.S. will continue to expand the role of renewable and 
other alternative energy resources in its energy portfolio, coal will 
continue to provide a large share of the overall energy--and the 
dominant share of electricity--that can keep our economy growing. New 
technologies can make it possible to use all of our domestic energy 
resources--including our largest resource, coal--in ways that are 
compatible with our goals to protect the environment.
    Over the past 20-year history of the Department of Energy, we have 
made substantial progress in improving the environmental acceptability 
of coal use while, at the same time, keeping the costs of coal-derived 
energy low. Through the continued public and private investment into 
advanced, more efficient, and cleaner coal technologies, coal can 
remain a beneficial contributor to America's energy future.

    Mr. Barton. Thank you, Secretary Kripowicz. We appreciate 
that.
    We now want to hear from General Richard Lawson, who is 
President and CEO of the National Mining Association. He 
assumed that position after a career in the United States Air 
Force, where he was a Four Star General, and a Vietnam combat 
veteran, with over 73 combat missions.
    We appreciate your service to your country, sir, and we 
appreciate your testimony today on behalf of the National 
Mining Association. Your statement is in the record in its 
entirety. We would ask you to summarize it in 7 minutes.

                 STATEMENT OF RICHARD L. LAWSON

    Mr. Lawson. Thank you, Mr. Chairman, and members of the 
committee.
    I am Richard Lawson, the President of the National Mining 
Association. Thank you for inviting the mining industry to 
participate in this hearing.
    Mr. Chairman, the United States has the resources to have 
an energy policy that supports the use of all domestic fuels, 
while at the same time balancing economic security, social, and 
environmental considerations.
    Unfortunately, we do not have such a policy in place today. 
Our policies are not balanced. They support the environmental 
extreme over the reasonable. As a result, our energy future is 
vulnerable on several fronts.
    We are now dependent on imports for 54 percent of our oil 
supplies; a far higher dependency than just before the 1991 
Gulf War, when I appeared before this same committee to talk 
about exactly this same subject.
    Reserve margins in our electric utility industry are lower 
than ever before, making our electricity supply vulnerable to 
the unexpected plant outage or heat wave. Policies that govern 
access to our domestic fossil reserves are preventing us from 
taking full advantage of our own energy sources: oil, natural 
gas, uranium, coal, and even hydropower.
    You asked me to talk about coal and coal-fired electricity. 
Coal is the mainstay of both the U.S. and the global energy 
supply. Coal provides almost a quarter of the energy that we 
use in our country today. It is the fuel that generates over 
half of our electricity. Your home State of Texas, Mr. 
Chairman, is the No. 1 user of coal; over 110 million tons, 
last year.
    Globally, coal's contribution to the energy mix is about 
the same as the U.S., 25 percent. In developing countries, that 
percentage is higher, 35 percent. Coal represents nearly 95 
percent of the U.S. fossil energy reserves, and almost 70 
percent of the worldwide fossil reserves.
    So coal will continue to be used, because it is widely 
available, it is reliable, and it provides the fuel for low 
cost electricity.
    Here in the United States, the Energy Information 
Administration expects coal use to increase by some 200 million 
tons over the next 20 years. In developing countries, including 
China, coal use will increase by some 1.8 billion tons, mostly 
to make electricity. I use these numbers to illustrate my 
point: coal is here to stay in the United States and elsewhere.
    While coal is used more efficiently with lower emissions 
today than ever before, technologies are being developed which 
will convert coal into electricity with even greater 
efficiency, while effectively eliminating emissions.
    Changes in policy are required, however, both to maintain 
current coal generating capacity, and to ensure that the future 
fleet of electric power plants include coal-fired capacity.
    There are constraints on coal supply. Recent actions by the 
Administration to declare large areas of public lands as 
national monuments, along with attempts to place large blocks 
of forest service lands off limits for any use, are reducing 
the quantities of coal reserves available for mining.
    There are even more constraints on coal use. The 
Environmental Protection Agency has proposed, or is attempting 
to implement, many new regulations that affect not only new 
coal-fired capacity, but will have the effect of either 
shutting down existing coal capacity, or requiring expensive 
modifications.
    The possibility of stringent requirements to reduce 
greenhouse gas emissions, such as those suggested by the Kyoto 
Protocol, compound the problem. I have discussed these issues 
in my written statement, and I will not repeat them here.
    Taken individually or collectively, these actions have the 
same effect. Existing coal capacity will be shut down. New coal 
capacity will not be brought on line.
    Research on new technologies is ongoing, and will continue 
using and building upon the results of the DOE Clean Coal 
Technology Program. Efficiency and emission reduction goals, 
and the technologies needed to achieve these goals, are 
described in the technology road map, contained in my written 
statement.
    Incidently, Mr. Chairman, your action in sponsoring the 
Energy and Climate Policy Act of 1999 in the House has helped 
move these technologies along.
    Vision 21, outlined by Deputy Assistant Secretary 
Kripowicz, is an important part of this research effort, to 
develop the zero emission coal-fired power plant of the future. 
The coal industry is working on a number of projects to 
sequester carbon as those technologies will also be vitally 
important in the future, if it is found that reduction of 
CO2 emissions is indeed necessary.
    In addition to initiating a program that focuses on 
existing generating capacity, and continuing the R&D programs 
that address long-term technology needs to improve efficiency 
and reduce emissions from coal-based generation, two additional 
elements are needed.
    First is a financial incentives program, designed to 
cushion the financial burden of applying technologies to 
existing coal utilities, to improve emissions control and 
increase efficiency. Second is a demonstration program that 
provides tax incentives and/or financial assistance to deploy 
the initial commercial scale applications of advanced coal-
based generating technologies.
    This is required to reduce the significant risk inherent in 
using first of a kind technologies; a risk the utilities can 
not take in this new area of deregulation.
    Mr. Chairman, all energy sources have a unique and 
important role to play in meeting the growing energy demands of 
tomorrow. National energy policy should use all available 
domestic energy to permit the realization of the maximum 
national energy security.
    Of necessity, our greatest and lowest cost domestic energy 
source, coal, can and should be a major source of energy for 
the electric generation industry of the future.
    We look forward to working with this committee to make our 
Nation's energy future, and coal's future, a positive reality.
    [The prepared statement of Richard L. Lawson follows:]
  Prepared Statement of Richard L. Lawson, President, National Mining 
                              Association
    Mr. Chairman, members of the committee, I am Richard L. Lawson, 
President and CEO of the National Mining Association. National Mining 
Association (NMA) represents the producers of most of the nation's 
coal, metals, industrial and agricultural minerals; the manufacturers 
of mining and mineral processing machinery, equipment and supplies; and 
the engineering and consulting firms, financial institutions and other 
firms serving the mining industry. Our members operate in all regions 
of the country; produce all qualities of coal and all types of minerals 
for both the domestic and the overseas markets. I appreciate the 
opportunity to present the industry's views on national energy policy, 
energy security and most specifically, the role that coal has to play 
in both.
    Mr. Chairman, I would like to commend you for holding this series 
of hearings on the Nation's Energy Policy and the security of our 
energy supply. The availability of reliable and reasonably priced 
energy has made our country the economic powerhouse that it is today. 
Our nation should have an energy policy that balances economic, 
security, social and environmental considerations and at the same time 
supports the availability of reliable and reasonably priced energy. We 
do not have such a policy in place today. These hearings can provide 
the impetus needed to put our nation's energy policy back on track, and 
we are pleased to be asked to be a part of the effort.
    Nearly nine years ago to this day, June 25, 1991, I appeared before 
this same committee to give our views on exactly this subject. The Gulf 
War had just concluded, and this committee was considering legislation 
that ultimately became the National Energy Policy Act of 1992 (EPACT).
    In 1991, our economy was just recovering from the last real 
economic downturn experienced. Energy consumption was lower than in the 
late 1980's and in 1990. As the Gulf War ended, we were importing 
approximately 46 percent or our petroleum requirements. United States' 
energy policy was under review in an effort to find a way to reduce our 
import requirements while expanding our use of domestic energy 
resources such as coal. EPACT was passed to address this problem but, 
because it was never fully implemented, our energy supplies remain 
vulnerable.
    In 2000, our economy is stronger than it has ever been, but our 
energy supplies are again vulnerable. We are importing 54 percent of 
our petroleum requirements. But, our vulnerability to supply 
disruptions extends beyond imported oil. Reserve margins in our 
electric generating system have never been lower. Our nation has moved 
from promoting the use of domestic resources, such as coal and the 
nuclear power that we have in place, to a policy that is totally 
imbalanced toward the environmental extreme and a policy that all but 
ignores the strides made in technologies to burn fuels more cleanly and 
efficiently. Most importantly, energy policies have not produced the 
energy security envisioned in EPACT.
    Fortunately we do have the elements to put a sound energy policy 
back on a more balanced footing. This can only happen however, if we as 
a nation have the will to do so.
    My statement today will focus on two points:

 Use of all types of energy will increase in the United States, 
        and globally, to sustain economic growth, improve standards of 
        living and support an expanding population. It is necessary 
        that both energy and environmental policies take this reality 
        into account and be carefully balanced to support, not hinder, 
        long-term economic growth while supporting national energy 
        security.
 Coal, a mainstay of both US and global energy supply through 
        its use to generate electricity, will continue to be used 
        because it is widely available, it is reliable, and coal is low 
        cost. As electricity use increases, so too will coal use. While 
        coal is used more efficiently with lower emissions today than 
        ever before, technologies are being developed which will 
        convert coal into electricity with even greater efficiency 
        while effectively eliminating undesirable emissions. Changes in 
        policy are required however, both to maintain current coal 
        generating capacity and to ensure that the future fleet of 
        electric power plants include coal fired capacity.
            i. energy is required to support economic growth
A. Energy in the United States--an asset that is vulnerable to supply 
        disruptions.
    There is no such thing as a ``bad'' domestic energy source. Energy, 
whether it is from coal, oil, natural gas, uranium or renewable 
sources, is the common denominator that is imperative to sustain 
economic growth, improve standards of living and simultaneously support 
an expanding population. This relationship is clearly illustrated in 
Figure One that shows that as GDP has increased in the United States, 
energy use has grown in near tandem. Although technological advances 
and greater energy efficiency means that we are using less energy today 
for each unit of economic output than in the past, growth and 
prosperity cannot occur without the basic energy building block. The 
United States is fortunate to have a large domestic energy resource and 
an established energy infrastructure that supplies reliable and low 
cost energy to consumers from industry to households. Sound, balanced 
energy and environmental policies are required keep this energy 
infrastructure is in place.
    Economic expansion is expected to continue with an accompanying 
increase in energy use. According to the U.S. Energy Information 
Administration (EIA) 1, economic growth, expressed in terms 
of real GDP, is expected to increase on average 2.2% per year through 
2020. Reflecting greater efficiency trends, energy consumption is 
expected to increase by just over 1% per year over the same time. In 
absolute terms, energy consumption will increase from 95 quadrillion 
BTUs (quads) to 121 quads by 2020. This is of course, provided that we 
do not implement policies that would prevent this growth.
---------------------------------------------------------------------------
    \1\ All U.S. forecasts in the section are from the Annual Energy 
Outlook 2000. Energy Information Administration, DOE, December 1999
---------------------------------------------------------------------------
    The EIA forecast shows that consumption of all energy sources 
except nuclear power will grow over the next 20 years. This is 
illustrated in Figure 2. Natural gas consumption is forecast to 
increase from 22 quads to 32 quads by 2020. Petroleum use will increase 
from 37 to 49 quads. Coal, which comprises more than 90% of our 
domestic fossil energy resource, will increase from 22 to 27 quads. 
Coal will supply the current 22+% of total energy demand as it does at 
present. Coal consumption will increase from the current 1 billion tons 
to nearly 1.3 billion tons.
    Much of the energy that is used today in the United States is in 
the form of electricity. The future will not be different. In 2020 
electricity is forecast to supply 52% of non-transportation end use 
energy and coal is expected to generate over 50% of that electricity. 
Meeting new demands for electricity while maintaining the highest 
environmental standards in the world is an achievable goal. But, this 
goal will require both new electric generation capacity and an upgrade 
of our existing fleet for both efficiency and environmental reasons.
    Unfortunately, the failure to balance energy and economic security 
with sensible, effective environmental policies is affecting the 
availability, reliability and cost of energy and will ultimately affect 
our economic future. The current trend to make energy policy totally 
dependent upon restrictive environmental policies means that our 
nation's energy supply is becoming increasingly vulnerable. Three 
examples illustrate this point.

 Petroleum: The recent decline in petroleum availability and 
        increase in petroleum prices clearly illustrates our 
        vulnerability to outside forces. As the President of the 
        American Petroleum Institute pointed out to this committee on 
        May 24, the US petroleum industry is precluded from developing 
        the vast majority of our domestic reserve. This increases 
        dependence on imported sources and the United States now 
        imports over 54% of our petroleum requirements. That 
        dependency, according to the draft Department of Energy 
        Strategic Plan, is expected to be over 60% by 2020. This is as 
        much a matter of national security as economic security.
 Electricity: The late May report from the National Electric 
        Reliability Council (NERC) points out the sensitivity of our 
        nation's electricity supplies to extended heat wave conditions 
        or higher than anticipated generating unit forced outages. For 
        a number of reasons, including a series of initiatives by the 
        Environmental Protection Agency to ratchet emission standards 
        below Clean Air Act requirements, new generating capacity is 
        not being built as needed. Reserve margins are very thin and 
        electric power outages, or spikes in the costs of electricity 
        could occur. This is an example of environmental policy taking 
        total priority over energy and economic considerations with the 
        result--a vulnerable electric system.
 Coal: The long term use of our greatest domestic energy 
        resource, coal, is being put at risk on two fronts: through the 
        Administration's actions to deny access to public lands for 
        resource exploration and development which removes low cost 
        reserves from the US energy base; and through the continuing 
        barrage of actions by the Environmental Protection Agency which 
        are making the use of coal in electricity generation ever more 
        difficult and expensive.
    Our nation's energy supplies do not have to be vulnerable to 
outside events and they certainly should not have to be vulnerable due 
to our own unbalanced policies. Meeting new demands for energy while 
increasing use of ALL domestic energy and supporting economic growth 
can and should be complimentary with maintaining the highest 
environmental standards in the world.
B. Global Energy Requirements:
    Energy use will increase at an even faster pace in many countries 
throughout the world according to the ``International Energy Outlook 
2000'' published by the U.S. EIA. As illustrated in Figure Three, the 
rate of growth in energy consumption in the developing world, excluding 
Africa but including China, India and the countries in South America 
exceeds 3.5% per year through 2020. Conversely, United States and other 
industrialized countries will see an increase of approximately 1.0% or 
less per year on average. This rapid increase in energy use in the 
developing world will occur no matter what policies are in force in the 
developed world. Energy is required to support the economic growth that 
is both expected, and needed in these countries to raise the standard 
of living while supporting increases in population which, according to 
recent estimates of the World Energy Council will be as much as 10.1 
billion by 2050 (as compared with 5.3 billion in 1990).
    Just as in the United States, energy demands worldwide will be met 
with an increase in the use of electricity. Again to cite the 
International Energy Outlook, demand for electricity in developing 
countries will outstrip the rate of growth in energy use. Electricity 
generation is expected to increase by an average 4.3 percent per year 
between now and 2020. In other words, while energy use doubles, the use 
of electricity in these countries will nearly triple in this time 
period.
    All fuels will be required to meet these new energy demands and 
coal use will dominate in these countries. By 2020, some 3.6 billion 
tons of coal will be consumed in the regions comprising the 
``developing countries'' (that figure is about 1.8 billion today). Over 
44 percent of the electricity used in these countries will be generated 
from coal. Coal will be used because it is indigenous to many countries 
and is relatively low in cost. At this point, a future without coal use 
is unthinkable.
    Coal use in the future will not be limited to the developing world. 
Coal is now, and will continue to be, used in all regions of the world. 
Coal use in the industrialized world will remain at approximately 1.6 
billion tons, increasing in the US, Canada, Australia and Japan and 
decreasing only in Western Europe and in the countries of the former 
Soviet Union. Coal is now, and will remain, an important and major part 
of the global energy mix.
                     ii. coal in the united states
    In 2000, the United States will mine and use over 1 billion tons of 
coal. Economically recoverable coal reserves comprise over 85 percent 
of the US fossil reserve base. Coal reserves are geographically 
distributed throughout the US and coal is mined in 26 states and coal, 
or electricity generated from coal, is used in all 50 states. The coal 
industry contributes some $161 billion annually to the economy and 
directly or indirectly employs nearly 1 million people.
    In 1999, over one half of U.S. electricity is generated from 
abundant, low cost, domestic coal. The 950 million tons of coal used by 
electric utilities is more than triple that used in 1970, but emissions 
have declined as illustrated in Figure Four.
    The economy of the 21st century will require increased amounts of 
reliable, clean and affordable electricity. According to EIA forecasts, 
electricity use will increase by 1.1 trillion Kwh or 34 percent over 
today's levels by 2020. Other forecasts, including that done for the 
American Gas Association 2 and for the Gas Research 
Institute 3 show an even greater increase in electric 
generation growth. Coal, the nation's most abundant energy resource, is 
expected to play a major role in electricity's future. In 2000, 
generators are expected to use 986 million tons to produce over one 
half the electricity required. By 2020, and under a business as usual 
forecast, generators are expected to use 1.177 billion tons of coal, 
again to produce approximately one-half of the electricity to be 
generated.
---------------------------------------------------------------------------
    \2\ Fueling the Future, February 2000, Washington Policy and 
Analysis, Inc.
    \3\ Coal Outlook and Price Projections, April 2000, Hill and 
Associates, Inc.
[GRAPHIC] [TIFF OMITTED] T6466.008

    Coal could do even more than these ``business as usual'' 
scenarios would suggest, and could do so more efficiently and 
with lower emissions than even today with the use of new 
combustion technologies now being developed. However, there are 
many obstacles that could prevent coal from playing even its 
expected role in meeting future energy demands.

              III. Constraints on a Greater Role for Coal

A. Coal Supply:

    On the supply side, recent initiatives by the 
Administration to remove public lands from access for any 
purpose including exploration for and development of coal and 
mineral resources, will over time, reduce the amount of coal 
reserve.
 In 1996, the Administration used the little-used Antiquities 
        Act to create the Grand Staircase-Escalante National Monument. 
        This action removed 23 billion tons of mineable coal reserves 
        in Utah's Kaparowits coal field.
 Last fall, the Environmental Protection Agency (EPA) failed to 
        support the policies adhered to by every administration since 
        1977 regarding the application of the Clean Water Act to valley 
        fills at Appalachian coal -mines. The state of West Virginia 
        has indicated this action will affect two-thirds of the states' 
        surface mines and one-fourth of the state's underground mines. 
        The same policies may negatively impact Kentucky coal 
        production and production in other Appalachian states. 
        Development of coal reserves is as affected as current 
        production.
 Over the past 6 months the U.S. Forest Service has issued 
        three major regulatory proposal dealing with resource planning 
        and construction and maintenance roads policy that may 
        negatively impact the coal industry's ability to acquire and 
        access leased Federal coal on or near Forest Service lands. The 
        latest initiative, the Roadless Area land withdrawal proposed 
        by the Forest Service will have even broader implications as 
        this affects lands throughout the United States, not just in 
        the western part of the country.
    A more than adequate coal reserve base is quickly being depleted, 
not by mining, but by government fiat.
B. Coal Use
    Proposed changes in regulations could have an even greater effect 
on the use of coal in existing electric generators. These include:

 The EPA's announced intention to change New Source Review 
        requirements so that even routine maintenance will invoke 
        requirements to obtain new permits that could necessitate 
        installation of stringent emission control equipment even on 
        existing plants now meeting Clean Air Act Requirements;
 The EPA proposed state implementation plan (SIP) call rule 
        under Section 110 of the Clean Air Act which would require an 
        85% reduction in NOX emissions from utilities in 22 
        eastern states by May 2003;
 The EPA proposal to declare coal waste a ``hazardous by-
        product'' which would make coal ash disposal much more 
        difficult and in effect would preclude today's commercial use 
        of coal ash; and,
 The EPA rule on Regional haze that imposes a comprehensive new 
        program utilizing significant control technologies and other 
        requirements on states to control particulate matter beyond 
        levels already required under state and federal law.
    All these proposals would make the use of coal in existing 
generating facilities more expensive and extremely problematic.
    And, in the long term, there is the possibility that terms of the 
Kyoto Protocol on climate change or other international agreements to 
reduce greenhouse gas emissions would result in a sharp reduction of 
coal used.
    Actions and policies which are designed to eliminate coal use will 
have serious implications for the reliability of our electric 
generating capability. Over one-half of the nation's electricity (and a 
greater percentage of base load generation) is generated by coal. Over 
41 percent of the existing electric generating fleet is coal fired. 
This cannot be quickly replaced for a number of reasons, including the 
time and money that is required to develop the infrastructure necessary 
to switch to alternative sources. Natural gas use will increase, but it 
cannot replace over half the nation's electricity supply on either a 
timely or a cost effective basis.
        iii. technology development is important for the future
    Solving our nation's energy supply problems will require that the 
Administration and the Congress work to implement more balance energy 
and environmental policies that encourage the development and use of 
all fuels rather than work to prohibit the use of any one energy 
source.
    There are retrofit and repowering technologies available today that 
enhance environmental performance and efficiency of existing coal-based 
generation plants. And, there are new technologies being developed that 
are now, or will soon be, ready for deployment that will effectively 
eliminate health-based emissions and substantially improve efficiency.
    It is important that any national energy policy includes provisions 
to encourage the development and deployment of these new coal based 
technologies. Without these new technologies our electric generators 
will become much more dependent upon natural gas, already more costly 
than coal and likely to become even more expensive if as estimated by 
the National Petroleum Council 4 over $1.2 trillion will be 
needed for exploration, development and infrastructure improvements if 
gas supplies are to be adequate in 2010.
---------------------------------------------------------------------------
    \4\ ``Natural Gas, Meeting the Challenges of the Nation's Growing 
Natural Gas Demand'' February 2000, the National Petroleum Council.
---------------------------------------------------------------------------
A. Research is Ongoing
    Efforts to develop and deploy new coal based technologies have been 
underway for some time, efforts designed to expand upon and use the 
results of the joint industry-DOE Clean Coal Technology program. For 
example:

 National Mining Association, the Edison Electric Institute, 
        the Association of American Railroads and the Center for Energy 
        and Economic Development have adopted a technology road map 
        that sets research and performance goals for advanced coal 
        technologies, which if reached, would result in coal-fired 
        power generation at far greater efficiencies than today with 
        lower emissions of pollutants as defined by the Clean Air Act 
        of 1990 and with sharply lower CO2 emissions of today. A number 
        of companies are involved in co-funding with the Department of 
        Energy the Power Systems Development Facility in Wilsonville, 
        Alabama. This near-commercial plant demonstrates advanced 
        gasification, pressurized fluidized bed combustion, high 
        temperature/high pressure gas filtration and advanced turbine 
        systems.
 The Department of Energy's Vision 21 program has a goal to 
        design a power plant that will have generating efficiencies of 
        more that 60% using coal, with near zero emissions of 
        traditional pollutants and a reduction of CO2 emissions by 40% 
        plus.
 The Mining Industry of the Future program, a joint mining 
        industry-DOE research venture is involved in finding ways to 
        explore for resources, and then mine, process and transport 
        more efficiently at lower cost and with less environmental 
        impact. Results of this program will enhance coal as a fuel for 
        electric generators from a cost and quality standpoint.
    Beyond control of the traditional emissions, the industry also 
recognizes that carbon sequestration will be vitally important if it is 
found that reduction of CO2 emissions is necessary. The Department of 
Energy recently awarded over $7 million dollars to several of our 
national laboratories for research proposals designed to test several 
ways to sequester carbon. Two projects that are outside of that DOE 
effort hold particular promise for coal:

 The Zero Emission Coal Alliance (ZECA), a consortium of 
        researchers from Los Alamos along with US and Canadian coal 
        interests, is researching a technology that would create 
        hydrogen from a coal-water slurry and produce a pure 
        CO2 stream. A fuel cell would convert the hydrogen 
        to electricity and the CO2 stream would react with 
        magnesium oxide to be permanently sequestered. ZECA hopes to 
        pilot this new technology within five years.
 Los Alamos National Laboratory is testing a new method of 
        sequestration of carbon in semi-arid lands, a method that if 
        successful, will add to the agricultural capability of vast 
        areas of the globe while sequestering significant amounts of 
        carbon.
B. A Technology Strategy is Required to Take Technology from 
        Demonstration to Commercialization.
    To ensure that coal based generation can contribute to the future 
electricity requirements of the country, any national energy policy 
must include a strategy to move these new technologies from development 
and deployment to commercial use. In addition to continuing R&D 
programs that address long term technology needs to improve efficiency 
and reduce emissions from coal based generation (such as that described 
above), two additional elements are needed:

 A Financial incentives program designed to cushion the 
        financial burden of applying technologies to existing coal 
        utilities to improve emissions control and increase efficiency; 
        and
 A demonstration program that provides tax incentives and /or 
        financial assistance to deploy the initial commercial-scale 
        applications of advanced coal-based generating technologies. 
        This is required to reduce the significant risks inherent in 
        using ``first of a kind'' technologies, a risk the utilities 
        cannot take in this new era of deregulation.
    The elements of such a proposal are being developed.
    Mr. Chairman, all energy sources have a unique and important role 
to play in meeting the growing energy demands of tomorrow. National 
energy policy should use all available domestic energy to permit the 
realization of the maximum national enrgy security. A sound national 
energy policy should be one that balances energy with environmental 
protection, these are not mutually exclusive objectives and both can be 
achieved with benefits to our economy and society at large. Of 
necessity, our greatest and lowest cost domestic energy source coal--
can and should be the major source of energy for the electric 
generating industry of the future. We look forward to working with the 
committee to make our energy future, and coal's future, a reality.

    Mr. Barton. Thank you, General. Thank you for those kind 
words, also, about some of the legislation that I have 
sponsored.
    We would now like to hear from Mr. Paul Bailey, who is Vice 
President of the Environment at Edison Electric Institute. In 
prior positions, he has been a Special Assistant at the 
Department of Energy, working in the Fossil Energy Department.
    Mr. Bailey, your statement is in the record. We ask you to 
summarize it in 7 minutes.

                   STATEMENT OF PAUL C. BAILEY

    Mr. Bailey. I will do that. Thank you, Mr. Chairman.
    Good afternoon, Mr. Chairman and members of the committee. 
We appreciate the opportunity to appear today on behalf of the 
Edison Electric Institute and the electric utility industry. 
EEI is the association of the U.S. investor-owned electric 
utilities and industry affiliates worldwide.
    Mr. Chairman, under your leadership, this committee has 
addressed a number of important energy issues, including 
reporting of legislation to restructure the electric utility 
industry.
    We are witnessing the transformation of the electric 
utility industry, which will entail substantial changes in fuel 
mix for power generation over the next two decades.
    Today, energy policy is being driven, to a substantial 
degree, by environmental policy. However, energy policy and 
environmental policy are both critical national goals that must 
be harmonized. The United States dramatically reduced air 
emissions, while electricity generation from coal-fired power 
plants has doubled.
    While an air emissions policies will have a significant 
impact on our future energy choices, other policies will also 
play a role. These include clean water, waste disposal, the re-
licensing of nuclear and hydro plants, and energy siting and 
drilling constraints.
    Various policies have the effect of foreclosing options in 
the future. For example, because of relicensing issues, nuclear 
waste disposal uncertainties, and requirements that may render 
hydroplants uneconomic, both nuclear and hydro capacity are at 
risk. In addition, there are a number of environmental 
regulations that affect coal-fired electricity.
    The cumulative impact of these rules on the use of coal in 
electricity generation has not been adequately considered in 
the context of energy policy. For example, the availability of 
coal-fired generating plants to meet demand over the next few 
years in key parts of the country could be in question, due to 
the implementation schedule for EPA's NOX SIP Call 
Rule and 126 Petition Rule.
    The potential adverse consequences of many of these rules 
could be avoided by balancing energy supply needs with air 
quality improvements.
    In terms of future generation, the combination of 
environmental policies and electricity deregulation have led 
utility and non-utility power suppliers to opt for natural gas, 
which will make an important contribution to the future 
generation mix. However, natural gas supply is not without its 
own limitations.
    Administration officials and others have opposed closing 
offshore drilling sites, even as current wells are being 
depleted. Additionally, the siting and building of gas 
pipelines also face environmental challenges.
    Mr. Chairman, in short, my message to this committee today 
is that we need to recognize that maintaining electricity 
options is a sound energy policy objective that should be 
pursued simultaneously with the country's environmental 
objectives.
    Too often, we consider the impacts of individual 
environmental regulatory initiatives separately, without 
considering their cumulative implications. Let me urge that we 
take a broader perspective that will enable us to make better 
decisions that will not needlessly close off options for 
tomorrow's electricity supply.
    As we go forward, this committee can take a proactive role 
by encouraging and supporting policies that provide regulatory 
flexibility, along with market-based incentives in order to 
achieve the Nation's environmental goals in the most efficient 
manner.
    As an example, EEI, along with its members, has been 
seeking such new approaches. We have been discussing the idea 
of integrating various air quality initiatives faced by coal-
fired electric utilities, in a manner that would provide 
flexibility and regulatory certainty. We believe this approach 
has the potential to help us meet environmental goals at a 
lower cost.
    In closing, I respectfully urge the committee to continue 
the examination you have initiated today of the long-term 
prospects for energy supply options and the cumulative impact 
of our environmental regulatory agenda on future energy policy.
    Thank you, Mr. Chairman.
    [The prepared statement of Paul C. Bailey follows:]
  Prepared Statement of Paul C. Bailey, Vice President, Environmental 
                   Affairs, Edison Electric Institute
    Good morning, Mr. Chairman and Members of the Committee. I 
appreciate the opportunity to appear today on behalf of the Edison 
Electric Institute (EEI) and the electric utility industry to address 
the U.S. energy policy with respect to nuclear and coal power.
    My name is Paul Bailey, and I am the Vice President for 
Environmental Affairs for EEI. EEI is the association of the U.S. 
investor-owned electric utilities and industry affiliates worldwide. We 
have 200 member companies in the U.S. and 50 affiliate members in 18 
countries.
    Mr. Chairman, under your leadership this committee has addressed a 
number of important energy issues, including reporting of legislation 
to restructure the electric utility industry. Twenty-four states have 
already acted to deregulate and we are witnessing the transformation of 
the electric utility industry, which will entail substantial changes in 
fuel mix for power generation over the next two decades.
    As you are aware, policy-making is difficult without knowing the 
future consequences of decisions made today. This is certainly the case 
with respect to the electric utility industry. There are a number of 
major challenges on the horizon with respect to the future of 
electricity supply that have been raised by recent regulatory 
initiatives in the area of environmental policy.
    Most in this room are probably too young to remember the ``energy 
crises'' of the 1970s and the 1980s, the consequence of which was an 
intense focus by Congress, the public and the media on energy policy. 
Today, despite recent spikes in gasoline, heating oil, and electricity 
prices, energy policy is not a topic of concern. This doesn't mean that 
energy policy is not an issue. It's just as important as it was in the 
last two decades, but it's being made today with little or no public 
discussion.
    When the nation was grappling with the energy crises in the 1970s 
and 80s, it was in the context of a vigorous and evolving body of 
environmental policy with public support. Energy policy had to be made 
in the context of environmental policy goals and one of the debates was 
over the appropriate balance between two sets of legitimate policy 
goals.
    Today we have a strong environmental regulatory framework, the 
operation of which has the effect of making energy policy by default. 
The implications of environmental policy-making for future energy 
supply are no longer subject to public scrutiny. In essence, energy 
policy is now being driven by environmental policy. Energy security and 
environmental protection are worthy national goals that must be 
balanced and harmonized. In that regard, the United States has 
dramatically reduced air emissions while electricity has fueled 
economic growth. At the same time that the nation has doubled 
generation from coal-fired power plants, we have reduced electric 
utility emissions of sulfur dioxide (SO22) and nitrogen 
oxide (NOX) emissions. SO22 emissions fell by 30% 
from 1970 to 1997 and under Phase II of Title IV of the Clean Air Act 
Amendments of 1990 will be capped at 60% below 1980 levels. 
NOX emissions have also declined and will continue their 
downward trend with the implementation of the second phase of Title IV 
this year. (See Figure 1).
    There are other regulatory policies dealing with other air 
emissions and greenhouse gases that have an impact on future fuel 
choices for the generation of electricity. In addition, there are other 
regulatory policies addressing areas such as cooling water intake, 
waste disposal, the re-licensing of nuclear and hydro plants, and 
energy siting and drilling constraints.
    Environmental and policy actions have the effect of removing 
certain fuel options today from consideration for tomorrow's energy 
supply. However, there is no serious public consideration of whether 
the consequences of those policies are acceptable. This is especially 
true of electricity where the generation of power is based on a number 
of fuel sources. Our economy is becoming increasingly electricity 
intensive as we move into the 21st century. We will need all fuel 
options for the generation of electricity to support the continued 
growth of the American economy. But the long-term prospects for the 
current inventory of available options are highly uncertain.
    Let me highlight just a few examples. Today our electricity is 
generated by coal (56%) nuclear power (20%), natural gas (11%), 
hydropower (10%), some oil, and some renewables.
    Nuclear energy accounts for 20% of our generating capacity, but 
over the next ten years 10% of the plants must be re-licensed (2010), 
and by 2015, 40% must be re-licensed. The availability of nuclear power 
will depend on the decisions made during the re-licensing process. In 
addition, there is further uncertainty raised by the still-unresolved 
issue of the permanent disposal of nuclear waste.
    Hydroelectricity accounts for 10% of our generating capacity, but 
between now and the year 2020, the operating licenses of 239 hydro 
plants will expire, representing more than 25% of total hydro 
generating capacity. The re-licensing process is long and arduous and 
it is an open question whether the renewed licenses will include 
further operational constraints on the power generating functions of 
these dams in order to achieve environmental policy objectives, which 
could render even licensed facilities uneconomic. In addition, 
consideration is being given to breaching dams in various regions of 
the nation as a means of restoring fish migration routes.
    The situation for coal-fired generation is quite different. Here it 
is not a matter of getting a new license to operate. There are a number 
of environmental regulations recently initiated, or soon to be 
initiated, that focus on coal-fired electricity. These regulatory 
policies are wide-ranging and include the recent NOX SIP 
Call Rule, the pending 126 Petition Rule, impending rules on New Source 
Review, the recent EPA enforcement actions, regional haze rules, and 
the possibility of a new regulatory program focusing on mercury 
emissions. (See Figures 2 & 3). The cumulative effect of all these 
rules for the generation of coal-fired electricity have not been 
considered, but it may not be inaccurate to suggest that there is an 
issue of whether a number of coal-fired generating plants are going to 
operate at all. In fact the reliability of the power supply could be in 
question, as it relates to the implementation of the NOX SIP 
Call Rule and 126 Petition Rule. EPA has set an unrealistic, arbitrary 
compliance deadline of May 2003. The agency has been deaf regarding 
cautions as to the potential for near-term power supply interruptions 
resulting from the complexity of equipment retrofits and the short 
implementation schedule. For instance, a recent study suggests that 
already capacity short areas of the Midwest could see a ``sizeable 
reliability risk'' as utilities attempt to retrofit a large portion of 
their baseload power plants to comply with these rules--a risk that 
could be lessened or removed, simply with a more appropriate 
implementation scheme.
    In terms of the future of generation, including coal, the 
combination of environmental policies on the fuel choices that I've 
mentioned today and electricity deregulation, have led utility and non-
utility power suppliers to opt for natural gas. Clearly, natural gas 
will be an extremely important component of the future generation mix. 
It's role is expected to increase and replace some coal and nuclear 
baseload capacity. However, natural gas supply is not without its own 
limitations. Administration officials and others have proposed closing 
off-shore drilling sites, even as current wells are being depleted. 
Finally, the siting and building of gas pipelines raises environmental 
issues that can delay or impede construction and thus increase costs.
    As the case of natural gas suggests, there is no fuel choice 
panacea, thus underscoring the importance of the interplay between 
environmental and energy policies for this country's long-term energy 
future.
    This is not, Mr. Chairman, to say that the lights are going out. 
Viewing the uncertainties in each of the fuel options for generating 
electricity helps us define the electricity supply issues that are now 
looming large on the horizon. In short, I'm trying to illustrate the 
point that we are making decisions today that may remove or severely 
restrict tomorrow's fuel options for the generation of electricity. 
Until today, Mr. Chairman, there has been no one even raising the 
question, and I thank you for your leadership in that regard.
    In closing, let me suggest a few guidelines that I hope the 
committee will find helpful:
    First, there is a tendency to consider the implications of 
individual environmental regulatory initiatives separately, without 
considering the cumulative impacts of those initiatives on energy 
supply. For example, the timing and lack of harmonization of the 
NOX SIP Call Rule and 126 Petition Rule have the potential 
to cause short-term power supply interruptions. Taking the broader 
perspective suggested in my testimony will be helpful in defining key 
energy policy issues for public scrutiny and decision.
    Secondly, we should celebrate the successes of our nation's 
environmental policies, but also recognize that we may be approaching 
the point of diminishing returns. We are now trying to regulate at the 
margin, where the cost of each additional ton or pound of emission 
reduction may be very high. In order to preserve future fuel options, 
including coal, a consideration of alternative regulatory approaches is 
in order, in the context of the energy supply issues raised here today. 
We should compare the traditional command-and-control approach with 
policies that encourage greater regulatory flexibility, market-based 
incentives rather than prescriptions, and performance rather than pre-
ordained standards.
    As an example, EEI has been in the forefront of developing new 
approaches. We have been engaged in discussions that would integrate 
the various air regulatory initiatives faced by coal-fired electric 
utilities in exchange for flexibility in achieving emissions goals and 
regulatory certainty. We believe this approach has the potential to 
help us to meet air quality goals at a lower cost.
    However, we should not make the same mistake we've made in the 
past. The energy policy issues raised here today should be considered 
along with environmental policy issues. I urge the committee to 
continue the examination you have initiated today of the long-term 
prospects for energy supply options and the cumulative implications of 
our current environmental regulatory programs for the future.
[GRAPHIC] [TIFF OMITTED] T6466.009

[GRAPHIC] [TIFF OMITTED] T6466.010

[GRAPHIC] [TIFF OMITTED] T6466.011

    Mr. Barton. Thank you, Mr. Bailey.
    We would now like to hear from Mr. Steve Gehl, who is the 
Director of Strategic Technology Alliances for Electric Power 
Research Institute, which we call EPRI.
    Your statement is in the record in its entirety. We would 
ask that you summarize it in 7 minutes, sir.

                  STATEMENT OF STEPHEN M. GEHL

    Mr. Gehl. Thank you, Mr. Chairman, and good afternoon, 
members of the committee. Thank you for the opportunity to 
comment on the role of coal power and the national strategy and 
policy. I would like to emphasize four points in my testimony 
this afternoon.
    First, achieving the goals of global electrification will 
require a broad portfolio of power generation technologies. One 
of the greatest threats to the environment and global security 
in the new century is the current unavailability of commercial 
energy to nearly half the world's population.
    Our first priority should be efficient global 
electrification. This will provide the infrastructure for 
sustainable productivity growth or the efficient use of 
resources and reduced reliance on foreign oil.
    Consistent with this goal, the U.S. needs an integrated 
environmental and energy policy that allows us to meet 
environmental targets with minimal disruption of the economy. 
The bottom line is that there is no one silver bullet for 
either fuel or technology choices.
    We need a broad mix of energy technology: coal, natural 
gas, nuclear power, and renewables to confidently meet rapidly 
growing user requirements for electricity.
    Second, coal will have a continuing role in the electricity 
generation portfolio, if we develop advanced technologies for 
coal utilization. In the near term, the continued use of coal 
will be predicated on improving the energy conversion 
efficiency and environmental performance, while retaining 
coal's cost advantage.
    The advanced technologies for coal utilization described in 
the EPRI Electricity Technology Roadmap, in DOE's Vision 21, 
and the material that General Lawson referred to, all have the 
potential to achieve substantial improvements in energy 
conversion efficiency, greater than 50 percent, and in some 
cases, much greater than 50 percent; as well as greatly reduced 
capital costs of a coal-fired power plant, thus making new 
clean coal generation competitive with natural gas combined 
cycle technology in the timeframe of 2010 to 2020.
    Another approach that we have heard about this afternoon, 
carbon sequestration, decreases the net CO2 venting 
of fossil fuel use, either by capturing CO2 at the 
point of generation and storing it, or by removing 
CO2 from the atmosphere.
    However, there are many environmental chemical and physical 
challenges that have yet to be resolved as part of the larger 
R&D agenda in this area.
    Third, the U.S. should undertake a focused R&D program to 
develop the needed coal utilization and carbon sequestration 
technologies. Existing R&D programs are insufficient to meet 
the requirements of clean and abundant electricity for the 21st 
century.
    The EPRI Electricity Technology Roadmap documents the 
funding shortfall in several key technology areas, and 
concludes that additional funding of approximately $2 billion 
per year, $700 million of that for coal technology, will be 
needed over the next 10 years to resolve the energy carbon 
conflict with the urgency anticipated in public policy 
proposals.
    Failure to maintain coal as a key element of a national and 
global energy strategy can have disastrous consequences. A 
recent EPRI study concludes that the current regulatory policy 
direction fails to reconcile proposed emissions reductions with 
the realistic timelines for developing the technologies that 
can decrease the cost of these emissions. This is particularly 
so for CO2.
    Moreover, our study concludes that the relatively short 
horizon of proposed regulations does not allow sufficient time 
to make a transition to a sustainable U.S. energy system, 
without excessive disruptions and risks.
    Fourth, public/private collaborative efforts are needed to 
develop a robust generation technology portfolio. Collaboration 
is the most effective way, in EPRI's experience, to ensure the 
necessary resources are committed and properly focused on the 
results that will make a difference.
    Importantly, this means that industry should be a partner 
with government in defining, financing, and managing the R&D 
efforts. This means also that the current trends in energy-
related R&D investment must be reversed.
    U.S. energy industry today invests only about one-half of 1 
percent of its revenues in R&D, and the trend is downward. 
Moreover, U.S. Federal energy R&D funding is at its lowest 
level in 30 years, relative to GDP.
    Energy has been and remains at the bottom of the R&D 
investment ladder. To reverse this situation, we must align 
public and private support to leverage scare R&D dollars, 
pursue technology opportunities over a longer time horizon, and 
create incentives for investing in the power system of the 
future.
    Mr. Chairman, I would like to conclude with the following 
recommendations. First, we must recognize that policies to 
reduce greenhouse gas emissions must encourage universal global 
electrification as the foundation for economic growth and 
environmental protection.
    Second, we must develop a broad portfolio of advanced 
generation technologies, including coal-based options, to meet 
U.S. and global needs for the coming decades.
    Third, we must coordinate the efforts of policymakers, 
scientists, and technologists to assure the cost effective 
approaches for long-term reduction of greenhouse gas emissions.
    Finally, we must increase R&D support for the coal option 
and create the leadership and incentives for the formation of 
public/private consortia to conduct the needed research and 
deploy the resulting technologies.
    Mr. Chairman, thank you for your time and attention. I 
welcome your questions and comments.
    [The prepared statement of Stephen M. Gehl follows:]
 Prepared Statement of Stephen M. Gehl, Director, Strategic Technology 
                          and Alliances, EPRI
    Mr. Chairman and Members of the Committee: Thank you for this 
opportunity to address the Subcommittee on Energy and Power. I would 
respectfully request that the Subcommittee enter the following written 
remarks into the record as well as my oral testimony.
    EPRI commends the leadership of the Subcommittee in addressing the 
critical issues surrounding the continuing roles of nuclear and coal 
power in our national energy strategy.
    EPRI, the Electric Power Research Institute, was established 27 
years ago as a non-profit, collaborative R&D organization to carry out 
electricity-related supply, delivery, end-use, and environmental R&D in 
the public interest. EPRI has been supported voluntarily since our 
founding in 1973, and we have from the outset enjoyed the strong 
support of the state public utility regulatory commissions. Our 
members, public and private, account for more than 90% of the kilowatt-
hours sold in the U.S., and we now serve more than 1,000 energy 
companies and related institutions in more than 40 countries. EPRI 
operates as an independent technical organization maintaining access to 
and engaging the best technical talent in the world. Over nearly three 
decades, EPRI has established a global network of technical and 
business expertise that can be brought to bear to solve the toughest 
energy and environmental problems.
    I would like to emphasize four points in this testimony:
i. achieving the goals of global universal electrification and enhanced 
    environmental quality will require a robust portfolio of power 
                        generation technologies.
    EPRI has developed an Electricity Technology Roadmap to identify 
societal goals and aspirations over the next few decades, and the 
electricity-based technologies needed to meet these goals. (The 
Executive Summary of the Roadmap is attached to this written 
testimony.). Based on this work, it is clear that an important driving 
force for the world's energy future will be the environment including 
climate change risks. It is equally clear, however, that environmental 
issues cannot be resolved without simultaneously addressing economic 
development issues. In fact, it is the current unavailability of 
commercial energy to nearly half the world's population that is the 
greatest threat to the environment and to global security in the new 
century. Our first priority should be to achieve efficient, universal 
electrification on a global basis. This will provide the essential 
infrastructure needed for sustainable productivity growth, efficient 
use of all resources, decarbonization, plus significantly reduced 
competition for politically unstable sources of petroleum.
    Consistent with this goal, the U.S. needs an integrated 
environmental and energy policy that allows us to meet our 
environmental targets with minimal disruption on the economy. The 
bottom line is that there is no one silver bullet for either fuel or 
technology choices. While projections out to 2050 and beyond are 
speculative, we can draw some general conclusions. First, the needed 
energy portfolio must include fossil fuels (coal and natural gas with 
sequestration of CO2), nuclear energy and renewables, plus 
end use efficiency improvements, and the growing use of hydrogen as an 
energy carrier. Second, electricity will be fundamental to the 
marketability of this broad energy portfolio in its cleanest form for 
both stationary and mobile energy needs. Thus EPRI's electricity 
technology roadmapping analyses indicate that a robust mix of energy 
technologies will be needed to confidently meet rapidly growing 
domestic and global needs for electricity. Unfortunately, these 
technologies are not yet commercially available and the current levels 
of investment in developing them are insufficient to assure timely, 
broad-scale deployment.
    ii. coal can play a continued important role in the electricity 
generation portfolio if we develop a suite of advanced technologies for 
                           coal utilization.
    Coal now provides about 55% of U.S. electricity generation, and 
about one third of electricity generation worldwide. Moreover, despite 
growing contributions from natural gas and renewables, we anticipate 
that coal will continue to be the backbone of global electricity 
generation well into the 21st century. It is a vast resource in key 
markets as diverse as the U.S., Canada, China, and India, all with 
strong economic and security incentives to use their indigenous 
resources.
    However, the continued use of coal will be predicated on improving 
its energy conversion efficiency and environmental performance while 
retaining coal's cost advantage. Several advanced technologies for coal 
utilization are under development. Clean-coal technologies, such as 
integrated gasification combined cycles (IGCC) and pressurized 
fluidized-bed combustion (PFBC), have the potential to achieve >50% 
electricity conversion efficiency at the same cost of electricity as 
equivalent natural gas combined-cycle systems. Compared with natural 
gas, coal has a significant fuel cost advantage that offsets the higher 
capital cost of coal-based options. Current forecasts indicate that 
these technology advances have the potential to make new clean-coal 
generation competitive with gas on a cost-of-electricity basis in the 
2010 to 2020 timeframe.
    As another example, DOE's Vision 21 program includes a coal 
refinery or ``powerplex'' concept with hydrogen separation, chemical 
production, and carbon dioxide sequestration in addition to electricity 
generation. The result would be a far more efficient and complete 
utilization of coal's total resource value. But this technology will 
require major infusions of R&D funding beyond currently planned 
expenditures to achieve commercial viability before 2020.
    Ultimately, the factors that will limit the long-term future use of 
coal, as well as other fossil fuels, are the carbon dioxide 
(CO2) emissions and the resulting effects on climate. 
Economic carbon capture and safe, long-term storage technologies can 
extend the environmental lifetime of fossil fuels within a global 
carbon emissions budget. Sequestration reduces the ``net CO2 
venting'' of fossil fuel use, either by capturing the CO2 at 
the point of generation and storing it over the long term in sinks, or 
by transferring CO2 from the atmosphere. Potential sinks 
include geological formations and terrestrial ecosystems, as well as 
the ocean. The worldwide terrestrial carbon reservoir is larger than 
the atmosphere, and the ocean reservoir is larger still. Many 
environmental, chemical, and physical challenges remain to be resolved, 
however, as part of the larger R&D agenda in this area.
    Sequestration is valuable for both the carbon reduction it achieves 
and its role in moderating the risk of investing in future fossil-fuel-
based generation. That risk hinges on the uncertainty regarding future 
limitations on greenhouse gas emissions. However, the availability of 
low-cost sequestration has the potential for removing or at least 
weakening the linkage between fossil fuel usage and carbon emissions. 
This would give the potential investor greater confidence in deploying 
and operating fossil (and in particular, coal) plants.
  iii. the u.s. should undertake a focused r&d program to develop the 
     needed coal utilization and carbon sequestration technologies.
    Existing R&D programs are insufficient to meet the requirements of 
clean and abundant electricity for the 21st century. The EPRI 
Electricity Technology Roadmap documents the funding shortfall in 
several key technology areas and concludes that incremental additional 
funding of approximately two billion dollars per year ($700M per year 
for coal technology) over the next 10 years is needed to resolve the 
energy/carbon conflict with the urgency anticipated in public policy 
proposals. This reinforces the recent reports by the President's 
Council of Advisors on Science and Technology (PCAST) concerning the 
need for increased clean energy development funding, and a forthcoming 
report of the National Coal Council addressing the need for carbon 
sequestration research and development, and development of advanced 
clean coal generation options. Increasing the funding for development 
of the coal option will create the needed leadership focus and 
incentives to stimulate formation of the public/private consortia that 
must conduct the range of needed R&D, and commercially deploy the 
resulting clean energy technologies.
    Failure to maintain coal as a key element of national and global 
energy strategy can have disastrous consequences. Recently, EPRI 
conducted a study to evaluate the combined economic and market impacts 
of current policy direction, as defined by a series of reductions in 
emission limits of sulfur dioxide, nitrogen oxides, and CO2, 
planned to occur over the next decade. The overarching conclusion of 
the study is that the current policy direction fails to coordinate and 
reconcile these proposed emission reductions with realistic timelines 
for the development and deployment of the technologies required to make 
the reductions efficiently. This is particularly the case for 
CO2 emissions. Moreover, the relatively short horizon of the 
proposed regulations does not allow sufficient time to make a 
transition to a sustainable U.S. energy system without excessive 
disruptions and risks. As The Energy Daily commented last week in an 
article on the EPRI study, ``In layman's terms: It would waste a lot of 
money, and it might not even be possible.''
    Avoiding the trap posed by near-term emissions regulations will 
require:

 an accelerated effort to improve the efficiency of fossil 
        generation and develop advanced technologies for carbon 
        management; and
 close coordination of the efforts of policy makers, 
        scientists, and technologists so that emissions regulations 
        reflect both a scientific rationale for reducing emissions and 
        the availability of cost-effective technologies to meet the 
        regulations.
    Finally, although these comments focus on coal-based electricity 
generation, there are clearly many parallels between the likely future 
of the coal option and that of nuclear power. Like advanced coal 
technologies, nuclear power can play an important role in fostering 
domestic energy security and protecting the environment. And like coal, 
the future of nuclear power can be jeopardized by failure to 
aggressively develop advanced technologies for the economical power 
plants of the future. DOE/industry initiatives such as the Nuclear 
Energy Plant Operations (NEPO) and Nuclear Energy Research Initiative 
(NERI) are important steps in providing the needed leadership and 
research funding. However, as in the case of coal research, additional 
funding is needed to assure the timely availability of nuclear energy 
solutions to U.S. and global energy needs.
 iv. public/private collaborative efforts are critical to developing a 
        portfolio of commercially viable generation technologies
    Fourth, I want to emphasize the importance of a public/private 
collaborative approach to the comprehensive energy R&D initiative 
needed to develop advanced coal utilization technologies. Collaboration 
is the most effective way in EPRI's experience to ensure that the 
necessary resources are committed and properly focused on results that 
make a difference. Importantly, this means that industry should be a 
partner in financing, defining, and managing the R&D efforts. This 
means also that the current trends in both private and public sector 
energy-related R&D investment must be reversed.
    The lack of realistic incentives for R&D investment by the energy 
industry and its suppliers--given the need that exists--is alarming. 
The U.S. energy industry today invests about 0.5% of its revenues in 
R&D, and the trend is downward. In comparison, the overall U.S. 
industry average is around 7%. Energy has been, and remains, at the 
bottom of the R&D investment ladder, a prescription leading to a 
precarious and threatening future, especially given the increasingly 
central role that energy will play in global economic and environmental 
issues in the 21st century.
    U.S. federal energy R&D funding is also at its lowest level in 30 
years relative to GDP. We believe the reasons for the broad decline in 
federal energy R&D support include the current availability of cheap 
energy and competing energy constituencies whose advocacy arguments 
tend to cancel each other out. At the same time, state and local R&D 
funding programs naturally tend to address needs specific to their 
constituencies in preference to broader collaboration on issues of 
strategic national and international importance.
    With private-sector budgets cut and refocused on near-term results, 
collaborative efforts enable companies to explore R&D options that 
otherwise would be screened out, and to pursue opportunities for a 
longer time horizon. At the same time, it permits federal dollars to be 
stretched. Thus, the alignment of public and private support permits 
the leveraging of increasingly scarce R&D dollars on issues of joint 
importance.
                               conclusion
    I would like to conclude with the following recommendations:

1. Recognize that policies to reduce greenhouse gas emissions must 
        encourage universal global electrification, particularly in the 
        developing world, as the foundation for economic growth and 
        environmental protection.
2. Develop a broad portfolio of advanced technologies--including coal-
        based options--to meet U. S. and global needs for generation, 
        energy security, and greenhouse gas reduction in an 
        increasingly diverse world.
3. Coordinate the efforts of policy makers, scientists, and 
        technologists to assure cost-effective approaches for the long-
        term reduction of greenhouse gas emissions.
4. Increase R&D support for the coal option, and create the initial 
        leadership and incentives for the formation of public/private 
        consortia to fund and conduct the needed research, and to 
        deploy the resulting technologies.
    Thank you for your time and attention, and I welcome your questions 
and comments.

    Mr. Barton. Thank you, Mr. Gehl.
    We would now like to hear from, last but not least, Dr. 
Harold, is it Schobert?
    Mr. Schobert. Yes, sir.
    Mr. Barton. He is a Professor of Fuel Science at Penn State 
University, and the Director of their Energy Institute, and to 
my eyes, bears a striking resemblance to Karl Marx, which we 
know your philosophy is totally different.
    But when I saw you walk in the room, I really thought that 
you were maybe his great, great grandson or something.
    So welcome to the committee. Your testimony is in the 
record in its entirety. We ask you to summarize it in 7 
minutes.

                  STATEMENT OF HAROLD SCHOBERT

    Mr. Schobert. Thank you, Mr. Chairman. Never in my life had 
I had an introduction like that.
    I would like to point out, sir, that the usual resemblance 
that has been mentioned is Jerry Garcia.
    Mr. Barton. Well, that is what my Democrat friend, Mr. 
Boucher, says.
    Mr. Schobert. All right, well, thank you, Mr. Boucher.
    Well, that gets things off to a great start.
    Mr. Chairman and members of the subcommittee, I am pleased 
to be here to talk about coal today. I thank you for the 
opportunity, as well as the remarkable comments on my 
appearance.
    I certainly believe that there is a great future for coal 
in the United States in our energy economy. I believe that will 
be true at least through the middle of this new century and 
probably beyond.
    I believe that for two reasons. The first is the importance 
that exists today for coal in electric power generation, and 
the continued importance of coal in that area for quite some 
years to come.
    In preparing my oral remarks for you today, I was very much 
hoping that Mr. Kripowicz and General Lawson would talk about 
Vision 21, which spares me from repeating much of what they 
said.
    I believe that the Vision 21 concept that was outlined to 
you by Mr. Kripowicz is a bold, exciting, and remarkable 
initiative undertaken by the Department of Energy. We, at Penn 
State, certainly are very intrigued by it, and very supportive 
of it, and look forward to seeing the time when it comes to 
fruition.
    The other reason, sir and members of the committee, that I 
believe that coal has very important future is that we have to 
recognize that burning coal in power plants is not the only 
thing to do with it.
    There are many other potential new uses for coal. Some of 
these, at least, derived now from a much greater understanding 
of the fundamental chemical basis of coal. That understanding 
is the fruition of many years of long, patient work that was 
undertaken mostly by the national laboratories in various 
universities, with support from the Federal Government.
    I would like to give you just two examples of what I mean 
by that. The first is an example that bears directly, not only 
on our energy economy, but our national security. That is the 
prospect of making the next generation of military aviation 
fuel from chemicals derived from coal.
    This is a program that is already underway. The reason 
behind it is that the next generation of aircraft will be so 
lightweight and so high performance that there is a significant 
problem, simply in absorbing the heat that these airplanes 
generate.
    If the conventional jet fuel that is in use now is used 
also as a coolant on the aircraft, it will decompose to form 
carbon in the fuel line or burn a nozzle. I think the 
implications of that are pretty obvious.
    The extreme temperatures that a fuel in the future will 
have to withstand without decomposing are 900 degrees 
Fahrenheit. We have learned that a fuel that will take that 
temperature can be made largely consisting of components of 
coal. So we perceive that a coal-based jet fuel is a 
significant component of the liquid fuel scenario in the 
future.
    The other area is in the production of high tech carbon 
materials from coal. You might, at first sight say, well, okay, 
carbon material, that is not really burning the coal, so it is 
not energy; but in many ways it is.
    In a single example, carbon/carbon composites, these are 
materials that are lighter than aluminum, stronger than steel, 
and will not rot, rust, or corrode. A car made from carbon/
carbon composites will be substantially lighter, and therefore 
require substantially less gasoline. We have heard both from 
this panel and the previous panel on the concern for imported 
oil, and the effect of that on our economy.
    Therefore, even though we are not using the coal 
necessarily to burn it to release its energy content, using the 
coal to produce high tech carbon materials can result in energy 
savings in other sectors throughout the energy economy.
    In conclusion, I would say two comments, which I hope do 
not appear to be self-contradictory. First of all, I do 
believe, and I echo the comments of the others on this panel, 
that coal has a great future. It is and will be an important 
component of our national energy economy for decades to come.
    The other comment, in conclusion, actually, and I do not 
know whether I stole it from Mr. Kripowicz, or vice versa, but 
I have been paraphrasing the Oldsmobile ad that said, and you 
may have seen it on television, ``It is not your father's 
Oldsmobile.''
    Well, what we are looking at in the 21st century is not 
your father's coal industry, either. It is going to be a great 
one, but it is going to be very different.
    So, Mr. Chairman, I thank you.
    [The prepared statement of harold Schobert follows:]
Prepared Statement of Harold Schobert, Director, The Energy Institute, 
 and Professor of Fuel Science, C211 Coal Utilization Laboratory, The 
                     Pennsylvania State University
    Mr. Chairman and members of the Subcommittee, I am pleased to be 
here today to discuss aspects of the role of coal in a national energy 
policy. My perspective is two-fold. First, as Director of The Energy 
Institute at Penn State University, I have some appreciation for what 
is possible to be achieved with coal, and how research and development 
on coal can help us achieve national energy goals. Second, in my role 
as Professor of Fuel Science, I regularly teach an introductory, 
general course on energy to our future taxpayers and voters. In that 
course we discuss the pros and cons of a variety of energy sources--
coal, nuclear, petroleum, gas, and renewables.
Introductory comments
    The ways that we use coal are undergoing a major change as we move 
into the 21st century. These changes are happening. They provide both 
opportunities and challenges for the coal industry. The changes result 
from environmental considerations and from technological innovation. 
One of the changes is driven by regulation and legislation on 
environmental issues. These include the 1990 Clean Air Act Amendments 
and possible future limitations on greenhouse gas emissions. The second 
major change is in growing markets for clean liquid fuels, specialty 
chemicals, and advanced, ``high-tech'' carbon materials.
    Certainly there are those who, once again, are sounding the death 
knell of the coal industry. I contend there's a lot of life in the old 
corpse yet. The Energy Information Agency (EIA) predicts that coal will 
continue to dominate electric power production well into the first 
quarter of this century. New technologies are being designed to burn 
coal more efficiently and to eliminate emissions. Furthermore, the 21st 
century will be the ``carbon century'', with carbon materials 
proliferating into new markets in industries and consumer products. 
These changes are coming. They are starting to happen now. Coal is 
transitioning for a new role in a new century. The nay-sayers are 
wrong. Coal will have a vibrant and exciting future. But, to paraphrase 
the car ads that claimed ``It's not your father's Oldsmobile,'' it's 
not going to be your father's coal industry, either.
    Listening to the barrage of problems, criticism, even invective, 
facing the coal industry, it is easy to forget that coal is the 
backbone of America's energy economy. The majority share of electric 
power production, as well as much process and space heating, belongs to 
coal. Most of us have heard some of the proposals that would adversely 
affect the coal industry: a carbon tax, reliance on natural-gas-fired 
turbines for electric power generation, carbon dioxide reductions, 
mandates for using ``renewables'', and of course the tired old epithet 
that ``coal is a dirty fuel.'' Global warming--real or imaginary, 
friend or foe . . . carbon dioxide emissions--a threat to the planet, 
benign, or good for agriculture . . . while the debate rages on, the 
debaters occasionally pause long enough to agree on one point: coal is 
the ``bad guy.''
    According a 1995 EIA estimate, coal reserves are about a trillion 
tons worldwide, more than 235 times the world's annual consumption. 
Unquestionably, coal has great potential as a future source of energy. 
There is little doubt that coal combustion must continue as a major 
contributor to the energy economy for the near- to mid-term future. 
However, environmental pressures may militate against expanded markets 
for coal as an energy source, and the problem is likely to be carbon 
dioxide emissions. The National Research Council (NRC) pointed out in 
1995 that, ``Of all the environmental issues facing the future use of 
coal, none is as potentially far reaching as the worldwide concern over 
global climate change''. The heat generated in arguments about the 
Kyoto Accord sometimes seems to be about as large as the heat generated 
by burning the world's annual coal production. It is likely that 
environmental pressures on present-day, conventional coal utilization 
will only intensify. This factor, taken by itself, would cause us to 
question the long-term future of the coal industry. Environmental 
issues also severely impact the metallurgical coke industry, the 
present source of most chemicals from coal. The traditional coal 
industry and coal markets in the dawning of the 21st century are under 
increasingly intense assault.
    The immense reserve base of coal shows that it can be a significant 
contributor to the world's energy markets for decades, likely 
centuries. But why waste coal by burning it? Steady progress in 
understanding the molecular structures of coals places us on the verge 
of being able to do rational chemistry with coals--that is, 
deliberately to select specific coals as starting materials to produce 
specific, selected high-value chemical products. This opens a route to 
chemicals from coal that does not rely on by-product coal tars--or on 
the metallurgical coke oven--as the feedstock. The molecular structures 
in coals could be ideal ``monomers'' for the aromatic polymers and 
engineering plastics that have burgeoning applications and markets. At 
the same time, tremendous opportunities also exist for coals as 
precursors to high-value carbon materials. Taking coal in these 
directions--high-value chemicals and premium carbon products--
represents profitable opportunities for innovation, leadership, and new 
directions for the coal industry in the 21st century.
Electric power generation
    In preparing this testimony, I have assumed that others testifying 
to this Subcommittee today will discuss applications of coal in the 
electric industry in some detail; so, my own remarks on this topic will 
be limited. By far the largest market for coal in the United States is 
electric power generation. Between half and two-thirds of our 
electricity comes from coal-fired plants. As I face a new crop of 
students each semester, I never cease to be amazed by the number of 
people who have no idea that coal is the fundamental basis of our 
energy economy.
    New and forthcoming regulations under the New Source Performance 
Standards will force utilities to become much more efficient. In the 
past, emission regulations were based on the firing rate; that is, they 
were expressed in ``pounds per million Btu.'' New regulations will be 
based on the generating capacity of the plant, in ``pounds per 
megawatt.'' As a result, the more efficient plants--those able to 
generate a greater number of megawatts per ton of coal consumed--will 
enjoy a tremendous advantage.
    This leads to a new vision for energy generation in the 21st 
century. Appropriately, it's called ``Vision 21.'' A Vision 21 plant is 
more than a facility for generating electricity. The new plants, 
sometimes called ``energy-plexes,'' will be highly efficient and very 
clean plants that produce not only electricity with near-zero 
emissions, but also steam, clean liquid fuels, chemicals, and possibly 
hydrogen, all from a single facility. The Department of Energy (DOE) 
expects that Vision 21 plants will be commercialized around 2015. 
Vision 21 plants will be the largest single user of coal, and will 
eventually replace existing power plants. The Vision 21 concept has 
been endorsed by the President's Committee of Advisors on Science and 
Technology. The plants fit the strategic goals of the National Mining 
Association's Technology Roadmap for the Mining Industry and the 
President's climate change initiative.
    Coals vary widely in their compositions and properties. Vision 21 
energy-plexes need to be designed from the ground up for a particular 
kind of coal. To build the foundation for commercialization of Vision 
21, research and development are underway today.
Liquid aviation fuels
    Oil production is expected to peak some time between 2010 and 2020. 
That assumes that there will be no disruptions to the current oil 
supply as a result of military conflicts or more effective control of 
the supply by oil-exporting countries. Regardless, the question of how 
liquid aviation fuels will be made after 2020 is timely, given the 
large lead time to develop an alternative fuel source for our very 
large liquid fuel market. Here in the United States our cars, trucks, 
and buses burn more than 140 billion gallons of gasoline and diesel 
fuel annually. The Air Force alone uses about three billion gallons of 
jet fuel each year, about 10% of the U.S. market for aviation fuel. 
Complicating this situation is the fact that the United States has a 
significant, and growing, dependence on imported petroleum. American 
Petroleum Institute statistics for the week of April 14 show that our 
imports of crude oil and petroleum products were 11,135,000 barrels/
day, which represented 69% of the total refinery input of 16,111,000 
barrels/day. We are ``hooked on oil.'' Clearly, the dependence of 
military readiness and response capability on a vital material such as 
fuel, which is less and less a domestic resource, represents a grave 
security threat.
    Projected trends in future energy utilization do not provide much 
cause for optimism. Global primary energy demand is expected to climb 
by 40% by 2010, and fossil fuels, which today provide at least 90% of 
the energy in most industrialized countries, will still account for 
about 90% of that greatly increased total. Approximately 80% of the oil 
currently being produced comes from fields discovered before 1973. 
Production from many of those fields is now declining; within the next 
decade the supply of readily accessible crude oil will not be able to 
keep up with demand. If China, India, and the Third World nations were 
to industrialize by 2020 to the level enjoyed now by the United States, 
their energy demand would require a three-fold increase in oil 
production. Of course, with the demise of the former Soviet Union, 
additional petroleum reserves may become available in the west. Already 
there is considerable interest in the Caspian Sea deposits controlled 
by the Central Asian republics of Kyrgyzstan, Uzbekistan and Tajikstan. 
However, this oil source may not have a significant impact in the 2010 
time frame.
    Reliance on foreign oil sources also imposes substantial ancillary 
costs. In 1996, the Persian Gulf OPEC nations controlled 70% of the 
world's crude oil reserves; all OPEC nations together totaled 84% of 
crude reserves. A study published by analysts at RAND has shown that 
the Pentagon spends up to $60 billion per year to protect the $30 
billion of Persian Gulf oil imported into the United States. In other 
words, every dollar's worth of oil coming into the U.S. from the Gulf 
costs two dollars to protect. Given this perspective, it's important 
for us to remember that coal constitutes over 94% of proven American 
fossil fuel reserves, and coal utilization in the United States will 
not be resource-limited at any time at least through 2040. Furthermore, 
we possess 24% of the world's coal reserves. Clearly, coal represents a 
potential source of aviation fuels and other clean liquid fuels that is 
domestic-based and thus provides a secure source well into this new 
century. The situation has been expressed eloquently by Richard L. 
Lawson, president and CEO of the National Mining Association, who has 
stated that, ``There is no such thing as a bad domestic energy 
resource.''
    Though current jet fuels (JP-8 for the Air Force and Jet A/Jet A-1 
for commercial aviation) are made from petroleum, there is a vital need 
to assess the capability of coal to augment the supply of aviation fuel 
in the future. In addition to meeting concerns about supplies, new 
aviation fuels will need to meet increased thermal stability 
requirements, caused by the higher temperatures and higher heat loads 
in future aircraft. Two target fuels have been identified with 
increased temperature capability above JP-8 (whose maximum useable 
temperature is 325 deg.F): JP-8+225 (550 deg.F maximum) and JP-900 
(900 deg.F maximum). The goal of present research and development on 
the use of coal for aviation fuels is to determine the suitability of 
coal-based aviation fuels as candidate JP-900 fuels. Of course, this 
must be done economically and must result in fuel that meets the 
thermal stability and combustion requirements of current aviation 
fuels. Given current economic constraints, coal-based fuels will not be 
produced in stand-alone coal-conversion plants, but will be 
incrementally incorporated into existing refinery operations.
    The NRC has forecast that, ``by the second decade of the twenty-
first century . . . the cost of synthetic fuels [will be] reduced by 
process and systems advances and . . . concerns over the supply and 
price of competing fuels [will] increase''. Indeed, all of us have seen 
the recent increase in petroleum prices, especially at the gas pump. As 
indicated above, our dependence on imported oil has increased 
significantly. DOE statistics show that, between 1985 and 1997, the 
importation of petroleum more than doubled, from 4.3 to 8.9 million 
barrels per day. Three years later, it's up to 11 million barrels per 
day. Therefore, it is prudent--in fact, vital--for the United States to 
have a research and development program on coal-based alternative 
liquid transportation fuels, because coal is our most abundant energy 
source. We've seen gasoline prices double--or worse. We've seen 
truckers and farmers protest the soaring price of diesel fuel. 
Significant price changes in imported oil can have major impacts 
throughout our economy. How many times do we have to repeat the lesson 
before we've finally learned it? For the everyday consumer, the obvious 
concern is gasoline prices; for industry and farmers, it's diesel fuel 
prices. For our national security, a research and development program 
must address the need for aviation fuels capable of meeting military 
operational requirements to allow coal-based fuels to enter the 
operational arena by around 2020.
Non-fuel uses--Carbon materials
    The Energy Policy Act of 1992 calls attention (in Title XIII, 
Section 1304) to the need for ``a program of research, development, 
demonstration, and commercial application with respect to technologies 
for the non-fuel use of coal, including--

``(1) production of coke and other carbon products derived from coal;
``(2) production of coal-derived, carbon-based chemical intermediates 
        that are precursors of value-added chemicals and polymers;''
To the best of my knowledge, the Energy Policy Act of 1992 was our last 
serious attempt to have something resembling a national energy policy. 
Here, I address some issues on carbon products from coal; I will later 
touch on chemical intermediates.
    What can we do with carbon? Everything. Already, we rely every day 
on various forms of carbon, mostly in ways we seldom pay attention to. 
Carbon purifies air and water. Carbon lubricates. Carbon helps make 
steel and aluminum. Carbon is in our tires. Carbon rods are in 
batteries; carbon ``brushes'' help electric motors work. Carbon is the 
invisible workhorse of our daily lives. But with our new century comes 
new and exciting roles for carbon.
    Carbon fibers are stronger than steel, lighter than aluminum, and 
corrosion-proof. Developing the technology to make carbon fibers at low 
cost will kick off the next revolution in industry, even more 
impressive than the way silicon technology revolutionized electronics. 
Carbon foams are a third the weight of aluminum and ten times as good 
at dissipating heat. ``Pyrolytic'' carbon has a role as heart valves 
and other replacement body parts. The new world of carbon nanotubes has 
wide horizons, with promising applications from wires only one molecule 
thick to light-weight, high-capacity storage of hydrogen. Carbon is 
emerging from its behind-the-scenes role as the invisible workhorse to 
take center stage as the star of 21st century technology.
    Where can we get these new carbon materials? By turning to the 
oldest and richest source of carbon of all--coal. Coal is a carbon 
material; most coals contain 80 to 95% carbon (neglecting the ash 
residue). Most high-tech carbon materials are essentially 100% carbon. 
The challenge is to develop the technologies for making these new 
materials from our coals. The potential economic payoff is huge. A 
valuable coal might sell for $50, and a high-tech carbon material also 
for $50--but the coal is $50 per ton, and the carbon is $50 per pound.
    Developing premium carbon products from coal is an initiative that 
is in the direct national interest. Potential advantages for our nation 
include (but are certainly not limited to) decreasing national reliance 
on imported petroleum and petroleum products, improving fuel efficiency 
and reducing vehicle exhaust emissions, and reducing total carbon 
dioxide emissions. Since all coals are carbon-rich solids, they are 
potential starting materials for other, higher value materials via 
conversion to new carbon-based solids.
    Activated carbons are used mainly as adsorbents for liquid- and 
gas-phase applications. The amount of coals used worldwide for 
producing activated carbons is about 200,000 tons per year. This 
represents nearly half of the world's annual production of activated 
carbons from all sources. Significant growth potential exists for this 
product, primarily for water and air purification. The liquid-phase 
applications of activated carbons from bituminous coals include water 
purification, decolorizing, food processing, and gold recovery; the 
gas-phase applications cover air purification, gas treatment, and 
solvent recovery.
    Molded graphite articles have a wide range of applications, from 
high-tonnage uses as electrodes in electric arc furnaces, to specialty 
graphites for high-technology needs in chemical vapor deposition and 
epitaxial deposition devices. Manufacture of electrodes for steel 
making was a $2.2 billion business ten years ago, and has now grown to 
$3-3.5 billion worldwide. (In the United States, the market is $1-1.5 
billion.) Currently, petroleum coke is used to make these graphite 
articles. Consumption of petroleum coke by the graphite industry 
amounts currently to 350,000 tons per year. About 7.5 million barrels 
of ``coker feed'' are needed to provide coke only for the graphite 
industry (not taking into account all the other applications and uses 
of petroleum coke outside the graphite industry). The potential exists 
to replace petroleum coke with coal. Displacing this coke with coal 
would allow refiners to divert the coker feed into making lighter, 
potentially more valuable products. Anthracites tried in commercial 
graphitization processing have shown some potential for producing these 
graphite articles. Meta-anthracite, of very limited value as a fuel 
(selling for less than $25/ton) because of its poor combustion 
performance, may be even better than the more conventional anthracites. 
The value of meta-anthracite in graphite production would exceed its 
value as a fuel by at least ten times.
    Carbon/carbon composites have an array of applications: turbine 
blades, clutches, and brakes in the aerospace industry; exhaust 
nozzles, rocket nozzles, and afterburner components; connecting rods 
and pistons in automobile engines; and sporting goods. When continued 
research and development on carbon composites gets the price under $5 
per pound (it's currently $8-10 per pound) an enormous potential exists 
for their use in the automotive industry. There is a long-established 
relationship between vehicle weight and fuel efficiency. Any saving in 
vehicle weight translates directly into reduced gasoline consumption. 
Since gasoline is the dominant petroleum product, this saving is 
further compounded into a reduced demand for petroleum and reduced 
reliance on imports. (For the week ending April 14, motor gasoline 
production was exactly 50% of total refinery output.) Carbon-carbon 
composites are about 40% lighter than aluminum and 80% lighter than 
steel. Every 5% reduction of fuel consumption in the nation's vehicle 
fleet represents a saving of a hundred million gallons of fuel. It is 
not accurate to claim that every barrel of gasoline saved saves two 
barrels of crude oil, since the other refinery products (jet fuel, 
diesel, and so on) are valuable too. But, assuming that the only saving 
would be in the crude equivalent to the gasoline itself, the potential 
saving from a 5% reduction of fuel consumption is 2.4 million barrels 
of crude. For the week of April 14, the OPEC ``basket'' crude price was 
$23.77 per barrel. At these prices, the savings to the nation in cost 
of imported petroleum would be nearly sixty million dollars for each 5% 
reduction of gasoline used. It's important to note that this projected 
saving is not a result of some government-enforced reduction in 
driving, but simply through lighter vehicle weight achieved using 
premium carbon products. The saving in gasoline also relates to a 
saving in carbon dioxide emissions. Fuel economy also directly affects 
other vehicle exhaust emissions, notably the unburned hydrocarbons and 
carbon monoxide that contribute to smog formation. Replacing vehicle 
components by lightweight premium carbon products will improve the fuel 
efficiency; reduce emissions; and will impact our dependence on 
imported petroleum.
    The specialty carbon market is a $2.5-3 billion industry around the 
world, and about $500-750 million in the United States. I touch on only 
a few examples here. Molecular sieving carbons (MSC) are used 
commercially for separation of gases, such as taking oxygen or nitrogen 
from air. In the United States, MSC is used for air separation by Air 
Products and Chemicals Inc. Likely, more companies will be engaged in 
producing MSC as we move forward into the new century. Activated 
anthracites are microporous with a significant fraction of the pores 
having molecular dimensions; this suggests that molecular sieve 
materials could be produced from anthracites. Coal tar pitches are raw 
materials for carbon fibers, used in many applications including 
carbon/carbon composites, and for mesocarbon microbeads (MCMB), used in 
rechargeable batteries. A single, tantalizing trial of an anthracite, 
selected with no particular care for its chemical or physical 
properties, showed 75-80% of the reversible capacity that MCMB has when 
used in lithium batteries. This suggests that, with appropriate 
selection and perhaps some modest pretreatment, anthracite could be 
used as an electrode material in these batteries. The cost differential 
is enormous: about $18/lb for MCMB vs. 6 cents/lb for anthracite. 
Liquids from coal extraction and liquefaction can be used for making 
carbon fibers and graphitic materials. There are also potential 
advantages in using coal-based coke for making carbon electrodes.
Non-fuel uses--Chemicals
    Coals, as well as the other fossil fuels--petroleum, natural gas, 
bitumens, and oil shales'' are hydrocarbon resources. In principle, 
there are many ways of using valuable hydrocarbons. Burning them is 
only one choice. Other utilization strategies, the so-called non-fuel 
uses, also deserve attention. When combustion is the primary 
application of a resource, as with coal today, it is easy to lose sight 
of the fact that other alternatives even exist. Today, the major non-
fuel use of coal is production of metallurgical coke. About 500 million 
tons of coke are produced annually in the world. Coal tars, a by-
product of this industry, remain an important source of certain types 
of chemicals, called aromatic hydrocarbons. (Currently, the non-fuel 
uses of fossil hydrocarbons in the chemical industry are dominated by 
petroleum products.)
    Evaluation of the potential for coal in future chemical production, 
as with energy generation, presents a ``good news/bad news'' story. As 
I've indicated, the good news is that the immense reserve base of coal 
can be a significant contributor to the world's chemical, and energy, 
markets for decades, and likely for centuries. The aromatic molecular 
structures present in coals could be ideal feedstocks for the high-tech 
polymers and engineering plastics that have burgeoning applications and 
markets. The bad news is that the traditional source of coal chemicals, 
liquids from by-product metallurgical coke ovens, is steadily 
decreasing. So, as opportunities increase for applications and markets 
for coal chemicals, the traditional source of those chemicals is in a 
steep, and likely irreversible, decline.
    It's easy to forget that, until about 1950, the world's organic 
chemical industry was based on coal. Most of those chemicals derived 
from coal tar, and, in turn, much of the coal tar was a by-product of 
the metallurgical coke industry. The development of the coal tar 
chemical industry, and its impact on the scientific development of 
organic chemistry, represents heroic endeavors in industrial chemistry 
and organic chemistry. This story has been told often, and well, in 
various sources on the history of chemistry.
    Despite the success that the coal tar industry once enjoyed as 
provider for the organic chemical industry, and despite a growing 
demand for aromatic chemicals for specialty polymers and other high-
value-added products, the future of the coal tar industry seems dim at 
best. There seems to be a consensus that there will never be another 
by-product coke oven battery built in the United States, in part 
because of environmental constraints. This fact alone would cause the 
coal tar chemicals industry to move out of the United States. Not only 
that, it also appears that the coke industry may go ``back to the 
future,'' in that future coke ovens may revert to a variant of the 
earlier beehive oven. While beehive ovens certainly produce coke, 
ironically much of the heat is generated by burning the by-product tar 
right in the oven. In essence, the beehive oven works by burning up the 
very materials one would want to save (at least for the organic 
chemical business). The situation is made even worse because total coke 
demand is decreasing, due both to improvements in blast furnace 
technology that reduce the coke burden and, more importantly, to a 
steady shift to electric furnace technology. Even if no other 
constraints existed, coal tar production is tied directly to 
metallurgical coke demand, and would likely be dropping in any case.
    In the past half-century the organic chemical industry has been 
taken over largely by petroleum- and natural-gas-derived feedstocks. 
However, coal tar still reigns supreme in the market for complex 
aromatic compounds. This is a market with great growth potential, 
thanks to a steadily increasing demand for advanced aromatic 
engineering polymers, high-temperature heat-resistant polymers, 
thermoplastic polyesters, and related materials that will be made from 
these specialty aromatic compounds. As I've mentioned, an interesting 
situation confronts us: a market for a class of chemicals is increasing 
steadily while the principal source of those chemicals is declining.
    So, while we know that coal can supply the steadily growing demand 
for these aromatic chemicals as precursors to the market for aromatic 
engineering polymers and related advanced materials, we must also 
recognize that the potential market demand cannot be supplied by coal 
tar from coke ovens. The increasing demand for monomers based on 
aromatic and phenolic compounds results from the significant growth of 
markets for existing aromatic polymer materials, and from the rapid 
development of advanced aromatic polymers--engineering plastics, 
polyester fibers, polyimides, and liquid crystalline polymers (LCPs). 
Using LCPs as an example, most, such as Celanese's ``Vectra'' and BP-
Amoco's ``Xydar'' are made from chemicals that could be produced from 
coal. About 50% of the global market for LCPs is in the Asia-Pacific 
region. Despite their cost, LCPs are enjoying 25% annual growth 
worldwide and are fully expected to maintain that growth rate. There is 
a clear need for developing alternative sources of aromatic chemicals 
in the near future.
Concluding remarks
    A new coal industry is dawning. The incentive comes from the 
combination of the unique molecular nature of coals with the expanding 
opportunities for aromatic specialty chemicals and monomers and ever-
increasing demand for carbon-based materials. At the same time, 
environmental concerns about carbon dioxide emissions from combustion 
may provide a disincentive for future construction of large coal-
burning power stations based on today's conventional technology. 
Expansion of the non-fuel uses of all hydrocarbon resources, but 
particularly coals, is desirable, because coal has the potential to 
become more important as source not only of energy but also chemical 
feedstocks and premium carbon materials in the next century.
    This situation represents a subtle, but significant, shift in 
thinking. Coal utilization in today's world is dominated by combustion 
(not only direct combustion of the coal itself, then combustion of coal 
products such as coke and synthetic fuels). Nowadays, the attitude 
seems to be that if some amount of useful byproducts can be made along 
the way, doing so represents just a small, added bonus. Instead, we 
should view coal as a hydrocarbon source having multiple prospective 
uses, all of which deserve equally serious consideration as prospective 
uses for this valuable material. That is, coal is a resource that can 
be converted to chemicals and polymers, to carbon materials, or to 
energy. Combustion applications of coal will dominate in the near-term 
and likely will remain important for decades, but to ignore now the 
potential for alternative uses is only to short-change ourselves in the 
future.

    Mr. Barton. Thank you, Doctor.
    I want to find out what all these bells mean, before we 
start questions. I think we're going to go back in at 4:30 or 
4:15, so the Chair is going to recognize himself for the first 
5 minutes of questions. I think we are going to be here until 
at least 10, unfortunately. It is a recess until 3:45 on the 
floor.
    Mr. Kripowicz, when we passed the Clean Air Act amendments, 
back in the early 1990's through this committee, the goal was 
to reduce SO2 emissions in half by the year 2000. 
Could you give us any information, or anybody else on the 
panel--have we met that goal?
    Mr. Kripowicz. To my knowledge, we have exceeded that goal. 
I do not have the exact numbers; but, yes, we have met that 
goal.
    Mr. Barton. Coal was reputed to be the big culprit in 
SO2 emissions. So if we have actually met the goal, 
nationally, then coal has done its part. The scrubber 
technology that you talked about has come a long way since 
then.
    Mr. Kripowicz. And the use of low sulphur coal; the 
combination of those two things has led to the reduction in 
SO22.
    Mr. Barton. Okay, I would like to ask General Lawson, since 
you are here on behalf of the mining industry, when we have 
some of our environmental group witnesses, they talk about, 
coal may be environmentally correct now, at the use for 
generation as a fuel source in the power plant.
    But if you take the total life cycle and how much it costs, 
the environmental damage mining it, getting it out of the 
ground, and transporting it, we still should not be using coal. 
Could you comment on that a little bit?
    Mr. Lawson. Well, here is what I tell them, when they give 
that sort of a statement, Mr. Chairman. Coal, today, in the 
United States, is enabling it to have the cheapest electricity 
anywhere in the world. In our records across the coal industry, 
in terms of efficiency, we are twice as efficient as the No. 2 
producer of coal on the earth.
    In terms of safety, we are now rated by the Department of 
Labor as number 22 out of 23 industries, measured for safety. 
We were beat out by accountants and financial advisors only, 
last year.
    Mr. Barton. Well, they do damage in other ways.
    Mr. Lawson. And I suspect if the market keeps jumping up 
and down, we may get them this year.
    I think, in terms of environmental acceptability, the 
response is, give me a specific, rather than some kind of a gut 
feel about your problem. Because if we can not solve it with 
technology, we will stop doing it.
    Our record, I think, speaks for itself, across the country. 
We doubled the use of coal in this country since 1976, and we 
have reduced all emissions, despite doubling the use of coal. 
We have reduced all emissions by more than 30 percent.
    So our record here in this country will stand on its own. 
As far as any other country on the face of this earth, we have 
far out distanced them. We are now the standards that everybody 
holds themselves up to.
    Mr. Barton. Thank you, sir.
    This would be for Mr. Kripowicz and also Dr. Schobert.
    You talked about gasifying coal and using that in power 
generation, and Dr. Schobert talked about some alternative 
uses. If we use coal as a fuel source for power generation 
through this gasification process, compare that in efficiency 
to just using coal and burning it straight.
    Is it just as efficient and you get as much of the heat, 
per ton of coal, by going through that process, as if you just 
burn the coal directly? Dr. Schobert, you may want to comment 
on that, also.
    Mr. Kripowicz. Yes, you do, Mr. Chairman. Existing coal 
plants operated at around 33 to 35 percent efficiency. A 
combined cycle gasification plant that we have operating in 
Tampa, Florida operates at efficiencies in the neighborhood of 
43 to 45 percent, so it is a third more efficient.
    If we add new technologies that we are developing to make 
those plants even more efficient, plus add the possibility of 
using fuel cells and advanced turbines, we can get 
efficiencies, as we project in the Vision 21 program, of up to 
60 percent, which would be almost doubling the efficiency of 
existing coal plants.
    Mr. Barton. Dr. Schobert, do you want to comment on that?
    Mr. Schobert. Yes, sir, in terms of the net overall 
efficiency of a plant that is starting with the chemical energy 
and the coal, and electricity going into the bus bar at the 
other side, I would agree with Mr. Kripowicz's statements. I do 
not have the exact numbers, but certainly substantively, I 
agree with him.
    Mr. Barton. So environmentally, is there a downside to 
doing it that way? And if there is no downside in terms of 
efficiency, converting the coal to a gaseous state before you 
burn it, what kind of an emission effect is there? Does it 
enhance the emission effect, in terms of it being less 
environmentally negative, or is it worse, or about the same?
    Mr. Schobert. There are two concerns. First of all, during 
the process of gasification and subsequent use in the plant, it 
is possible to do some purification along the way. So one can 
actually capture potential pollutants before they would even be 
formed and emitted.
    The second critical thing to bear in mind is that with the 
increased efficiencies that Mr. Kripowicz was referring to, you 
can generate the same amount of electricity by burning somewhat 
less coal. That is one way to look at it. That has an immediate 
and direct effect on carbon dioxide emissions.
    Mr. Barton. Okay, thank you. My time has expired.
    The gentleman from Virginia, Mr. Boucher?
    Mr. Boucher. Thank you very much, Mr. Chairman.
    I want to commend particularly Dr. Schobert for his 
testimony today. I think you did a far better job than we could 
have expected from Karl Marks.
    Mr. Schobert. I would like to think that, sir.
    Mr. Boucher. I will not compare your performance to Jerry 
Garcia. He made a lot of money performing, but you did quite 
well.
    I am intrigued by your discussion of coal as potentially 
being the high speed aviation fuel of the future. How realistic 
do you think it is to suggest that some considerable volume of 
coal might be consumed for that purpose, and how rapidly do you 
think the technology will develop, so that there is any demand 
at all for coal for that purpose? Give us a little bit of your 
thinking about when this might happen, and what the volume of 
coal consumed for that purpose might be.
    Mr. Schobert. Okay, thank you, sir. In terms of the 
technology, I have a bottle of the prototype fuel in my 
briefcase, that you may have, if you wish.
    Mr. Boucher. Thank you. I will put it in my airplane, and 
we will see what happens.
    Mr. Schobert. Well, not necessarily; that might get me back 
into the Karl Marks business, or Groucho, perhaps.
    But let us put it this way, sir. Let us focus first on just 
the military aspect, without considering the commercial arena.
    The United States Air Force consumes 10 percent of the jet 
fuel produced in America, which is 1 percent of total refinery 
output. Our refinery capacity today is 16 million barrels of 
oil a day, and 1 percent of that goes to the Air Force.
    We, in our prototype fuel, can displace at least half of 
that with materials derived from coal. That, in turn, requires 
that coal be converted into those materials. I am running out 
of my ability to do arithmetic in my head, but the market for 
coal there is modest.
    If that fuel then is to be transitioned into the entire 
commercial fleet, the market for coal in that application would 
be substantial.
    Mr. Boucher. I would assume that the cost of that fuel per 
gallon is substantially higher than traditional aviation fuel. 
Therefore, one would anticipate that this fuel would only be 
used for high speed applications, where the different molecular 
composition is required. Is that accurate to say?
    Mr. Schobert. There are no accurate economic estimates on 
this fuel, at the present time.
    I will say two things, however. First of all, the Air Force 
target is that it cost no more than five cents per gallon more 
than the conventional JP8 fuel.
    One of the processes that is being studied at present would 
produce, at a bi-product material, some of these high tech 
carbon substances that I mentioned in my testimony. If that 
pays off, the profit from the high tech carbon material would 
virtually pay for the jet fuel.
    In that case, it would be perhaps even less expensive than 
conventional petroleum derived fuel. However, there is much 
work that has to be done to make sure that comes to fruition.
    Mr. Boucher. That is really fascinating.
    Are you getting any support in developing this fuel from 
Mr. Kripowicz and other entities in the government, or perhaps 
the Department of Defense?
    Mr. Schobert. Presently, sir, our work is funded by the Air 
Force Office of Scientific Research.
    Mr. Boucher. And Exxon.
    Well, thank you very much. I appreciate your bringing that 
information to us today. I actually read an article in, I think 
it was, ``Business Week'' about this, about 3 months ago. I was 
hoping we would have some mention of this development here 
today.
    Mr. Schobert. Thank you.
    Mr. Boucher. I would like to ask perhaps General Lawson, or 
maybe some of the other witnesses, who might have information 
on the subject, about the trends that are present today in the 
coal industry itself, in terms of a switch from a reliance on 
Eastern or Appalachian coal to coal that is mined in the West.
    To what extent is that trend occurring, and if you have 
information about it, what is the trend in terms of the 
comparison between volumes of deep mined coal and surface mined 
coal, that are being derived at the present time?
    Mr. Lawson. I will provide the specifics on 1999 for you by 
note. But just roughly speaking, we are at about 55 percent/45 
percent, surface to underground, across the country.
    Mr. Boucher. With surface being the higher number?
    Mr. Lawson. Surface is the higher number.
    The discussion earlier with regard to SO2 talked 
about sulphur, and the amount of sulphur in coal. I think the 
industry has made giant strides in the blending of coal, which 
has permitted the Eastern coal, and especially that, plus the 
Illinois Basin coal, to maintain a stable or slightly declining 
position, vis-a-vis, say, a decade ago.
    The increases are certainly coming from the Western coal 
fields in Wyoming and Montana; that being lower sulphur coal. 
Also, its expense in producing that coal is significantly below 
that. So it is on the increase, the Eastern coal, and Illinois 
Basin coal.
    Mr. Boucher. You are not talking in terms of numbers of 
tons produced.
    Mr. Lawson. Yes, sir.
    Mr. Boucher. But in terms of a percent of the overall coal 
market declining.
    Mr. Lawson. Yes, sir.
    Mr. Boucher. Can you tell me what the rate of that decline 
is, as measured against the entire coal market?
    Mr. Lawson. It has been about 2 percent, on an annual 
basis. Again, I will give you the last decade, so that you can 
get an idea of what that looks like.
    Mr. Boucher. Okay, Mr. Kripowicz, I have one question for 
you. Mr. Chairman, if you would indulge me just for a moment.
    Mr. Barton. This will have to be the last question in this 
round for you.
    Mr. Boucher. It will be. Thank you.
    Mr. Kripowicz, I understand that over the last couple of 
years, there have been two basic sources of the funding that 
you administer through your department for coal research and 
development. One of those has been the Clean Coal Technology 
Demonstration Program, which I think has now been terminated, 
or is very near its end.
    The other is the basic coal research and development budget 
within the general fossil energy research and development 
budget, administered by DOE.
    What has been the trend in funding for that latter 
component; the basic coal budget within the larger fossil 
energy research budget at DOE?
    Mr. Kripowicz. The actual coal numbers have gone up 
slightly in the past few years. They were on a decline until 
fiscal year 1999. Then they have increased slightly in both our 
2000 and our 2001 request, up to a figure of about $125 million 
to $126 million.
    Mr. Boucher. Do the other members of the panel think this 
is an adequate number, or should we be pushing for higher 
levels of coal research and development; Mr. Gehl?
    Mr. Gehl. Thank you. The analysis that I described earlier 
suggests that we need, over the next 10 years, an annual 
average of around $400 million for coal, and another $300 
million for sequestration, which would include other fossil 
fuels, as well as coal.
    Mr. Boucher. Dr. Schobert?
    Mr. Schobert. Well, sir, I believe, without being able to 
give specific numbers, that a, the figure is inadequate; and b, 
what the Federal Government, presumably through the Department 
of Energy, needs to do is to ensure that there is a steady and 
solid base of fundamental work on coal.
    Mr. Boucher. Okay, well thank you very much. Mr. Chairman, 
thank you for your indulgence.
    Mr. Barton. It is refreshing to know the Department of 
energy is spending some money on real energy research, though. 
I think, given all the other things they spend money on, it is 
good they are spending it on this.
    Mr. Whitfield, for 5 minutes.
    Mr. Whitfield. Thank you, Mr. Chairman.
    Mr. Kripowicz, I notice in your testimony, you touched on 
the recent lawsuits filed by EPA against various utility 
companies around the country, charged with violating the new 
source requirements.
    You said that Tampa Electric is the only company that had 
entered into a settlement. As a result of that, they are going 
to pay a $3.5 million fine, and retire significant coal 
capacity. I was curious, that particular facility, it is 
different than the Tampa Electric Polk Power station is it not?
    Mr. Kripowicz. Yes, sir, that emits essentially no sulphur 
oxide or no nitrogen oxide.
    Mr. Whitfield. Because that is the new gasification.
    Mr. Kripowicz. That is correct.
    Mr. Whitfield. And that is quite clean, I understand.
    Mr. Kripowicz. That is very clean.
    Mr. Whitfield. There are, what, three of those around the 
country?
    Mr. Kripowicz. There are two in operation, and one that is 
in start-out; that is right. There is one in Kentucky that is 
doing an environmental impact statement now.
    Mr. Whitfield. Is that the one that General Electric is 
involved in?
    Mr. Kripowicz. I am not aware of who is doing the turbines. 
It is Global Energy that has the gasification technology. It 
could be that General Electric is doing the turbines, but I am 
not sure.
    Mr. Whitfield. Does your office have a working group or 
task force with the EPA, that you all meet on a regular basis 
on coal issues?
    Mr. Kripowicz. We do not have such an organization. But we 
do have quite a bit of interaction with EPA, particularly when 
we are trying to develop technology, prior to the formation of 
regulations.
    We have done that several times, particularly with low 
NOX burners. We provided the information that 
allowed them to provide a reasonable rule for low 
NOX combustion.
    We have done work that we have shared with EPA on air 
toxics, which basically allowed them to not regulate toxics, 
although we are working now on the possible regulation of 
mercury.
    All of those things we do in conjunction with EPA, and EPRI 
has also been involved in some of those studies. We are looking 
at strategies for PM2.5 and particulate monitoring, also.
    Mr. Whitfield. Mr. Lawson, in responding to a question 
asked by the chairman, he was talking about how coal use had 
doubled over the last number of years, while emissions had been 
reduced by 30 percent. I think everyone recognizes that 
significant progress has been made in the coal industry in 
cleaning up emissions.
    But there also is the sense, that I certainly have and I 
think many people have, that EPA definitely does have a bias 
against coal. Now do you agree with that statement or not?
    Mr. Kripowicz. I know that they look at existing coal 
plants very, very strongly. But also, their regulations are 
regulations that can be met with existing technology. They also 
look at health effects.
    Mr. Whitfield. I would just like to ask the rest of the 
members of the panel, do you think EPA has a bias against coal?
    Mr. Lawson. Well, let me give you one example, sir. We, the 
National Mining Association, own the three most sensitive air 
measurement devices in existence.
    EPA, about 6 months ago, endeavored to put out a regulation 
that would have required a sensitivity that we did not have the 
capability to measure with the most sensitive devices existing 
in the world.
    The people who made those devices for us said it would take 
another 3 years of technology improvement, before they would be 
able to measure to the degree that the EPA regulation was 
asking for, from coal-fired generation.
    Mr. Bailey. If I can add, I have been asked that question 
before. I am always reluctant to impart motives to people that 
I do not know that well.
    Coal has been politically incorrect for probably a decade 
or two. That is the way I feel about it. Whether there is a 
deliberate agenda there, focused on coal-fired generation or 
not, the effect of that is, you feel the bias if you own a 
coal-fired power plant, right now.
    I think one of the attachments to my written testimony 
shows all the regulatory programs that coal-fired power plants 
face, just in the next decade. Forget what has gone on in the 
past.
    You can count probably a dozen programs that are going to 
regulate the same two pollutants: SO2 and 
NOX. At some point in time, those coal-fired power 
plants do become uneconomic, because of that.
    Mr. Whitfield. Do you two remaining gentlemen have any 
comments on that subject?
    Mr. Gehl. Yes, I would say that what we have tried to do is 
to take a look at the consequences of the various regulations. 
I think, along with Mr. Bailey, I am reluctant to assign 
motives. But the net effect of current and planned regulations 
would be to really make coal-fired generation an awful lot less 
economical than it is now.
    There is a thought that we would do a lot better if the 
industry and the EPA collaborated more at the initial stages of 
developing recommendations, rather than have this analysis come 
in somehow in the middle of the process.
    Mr. Whitfield. Mr. Schobert?
    Mr. Schobert. Well, like my previous colleagues here, I am 
not able to impart motives. But certainly, some of the 
activities undertaken by EPA have seemed wrong handed or 
downright bizarre; not the least of which is the recent attempt 
to declare coal ash as a hazardous waste.
    If that were to take place, and utilities were to be faced 
with the cost of dealing with that as a toxic substance, the 
net effect to America is, the lights will go out.
    Mr. Whitfield. Right, well, I agree. Last Fall, the EPA 
failed to support the policies adhered to by every 
Administration since 1977, regarding the application of the 
Clean Water Act valley fills. You could go on and on and on.
    I mean, all of us are interested in cleaning up the 
environment. The industry has made great progress. They are 
reducing emission, using more coal, but EPA continues to push 
for standards even more strict than even the Clean Air Act 
calls for.
    I think that they do have a bias. I hope that we can 
maintain a dialog with them to understand that this industry 
does provide about 51 percent of the electricity in the 
country. We are not going to get away from it. We need to work 
together in solving these problems, instead of adversely with 
each other.
    Mr. Barton. Does that conclude the gentleman's questions?
    Mr. Whitfield. Yes, Mr. Chairman.
    Mr. Barton. Okay, the first gentleman from Ohio, Mr. 
Sawyer; and then we will go to the other gentleman from Ohio, 
Mr. Strickland.
    Mr. Sawyer. Thank you, Mr. Chairman.
    Secretary Kripowicz, you and others have talked a good deal 
about fluidized bed combustion and coal gasification. I gather 
from what you said that the actual applications, at this point, 
are at pilot or demonstration level or below.
    Mr. Kripowicz. Right.
    Mr. Sawyer. Can you foresee for us the pathway from that 
level of application to widespread commercial application?
    Mr. Kripowicz. Yes, sir, fluidized beds are commercial, in 
small scale industrial plants, as well as in large scale 
utility boilers. So fluidized bed technology is commercial.
    Mr. Sawyer. At the level of efficiency that you were 
talking about?
    Mr. Kripowicz. No, the efficiency of the fluidized bed 
combusters is roughly equivalent to that of pulverized coal 
plants.
    Mr. Sawyer. I see.
    Mr. Kripowicz. But it does remove the vast amount of the 
sulphur and nitrogen oxides without scrubbers, so you have some 
advantage there.
    For gasification, we have commercial scale demonstration 
plants. But what they need to do in today's market is compete 
with natural gas. At this point, the technology has not proven 
enough, and has not been replicated enough, to reduce the costs 
so that it will be competitive with natural gas.
    We figure that that will take place over the next 10 years 
or so, but it is not something that is going to happen 
immediately. That is one of the focuses of our R&D program, to 
develop the technology that will produce that high efficiency 
and also reduce the capital costs.
    Mr. Sawyer. General Lawson, Secretary Kripowicz mentioned 
that next week or so we are likely to be looking at a mark-up 
of an electric restructuring bill.
    You mentioned assistance to the coal side of the industry 
from government. Have you given any thought to what form that 
should take, without upsetting the rest of the playing field, 
as we try to achieve a competitive restructured electrical 
environment?
    Mr. Lawson. We have done a good bit of work, both 
internally in the industry, as well as with the utilities, and 
some consultations with the other energies, as well.
    We have a saying that we are pretty proud of. We think 
there is no such thing as a bad domestic energy. In an 
environment where you have to import 54 percent of your oil, it 
is quite clear that we are talking about rationalization, for 
the good of the country.
    So we have put together a package that looks at tax 
incentives for certain kinds of technology introduction. We are 
in the process now of beginning the work on that, with the 
appropriate staffs. This staff will be one of the first stops 
in our effort.
    Mr. Sawyer. If you could share materials on that with us, I 
would certainly appreciate it.
    Mr. Lawson. We surely will.
    Mr. Sawyer. Thank you.
    Dr. Schobert, you touched a subject close to my heart. I 
come from Akron, Ohio, where for 65 years, we have been 
learning how to build tires out of oil, because we knew we 
could not get latex during the war.
    It is at the heart of what you are talking about. We use 
petroleum-derived feedstocks for hydrocarbon, and there are a 
wide range of synthetic materials that have come from this.
    The kinds of materials that have been developed have just 
been amazing; just when you look at what things like Kevlar and 
Nomax have done.
    Mr. Schobert. Yes.
    Mr. Sawyer. Those, actually, are first, earlier generation 
synthetic hydrocarbon materials. How would you compare the 
state-of-the-art with regard to the use of coal in developing 
similarly high performance materials, to those earlier 
generations of polymer-derived synthetics?
    Mr. Schobert. There is a tremendous opportunity to use coal 
in that application. It is in the early days of research and 
development. Basically, some of the molecular structures that 
can be derived from coal are in very high demand and very high 
price, as the building blocks to make the next generation of 
material.
    If I could cite just one example, sir, a video tape made 
from this next generation would be half as thick, but twice as 
strong, as the existing plastic video tape. That would allow 
you to get 12 hours of Jerry Garcia on a cassette, instead of 6 
hours.
    But, again, I have to emphasize, it is in the early days. 
The potential is fantastic. Some figures are cited in my 
testimony. I could supply others, if you would like.
    Mr. Sawyer. Could you have off-the-shelf materials that you 
could share, that I could make use of in a lay environment?
    Mr. Schobert. I believe so, sir.
    Mr. Sawyer. I would appreciate that if you could pass them 
on. Thank you.
    Mr. Schobert. Yes, thank you, sir.
    Mr. Barton. Does that complete your questions?
    Mr. Sawyer. Thank you, Mr. Chairman.
    Mr. Barton. The other gentleman from Ohio, Mr. Strickland, 
for 5 minutes.
    Mr. Strickland. Thank you, Mr. Chairman.
    Mr. Bailey, one of the areas of regulatory uncertainty that 
utilities are facing is the NOX SIP Call, as well as 
the EPA's action under Section 126 of the Clean Air Act.
    The original NOX SIP Call contained a deadline 
for individual sources covered by the SIP, such as electric 
generating units to implement the SIP's emission control 
requirements. That deadline was May 2003.
    Legal challenges have ensured, and the situation is a 
little confusing and perhaps uncertain. For example, in March 
of this year, the DC Circuit sent certain aspects of the SIP 
Call back to EPA for more work. What was sent back included the 
very definition of electric generating unit, for example.
    Nevertheless, it seems that EPA intends to require these 
reductions, under either Section 126 actions or the SIP Call or 
both, by May 2003.
    I would like for you to share with us, if you would, if you 
think this compliance timeframe is reasonable, or if not 
reasonable, achievable.
    In your testimony, you indicated that there could be 
potential for short term power supply interruptions. Could you 
please expand upon that concern.
    Mr. Bailey. I would be delighted to. The deadline currently 
is May 2003. So a number of coal-fired power plants around the 
country face a prospect of deciding what kind of technology to 
install, doing the engineering work on that, getting it 
constructed, and having it operating, by May 2003. Some of them 
have already begun that, and some of them have not.
    Legally, and I am not a lawyer, so I will disqualify myself 
right there, but right now, as I understand it, EPA is going to 
ask the Court to lift the stay. Then they will talk about 
whether that 2003 deadline still makes sense. But that is 
essentially what we are facing, right now.
    Do we consider that a rational deadline; no, in light of 
what needs to happen between that stay being lifted and in 
reducing NOX emissions.
    There have been a number of studies, as to whether that 
creates any concerns about reliability or electricity supply. 
Of course, several of them conflict with each other, which is 
the nature of this game.
    We think the most definitive study on that was done by NERC 
recently, which put a lot of thought into it. They identified 
two regions of the country, ECAR and Maine, in which they saw 
the potential for outages.
    Without getting into the all the technicalities of it, 
basically what they plan for is about one outage, every 10 
years. That is what utilities plan for, and that is what these 
reliability regions plan for.
    They were looking at the possibility of outages of up to 
one every 3\1/2\ months, in some regions of the country. So 
that is going from one every 10 years to one every 3\1/2\ 
months, depending on what kind of assumptions you make about 
the availability capacity.
    So we are very, very concerned about that, right now. I do 
not know, quite frankly, how we are going to resolve it.
    Mr. Strickland. Thank you for that very candid answer.
    The committee is going to be considering deregulation of 
the electric utility industry. Now we are being told that this 
is going to bring lower prices.
    On the other hand, what seems to have been suggested, Mr. 
Bailey, by you and, I think, others, is that if we continue to 
pile environmental regulations on the industry, this could 
result in an increase in the electricity prices. Are we perhaps 
working at cross purposes?
    Mr. Bailey. We may be, if we are not very, very careful 
here. Again, there are a number of studies that look at the 
effect of environmental requirements. We have studied that, 
also.
    Again, we are very concerned about the increase in cost. 
They are particularly considering what may be lack of 
commensurate benefits.
    The studies that we have done show capital cost increases 
of something in the range of $22 billion. Now is without 
everything imposed on us. That is with most of what is in EPA's 
agenda, right now.
    The annual costs on that are almost as high; somewhere in 
the range of $15 billion a year by the year 2010. So yes, if we 
do the wrong things environmentally, we are going to be wasting 
a lot of money here; that is right.
    Mr. Strickland. Mr. Chairman, I have one additional 
question.
    Most of the fuel sources, Mr. Bailey, that you mentioned 
for electricity generation, and we are talking about nuclear 
and coal and hydro, are posed by one or more organizations. 
Nuclear, coal, and hydro, combined, account for about 86 
percent of our electricity generation.
    But if nuclear, coal and hydro capacity are reduced, what 
can replace that lost capacity? How can we replace 86 percent 
from the remaining possible sources? I think I see you smiling.
    Mr. Bailey. I am only smiling in response to other people 
on the subcommittee here.
    I think nobody has the answer to that question. I have 
heard people from the other side try to address that. If I can 
say this, they seem rather uncomfortable responding to that 
question.
    I do not know how we would provide the electricity, if we 
do not have all the sources. That is one of the points I am 
trying to make here.
    We need to have a number of options in the market place. To 
some extent, the environmental policies will help us sort out 
those options. But we need to have a number of options. It is 
not good energy policy not to have a lot of options.
    Mr. Strickland. You know, that seems to be terribly 
important.
    Mr. Lawson. Excuse me, I was going say, on that same 
question, I have pressed the community very hard on that very 
issue. I come away with the very distinct impression that they 
are most willing to accept constraints on economic activity, as 
required in force by that kind of reduction. I am not sure the 
American people are willing to accept those kind of 
constraints, but I think they are.
    Mr. Strickland. Well, sir, I guess if you are living 
comfortably, and you have never actually been deprived, it may 
be easy to make those decisions for other folks.
    I serve a region where one of my counties has 17.1 
unemployment. We are the facing the loss of over 800 deep coal 
mining jobs, in the next 1\1/2\ years.
    So I think these are terribly relevant questions. It seems 
to me that they are important enough that we ought to be trying 
to find answers to them.
    Thank you for your comments and your opinions.
    Thank you, Mr. Chairman.
    Mr. Barton. Thank you, Congressman Strickland.
    We are going to have additional written questions for this 
panel, and we are going to conclude. I want to make just one 
concluding remark.
    We really have not had an energy policy in the last 10 
years, but we have had an environmental policy. The 
environmental policy has driven the energy policy.
    Congressman Strickland's question kind of hit it right on 
the head. If we continue to allow the environmental policy to 
constrain the energy policy, there will be an economic 
consequence of that, as General Lawson pointed out, and it will 
not be positive. It will be negative.
    So in our previous hearing, we talked about oil and gas 
issues. This hearing has been nuclear and coal. The next 
hearing we will hold will look at alternative fuel sources, 
conservation, and perhaps, electricity, as a stand-alone.
    Then we will put our heads together, and see if we can come 
up with a draft legislative comprehensive energy policy to at 
least put out for discussion purposes, pending the next 
Administration.
    So I want to thank you, again. I want to apologize to Dr. 
Schobert, if you took any personal offense at my allusion to 
you as Mr. Marks.
    Mr. Schobert. None, whatsoever.
    Mr. Barton. I certainly did not mean any personal offense.
    We look forward to working with you in the months ahead, as 
we look at some drafts of our energy policy.
    This hearing is adjourned.
    [Whereupon, at 4:08 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]
         Prepared Statement of The Uranium Producers of America
    The Uranium Producers of America is a trade organization 
representing the domestic uranium mining and milling industry. We 
respectfully submit this statement on behalf of the domestic uranium 
industry.
                              introduction
    Mr. Chairman, this hearing is extremely timely, as the domestic 
uranium and conversion industries face near devastation due to the 
introduction of overwhelming amounts of government uranium inventories 
into the commercial marketplace. Despite the fact that in 1999, nuclear 
power generated a record 23% of the electricity output for the United 
States, government actions have created a situation that could spell 
the end of the domestic nuclear fuel cycle industry. This turn of 
events is particularly troubling because Congress has directed the 
Department of Energy to assure its uranium inventory policies would be 
carried out in such a way as to not adversely impact the domestic 
uranium, conversion, and enrichment industries. As government 
inventories are dumped into the commercial marketplace, no producer, 
foreign or domestic, can produce uranium or conversion services at the 
current market price.
    The worldwide need for energy is growing at a tremendous rate. 
According to a recent Wall Street Journal article, ``[A]merica is 
running short of electricity.'' \1\ The International Energy Agency of 
the Organization for Economic Cooperation and Development projects 65% 
growth in world energy demand by 2020. To meet this immense global 
demand for energy without damaging the environment, nuclear power must 
play a major role.
---------------------------------------------------------------------------
    \1\ Rebecca Smith, ``New Rules, Demands Put Dangerous Strains on 
Electricity Supply.'' Wall Street Journal, May 11, 2000.
---------------------------------------------------------------------------
    In the United States, nuclear safety and efficiency have improved 
significantly since 1990. Domestic nuclear utilities unit capacity 
factors have reached record levels in recent years. Despite a reduction 
in the number of nuclear power plants, the U.S. nuclear industry 
generated 9% more nuclear energy in 1999 than 1998. Average production 
costs for nuclear energy are now less than 2 cents per kilowatt hour, 
while electricity produced from gas costs over 3 cents per kilowatt 
hour. Nuclear power and natural gas are the clean, secure fuels of the 
future.\2\
---------------------------------------------------------------------------
    \2\ An extensive article highlighting the virtues of nuclear power 
can be found in the January/February 2000 Foreign Affair entitled ``The 
Need for Nuclear Power.''
---------------------------------------------------------------------------
    While it is evident that nuclear power should play an increasing 
role in meeting our nation's growing electricity requirements, the 
availability of a secure domestic source of fuel for the power reactors 
is very much at issue. I urge Congress and the Administration take an 
active role in crafting a solution to a predicament that threatens our 
national security and energy independence.
the introduction of government inventories has materially impacted the 
                         domestic fuel industry
    Two government initiatives have placed the future of the domestic 
uranium and conversion industries in peril.\3\ The first was the U.S./
Russian HEU Agreement (HEU Agreement) which provided for the blending 
down of nuclear weapons from the former Soviet Union into fuel for 
commercial reactors.\4\ Our government has attempted to conduct this 
important non-proliferation policy concerning former Soviet nuclear 
weaponry by requiring the commercial marketplace to absorb this 
material. Thus, the domestic fuel industry has been required to bear 
the lion's share of the cost of the implementation of this program. 
Second, in an effort to maximize the value of the Enrichment 
Corporation's privatization, vast U.S. government inventories were 
transferred to USEC before the Corporation went public. These transfers 
were legitimized by a Department of Energy Secretarial Determination 
required to forecast the action would not adversely impact the domestic 
uranium and conversion industries. The Determination failed to consider 
numerous factors that have come to bear on the market.
---------------------------------------------------------------------------
    \3\ A comprehensive discussion of this point can be found in the 
testimony of Mark Stout on behalf of the Uranium Producers of America 
and James J. Graham on behalf of the domestic uranium conversion 
industry, presented to the Subcommittee on Oversight and Investigations 
of the Committee on Commerce, April 13, 2000.
    \4\ The HEU Agreement provided that the blending down of weapons 
grade material should be accomplished in a manner that would not 
adversely affect the domestic fuel industry.
---------------------------------------------------------------------------
    Together these two initiatives have severely depressed the price of 
natural uranium and conversion services. The domestic industry was set 
to handle the market disruption caused by the HEU Agreement. However, 
the USEC transfers added to this program have reeked havoc on the 
commercial market price for uranium and conversion services. The 
depressed price threatens not only the viability of the domestic 
uranium and conversion industry, but ironically it also has negative 
implications on the U.S./Russian HEU Agreement because of the 
artificially low price for uranium feed material.
    Primed with the material transferred by DOE, USEC's aggressive sale 
of government windfall uranium has overwhelmed the U.S. commercial fuel 
market. USEC is able to package this material with SWU, with little, if 
any, cost associated to the uranium and conversion component. This has 
resulted in uranium prices falling from approximately $16.50 per pound 
to at the time of USEC's privatization, approximately $8.00 on the spot 
market today. Conversion prices have plummeted in a similar fashion. 
DOE's determination of no adverse impact was certainly erroneous and 
incorrect.\5\
---------------------------------------------------------------------------
    \5\ Exhibit 1 reflects the status of domestic uranium producers. 
Every U.S. producer that was in business at the date of the USEC 
privatization has either curtailed production or simply quit doing 
business.
---------------------------------------------------------------------------
               the case for a secure domestic fuel supply
    Clearly, Congress must craft a comprehensive energy policy to 
respond to our nation's electricity needs crisis. We believe one 
component in such policy must be the assurance of a secure source of 
fuel for the nation's nuclear power reactors. The nuclear power 
industry has invested billions of dollars in capital costs. The 
reactors must have a secure source of fuel. While competitive priced 
fuel is an important factor for the nuclear utility industry, complete 
reliance on artificial supply, rather than competitive newly produced 
feed material is a recipe for disaster which will be experienced in the 
next three to five years when uncovered demand begins to occur in 
significant numbers.\6\
---------------------------------------------------------------------------
    \6\ See Exhibit 2 (Estimated Uncovered Uranium Requirements (2000-
2078)).
---------------------------------------------------------------------------
    The question that Congress must answer is whether our nation needs 
secure domestic uranium and conversion industries. Our producers can 
compete in a realistic marketplace. However, if the Administration 
continues to burden the fuel industry with government inventories and 
non-proliferation programs that favor one part of the fuel cycle over 
another, the demise of the entire industry will be a foregone 
conclusion.
    In making this decision concerning the future of the domestic 
uranium and conversion industries, we believe Congress has already 
issued strong direction to the Department of Energy of a policy to 
maintain a viable domestic uranium industry.\7\ The domestic industry 
negotiated in good faith to allow the HEU Agreement material and some 
U.S. government stockpiled material to enter the commercial market in a 
non-disruptive manner. Because DOE ignored this mandate by transferring 
in excess of 28,000 metric tons of uranium hexaflouride to USEC the 
domestic uranium producers and convertors face extinction.\8\ 
Unfettered transfers of government inventories have effectively taken 
our market away. For this reason, DOE should replace the stockpiled 
material ill advisedly transferred to USEC, with newly mined uranium 
converted to UF6. A reasonable domestic purchase program 
would provide sufficient material to support the nation's tritium and 
nuclear submarine programs. This program would allow the domestic 
production and conversion industries to survive until the market 
absorbs the artificial supply that has ruined the normal commercial 
marketplace.
---------------------------------------------------------------------------
    \7\ See 42 U.S.C. Sec. 2297h-10(d).
    \8\ This equates to approximately 75 million pounds of uranium. EIA 
stated that USEC's inventories are sufficient to supply six-eight 
million pounds per year to the market over the next decade. As shown by 
Exhibit 2, utility uncommitted demand cannot absorb these supplies, 
especially when Russian HEU uranium and conventional production are 
interjected into the mix.
---------------------------------------------------------------------------
    We believe Congress and the nuclear utilities also recognize the 
benefit of a domestic source of production and conversion for our 
nation's reactors. While uranium production from foreign sources will 
meet a large share of the U.S. nuclear utilities needs, the existence 
of a viable domestic source of supply is invaluable in keeping the 
price of fuel competitive. Converdyn, the sole U.S. supplier of 
conversion services, represents approximately 60% of the conversion 
capacity in North America. The domestic uranium producers, given a 
level playing field, are capable of supplying 25% of annual reactor 
uranium needs. These figures are premised on competitive prices of 
uranium and conversion established by competitive costs of production. 
If the few remaining domestic producers are forced to close and reclaim 
their mines and the industry continues to consolidate, uranium could 
become a seller's market with market conditions unfavorable to U.S. 
utilities that would then be fully dependent on imported uranium.
    This subcommittee is very familiar with the problems the American 
people have faced due to over reliance on foreign oil imports. The loss 
of the front end of the nuclear fuel cycle would likewise be injurious 
to electrical consumers. The domestic uranium industry has established 
a considerable resource that will be lost if nothing is done to 
resurrect this industry. An investment of approximately $6 billion 
dollars has been made to create our current uranium resource base. As 
producers close their operations, records, land positions, skilled 
human resources and permits will be irretrievably lost. At that point 
only significant price escalation would fire interest in restarting the 
domestic industry. Given that it can take in excess of ten years to 
permit a new mine and resource development may be forced to be created 
from ground zero, the ability of U.S. producers to create competitive 
uranium production when needed in the future is questionable at best 
regardless of a rising market price. The same would be true for the 
rebuilding of a new conversion facility. Permitting is an extremely 
time consuming process and the investment needed would require 
assurance that a reasonable price would be in the offing for a 
significant period of time. Clearly the nation's electrical needs and 
the utility industry would be better served to maintain the current 
fuel cycle infrastructure, than hoping to start it from scratch a few 
years in the future. The expenditure of funds today to preserve this 
industry from the misadventures caused by misuse of surplus government 
uranium stockpiles seems prudent if not essential.
    We urge Congress and this subcommittee to take a strong leadership 
position in halting continuing programs that are exacerbating the 
demise of the uranium and conversion industries. Recently USEC, with at 
least some administrative agencies blessings, has proposed a purchase 
of Russian commercial SWU as a part of a larger market-based pricing 
arrangement under the HEU Agreement. This proposal may assist USEC, but 
has tremendous potential to further harm the domestic uranium and 
conversion industries.\9\ The better course would be to bring this 
proposal into the light of day and determine whether it could benefit 
all of the front end cycle producers. For example, allowing domestic 
producers and the conversion supplier to match newly produced feed 
material with Russian SWU could be a very inexpensive way to support 
the domestic industries while still achieving USEC's goal to reduce the 
price of HEU Agreement SWU.
---------------------------------------------------------------------------
    \9\ Most of USEC's recent activity suggests it doesn't agree that a 
continuing domestic uranium and conversion industry is necessary. From 
the earliest date of enrichment privatization discussions, USEC has 
expressed interest in dominating all areas of the front end of the 
nuclear fuel cycle. This in itself should give rise to concerns of an 
anti-competitive future fuel market.
---------------------------------------------------------------------------
    To summarize, the domestic uranium industry can play an important 
role in fueling the clean, efficient electric power our nation demands. 
Given a level playing field, the domestic industry can compete 
economically with non-subsidized producers and assist in maintaining a 
competitive, secure source of fuel for our nation's nuclear power 
plants. Congress must do four things to assure our survival to 
accomplish this role. First, Congress must determine that the domestic 
uranium and conversion industries are worth saving. Second, Congress 
must insist that the Administration cease advancing programs, that 
while well-intended, subsidize one aspect of the front end of the 
nuclear fuel cycle to the detriment of the other critical players. 
Third, Congress and the Administration must set aside past ill-advised 
actions and recognize that reasonable fuel prices will benefit the 
domestic industries and the HEU Agreement. Finally, the domestic 
industry agreed to the introduction of Russian HEU material and a 
limited amount of U.S. stockpile inventories into the commercial 
market. However, because of USEC's aggressive sales of additional 
government transfers not anticipated in the 1996 Privatization Act, the 
domestic uranium and conversion markets have been devastated. Congress 
must redress this situation and create a program to get the producers 
and converter through the next three to five year period. At this time 
the market can work off the artificial components now experienced and 
fuel costs will once again reflect reasonable production costs. We 
would very much welcome the opportunity to work with Congress to 
accomplish this important task.
[GRAPHIC] [TIFF OMITTED] T6466.012

[GRAPHIC] [TIFF OMITTED] T6466.013

