[Senate Hearing 108-458]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-458

                       NUCLEAR POWER GENERATION 
                          IN THE UNITED STATES

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON ENERGY

                                 of the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

  TO RECEIVE TESTIMONY REGARDING NEW NUCLEAR POWER GENERATION IN THE 
                             UNITED STATES

                               __________

                             MARCH 4, 2004


                       Printed for the use of the
               Committee on Energy and Natural Resources


                                 ______

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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
DON NICKLES, Oklahoma                JEFF BINGAMAN, New Mexico
LARRY E. CRAIG, Idaho                DANIEL K. AKAKA, Hawaii
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
CRAIG THOMAS, Wyoming                BOB GRAHAM, Florida
LAMAR ALEXANDER, Tennessee           RON WYDEN, Oregon
LISA MURKOWSKI, Alaska               TIM JOHNSON, South Dakota
JAMES M. TALENT, Missouri            MARY L. LANDRIEU, Louisiana
CONRAD BURNS, Montana                EVAN BAYH, Indiana
GORDON SMITH, Oregon                 DIANNE FEINSTEIN, California
JIM BUNNING, Kentucky                CHARLES E. SCHUMER, New York
JON KYL, Arizona                     MARIA CANTWELL, Washington
                       Alex Flint, Staff Director
                   Judith K. Pensabene, Chief Counsel
               Robert M. Simon, Democratic Staff Director
                Sam E. Fowler, Democratic Chief Counsel
                                 ------                                

                         Subcommittee on Energy

                  LAMAR ALEXANDER, Tennessee, Chairman
                  DON NICKLES, Oklahoma, Vice Chairman

JAMES M. TALENT, Missouri            BOB GRAHAM, Florida
JIM BUNNING, Kentucky                DANIEL K. AKAKA, Hawaii
CRAIG THOMAS, Wyoming                TIM JOHNSON, South Dakota
LISA MURKOWSKI, Alaska               MARY L. LANDRIEU, Louisiana
LARRY E. CRAIG, Idaho                EVAN BAYH, Indiana
CONRAD BURNS, Montana                CHARLES E. SCHUMER, New York
                                     MARIA CANTWELL, Washington

   Pete V. Domenici and Jeff Bingaman are Ex Officio Members of the 
                              Subcommittee

                 Pete Lyons, Professional Staff Member


                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Alexander, Hon. Lamar, U.S. Senator from Tennessee...............     1
Asselstine, James K., Managing Director, Lehman Brothers, Inc....    38
Bernhard, J.M., Jr., Chairman and CEO, The Shaw Group............    31
Craig, Hon. Larry E., U.S. Senator from Idaho....................    20
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     3
Fertel, Marvin S., Senior Vice President and Chief Nuclear 
  Officer, Nuclear Energy Institute..............................    21
Landrieu, Hon. Mary L., U.S. Senator from Louisiana..............    18
McCullough, Glenn L., Jr., Chairman, Board of Directors, 
  Tennessee Valley Authority, accompanied by Ike Zeringue, 
  President and Chief Operating Officer..........................     7
Travers, Dr. William D., Executive Director for Operations, U.S. 
  Nuclear Regulatory Commission..................................    11

                                APPENDIX

Responses to additional questions................................    53

 
                       NUCLEAR POWER GENERATION 
                          IN THE UNITED STATES

                              ----------                              


                        THURSDAY, MARCH 4, 2004

                               U.S. Senate,
                            Subcommittee on Energy,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:30 p.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Lamar 
Alexander presiding.

          OPENING STATEMENT OF HON. LAMAR ALEXANDER, 
                  U.S. SENATOR FROM TENNESSEE

    Senator Alexander. The hearing will come to order.
    I want to recognize the presence of and thank Chairman Pete 
Domenici for being here and allowing me to hold this hearing. 
Senator Domenici has been a leader, the leader really, in the 
Senate in terms of trying to focus on today's subject, which is 
the future of generating electricity by nuclear power.
    I want to thank Chairman Jim Inhofe for allowing the 
Nuclear Regulatory Commission to be a part of this hearing. 
That is a Senate jurisdictional matter and we are grateful for 
that.
    Senator Domenici, would you like to go ahead with your 
statement or would you like----
    The Chairman. If you have one, why do you not go ahead and 
then I will follow.
    Senator Alexander. I have one I would like to make. Then we 
will go to yours. I know other Senators are coming and I have 
plenty of questions if they do not.
    This is a hearing on the future of nuclear power generation 
in the United States. The Tennessee Valley Authority is 
rebuilding unit 1 of its nuclear power plant at Browns Ferry, 
Alabama, which has been closed since 1985. This will be the 
first nuclear capacity in the United States since 1996 when TVA 
started operations at Watts Bar in Tennessee. There has been no 
nuclear power plant built from scratch in the United States 
since 1974.
    On the face of it, the failure of the United States to 
begin a new nuclear plant for 30 years is perplexing. After 
all, we invented the technology. Since the 1950's we have 
operated nuclear powered submarines and carriers without a 
reactor incident. 72 nuclear powered submarines and 9 nuclear 
powered aircraft carriers operate today all over the world. On 
shore in the United States, we operate 103 nuclear power 
plants, which produce about 20 percent of America's 
electricity.
    At a time when we are importing nearly 70 percent of our 
oil and increasingly more of our natural gas, our failure to 
use more nuclear power makes us more dependent on the Middle 
East and other foreign sources of natural gas. At a time when 
our supply of natural gas is diminishing and the price is 
skyrocketing, new nuclear power plants, once built, could 
provide low-cost electricity that would help keep production 
costs down and keep jobs from moving overseas. We hear a lot of 
talk in the U.S. Senate about jobs moving overseas. A good 
solution would be to talk more about how we can produce more 
energy to keep production costs down so jobs can stay in the 
United States. Once built, a nuclear power plant produces 
electricity at a cost of 1.71 cents per kilowatt hour compared 
with 1.85 from coal-fired plants and 4.06 from natural gas 
plants.
    Nuclear power plants are efficient and reliable. Coal 
plants operate 69 to 70 percent of the time; nuclear plants 
typically, 90 percent of the time.
    Finally, at a time when many parts of the United States are 
struggling to meet clean air standards, nuclear power plants 
could produce electricity without producing the millions of 
tons of sulfur dioxide, nitrous oxides, and carbon that coal-
fired plants produce. I am particularly sensitive to that 
because Tennessee has a serious clean air problem, and I notice 
that in some of the testimonies today, that point is mentioned. 
It is a subject I would like to discuss more. I think the 
advantages of nuclear power for cleaning our air are not as 
well understood as they need to be.
    During the 30 years that the United States has not built 
new nuclear power plants, other countries have. France produces 
78 percent of its electricity from nuclear power. Japan, once 
devastated by nuclear weapons, generates one-third of its 
electricity from nuclear power. It has three new nuclear power 
plants under construction. There are eight new nuclear power 
plants under construction in India, four in China, three in 
Russia.
    America's failure to use this clean, efficient, and 
inexpensive source of power has been caused by safety failures, 
ineffective regulation, and poor management decisions. During 
the 1970's, the industry was mired in cost overruns and 
schedule delays, brought in part by a changing regulatory 
environment and management decisions that overestimated needs 
for capacity.
    Nowhere was this more pronounced than at the Tennessee 
Valley Authority. During the 1970's, TVA had a plan to build 17 
nuclear power plants. Four of these were canceled in 1982. Four 
more were canceled in 1984. The total investment in these eight 
was $4.6 billion. TVA spent 12 years then building the Sequoyah 
Plant and 23 years completing Watts Bar, both of which operate 
today in Tennessee.
    But when you add in the costs of interest on these billions 
spent on unused nuclear capacity, you get an amount that 
probably equals half--some say more--of TVA's current $24 
billion, $25 billion, or $26 billion debt, a debt that raises 
rates for residents, discourages businesses, and limits TVA's 
ability to meet its clean air responsibility.
    A fire at Browns Ferry in 1975, the Three Mile Island 
incident in 1979, at which no one was hurt, added to the blows 
to confidence in the safe, efficient operation of nuclear power 
plants.
    What we hope to find out today is this: whether attitudes 
and conditions have changed. There does seem to be a regulatory 
environment that is more favorable to the safe and efficient 
operation of nuclear power plants. The Nuclear Regulatory 
Commission, from whom we will hear today, has approved 100 
power uprates at existing nuclear plants. They have granted 23 
operating license extensions and many more applications are 
pending. There are new ways to reduce construction costs of the 
plants. We will hear about that today.
    Japan has now constructed the world's first advanced 
boiling water reactor. Japan did this in a total of 37 months 
from breaking ground to the loading of the fuel in the reactor 
core. A U.S. company designed the new reactor. A U.S. 
regulatory commission certified it, and the Japanese built it 
and use it.
    And the NRC, our regulatory commission, has now established 
a clear process for early site permitting for new plants. 
Still, high and uncertain construction costs and lingering 
safety concerns, along with the Enron debacle, continue to make 
investors wary of nuclear power plants. The result has been 
that 90 percent of America's new generating capacity now comes 
from new plants which burn natural gas, despite higher prices.
    I have a chart today that shows that, and I want to 
underscore that because I hope, Chairman Domenici, we will get 
back to it. Here we are sitting on 500 years or more of coal, 
having invented nuclear power, with natural gas prices 
skyrocketing and over the last 10 years, that is about all we 
are using to create new plants for generating electricity 
capacity.
    That is why the Nation is so closely watching the progress 
of the Tennessee Valley Authority at Browns Ferry. If the 
Browns Ferry project is successfully completed on time and on 
budget, it could have an impact on the willingness of other 
utilities and other financial institutions to invest in nuclear 
power.
    In addition, today we hope to learn more about advances in 
reactor technology and engineering and construction practices. 
We want to discuss the regulatory framework under which the 
nuclear industry operates and the financial impediments to 
developing new nuclear generation in the United States.
    I want to thank the witnesses for coming. I will introduce 
each of you in just a moment, but first I want to turn to 
Chairman Pete Domenici for his opening comments.

       STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR 
                        FROM NEW MEXICO

    The Chairman. Well, thank you very much, Senator Alexander.
    Welcome to all of you. It is truly a pleasure to be here 
with you.
    It is not very often that we have a situation in the U.S. 
Senate where there is only one meeting going on at the same 
time, and nobody bothers to ask you, when they set a new set of 
hearings, whether you are busy somewhere else. So that is too 
difficult even with all the modern technology we have got.
    So we have the budget being marked up on the sixth floor of 
this building. I took this committee over after 24 years of 
that, maybe 18 or 20 years as chairman of that other committee. 
Since I am still on it, I have to go up there and vote.
    But my real concern now and real love is the U.S. energy 
situation and why we have done so many dumb things. What can we 
do to change these around? Well, we will get a little more 
enlightened.
    I have a prepared statement. I do not think I am going to 
give it because it parallels in many ways your statement. I 
would like it to be made part of the record and just talk with 
you all a bit.
    Anybody in the United States that is in the energy business 
that can take a positive step in the production of nuclear 
energy is taking a giant step toward America's independence in 
terms of energy that we use for our future.
    If you look around, it is energy and more specifically 
electricity that moves America. And what we have done after 
inventing it, after creating the greatest engineers, the 
greatest models, in terms of nuclear power, we all of a sudden 
got scared. Frankly, if historians worked hard enough at going 
into the background, we would find that we brought it on 
ourselves. We produced regulatory schemes that were destined to 
failure. We produced litigation potential in every filing that 
were bonanzas to attorneys and where bushel baskets of 
regulations dropped on the door of anybody that was involved in 
the system, only to find, when they got through it all, that 
they were still in court. Some of them had invested their money 
for 13 years.
    Then in this great country of ours, a couple of them got 
through all of that, and somebody would find that yet there was 
another problem. So in the great State of New York, we did all 
that and found that we might have to close one down because we 
did not have an emergency plan, as if billions just grew on 
trees. It turned out we are pretty powerful, so we did burn a 
lot of it up and throw it away.
    Now, we have an energy bill that is still languishing here. 
I have got to tell you if there is anything that this Energy 
Committee did, it was say to America let us get passed here a 
proposal that over the next decade will bring natural gas on as 
much as it can, that will clean up coal and use it, that will 
give some production tax credit to three or four nuclear power 
plants, which will then go before our modern-day Nuclear 
Commission and hopefully set the trend with the building of 
3,000 or 4,000 megawatts of nuclear power plants. It has been 
this Senator's feeling that if just that much happened, it 
would change things.
    Now, Mr. Chairman, or acting chairman and subcommittee 
chairman, I might say that it is kind of ludicrous. What is 
really holding it all up was the regulatory scheme. I think to 
the chagrin of the antis, it has kind of fixed itself up. I 
take a great deal of pleasure in having a little bit to do with 
that. It is much better today than it was about 12 years ago, 
and if one wants to look at history, they will find somewhere 
or another in that period of time, some chairman got involved. 
His name was Domenici and it was a committee that paid for your 
work. All of a sudden we found that you were not going to get 
paid because you were not doing your work. Boy, did you find 
out what you were doing wrong fast. Otherwise, you would have 
had half of the force you had before. What a change since then.
    Now, what remains, believe it or not--and, Mr. Chairman, 
the great new Senator from Tennessee--what holds America today 
now is we do not know what to do with the waste disposal from 
the nuclear power plants. It is nigh on an absurdity to be 
holding up nuclear power because we cannot make up our mind 
what to do with it.
    That is why I am very pleased that you talked about the 
seas of the world, the oceans. I have that in a couple of 
speeches. You might have been sitting in a chair once when I 
gave it. But what I did was I had somebody say on that day 
where are all the nuclear engines in the waters of the world, 
and then we found how many used reactors were floating around 
in oceans and bays and harbors. And we found that no city, 
except one in New Zealand, precluded those spent fuel rods on 
board those American ships from being docked right there. 
Where? Right there in the middle of thousands of ships and 
millions of people.
    And we are running around here saying we cannot even move 
nuclear power 100 miles down the road because something might 
happen. They are moving it thousands and then ending up in a 
port in Italy with an aircraft carrier that has not one nuclear 
power plant, but two.
    So if you can tell that I am worked up about it, I am 
because I believe we ought to see a decade when four or five 
new ones are built. And those red lines--they got to turn 
around pretty soon because there is no more gas. Every plant 
around has contracted for gas and we are producing all we can. 
But you know we are going to be using LNG. Is that not 
interesting? Just think of that. 15 years ago, 20, we said, why 
are we going overseas for all our crude oil? We never should do 
that. Now we are using so much natural gas, we are going to run 
out of it. We are using it for power plants, and they are 
saying, well, it might work out. We might use Algerian natural 
gas. It is still not ours. Right? It is still a way-off country 
somewhere over there.
    We will have to be worried when one of their ships blows 
up. We never thought about it. The other day one of them blew 
up in a harbor and killed some people, which we are sorry for. 
It reduced the supply of natural gas through LNG sufficiently 
that the American market responded. That is interesting. Just 
think of the state of affairs.
    I am so pleased you all as experts are here because we are 
going to learn a lot from you, but my biggest hope is that we 
do not only learn, but that you proceed to get some things 
done. I hope you do. We are going to be here encouraging you.
    Thank you very much for the hearing. I hope everything goes 
well. In the meantime, I will find a little time to go upstairs 
on the budget, and if you need me because you have to leave----
    Senator Alexander. I will be here.
    The Chairman [continuing]. Just call me and I will come 
from the other hearing.
    Thank you all very much.
    [The prepared statement of Senator Domenici follows:]

       Prepared Statement of Hon. Pete V. Domenici, U.S. Senator 
                            From New Mexico

    I want to first thank Senator Alexander for convening this hearing 
of his Subcommittee to discuss New Nuclear Power Generation in the 
United States. This is a critical topic--one in which I've been very 
involved.
    This morning the full Committee heard the EIA Fuel Forecasts. Their 
forecast calls for 23 percent imported natural gas by 2025, and for 70 
percent imported petroleum by the same date.
    Compounding these issues is the chart that Senator Alexander 
showed. I've used this chart several times on the Senate Floor to make 
the point that we are becoming increasingly reliant, in my view far too 
reliant, on natural gas for production of electricity. At the same 
time, natural gas prices are so high that we are losing industries 
which depend on reasonably priced natural gas as a chemical feedstock.
    Nuclear energy provides 20 percent of our electricity today, and 
does it without emission of pollutants. Our nuclear plants continue to 
set new records for reliable, low cost performance and their safety 
record is superb. But it's been so long since we've built a new nuclear 
plant in the U.S. that we are close to losing the national 
infrastructure and capability to expand production in the nuclear 
sector.
    Too many times in our history, we've seen our limited diversity of 
energy sources and our dependence on foreign supplies damage our 
economy. That's why I've argued that nuclear power must remain a 
credible option for our future energy portfolio. And that's why I'm 
pleased that Senator Alexander has called this hearing.
    My reasoning on nuclear power is shared in Europe. Just in the last 
few days, an influential European group, the European Economic and 
Social Committee, issued an important new Opinion on ``nuclear power 
and electricity generation.'' The vote on this Opinion was 61 percent 
in favor with 10 percent abstaining.
    That new European Opinion spells out strong support for the future 
of nuclear power in Europe. Just to quote some of their conclusions, 
they note that

   nuclear power must be one of the elements of a diversified, 
        balanced, economic and sustainable energy policy with the EU,
   nuclear power is essential if the EU is to successfully 
        apply the concept of sustainable development in policy making, 
        and
   abandoning nuclear power would exacerbate the problems 
        associated with climate change.

    I'm pleased to see these recent conclusions from Europe. They are 
equally applicable here. That's why the comprehensive energy bill that 
I've been developing for the last year encourages new plant 
construction in the U.S.
    H.R. 6 proposes production tax credits for the first few nuclear 
plants to encourage utilities to undertake the financial and regulatory 
risks that will be associated with construction in the U.S. after so 
long a hiatus. My hope is that construction of those plants will 
demonstrate to the utilities and the financial community that these 
plants can be built here with the same success that has been recently 
demonstrated overseas. In addition, by building a few plants, the 
construction companies should get past the higher costs associated with 
``first-of-a-kind'' plants and be able to reliably predict and 
demonstrate lower prices for subsequent plants.
    But given the demands that I noted earlier for natural gas, there's 
another benefit to the nuclear production tax credit that should be 
emphasized. The EIA projects that even if the only effect of the tax 
credit is to build the first 6 plants, just those 6 plants will lead to 
a 3 percent reduction in usage of natural gas. Of course, my goal is 
that building those first 6 plants leads to far more construction 
without any government help.
    But even if gas prices have only risen to $4 per thousand cubic 
feet by 2020, which most people would say is far too low an estimate, 
that 3 percent gas savings translates to a savings to the American 
public of $3.6 billion per year. Over the 40 to 60 year life of a new 
plant, that's a lot of billions of savings. And since we'll be 
importing a large fraction of that natural gas by 2020, that savings 
translates directly into an improvement in our balance of payments.
    I'm pleased that this recent EIA analysis supports the importance 
of the nuclear production tax credits, and I hope we have that 
comprehensive energy bill in law before too much longer.
    Through this hearing, I hope we can understand the TVA plans at 
Browns Ferry, which are certainly an important step for the nation 
along the road to future new nuclear capacity. And I also hope we will 
better understand the opportunities and challenges for construction of 
new nuclear plants for America.

    Senator Alexander. Thank you, Mr. Chairman, for your 
comments and your leadership.
    Here is how I would like to suggest we proceed. All the 
Senators have your testimony and have read it or looked it 
over. I would like to ask you to summarize your statements in 
about 5 minutes, if you could, which will leave more time for 
questions. Then I will ask the Senators, when they come, to 
summarize their remarks in about 5 minutes.
    Let me mention all of the witnesses now, and then we will 
start with Mr. McCullough and just go down the line. Glenn 
McCullough, Jr. is Chairman of the Board of Directors of the 
Tennessee Valley Authority, and Ike Zeringue, who is President 
and Chief Operating Officer of the TVA, is also with him today. 
We welcome you. Marvin Fertel, senior vice president and chief 
nuclear officer of the Nuclear Energy Institute. James 
Asselstine, managing director of Lehman Brothers. Dr. William 
D. Travers, Executive Director of Operations, Nuclear 
Regulatory Commission. And James Bernhard, chairman and CEO of 
The Shaw Group.
    Now, what we will do is I will ask Mr. McCullough to start, 
and may we go just right down the line. I hope you will permit 
me a little bit of an editorial comment since the Tennessee 
Valley Authority is headquartered in Knoxville and serves most 
Tennesseans. We are very glad to have Mr. McCullough here 
today. He knows very well that as one Senator, I fully support 
TVA's decision to move ahead with Browns Ferry. Everything I 
can tell about it suggests to me that they are doing a superb 
job working with contractors. I hope to find out today what I 
believe is true, that it is on schedule and on budget. I hope 
it stays that way and that it serves as a good example to the 
rest of the country and encourages others to emulate that.
    One reason I am so interested in this, beyond the fact that 
it is an efficient way of producing electricity, is because on 
April 15, about 75 percent of Tennesseans will be living in 
counties that are in violation of the clean air standards in 
our State, and the nuclear power plants, as will be developed 
in the testimony today, are enormous contributors to clean air. 
I think we may hear more about that from Mr. Fertel in his 
testimony, maybe from others of you.
    But I congratulate TVA for its gutsy decision to move 
ahead. The country is watching you, and we look forward to your 
testimony. Thank you, Mr. McCullough.

   STATEMENT OF GLENN L. McCULLOUGH, JR., CHAIRMAN, BOARD OF 
   DIRECTORS, TENNESSEE VALLEY AUTHORITY, ACCOMPANIED BY IKE 
        ZERINGUE, PRESIDENT AND CHIEF OPERATING OFFICER

    Mr. McCullough. Thank you, Mr. Chairman and members of the 
subcommittee. Thank you for your passion for energy security 
for this Nation, for a cleaner environment, for a strong 
economy that produces jobs for the people of America. Also, we 
appreciate your focus on TVA's nuclear program and the restart 
of Browns Ferry unit 1.
    I am Glenn McCullough, Jr., as you have noted, Mr. 
Chairman, of the TVA board. With me is Ike Zeringue. Ike is 
TVA's President and Chief Operating Officer.
    Consistent with President Bush's National Energy Policy, my 
fellow TVA Directors, Skila Harris and Bill Baxter, and I are 
committed to the continued development of TVA's nuclear 
program. We are going to focus on maintaining TVA's balanced 
portfolio of fuel sources, using it as a cost effective source 
of baseload power and supporting TVA's commitment to cleaner 
air.
    TVA, as you have noted, has a well-balanced portfolio of 
energy sources that includes nuclear, hydro, coal, and natural 
gas. This portfolio reflects the Nation's energy mix and it 
minimizes the price and availability risks that are associated 
with an overdependence on a single energy source. TVA's three 
nuclear plants, Browns Ferry, Sequoyah, and Watts Bar, 
consistently rank among the Nation's most efficient generators.
    The cost effectiveness of nuclear power was brought home to 
the TVA Board during the process of deciding to restart Browns 
Ferry 1. The 21st century forecast indicated that additional 
baseload generation would be needed to meet the growing energy 
demands of 8.5 million people who depend on TVA each day for 
their electric power. The TVA studied several potential options 
which included combined cycle natural gas turbines, coal 
gasification, completing one of the deferred nuclear units at 
the Bellefonte site and the recovery of Browns Ferry unit 1.
    We studied each of these options in terms of fuel price 
stability, long-term production costs, the environmental 
impact, potential impact to TVA's long-term ability to reduce 
debt, capital costs, and estimated capacity factor for meeting 
the baseload needs. Our study showed clearly that Browns Ferry 
1 would produce the needed energy at a very competitive rate 
while optimizing the value of an existing asset.
    Financial analyses also indicated that the operation of all 
three units at Browns Ferry over an extended license period 
could reduce TVA's delivered cost of power relative to the 
market, as well as give TVA more financial flexibility for the 
future.
    Accordingly, the board issued a record of decision in May 
2002, authorizing work to begin to return Browns Ferry 1 to 
service.
    It is anticipated that the Browns Ferry 1 recovery project 
will cost approximately $1.8 billion excluding allowance for 
funds used during the construction period. TVA is funding the 
restart of Browns Ferry 1 through existing cash from 
operations.
    The Browns Ferry project is performing to plan. It is now 
more than 41 percent complete in meeting its 60-month baseline 
schedule. The project, as you have noted, is on budget.
    When unit 1 returns to service, it will provide 1,280 
megawatts of cost effective, emission-free generating capacity 
and will help TVA responsibly meet the growing power demands 
across the Tennessee Valley.
    Finally, in addition to the positive financial benefits, 
the Browns Ferry 1 restart supports TVA's clean air strategy. 
The reason is simple. Nuclear power plants do not burn fossil 
fuel so they do not emit combustion products such as sulfur 
dioxide and nitrogen oxides into the atmosphere.
    Restarting Browns Ferry unit 1 is a beneficial business 
investment for TVA, for our customers, and for the people of 
the Tennessee Valley. It will provide clean, affordable, 
reliable power that will enable the region to continue on a 
path of economic progress.
    Again, thank you for this opportunity for Mr. Zeringue and 
I to be here. We look forward to answering your questions.
    [The prepared statement of Mr. McCullough follows:]

       Prepared Statement of Glenn L. McCullough, Jr., Chairman, 
             Board of Directors, Tennessee Valley Authority

                                OPENING

    On behalf of the Tennessee Valley Authority, I would like to thank 
you for the opportunity to be here today to discuss TVA's nuclear 
program and the Browns Ferry Unit 1 restart. My name is Glenn L. 
McCullough, Jr. I have served on the TVA Board of Directors since 
November 1999, and I was designated Chairman by President George W. 
Bush on July 19, 2001. TVA exists to serve the needs of its 158 power 
distributors and 62 directly served customers and the 8.5 million 
people of the Tennessee Valley by providing affordable and reliable 
electric power, environmental stewardship, and leadership in 
sustainable economic development. A corporation of the federal 
government, TVA is entirely self-financing and receives no funding from 
Congress.
    TVA is committed to conducting its business in an open and 
forthright manner that earns the confidence of Congress and the 
Administration, and in our customers, our investors, and the people of 
the Tennessee Valley.

                         HISTORY OF TVA NUCLEAR

    TVA's commitment to meeting the region's electricity needs while 
protecting the environment and supporting a vibrant economy is 
consistent with President George W. Bush's National Energy Policy. TVA 
maintains a diverse fuel mix and a strong national transmission system. 
TVA's strategy of investing in a balanced portfolio of energy sources--
nuclear, hydro, coal, natural gas--is similar to the nation's energy 
mix, and minimizes the price and availability risks associated with 
over-dependence on a single energy source
    TVA made its commitment to nuclear power in the late 1960s and 
early 1970s, when power sales were growing at a steady rate. In the 
Tennessee Valley, the number of electricity customers rose to over 2 
million in the 1960s and about 30 percent of all the homes were heated 
with electricity. At that time, TVA was experiencing an annual growth 
rate of about 8 percent in demand for electricity, and our forecasts 
through the mid-1970s were showing continued high growth in demand. 
TVA, and others in the utility industry, predicted that new generating 
capacity was needed to satisfy its forecast demand. To meet that need, 
TVA embarked on an ambitious nuclear power plant construction program. 
Beginning in 1966, TVA announced plans to build 17 nuclear units at 
seven sites in Tennessee, Alabama, and Mississippi. In 1967, TVA began 
building the nation's largest nuclear power facility-Browns Ferry in 
north Alabama.
    However, instead of increasing, electricity consumption declined in 
the mid-1970s following the 1973 energy crisis and again in the late 
1970s and 1980s as a result of higher energy costs and slower economic 
growth. Also, after the Three Mile Island nuclear accident in 1979, the 
Nuclear Regulatory Commission issued extensive new safety regulations 
that applied to all plants, whether operating or under construction. 
This decreasing demand for electricity, coupled with the increased 
costs of regulation, caused the electric utility industry to rethink 
the role that nuclear power would play in meeting the nation's demand 
for electricity. By the early 1980s, TVA and many other utilities had 
chosen to cancel several nuclear plants that were either planned or 
under construction.
    In 1985, TVA voluntarily shut down all of its operational nuclear 
units to address regulatory and management issues. TVA implemented a 
strong performance improvement program, and began returning these units 
to operation in 1988 with the restart of Sequoyah 1 and 2. Browns Ferry 
Units 2 and 3 returned to service in 1991 and 1995 respectively, and 
TVA brought the last licensed U. S. nuclear unit online with Watts Bar 
1 in 1996. Based on forecasted baseload power needs at that time, TVA 
elected not to return Browns Ferry Unit 1 to service with the other 
units.

                           TVA NUCLEAR TODAY

    TVA's nuclear power program now ranks among industry leaders, in 
both cost and reliability.
    In fiscal year 2003, nuclear power represented about 20 percent of 
TVA's installed capacity, and produced about 29 percent of TVA's 
generation.
    All three of TVA's nuclear power plants--Browns Ferry, Sequoyah and 
Watts Bar--rank among the most efficient generators in the country for 
2002 and over the past three years, according to Platts Nucleonics 
Week. TVA is the only utility listed with three plants among the top 15 
most efficient generators for 2002 and for the three-year period of 
2000-2002.
    Sequoyah earned the title of the most efficient generator in the 
country by producing power at 11.48 mills per kilowatt-hour from 2000-
2002. Browns Ferry comes in second at 12.06 mills/kwh, and Watts Bar 
ranks 12th at 14.39 mill/kwh. In order to achieve these low rates, TVA 
continues to focus on cost containment through continuous process 
improvement, standardization, and resource sharing. These efforts 
resulted in savings of 5.2 million dollars in FY 2003 alone.
    Last year TVA received the Nuclear Energy Institute's Top Industry 
Practice ``Best of the Best'' Award for strategic planning programs and 
processes at TVA nuclear plants.

                         BROWNS FERRY 1 RESTART

    Browns Ferry is a three-unit nuclear power facility located just 
west of Huntsville, Alabama. The plant is owned and operated by TVA to 
produce electricity for our service area.
    As TVA entered the 21st century, forecasts indicated that 
additional baseload generation would be needed to meet the growing 
energy demands of our 8.5 million customers. To meet this need, TVA 
studied several potential options, including combined-cycle gas 
turbines, coal gasification, startup of one of the deferred Bellefonte 
nuclear units, and the recovery of Browns Ferry Unit 1.
    Each option was studied in terms of fuel price stability; long-term 
production costs; environmental impact; potential impact to TVA's long-
term ability to reduce debt; capital cost; and estimated capacity 
factor for meeting baseload needs.
    After completing these studies, it became clear that Browns Ferry 
Unit 1 would be able to produce the needed energy at very competitive 
rates as compared to the other available options, while optimizing the 
value of an existing asset.
    To ensure that a fully informed decision could be made, the TVA 
Board requested in September 2001, that a detailed scoping study be 
performed to determine the cost and schedule for recovering and 
restarting Browns Ferry Unit 1.
    TVA also conducted an 18 month environmental impact study under the 
National Environmental Policy Act to assess not only the restart of 
Browns Ferry 1, but also the power uprate and potential license renewal 
for all three units.
    The detailed scoping study was nearly unprecedented in the level of 
detail reviewed to identify not only the remaining work to be done, but 
also to identify any risk to cost or schedule. Along with the completed 
environmental study, it provided the TVA Board with comprehensive 
information to make future base load generation decisions.
    Financial analyses also indicated that the operation of all three 
units at Browns Ferry, over an extended license period, could reduce 
TVA's delivered cost of power relative to the market, giving TVA more 
financial flexibility for the future.
    Accordingly, the Board issued a record of decision in May 2002, 
authorizing work to begin to return Browns Ferry Unit 1 to service.
    It is anticipated that the Browns Ferry Unit 1 recovery project 
will cost approximately $1.8 billion, excluding allowance for funds 
used during construction. TVA will fund the restart of Browns Ferry 
Unit 1 through existing cash from operations.
    The Browns Ferry Unit 1 restart project continues to perform to 
plan and is more than 40-percent complete in meeting its 60-month 
baseline schedule. The project remains on budget, with expenses of 381 
million dollars last year and about 365 million dollars planned for FY 
2004. Planned spending for fiscal year 2005 is 419 million dollars, 
with spending declining to 381 million in fiscal year 2006, and 129 
million in 2007.
    When Unit 1 returns to service, its cost-effective and clean, 
emission-free generating capacity of 1,280 megawatts will help TVA 
responsibly meet growing power demands while maintaining a strong 
reserve margin. Our current resource-planning analysis shows that this 
nuclear unit will help us meet our growing energy needs at a very 
competitive cost by reducing our delivered cost of power by about .09 
cents per kilowatt-hour in its first year of operation.

                           CLEAN AIR BENEFITS

    In addition to the positive financial benefits that the Browns 
Ferry Unit 1 restart will provide, nuclear plants also support TVA's 
clean air strategy. The reason is simple nuclear power plants do not 
burn fossil fuel so they don't emit combustion products such as sulfur 
dioxide and nitrogen oxides into the atmosphere.
    TVA will continue to participate in industry studies of 
environmentally sound and cost effective power generation technologies 
for our customers' future energy needs, because it is the right thing 
to do. Nuclear power remains a vital part of TVA's and the nation's 
energy portfolio not only because of its clean air benefits, but also 
because of its strong operational performance.

                               CONCLUSION

    TVA is committed to providing low-cost, reliable power by operating 
and maintaining safe and efficient plants, standardizing processes 
across the organization, and continuously improving all aspects of 
performance. Restarting Browns Ferry Unit 1 is a wise business 
investment for TVA and our customers. It will provide clean, 
affordable, and reliable power, enabling TVA to meet the future power 
demands of the Tennessee Valley.

    Senator Alexander. Thank you, Chairman McCullough.
    Dr. Travers.

  STATEMENT OF DR. WILLIAM D. TRAVERS, EXECUTIVE DIRECTOR FOR 
         OPERATIONS, U.S. NUCLEAR REGULATORY COMMISSION

    Dr. Travers. Thank you, Mr. Chairman. It is a pleasure to 
be here today as you consider new nuclear power generation in 
the United States. Because, as you are aware, the role of the 
Nuclear Regulatory Commission as prescribed by the Congress is 
safety regulation and not promotional, my discussion will focus 
on actions the Commission has taken and is taking to ensure the 
continued safe application of nuclear technology, to strengthen 
regulatory predictability, and to facilitate public access to 
our information and participation in our processes.
    Let me very briefly describe aspects of our national 
programs for nuclear plant license renewal and power uprates, 
and then I will outline some of our activities specific to the 
Browns Ferry nuclear plants, and lastly I will touch on what we 
have been doing to prepare for the possibility of new reactor 
licensing in the United States.
    First, license renewal. With the improved economic 
conditions for operating nuclear power plants, the Commission 
has seen a sustained, strong interest in license renewal which 
allows plants to operate up to 20 years beyond the original 40-
year operating license. The focus of the Commission's review of 
the license renewal applications is on maintaining plant 
safety, with the primary concern directed on the aging effects 
of important systems, structures, and components.
    The review of a renewal application proceeds along two 
fundamental paths. One is for the review of safety issues and 
the other is to assess potential environmental impacts. 
Applicants must demonstrate that they have identified and can 
manage the effects of aging and can continue to maintain an 
acceptable level of safety during the period of extended 
operation. The applicant must also address the impacts on the 
environment from extended operation.
    To date, as you have indicated already, renewed licenses 
have been issued for 12 sites, totaling 23 units. The reviews 
of these applications were completed on or ahead of schedule, 
which is indicative of both the care exercised by the licensees 
in preparing their application and on the Commission's emphasis 
on planning and completing those reviews on schedule.
    Applications to renew the licenses for an additional 11 
sites, totaling 19 units, are currently under review, which 
include the application to renew the licenses for Browns Ferry 
units 1, 2, and 3.
    If all of the applications currently under review are 
approved, approximately 40 percent of the plants in the United 
States will have had their operating licenses renewed for 20 
years. Based on industry statements, the Commission expects 
essentially all sites to apply for license renewal.
    I should note that public participation is an important 
part of our license renewal process. There are several 
opportunities for members of the public to question how aging 
will be managed during the period of extended operation. 
Concerns may be litigated in an adjudicatory hearing if an 
adversely affected party appropriately requests a hearing.
    We believe the Commission has established a license renewal 
process that can be completed in a reasonable period of time 
with clear requirements to assure safe operation for up to an 
additional 20 years of plant life.
    Turning to power uprates, the NRC carefully reviews 
requests to raise the maximum power level at which a plant may 
be operated. These increases to a maximum license power level 
are called power uprates. Power uprates range from requests for 
small increases of just a few percent based on the recapture of 
power measurement uncertainty to larger requests, up to 15 or 
20 percent, that require substantial hardware modifications to 
the plants. The focus of NRC's power uprate review is safety, 
of course, and in all instances, the NRC must be satisfied that 
adequate safety margins are maintained.
    To date, as you have indicated already, the NRC has 
approved 100 power uprates, which have added approximately 
4,100 megawatts electric to the Nation's electric generating 
capacity. This is the equivalent of about four large operating 
nuclear power plants.
    Currently the NRC has five power uprate applications under 
review and expects to receive an additional 25 applications 
through the calendar year 2005. Again, this would add 
approximately 1,700 megawatts electric to the Nation's electric 
energy generating capacity.
    I would like now to discuss NRC's oversight of the recovery 
of the Browns Ferry unit 1 plant. The Tennessee Valley 
Authority, or TVA, is the NRC-regulated licensee for Browns 
Ferry in Decatur, Alabama. The Browns Ferry site has three 
essentially identical boiling water reactors designed by 
General Electric, and all three Browns Ferry units were 
voluntarily shut down by TVA in March 1985 to address 
performance and management issues. Following the shutdowns, TVA 
specified a number of corrective actions which would be 
completed prior to restart and confirmed TVA's commitment not 
to restart without NRC's concurrence.
    All three units have retained their operating license 
during this period, and the restart of units 2 and 3 were both 
completed a number of years ago. Unit 2 was restarted in 1991 
and unit 3 was restarted in November of 1995.
    Prior to restart of these units, the NRC completed a 
significant number of inspections and monitoring to assure that 
TVA had adequately corrected the issues that caused the 
shutdown. Since restart, NRC's safety inspections have 
confirmed that TVA has operated units 2 and 3 safely.
    On May 16, 2002, as indicated already, the board of 
directors approved returning unit 1 to service and authorized 
TVA to request renewal of the existing 40-year operating 
license. In anticipation of that decision, the NRC initiated 
early efforts to establish a methodology and process for the 
oversight of that effort. The Commission has been especially 
aware of the need to oversee the unique project with openness 
and public participation as a priority. We plan to provide 
numerous opportunities for the public to better understand our 
process, status of our activities, and most importantly the 
nature and depth of the NRC safety oversight activities at 
Browns Ferry. Today we have already had three meetings at 
Browns Ferry, our region 2 site in Atlanta, and in headquarters 
and we have developed additional information and access on our 
public web site.
    Let me turn now to a few comments about potential----
    Senator Alexander. We would like to try to keep these 
summaries to about 5 minutes, Dr. Travers.
    Dr. Travers. If you will allow me. I apologize for not 
timing this better.
    Future nuclear power reactor licensing positioning by the 
NRC. While improved performance of operating nuclear power 
plants has resulted in significant increases in electrical 
output, as we have already seen, it is expected that 
significant increases in demands for electricity will need to 
be addressed by new construction.
    As a result, industry interest in new construction in the 
United States has recently emerged, and for our part, NRC is 
ready to accept applications for new nuclear power plants. We 
have been conducting a number of activities. Mr. Chairman, you 
have already mentioned the regulations that are now in place to 
govern those activities, and I will not go over those.
    I will mention just one quick thing, and that is we are 
currently reviewing early site permits at three sites in 
Virginia, Illinois, and Mississippi. Our review of these early 
site permits, if approved, would be the first time this portion 
of our licensing process will be tested.
    In conclusion--and I appreciate the extra time--the 
Commission has long been and will continue to be dedicated to 
its mission to ensure adequate protection of public health and 
safety, the common defense and security, and the environment. 
We continue to strive for increases in predictability, 
efficiency, and public openness in our process.
    Thank you very much for this opportunity.
    [The prepared statement of Dr. Travers follows:]

 Prepared Statement of Dr. William D. Travers, Executive Director for 
             Operations, U.S. Nuclear Regulatory Commission

                              INTRODUCTION

    Good afternoon, Mr. Chairman and members of the Subcommittee. It is 
a pleasure to appear before you as you consider ``New Nuclear Power 
Generation in the United States.'' Because, as you are aware, the role 
of the Nuclear Regulatory Commission as prescribed by the Congress is 
regulatory and not promotional, my discussion will focus first on 
actions the Commission has taken and is taking to ensure the continued 
safe application of nuclear technology; to strengthen regulatory 
predictability; and to facilitate public access to our information and 
participation in our process. We believe that the achievement of all 
three of those goals will enable others to determine how to use the 
nuclear energy option.

                            LICENSE RENEWAL

    The focus of the Commission's review of license renewal 
applications is on maintaining plant safety, with the primary concern 
directed at the effects of aging on important systems, structures, and 
components. The review of a renewal application proceeds along two 
paths--one for the review of safety issues and the other to assess 
potential environmental impacts. Applicants must demonstrate that they 
have identified and can manage the effects of aging and can continue to 
maintain an acceptable level of safety during the period of extended 
operation. The applicant must also address the impacts on the 
environment from extended operation.
    With the improved economic conditions for operating nuclear power 
plants, the Commission has seen sustained strong interest in license 
renewal which allows plants to operate up to 20 years beyond their 
original 40-year operating license. The original 40-year term was 
established in the Atomic Energy Act and was based on financial and 
antitrust considerations, not technical limitations.
    The decision to seek license renewal is voluntary and rests 
entirely with nuclear power plant owners. The decision is typically 
based on the plant's economic viability and whether it can continue to 
meet the Commission's requirements. To date, renewed licenses have been 
issued for 12 sites, totaling 23 units. The reviews of these 
applications were completed on or ahead of schedule, which is 
indicative of the care exercised by licensees in preparing their 
applications and the Commission's emphasis on planning and completing 
the reviews on schedule. Applications to renew the licenses for an 
additional 11 sites (totaling 19 units) are currently under review, 
which includes the application to renew the licenses for Browns Ferry 
Units 1, 2, and 3. If all of the applications currently under review 
are approved, approximately 40 percent of the plants in the U.S. will 
have had their operating licenses renewed. Based on industry 
statements, the Commission expects essentially all sites to apply for 
license renewal.
    The Commission has established a license renewal process that can 
be completed in a reasonable period of time with clear requirements to 
assure safe plant operation for up to an additional 20 years of plant 
life. To help achieve consistency in the preparation and review of 
renewal applications, the Commission has issued guidance documents that 
assist plant owners in preparing license renewal applications and that 
guide the NRC's review of the applications. Lessons learned from 
ongoing reviews are documented as they are identified and made publicly 
available for use by future applicants. These guidance documents 
provide the framework for an effective, efficient, and technically 
sound review of renewal applications and help maintain the stability 
and predictability of the license renewal process.
    Public participation is an important part of the license renewal 
process. There are several opportunities for members of the public to 
question how aging will be managed during the period of extended 
operation. Concerns may be litigated in an adjudicatory hearing if an 
adversely affected party appropriately requests a hearing. A license 
renewal web site is also available that contains key documents 
associated with license renewal applications as well as information on 
the license renewal process, regulations, and guidance documents.
    Although the license renewal program has been highly successful, 
the Commission continues to seek further improvements in the process. 
Using lessons learned from past reviews, the Commission is pursuing 
revisions to the renewal process that should provide additional 
efficiencies. These efficiencies will help the Commission better 
accommodate the increasing number of renewal applications being 
submitted.
    The Commission recognizes the importance of license renewal to the 
owners of nuclear power plants and to the future energy needs of the 
country. The Commission remains committed to providing continued high-
priority attention to this effort, while assuring plant safety and 
maintaining public health and safety.

                              POWER UPRATE

    The NRC carefully reviews requests to raise the maximum power level 
at which a plant may be operated, which are called power uprates. 
Improvements of instrument accuracy and plant hardware modifications 
have allowed licensees to submit power uprate applications for NRC 
review and approval. The focus of NRC review of these applications has 
been and will continue to be on safety. We continue to closely monitor 
operating experience to identify issues that may affect power uprate 
implementation.
    Power uprates range from requests for small increases based on the 
recapture of power measurement uncertainty, to large requests in the 15 
to 20 percent range that require substantial hardware modifications at 
the plants. In all instances, the NRC must be satisfied that safety 
margins are maintained. To date, the NRC has approved 100 power uprates 
which have added approximately 4140 megawatts electric to the nation's 
electric generating capacity--the equivalent of about four large 
nuclear power plants.
    Currently, the NRC has five power uprate applications under review 
and expects to receive an additional 25 applications through calendar 
year 2005. This would add approximately 1760 megawatts electric to the 
nation's electric generating capacity.
    In recognition of the increased interest in power uprates by 
licensees, NRC recently issued a Review Standard for Extended Power 
Uprates (i.e., uprates that increase the current power by seven percent 
or more). This document, which is available publicly, provides a ``road 
map'' that establishes standardized review guidance and acceptance 
criteria for both the NRC and licensees. The Review Standard enhances 
the NRC's focus on safety and improves consistency, predictability and 
efficiency of these reviews. The Review Standard will foster improved 
communications with our stakeholders and licensees.
    The NRC is monitoring operating experience at plants that have 
implemented power uprates. Cases of steam dryer cracking and flow-
induced vibration damage affecting components and supports for the main 
steam and feedwater lines have been observed to occur at some of these 
plants. The NRC conducted inspections to identify the causes of several 
of these issues and evaluated many of the repairs performed by the 
licensees. Currently, we have determined that these issues do not pose 
an immediate safety concern. The Commission continues to monitor the 
industry's generic response to these issues and will consider 
additional regulatory action, as appropriate.
    In summary, the focus of NRC review of power uprate applications 
continues to be on ensuring public health and safety.

                      BROWNS FERRY UNIT 1 RESTART

    I would now like to discuss the NRC's oversight of the recovery of 
Browns Ferry Unit 1. The Tennessee Valley Authority, or TVA, is the 
NRC-regulated licensee for the Browns Ferry Nuclear Power Plant located 
near Decatur, Alabama. The Browns Ferry site has three essentially 
identical boiling water reactors designed by General Electric. All 
three Browns Ferry units were voluntarily shut down by the Tennessee 
Valley Authority in March of 1985 to address performance and management 
issues. Following the shutdowns, TVA specified corrective actions which 
would be completed prior to restart and confirmed TVA's commitment not 
to restart any unit without NRC's concurrence. All three units retained 
their operating licenses during their respective long-term shutdown.
    The restart efforts for Units 2 and 3 were both approximately five 
years in duration. Unit 2 was restarted in May 1991, and Unit 3 in 
November 1995, following Commission briefings and NRC Staff approval of 
restart. Prior to the restart of these units, the NRC completed 
significant inspections and monitoring to assure that TVA had 
adequately corrected the issues that caused the shutdown of all three 
Browns Ferry Units. TVA has subsequently operated the Unit 2 and 3 
reactors in a safe and effective manner.
    On May 16, 2002, the TVA Board of Directors approved the return of 
Browns Ferry Unit 1 to service and authorized TVA Nuclear to request 
renewal of the existing 40-year operating licenses for all three units. 
In December 2002, TVA submitted its proposed regulatory framework for 
the Unit 1 restart. Following a public meeting and after TVA modified 
several areas, the NRC accepted TVA's proposed framework in August 
2003. This presents a unique issue of performing a license extension 
review for a reactor unit that has not been operated for an extensive 
period of time. However, because license renewal focuses on programs to 
manage the effects of aging on long-lived components, NRC will be able 
to provide an effective review of this application. The premise of the 
application for Unit 1 is that its current license basis is essentially 
the same as that for Units 2 and 3. In the application, TVA identified 
differences between Unit 1 and Units 2 and 3 and stated that those 
differences will be eliminated by Unit 1 restart activities. Through 
the review of the renewal application, the NRC will identify those 
contingencies that would be applicable to Unit 1 renewal, such as items 
that would need to be completed by TVA and included in NRC restart 
verification activities.
    TVA has applied many lessons learned from the restart of the other 
two units in its recovery plan for Unit 1. One TVA objective for Unit 1 
restart is to have all three units ``operationally identical'' at the 
completion of the project and to use as many of their current plant 
processes and procedures as possible. It is important to note that Unit 
1 has been maintained by TVA in a ``de-fueled lay-up'' condition since 
1985. Since 1985, the NRC has conducted periodic lay-up inspections to 
confirm the conditions of key plant components.
    In anticipation of the TVA Board's decision to restart Unit 1, the 
NRC initiated efforts to establish a methodology and plan for oversight 
of this third Browns Ferry unit recovery and to establish the needed 
resources. After an extensive review of NRC lessons learned from TVA's 
recovery of the previous two units and a critical evaluation of 
differences in TVA's recovery plans for Unit 1, this detailed 
methodology was formally defined in an NRC Inspection Manual Chapter 
(MC 2509) issued in August 2003. NRC oversight inspections of the Unit 
1 recovery are currently being implemented at the early stages of the 
recovery process and will be completed for all necessary activities 
including selected renovation activities, restart testing, and return 
to operational status.
    Based on the TVA plan for restart of Browns Ferry Unit 1 and their 
use of existing processes which we have previously confirmed as 
acceptable, the Commission has committed adequate resources throughout 
the project to support the planned inspection activities. Two 
additional resident inspectors have already been stationed at the site 
to provide first-hand monitoring of the licensee's recovery activities. 
Other staff members have been assigned oversight and specialist 
inspection roles in our regional and headquarters offices. We have 
established an experienced team--essentially all of the NRC staff 
associated with the Unit 1 recovery have been involved in the previous 
Browns Ferry units recovery efforts or other long-term recoveries. We 
are using this experience to maximize the effectiveness of our applied 
inspection resources to ensure the recovery efforts result in a plant 
that can be operated safely.
    The Commission has been especially aware of the need to oversee 
this unique project with openness to the public as a priority. To 
facilitate this, a communications plan has been developed which 
provides for periodic public meetings conducted at a variety of 
locations. We plan to provide numerous opportunities for the public to 
better understand the recovery process, status of activities, and most 
importantly, the nature and depth of the NRC's safety oversight 
activities at Browns Ferry Unit 1. To date, we have held three such 
meetings, one in Washington at NRC Headquarters, one in Atlanta at the 
NRC Regional Office, and one at the Browns Ferry site. In addition, we 
have developed an easy means for public access to Browns Ferry Unit 1 
restart information on our public Web site. The Web site contains 
information that describes the recovery effort, allows access to our 
completed inspections, and provides the summaries of the public 
meetings previously mentioned.
    In summary, the Browns Ferry Unit 1 Restart is progressing as 
planned by TVA, with dedicated NRC inspection, oversight and licensing 
resources from NRC headquarters and the NRC Region II Office in 
Atlanta, GA. The NRC has worked effectively with TVA to develop an 
effective road map for the recovery project to allow for effective and 
efficient use of both TVA and NRC resources while ensuring our primary 
safety mission is achieved. The Unit 1 restart effort benefits from the 
processes established for, and lessons-learned from, the restart of the 
other two Browns Ferry Units. The Commission has prepared for the 
increased oversight that a project of this scope warrants, and will 
continue to work closely with the licensee as the restart effort 
progresses.

                         NEW REACTOR LICENSING

    While improved performance of operating nuclear power plants has 
resulted in significant increases in electrical output, it is expected 
that any significant increased demands for electricity will need to be 
addressed by construction of new generating capacity. As a result, 
industry interest in new construction of nuclear power plants in the 
U.S. has recently emerged. The NRC is ready to accept applications for 
new nuclear power plants. New nuclear power plants will likely utilize 
10 CFR Part 52 which provides a stable and predictable licensing 
process. This process ensures that all safety and environmental issues, 
including emergency preparedness and security, are resolved prior to 
the construction of a new nuclear power plant. The design certification 
part of the process resolves the safety issues related to the plant 
design, while the early site permit process resolves safety and 
environmental issues related to a potential site. The issues resolved 
in these two parts can then be referenced in an application which would 
lead to a combined construction permit and operating license with 
conditions (combined license).
    As you know, the Commission has already certified three new reactor 
designs, pursuant to 10 CFR Part 52, making them readily available for 
new plant orders. These designs include General Electric's Advanced 
Boiling Water Reactor and Westinghouse's AP-600 and System 80+ designs.
    In addition to the three advanced reactor designs already 
certified, there are new nuclear power plant technologies which some 
believe can provide enhanced safety, improved efficiency, lower costs, 
as well as other benefits. The Commission is currently reviewing the 
Westinghouse AP1000 design certification application. The staff has met 
all scheduled milestones for the AP1000 design review and is on track 
to issue the final design approval recommendation to the Commission 
this fall, followed by the design certification rule in 2005. The NRC 
staff is also actively reviewing pre-application issues on two 
additional designs and has four other designs in various stages of pre-
application review.
    In September and October of last year, we received three early site 
permit applications for sites in Virginia, Illinois, and Mississippi 
where operating reactors already exist. Our review of these early site 
permits, if approved, would be the first time this portion of the 
licensing process in 10 CFR Part 52 has been implemented. The staff has 
established schedules to complete the safety reviews and environmental 
impact statements in approximately two years. The mandatory 
adjudicatory hearings associated with the early site permits will be 
concluded after completion of the NRC staff's technical review. As with 
the design certification rulemaking, issues resolved in the early site 
permit proceedings will not be revisited during a combined license 
proceeding absent new and compelling information.
    To prepare for the potential application for a combined license, 
the Commission is discussing generic issues related to the preparation 
and review of a combined license application with industry and 
interested stakeholders. Included in this effort is updating the NRC's 
construction inspection program to address the combined license process 
and the expected use of extensive modular construction techniques.

                       REACTOR OVERSIGHT PROCESS

    One vital aspect of our regulatory oversight of commercial nuclear 
power plants is the direct inspection of equipment and activities at 
the power plant sites by NRC inspectors. NRC regional inspectors often 
specialize in areas and perform their specific inspections at the 
plants throughout the region in which they are assigned. Many of our 
inspection staff have a number of years experience, both within the NRC 
and in other parts of the industry, and all are well qualified for 
their duties. The inspections are conducted in accordance with an 
agency-wide inspection program. The program defines the frequency and 
scope of inspection activities and includes detailed inspection 
procedures, which cover a wide variety of topics, including operations, 
maintenance, refueling, engineering, radiation protection, emergency 
planning, and physical security. Our inspection reports are also 
available to the public, with the exception of those containing 
sensitive security information.
    In addition to our inspection program, the NRC maintains 
performance indicators to aid in trending the safety performance of the 
power plants. These performance indicators trend information such as 
unplanned shutdowns and power changes; the performance of important 
safety equipment; and control of radiation exposure. There is a 
baseline level of inspection that all plants receive, and there are 
increasing levels of additional inspection activities that may be 
performed if the performance at a given plant indicates it is 
warranted.
    On an annual basis, we assess the performance at each power plant 
and issue a written summary of our conclusions, followed by a meeting 
with the operator of the plant and a meeting with members of the local 
public. The NRC also makes the performance indicators and the results 
of our inspections available to the public.
    The inspection program is coordinated by our staff in the NRC 
headquarters office in Rockville, Maryland. This coordination ensures 
consistency in implementation of the inspection program between NRC's 
regional offices, and aids in the sharing of information within the 
agency.

                                SECURITY

    Of course with the heightened nuclear security at U.S. commercial 
reactors, the NRC will ensure that all operating nuclear power plants 
will be in compliance with all current nuclear security regulatory 
requirements. In this regard the NRC will continue to coordinate with 
other federal agencies including the Department of Homeland Security, 
Homeland Security Council, Federal Bureau of Investigation, and the 
Intelligence Community to ensure greater awareness of threats and to 
enhance the communication of threat information from all sources.

                                SUMMARY

    The Commission has long been, and will continue to be, dedicated in 
its mission to ensure adequate protection of public health and safety, 
the common defense and security, and the environment in the application 
of nuclear technology for civilian use. The Commission is mindful of 
the need to: (1) enhance regulatory predictability and reduce 
regulatory burden when appropriate and justified, so as not to 
inappropriately inhibit any renewed interest in nuclear power; (2) 
maintain open communications with all its stakeholders; and (3) 
continue to encourage its highly qualified staff to strive for 
increased efficiency and effectiveness.
    I appreciate the opportunity to appear before you today, and I 
welcome your comments and questions.

    Senator Alexander. Thank you, Dr. Travers.
    We have been joined by Senator Landrieu, who has a strong 
interest in nuclear power.
    Senator Landrieu.

       STATEMENT OF HON. MARY L. LANDRIEU, U.S. SENATOR 
                         FROM LOUISIANA

    Senator Landrieu. Thank you, Mr. Chairman. I welcome our 
panelists, particularly our friends from The Shaw Group. Thank 
you, Jim, for being with us today and for participating.
    I just have a brief opening statement, but I would like, 
Mr. Chairman, if I could, just to review some of the comments 
at this time and not take too long so we can get on with the 
panel.
    I am here because I am a strong supporter of the 
revitalization of the nuclear industry in our country for any 
number of reasons. One, because it is very apparent to me and 
to many on this committee that we need to increase our supply 
of energy in a diverse and robust supply of energy. Even from a 
State that produces a lot of oil and gas, not too much coal, we 
agree as producers that we need to have a greater production of 
nuclear. There are some real barriers that have made that goal 
difficult.
    So I just want to say for the record any number of things, 
but specifically that our chemical industry, Mr. Chairman, 
which is one of the largest industrial users of natural gas and 
one of the largest employers in my State with Dow Chemical, 
recently wrote that a diversified and robust energy mix is 
critically needed. The price of natural gas is so high, it 
makes our industries in Louisiana very fragile and very 
difficult, Mr. Chairman, to compete internationally. So we need 
to seek greater supplies of natural gas from a variety of 
sources, domestic preferably, but we are also open to importing 
liquified natural gas. But getting our nuclear industry more 
robust helps us to increase that supply and in some ways manage 
the demand.
    Number two, nuclear power is the Nation's largest clean air 
source for electricity and generating today three-fourths of 
all emission-free electricity. So at a time when our country--
and you have been a great leader on the environment--is looking 
for ways to clean up our air, to meet our new stricter 
standards for the environment, this is very important.
    There are at least six things that we can do immediately, 
and I will go through them quickly. Restart Browns Ferry unit 
1, which will provide 1,254 megawatts of power. Reinstate the 
1.7 cent per kilowatt hour production tax credit, which is in 
this energy bill. That is why it is important for us to pass 
it. Promote the construction of six plants in a series to 
reduce the cost of competitive rates from about 1,300 to 1,500 
per kilowatt to match gas-fired and coal-fired plants. The 
Government should share the cost for site banking for a number 
of the plants. The Government should recognize nuclear as a 
carbon-free source of energy, and we need to continue to fund 
the Department's generation IV program for the generation of 
reactors.
    So I am very pleased, Mr. Chairman, to join you today. I am 
pleased we have Jim Bernhard as one of our witnesses. Jim is 
chairman and founder of The Shaw Group, one of two Fortune 500 
companies in my home State of Louisiana. So we are very proud 
of the extraordinary growth and tremendous work that this 
company has done not just in our State, but providing jobs and 
opportunities for all States of the country and 
internationally.
    Thank you. I look forward to hearing the panelists' 
discussion.
    [The prepared statement of Senator Landrieu follows:]

       Prepared Statement of Hon. Mary L. Landrieu, U.S. Senator 
                             From Louisiana

    Mr. Chairman, today I would like to thank you for convening this 
hearing on the future of nuclear energy, as a critical energy source in 
our country today and for the foreseeable future.
    The Congress must recognize the important role that nuclear energy 
plays in our nation's economy, our nation's energy independence and 
security, and our nation's environmental goals. And, we need to 
acknowledge that like nearly every other source of energy, nuclear 
power needs our help to continue playing its important role in our 
nation's energy policy.
    One in every five homes and businesses today is powered by nuclear 
energy. It is important not only in Louisiana, where two nuclear plants 
produce nearly 17 percent of my state's electricity, but also in states 
such as Connecticut, Illinois, New Hampshire, New Jersey, South 
Carolina and Vermont where nuclear power generates more electricity 
than any other source. Nationwide, 103 reactors provide 20 percent of 
our electricity--the largest source of U.S. emission-free power 
provided around the clock.
    Nuclear energy played an important role in the sustained economic 
growth during the 1990s. By operating more and more efficiently, our 
nation's nuclear power plants have added the equivalent of twenty-five 
1,000-megawatt power plants to our nation's electricity grid. Without 
that improvement in performance by our nuclear plants, we would have 
needed at least 25 new power plants; and those plants most likely would 
not have the clean-air benefits provided by nuclear energy.
    While I strongly support the use of natural gas for our energy 
needs, we cannot rely--as we have in recent years--on only one source 
of energy to meet our nation's increasing electricity demand. The CEO 
of Dow Chemical recently wrote that the chemical industry--the nation's 
largest industrial user of natural gas and one of the largest employers 
in my state--is particularly vulnerable to high natural gas prices. He 
advised that the solution is to promote ``a diversified and robust 
energy mix . . . including the full range of traditional and 
alternative energy sources.'' If we are going to maintain our world 
economic leadership, we surely need to follow that advice.
    Nuclear energy is also vitally important for our environment and 
our nation's clean air goals. Nuclear power is the nation's largest 
clean air source of electricity, generating three-fourths of all 
emission-free electricity. For future generations of Americans, whose 
reliance on electricity will increase and who rightfully want a cleaner 
environment and the health benefits that cleaner air will provide, 
nuclear energy will be an essential partner.
    According to the Department of Energy, the demand for electricity 
is expected to grow by 50 percent by 2020. In order to continue 
producing at least one-third of our total electricity generation from 
emission-free sources, we must build 50,000 megawatts of new nuclear 
energy production. If we do that, we are just preserving our current 
levels of emission-free generation, not improving them.
    And finally, we need to recognize that nuclear power, by providing 
a stable and dependable source of electricity, is vital to our nation's 
energy security and independence. Nuclear power is essentially an 
American invention. We generate nearly a fourth of the world's total 
nuclear power and we can do so with domestic energy sources. I agree 
that hydrogen holds the promise of helping us lessen our dependence on 
imported oil. Nuclear power is one of the most promising ways that we 
can produce hydrogen economically and efficiently.
    Mr. Chairman, we are at a critical juncture in deciding the future 
of our energy security and as a result bold steps must be embarked upon 
to preserve our international competitiveness. We could start by first 
doing the following:

   Restart Browns Ferry Unit (2 and 3 have already been 
        started) which will provide 1254 Megawatts of power.
   Reinstate the 1.7 cents per kilowatt-hour production tax 
        credit for the constriction of the first 6 ``first mover'' 
        plants over an 8 year period.
   Promote the construction of these 6 plants in a series so as 
        to reduce cost to a competitive rate of about $1,300 to $1,500 
        per kilowatt to match gas-fired and coal-fired plants.
   The government should share the cost for site banking for a 
        number of plants, certification of new plant designs by the 
        Nuclear Regulatory Commission, and the combined construction 
        and operation licenses for plants built immediately.
   The government should recognize nuclear as a carbon-free 
        source of energy.
   We need to continue to fund the Department of Energy's 
        Generation IV program for the next generation reactors.

    Today, Mr. Chairman, I am pleased that we have Jim Bernhard as one 
of our witnesses today. Jim is Chairman and CEO, and founder of The 
Shaw Group, one of two Fortune 500 companies in my home state of 
Louisiana. Founded in 1987, Shaw has expanded rapidly, through internal 
growth, and through a series of strategic acquisitions. In fact, it was 
the acquisition of Stone & Webster three and a half years ago that 
expanded Shaw's capabilities in the commercial nuclear industry.
    Stone & Webster's long history in the nuclear industry dates back 
to the Manhattan Project, when it built an electromagnetic separation 
plant that would produce the materials needed for atomic weapons, and 
also built the City of Oak Ridge, which housed 75,000 workers.
    To date, Stone & Webster--now part of The Shaw Group--has designed 
and/or built 17 nuclear plants and has provided technical services to 
95 percent of all U.S. nuclear plants.
    With that said, I think it's appropriate that we have The Shaw 
Group testifying today and I welcome Jim to this hearing. I see that 
he's brought his lovely wife, Dana, and their two children. Welcome to 
you also. Thank you, Mr. Chairman.

    Senator Alexander. Thank you, Senator Landrieu.
    Senator Craig.

        STATEMENT OF HON. LARRY E. CRAIG, U.S. SENATOR 
                           FROM IDAHO

    Senator Craig. Mr. Chairman, first of all, let me thank you 
very much for this hearing. I wish I could stay the whole time. 
I am not going to be able to, but I will read all of the 
testimony.
    My effort, your effort, all of our efforts to advance the 
cause of nuclear energy and nuclear technology in this country 
are probably well known by our panelists.
    The work that is going on in my State and across the DOE's 
national laboratories on advanced nuclear generation is to me 
very exciting. Much of DOE's nuclear research is focused on 
what is called generation IV technology. What our witnesses 
have been talking about today is something called generation 
III-and-a-half, nuclear technologies that are more advanced 
than current plants, but could be deployed in the near term 
than generation IV technology.
    I am encouraged that we are examining these near-term 
opportunities. I think it is important that we keep a focus on 
the near term while also working on the long term. Many of the 
current nuclear reactor sites have enough capacity to add 
additional reactors at that site. We have heard today that 
Tennessee Valley Authority may have that opportunity.
    DOE has also been working with nuclear utilities across the 
country on what is called early site permitting. The Nuclear 
Regulatory Commission is also working to modernize and 
streamline both new plant licenses and also the license 
extension process for existing reactors. I am encouraged by 
that and strongly support it.
    Let me also add that one of the areas, Mr. Chairman, that I 
and others have been heavily involved in is the issue of 
climate change and arguing that it is technology that gets us 
to where we want to go, not turning off our economies.
    I found it fascinating. I happen to be at the climate 
change conference in Milan in December, and those countries 
that rushed to judgment by adopting the Kyoto Protocol, feeling 
that they only had a few percentage points to go to meet their 
1999 standards, now are even further out of compliance by 
another additional amount because what they are finding is 
quite simple. You cannot advance the economy of your country 
under current technologies without emitting greenhouse gases. 
It is the character of current technology, except for one and 
that is nuclear.
    It was interesting to me. Italy, although it had shut one 
of its nuclear plants when it ratified the Kyoto Protocol 
several years ago, was within, I believe, 4 or 5 percentage 
points of being in compliance. It is now out of compliance by 
13 percent.
    Enough of that. Let us hear from our witnesses.
    But there is a reality check out there that I hope America 
gets right quickly, and that is that if you want your lights to 
stay on at reasonable costs and if you want your computers to 
stay on at reasonable costs and if you want to advance all the 
technologies in our country at reasonable costs, you have got 
to have quality electricity at reasonable costs. I do not know 
how you get there without expanding the overall percentage of 
the blend in our current electrical makeup with nuclear.
    Thank you, Mr. Chairman.
    Senator Alexander. Thank you, Senator Craig.
    Mr. Fertel.

STATEMENT OF MARVIN S. FERTEL, SENIOR VICE PRESIDENT AND CHIEF 
           NUCLEAR OFFICER, NUCLEAR ENERGY INSTITUTE

    Mr. Fertel. On behalf of the Nuclear Energy Institute, Mr. 
Chairman and Senator Craig, I would like to thank you both for 
your leadership on national energy issues and particularly for 
your strong support for nuclear energy.
    As I know you are aware, NEI is responsible for developing 
policy for the U.S. nuclear industry. Our organization's 270 
member companies represent a broad spectrum of organizations 
and interests and includes every U.S. energy company that 
operates our 103 nuclear power plants in this country.
    I will focus my testimony today on four points. First, that 
nuclear energy is already critical to America's energy supply. 
Today nuclear power plants provide electricity for 1 in 5 
American homes and businesses safely and reliably. As you 
indicated in your opening statement, Mr. Chairman, nuclear 
plants are the lowest cost baseload source of electricity, have 
excellent forward price stability, which helps our consumers, 
and maybe most importantly, nuclear power plants produce no air 
pollution or greenhouse gases.
    But what we do today is not enough. Our Nation's 
electricity demands are expected to increase 50 percent by 
2025, according to the Energy Information Administration. And 
we believe that nuclear power plants must play an even greater 
role in meeting both those needs and our environmental needs as 
we go forward.
    This leads me to my second point. Nuclear energy is an 
essential part of our diverse fuel mix. Fuel and technology 
diversity is the core strength of our U.S. electricity supply 
system. Coal is our largest source of electricity and nuclear 
is our second largest source. But as your chart shows, natural 
gas-fired plants account for 95 percent of the new electricity 
generation built since 1992 which was the last year that a 
comprehensive energy bill was passed by the Congress.
    Now, natural gas is an integral part of our energy mix, but 
overreliance on any one fuel source leaves consumers vulnerable 
to price spikes and supply disruptions, as Alan Greenspan 
testified last year.
    From a national policy perspective, we believe it is 
essential that nuclear plants, coal plants, and other 
generation sources are built to satisfy the EIA projections 
that show a need for 400,000 megawatts of new generation by 
2025.
    My third point is that the industry is committed to 
building new nuclear power plants. The demonstration of a new 
licensing process for building nuclear plants has been underway 
for 2\1/2\ years. As Dr. Travers just indicated, three 
companies, Dominion Resources, Entergy, and Exelon, filed 
applications last year with the NRC for early site permits 
which will allow them to bank sites for new reactors.
    Companies are also planning to demonstrate the NRC's new 
process for obtaining a combined construction and operating 
license probably later this year. And the industry is investing 
substantial resources in design and engineering of advanced 
plants and get them NRC-certified.
    And that brings me to my last point and probably the one 
most pertinent to this committee. Our country needs to 
stimulate investment in energy infrastructure, including new 
nuclear power plants. Congress can help create an environment 
that will stimulate investments in new nuclear power plants 
through the passage of the comprehensive energy legislation 
that Senator Domenici spoke so elegantly about earlier. Current 
legislation contains provisions essential for new plant 
construction, such as renewal of the Price-Anderson insurance 
framework, authorization for a cost-share program between 
industry and government to support the design, engineering, and 
licensing of new advanced plants. The passage of the energy 
bill that includes provisions that encourage new plant 
construction is vital for our country's economic and 
environmental future.
    It is important that Congress send a clear signal to both 
business decision-makers and the financial community, from 
which you will hear in a few minutes, that supports investments 
in new nuclear plants through targeted but limited measures 
such as the production tax credits that Senator Landrieu 
mentioned or loan guarantees, measures that the Senate endorsed 
last year.
    Mr. Chairman, we have submitted detailed written testimony. 
On behalf of NEI, I thank you for allowing me to testify today 
and look forward to any questions you may have later.
    [The prepared statement of Mr. Fertel follows:]

Prepared Statement of Marvin S. Fertel, Senior Vice President and Chief 
               Nuclear Officer, Nuclear Energy Institute

                               TESTIMONY

    Chairman Alexander, Ranking Member Graham and distinguished members 
of the subcommittee, I am Marvin Fertel, senior vice president and 
chief nuclear officer at the Nuclear Energy Institute (NEI). NEI 
appreciates the opportunity to provide this testimony for the record on 
the need for new nuclear power plants, and the issues that must be 
addressed before our nation can begin construction of the new nuclear 
plants needed to meet growing electricity demand in the years ahead.
    NEI is responsible for developing policy for the U.S. nuclear 
industry. Our organization's 270 member companies represent a broad 
spectrum of interests, including every U.S. energy company that 
operates a nuclear power plant. NEI's membership also includes nuclear 
fuel cycle companies, suppliers, engineering and consulting firms, 
national research laboratories, manufacturers of radiopharmaceuticals, 
universities, labor unions and law firms.
    America's 103 nuclear power plants are the most efficient and 
reliable in the world. Nuclear energy is the largest source of 
emission-free electricity in the United States and our nation's second 
largest source of electricity after coal. Nuclear power plants in 31 
states provide electricity for one of every five U.S. homes and 
businesses. Seven out of 10 Americans believe nuclear energy should 
play an important role in the country's energy future.\1\
---------------------------------------------------------------------------
    \1\ Perspectives on Public Opinion, by Ann Stouffer Bisconti, 
Bisconti Research Inc., November 2003.
---------------------------------------------------------------------------
    Given these facts and the strategic importance of nuclear energy to 
our nation's energy security and economic growth, NEI encourages the 
Congress to adopt policies that foster continued expansion of emission-
free nuclear energy as a vital part of our nation's diverse energy mix.
    Last year, Congress demonstrated strong support for nuclear 
energy's role in forward-looking energy policy legislation. That 
legislation includes most of the major policy initiatives necessary to 
carry this technology forward into the 21st century as a major 
contributor to U.S. electricity supply. These include renewal of the 
Price-Anderson insurance framework; financial stimulus for new nuclear 
plant construction; an expanded research and development portfolio; 
support for universities; and updated tax treatment of nuclear 
decommissioning funds to reflect today's competitive electricity 
business.
    Broadly, the energy sector believes it is imperative to provide 
substantial stimulus for investment in new transmission infrastructure 
for both electricity and natural gas, and in the new nuclear and clean 
coal power plants to meet the 50 percent increase in electricity demand 
by 2025 forecast by the Energy Information Administration. Investment 
in key parts of the electric power sector has collapsed over the last 
10 years, and we must put in place new policy initiatives to address 
that challenge.
    NEI's testimony for the record will cover the following areas:

          1. The business case for new nuclear power plants.
          2. Industry initiatives to increase nuclear energy 
        production.
          3. The need to stimulate investment in America's critical 
        energy infrastructure, including investment in new nuclear 
        power plants.
          4. Industry programs to create the business conditions 
        necessary for the construction of new nuclear plants and the 
        steps to ensure construction of new plants to meet demand for 
        new baseload electric generating capacity.
          5. Industry confidence in the competitiveness of new nuclear 
        power plants.

             the business case for new nuclear power plants
    New nuclear plants will be essential in the years ahead to achieve 
a number of critically important public policy imperatives for our 
country's energy supply and electricity market.
    First, new nuclear power plants will continue to contribute to the 
fuel and technology diversity that is the core strength of the U.S. 
electric supply system. This diversity is at risk because today's 
business environment and market conditions make investment in large, 
new capital-intensive technologies difficult, notably the advanced 
nuclear power plants and advanced coal-fired power plants best suited 
to supply baseload electricity. More than 90 percent of all new 
electric generating capacity added over the past five years is fueled 
with natural gas. Natural gas has many desirable characteristics and 
should be part of our fuel mix, but ``over-reliance on any one fuel 
source leaves consumers vulnerable to price spikes and supply 
disruptions.'' \2\
---------------------------------------------------------------------------
    \2\ Report of the President's National Energy Policy Development 
Group, May 2001, page xiii.
---------------------------------------------------------------------------
    Second, new nuclear power plants provide future price stability 
that is not available from electric generating plants fueled with 
natural gas. Intense volatility in natural gas prices over the last 
several years is likely to continue, and subjects the U.S. economy to 
potential damage. Although nuclear plants are capital-intensive to 
build, the operating costs of nuclear power plants are stable and can 
dampen volatility of consumer costs in the electricity market.
    Third, new nuclear plants will reduce the price and supply 
volatility of natural gas, thereby relieving cost pressures on other 
users of natural gas that have no alternative fuel source.
    Finally, new nuclear power plants will play a leading role in 
meeting U.S. clean air goals and the administration's goal of reducing 
the U.S. economy's greenhouse gas intensity. In addition, under the 
cap-and-trade systems in place or planned for all major pollutants, 
incremental production from new emission-free nuclear power plants 
would reduce the compliance costs that otherwise would be imposed on 
coal-fired and gas-fired generation.
    Nuclear power plants produce electricity that otherwise would be 
supplied by oil-, gas- or coal-fired generating capacity, and thus 
avoid the emissions associated with that fossil-fueled capacity.
    The value of the emissions avoided by U.S. nuclear power plants is 
essential in meeting clean air regulations. In 2002, U.S. nuclear power 
plants avoided the emission of about 3.4 million tons of sodium dioxide 
(SO2) and about 1.4 million tons of nitrogen oxide 
(NOX). To put these numbers in perspective, the requirements 
imposed by the 1990 Clean Air Act Amendments reduced SO2 
emissions from the electric power sector between 1990 and 2002 by 5.5 
million tons per year and NOX emissions by 2.3 million tons 
year.\3\ Thus, in a single year, nuclear power plants avoid nearly as 
much in emissions as was achieved over a 12-year period by other 
sources.
---------------------------------------------------------------------------
    \3\ EPA Acid Rain Program: 2001 Progress Report, U.S. Environmental 
Protection Agency, November 2002.
---------------------------------------------------------------------------
    The NOX emissions avoided by U.S. nuclear power plants 
are equivalent to eliminating NOX emissions from six out of 
10 passenger cars in the United States. The carbon emissions avoided by 
U.S. nuclear power plants are equivalent to eliminating the carbon 
emissions from nine out of 10 passenger cars in the United States.

                EMISSIONS AVOIDED BY NUCLEAR POWER PLANTS
------------------------------------------------------------------------
                                                               Carbon
                                     SO2           NOX        (million
             Year                 (millions     (millions    metric tons
                                 short tons)   short tons)    of carbon
                                                             equivalent)
------------------------------------------------------------------------
2002..........................        3.38          1.39       1,441.5
------------------------------------------------------------------------
Emissions reduced at fossil           5.5           2.30          NA
 generating plans 1990-2002 as
 a result of 1990 Clean Air
 Act amendments...............
------------------------------------------------------------------------
Source: EPA (SO2 emissions for the electric power sector in 1990 were
  15.7 million tons; by 2002, emissions had been reduced to 10.2 million
  tons, a 5.5-million-ton reduction. NOX emissions had been reduced to
  4.6 million tons, a 2.3-million-ton reduction.

    Nuclear energy helped reduce NOX emissions in 
northeastern and mid-Atlantic states, according to a report last year 
by the Environmental Protection Agency and the Ozone Transport 
Commission (OTC).\4\ The 2003 EPA assessment found that energy 
companies have been shifting electricity production from fossil-fueled 
power plants to emission-free nuclear power plants to help comply with 
federal air pollution laws.
---------------------------------------------------------------------------
    \4\ NOX Budget Program: 1999-2002 Progress Report, U.S. 
Environmental Protection Agency, March 2003.
---------------------------------------------------------------------------
    In Tennessee, for example, three nuclear reactors avoid the 
emission of approximately 170,000 tons of SO2, 60,000 tons 
of NOX and 6.6 million metric tons of carbon every year. For 
perspective, 60,000 tons of NOX, which is a precursor to 
ground-level ozone, is the amount released into the air by 3.1 million 
passenger cars. There are 1.7 million passenger cars registered in 
Tennessee.
    In summary, nuclear energy represents a unique value proposition: a 
nuclear power plant provides large volumes of electricity--cleanly, 
reliably, safely and affordably. It provides future price stability and 
serves as a hedge against the kind of price and supply volatility we 
see with natural gas. And nuclear plants have valuable environmental 
attributes: They do not emit controlled air pollutants or carbon 
dioxide, and thus are not vulnerable to mandatory limits on carbon 
emissions. Other sources of electricity have some of these attributes. 
But none of them not coal, natural gas or renewables can deliver all of 
these benefits. Only nuclear power plants have all of these attributes, 
and that is why these plants are uniquely valuable.
       industry initiatives to increase nuclear energy production
    As our country prepares for the construction of new nuclear power 
plants, the U.S. industry has increased the productivity and efficiency 
of its existing 103 nuclear power plants.
    The industry continues to uprate capacity at U.S. plants--the U.S. 
Nuclear Regulatory Commission has authorized more than 2,000 megawatts 
(MW) of power uprates over the last three years, and another 2,000 MW 
are expected over the next several years. An uprate increases the 
output of the nuclear reactor and must be approved by the NRC to ensure 
that the plant can operate safely at the higher production level. 
Companies will invest in these power uprates as conditions in their 
local power markets justify.
    In addition, energy companies are pursuing renewal of their 
operating licenses. This option allows today's operating plants to 
extend their lives for 20 additional years--from 40 to 60 years. Just 
in the past 12 months, the NRC has approved renewed licenses for 13 
reactors, bringing the total number of reactors extending their federal 
operating licenses to 23.
    An additional 33 reactors either have already filed their renewal 
applications, or indicated formally to NRC that they intend to do so. 
That represents over one-half of U.S. reactors. We expect virtually all 
our nuclear plants will renew their licenses--simply because it makes 
good economic sense to do so.
    With license renewal, our first plants will operate until the 2030s 
and our newest plants will run past 2050. As an industry, we've 
implemented systematic programs across the industry to manage the 
systems and components in these plants for their entire expected 
lifetime. And we're making the capital investments necessary to allow 
60 years of operation at sustained high levels of safety and 
reliability.
    Increasing electricity production at nuclear power plants is a key 
component of the president's voluntary program to reduce the greenhouse 
gas intensity of the U.S. economy. In December 2002, NEI responded to 
President Bush's challenge to the business community to develop 
voluntary initiatives that would reduce the greenhouse gas (GHG) 
intensity of the U.S. economy. NEI indicated that the U.S. nuclear 
energy industry could increase its generating capability by the 
equivalent of 10,000 MW. NEI's analysis showed that this would achieve 
approximately 20 percent of the president's goal.
    The additional 10,000 MW would come from three sources:

   Power Uprates--5,000 to 6,500 MW of capacity additions 
        between 2002 and 2012.
   Improved Capacity Factors--the equivalent of 3,000 to 5,000 
        MW of additional capacity in 2002-2012.
   Plant Restarts--refurbishing and restarting Tennessee Valley 
        Authority's Browns Ferry Unit 1 would add 1,250 MW.

    The nuclear energy industry has recorded substantial progress 
toward its goal. The NRC has approved 2,198 MW of uprates in the past 
several years. In addition, based on information from nuclear plant 
operators, the NRC expects applications for an additional 1,886 MW of 
uprates in the 2004-2008 period.\5\
---------------------------------------------------------------------------
    \5\ All power uprates must be approved by the Nuclear Regulatory 
Commission. Once NRC approval is received, generating companies 
schedule power uprates into their ongoing capital investment programs. 
Typically, it takes at least two to three years from the time of NRC 
approval before the uprate is completed. Given these lead times, 
companies in 2003 were completing uprates approved by the NRC in 2000 
and 2001. The NRC approved 2,198 MW of uprates between 2000 and 2003 
(243 MW in 2000, 1,111 MW in 2001, 711 MW in 2002, 133 MW in 2003) and 
expects licensees to apply for an additional 1,886 MW of uprates in the 
2004-2008 period. The 2004-2008 forecast represents only those uprates 
about which the NRC has been informed; it does not represent the total 
remaining uprate potential of U.S. nuclear power plants.
---------------------------------------------------------------------------
    In addition, the Tennessee Valley Authority (TVA) is moving forward 
with refurbishment of Unit 1 of the Browns Ferry nuclear power plant. 
The TVA Board in May 2002 approved the refurbishment and restart, a 
$1.8 billion project, that is expected to return the reactor to 
commercial operation in 2007. Browns Ferry Unit 1 is not a new 
construction reactor, but its comprehensive refurbishment and restart, 
when complete, will represent a significant accomplishment for the 
industry.
    With 5,334 MW of new capacity in prospect (4,084 megawatts of 
uprates and 1,250 MW at Browns Ferry Unit 1), the nuclear energy 
industry will be approximately halfway toward meeting its goal of 
expanding capacity by 10,000 megawatts by 2012. This represents 
substantial progress the largest progress of any single industry--
toward achievement of the president's goal to reduce the GHG intensity 
of the U.S. economy by 18 percent by 2012.
    Obviously, there are limits on how much additional electricity 
output can be produced at the existing 103 nuclear power plants. 
Meeting the nation's growing demand for electricity--which will require 
as much as 400,000 MW by 2025, depending on assumptions about 
electricity demand growth\6\ --will require construction of several new 
nuclear power plants in the years ahead.
---------------------------------------------------------------------------
    \6\ Energy Information Administration, Annual Energy Outlook 2004, 
DOE/EIA-0383 (2004)
---------------------------------------------------------------------------
  STIMULATING INVESTMENT IN AMERICA'S CRITICAL ENERGY INFRASTRUCTURE, 
                   INCLUDING NEW NUCLEAR POWER PLANTS

    NEI believes that lack of investment in our nation's critical 
energy and electric power infrastructure is a major problem. Our 
country is not investing enough in new baseload coal and nuclear 
plants, and we are not investing enough in new electricity 
transmission.
    NEI's assessment shows that approximately 183,000 megawatts of 
electricity generating capacity is 30-40 years old; approximately 
104,000 MW is 40-50 years old. That represents about one-third of U.S. 
installed electric generating capacity, and is clear evidence that we 
are underinvesting for our energy future--relying too much on old, less 
efficient generating capacity and not investing in new, more efficient 
and cleaner facilities.
    Investment in our country's electricity transmission system has 
fallen by $115 million per year for the last 25 years, and investment 
in this area in 1999 was less than one-half of the level 20 years 
earlier--despite dramatic increases in the volumes of electricity being 
moved to market. One analysis\7\ shows that simply maintaining 
transmission adequacy at its current level (which is widely 
acknowledged to be inadequate) would require a capital investment of 
$56 billion by 2010, equal to the book value of the existing 
transmission system.
---------------------------------------------------------------------------
    \7\ Transmission Planning for a Restructuring U.S. Electricity 
Industry, Edison Electric Institute, June 2001.
---------------------------------------------------------------------------
    Given these facts, we strongly encourage the passage of energy 
policy legislation to provide broad-based stimulus for investment in 
new energy infrastructure, including new nuclear plant construction, 
deployment of clean coal technologies, new electricity transmission and 
other energy sources.
    Passage of legislation that provides such investment stimulus is 
essential if we hope to preserve the diversity of fuels and 
technologies that represent the core strength of our energy supply and 
delivery system. That stimulus can come through shorter depreciation 
periods, investment tax credits and production tax credits, loans or 
loan guarantees, or research and development support, depending on the 
conditions and requirements of each energy source. In addition, renewal 
of the Price-Anderson Act, which provides insurance for the public in 
the case of a nuclear reactor incident, is a necessary step in paving 
the way toward new nuclear power plants.
    NEI believes that more appropriate tax treatment of energy 
investment must be a central feature of energy policy legislation. As a 
general rule, the electric industry suffers from depreciation treatment 
that may have been appropriate for another era, when regulated 
companies with stable long-term cash flows had a reasonable assurance 
of investment recovery through rates. But 15- to 20-year depreciation 
periods for investments in generation and transmission assets are 
unacceptable for an industry operating in a competitive commodity 
market, where cash flows are highly volatile and there is no guarantee 
of investment recovery. Current depreciation treatment acts like a 
brake on new capital investment.
    Energy policy legislation should also address another significant 
factor that could inhibit capital investment: Regulatory uncertainty. 
This uncertainty has a chilling effect on capital formation and capital 
investment. Regulatory uncertainty and perceived risks over the 
licensing process for new nuclear power plants could inhibit capital 
investment in new nuclear facilities. In the coal industry, uncertainty 
over environmental requirements, including possible future limitations 
on criteria pollutants and carbon dioxide, has slowed capital 
investment in new coal-fired generating capacity or in upgrading 
existing capacity. Public policy must recognize the impact of these 
uncertainties and develop mechanisms to address them.
    NEI believes that policymakers must recognize the risks and 
uncertainties in our economic and regulatory systems and also recognize 
that policymakers have a responsibility to establish mechanisms to 
contain those uncertainties.
    In the electricity sector, the last several years demonstrate what 
happens when the markets are left entirely to their own devices without 
necessary policy and planning guidance. The sole reason that gas-fired 
plants constitute more than 90 percent of the generating capacity built 
during the past five years is that these plants present the lowest 
investment risk. However, as trends in natural gas prices through 2003 
demonstrate, sole reliance on gas for new generating capacity can 
expose consumers to punishing price volatility. Excessive reliance on 
natural gas for power generation also increases prices and limits the 
supply available to other industries that depend on natural gas as a 
feedstock. This, in turn, has a ripple effect reflected in higher 
prices in many other sectors.
    By themselves, markets have no way of valuing energy security, fuel 
and technology diversity, or other legitimate public policy ``goods.'' 
Few new coal-fired or nuclear plants have entered service over the last 
decade, even though these plants provide the greatest measure of price 
stability going forward.
    The decision to employ nuclear power as a major energy source in 
countries such as France and Japan was based on energy security. The 
governments of both countries originally decided the use of nuclear 
energy would protect their nations' energy supplies from disruptions 
driven by political instability and protect consumers from price 
fluctuations resulting from market volatility. Today, France depends on 
nuclear energy for more than three-quarters of its electricity demand, 
and Japan for more than one-third.
    The governments of France and Japan have committed to the use of 
nuclear energy as an essential part of their nations' future energy 
portfolios for reasons of economics as well as energy security. Other 
nations with reactors under construction, such as South Korea and 
Taiwan, have cited energy security as an overriding concern in the 
energy policy decisions of their respective governments. Despite all of 
the international activity, the U.S. nuclear energy sector remains by 
far the world's largest, producing 762 billion kilowatt-hours in 2003--
more than the nuclear sectors of France and Japan combined.
    If we do not employ policy mechanisms and investment stimulus to 
preserve fuel diversity, we run the risk of placing demands on certain 
fuels that they may not be able to meet. We must address electricity 
supply and transmission as an integrated system: More coal and nuclear 
electricity can reduce supply and price pressure on natural gas. More 
electricity from nuclear plants and renewable sources can moderate 
environmental pressures and compliance costs that would otherwise be 
imposed on coal-fired plants.

  CREATING THE BUSINESS CONDITIONS FOR NEW NUCLEAR PLANT CONSTRUCTION

    NEI believes that our nation must meet rising electricity demand--
50 percent growth by 2025--with a diversified portfolio of fuels and 
technologies, including nuclear energy.
    We are confident that new nuclear plants can compete with other 
forms of baseload generation. Our cost targets $1,000 to $1,200 per 
kilowatt in capital cost are clearly competitive with other baseload 
electricity generating options.
    Given this, the nuclear energy industry and the Department of 
Energy launched a program several years ago that will position the 
industry to build new nuclear capacity when needed, by creating the 
business conditions under which companies can order new nuclear plants.
    This is a comprehensive program designed to address the business 
issues and unanswered questions--including licensing and regulatory 
issues, development of new plant designs, and financing--could be 
roadblocks to new nuclear plant construction.
    There are three distinct and major phases on the road toward new 
nuclear plant construction:

          1. pre-commercial licensing and design
          2. construction of the first few new plants
          3. sustained investment in significant numbers of new plants.

    Pre-Commercial Licensing and Design. The Energy Policy Act of 1992 
created a new licensing process under which the industry must apply for 
all necessary regulatory approvals from the NRC before significant 
capital is committed. Reactor sites and designs can be approved in 
advance. And new nuclear plants will receive a single license for 
construction and operation--not the separate proceedings that created 
unwarranted delay in the period between construction and operation of 
today's plants.
    This approach should limit the regulatory risks that impacted the 
construction and licensing of many of our operating plants. With the 
new process, complete plant designs must be available before 
construction begins. This process also allows meaningful input from the 
public and other stakeholders early on, before the plant is built, when 
such input can influence plant design and licensing issues. This should 
avoid the costly delays common to the old way of licensing a nuclear 
plant. Because the old licensing process did not require all the design 
and engineering to be complete when the construction permit was issued, 
it often resulted in extensive public hearings and public input after 
the plant was built and before it was allowed to operate.
    The industry is validating this new, unproven licensing process. In 
2003, Dominion, Exelon and Entergy began a three-year process for 
requesting NRC approval for early site permits. This does not mean that 
these companies are committed to building new nuclear plants at these 
sites. The program is designed to demonstrate that the untested early 
site permit process works as intended. If approved, the companies will 
be ``banking'' those sites for possible future use.
    DOE has also requested proposals to share the cost of demonstrating 
the process of preparing and obtaining a combined construction/
operating license from the NRC. This approach consolidates both of 
these licenses, thereby eliminating the separate hearings, reviews and 
proceedings that can dramatically increase costs. Beginning this year, 
DOE is expected to co-fund the cost of at least two applications. Like 
early site permits, combined construction/operating licenses can be 
``banked'' for future use.
    In addition to these licensing issues, this first phase also 
involves completing the first-of-a-kind engineering and design work for 
preferably two advanced reactor designs, and obtaining NRC safety 
certification for those designs. These new reactors are designed to 
improve safety and reduce capital cost so that they are competitive 
with other sources of baseload electricity.
    The first, pre-commercial phase is not a trivial investment. It 
will cost $400 million to $500 million to complete the licensing 
demonstrations and the first-of-a-kind design and engineering for one 
reactor design. The industry expects to share that cost equally with 
the federal government under DOE's Nuclear Power 2010 program. The 
private sector therefore would commit $200 million to $250 million to 
the effort, or up to $500 million for two reactor designs. It is 
critically important, therefore, that the government provides adequate 
funding for DOE's Nuclear Power 2010.
    If the private sector and the federal government do not share the 
cost of design, engineering and licensing work on new nuclear plants, 
the first few new nuclear plants built will be more costly than follow-
on plants. This is because the first plants, like the first new plants 
of any new technology, would have first-time design and engineering 
costs associated with them. The industry estimates the capital cost of 
the first few nuclear plants built would be in the range of $1,400 per 
kilowatt. After these plants are built and the first-of-a-kind design 
and engineering costs have been recovered, subsequent plants of the 
series will have capital costs in the $1,000-$1,100 per kilowatt range, 
which is fully competitive with other sources of baseload electricity.
    Construction of the First New Nuclear Power Plants. Companies 
interested in building the first new nuclear power plants must address 
two major challenges: potential regulatory risks and the significant 
capital investment associated with the first few new nuclear power 
plants.
    Although industry/government programs are seeking to eliminate 
uncertainty from the licensing process, there is potential for 
unanticipated cost increases as a result of delays during construction 
or delays in commercial operation of a completed plant. These delays 
could be caused by the NRC's failure to deliver necessary approvals on 
time, or by court challenges to agency actions that are later 
dismissed. These regulatory risks are beyond the private sector's 
control and would jeopardize private sector investment in new nuclear 
power plants.
    The financial community has indicated that it is unlikely to 
provide external debt financing from the capital markets, given the 
regulatory risks associated with the first several new nuclear power 
plants. This means that companies considering building new nuclear 
plants must either finance the first few plants with 100 percent 
equity, or obtain government loans, loan guarantees, or some other form 
of comparable government insurance against potential regulatory risks.
    Nuclear power plants, like coal-fired power plants, are capital-
intensive projects. A company building a new nuclear power plant will 
invest between $1.5 billion and $2 billion, including interest, during 
construction. During construction, a company would be investing 
substantial amounts of equity capital in the project, and this equity 
would be tied up for a four-to-five year construction period without 
generating any return to the company. Raising the equity capital 
required would dilute shareholders' equity and earnings per share. This 
could lead to lower stock prices, reducing the company's attractiveness 
to the financial community.
    The $18-per-megawatt-hour production tax credit provided in the 
conference report for H.R. 6 is an important step toward making 
investment in the first few new nuclear plants attractive to the 
private sector. This tax credit is comparable to that provided for 
other sources of new, emission-free electricity generation. The 
production tax credit would provide an acceptable return on equity, 
even to a project financed entirely with equity capital. It does not, 
however, appear to protect the private sector investment against 
potential regulatory risk, and the industry is continuing to work with 
the executive branch and Congress to create the financial mechanisms 
necessary to do that.
    Sustained Investment in Significant Numbers of New Nuclear Plants. 
Companies building new nuclear power plants face two significant 
challenges: (1) the earnings dilution during construction resulting 
from the large equity investment over an extended period in a capital-
intensive project, and (2) the fact that substantial capital investment 
would be at risk for an extended period of time. These financing 
challenges are not unique to nuclear power plants. In fact, they are 
common to all capital-intensive elements of the electricity 
infrastructure, including advanced coal-fired power plants and new 
electric transmission capacity.
    Both problems can be addressed through tax-related incentives. An 
investment tax credit would mitigate earnings dilution and the 
resulting negative impact on a company's shareholders.
    More appropriate depreciation treatment would address the concern 
over significant investment exposed over an extended period of time. 
Under current law, nuclear power plants are treated as 15-year 
property. This depreciation period may have been appropriate for a 
regulated, cost-of-service business environment. It is not suitable for 
a competitive, commodity business environment. More appropriate 
depreciation schedules--seven years instead of 15--would allow faster 
recovery of investment through reduced income tax liability. Such 
updated tax treatment would simply recognize that depreciation 
conventions established for a regulated, cost-of-service business 
environment are not appropriate for a competitive, high-risk business 
environment.
    It is important to remember that these three phases comprise an 
integrated program. The pre-commercial activities (like validating the 
licensing process) are inextricably linked to the financial incentives 
and investment stimulus for plant construction. Unless the financial 
incentives for commercial deployment are in place, the companies and 
the federal government have little reason to invest hundreds of 
millions of dollars in design and licensing work. And unless we work 
together to invest in the design and licensing work, there is little 
reason to create financial incentives and investment stimulus for new 
plant construction.
 industry confidence in the competitiveness of new nuclear power plants
    The nuclear energy industry has a high level of confidence that new 
nuclear power plants can be built for an ``overnight'' capital cost\8\ 
of $1,000-$1,200 per kilowatt of capacity for subsequent plants.\9\ At 
this cost, which can be achieved after the first several new plants 
have been built, new nuclear power units are fully competitive with 
other baseload electricity production. The financial stimulus sought 
from the federal government is intended, in part, to ``jump start'' 
construction of the first few new nuclear power plants, thereby 
allowing the nuclear industry to reach a cost level of $1,000-$1,200 
per kilowatt for successive plants of that kind. The major alternatives 
to new nuclear plants include conventional coal-fired power plants with 
a full suite of environmental controls, which have capital costs in the 
range of $1,000-$1,500 per kilowatt of capacity. These include the so-
called ``clean coal'' technologies, which have capital costs in the 
range of $1,200-$1,500 per kilowatt of capacity. At $1,000 per 
kilowatt, a new nuclear power plant could compete with new combined-
cycle, gas-fired power plants, which have capital costs in the range of 
$600-$700 per kilowatt of capacity. Unlike the nuclear and coal-fired 
technologies, however, gas-fired power plants are extremely sensitive 
to fuel prices. Economic analysis shows that a new nuclear unit at 
$1,000 per kilowatt of capacity is competitive with a new gas-fired 
combined cycle plant fueled with gas at $4-$5 per million Btu.
---------------------------------------------------------------------------
    \8\ ``Overnight'' capital cost does not include interest during 
construction and is a standard means of comparing the capital costs of 
various generating options.
    \9\ This capital cost is achieved after first-time design and 
engineering costs have been recovered and as industry incorporates 
improvements in construction techniques and construction management 
gained during construction of the first few units.
---------------------------------------------------------------------------
    The cost estimates for new nuclear power plants reflect a high 
degree of analytical rigor and are as solid as can be achieved, short 
of actually building a power plant and totaling the dollars spent. Two 
new designs--the AP1000 developed by Westinghouse and the Advanced 
Boiling Water Reactor (ABWR) developed by GE Nuclear Energy--serve as 
examples.
    Westinghouse is currently pursuing NRC design certification of its 
AP1000 nuclear plant. The AP1000 is a 1,117-megawatt Advanced Light 
Water Reactor (ALWR). It is essentially a higher-power version of a 
600-megawatt design, the AP600, which was certified by the NRC in 1999. 
More than $400 million was invested in developing and licensing the 
AP600 design, including an extremely detailed cost database, comprising 
more than 1,900 commodity categories and 25,000 specific items. The 
cost estimate was verified by Westinghouse, several international 
architect-engineers, the EPRI and several utilities. A comparably 
detailed cost estimate was prepared for the AP1000 by modifying the 
AP600 estimate to reflect the design changes.
    In 2002, an industry team--comprised of Westinghouse, seven major 
U.S. power companies and architect-engineer Bechtel--completed a $1 
million re-evaluation of the AP1000 reactor design. As part of that re-
evaluation, Bechtel performed a thorough review of the modifications 
made to the original cost estimate and, after making minor adjustments, 
endorsed the AP1000 cost estimate.
    Although the specific numbers are proprietary, the overnight 
capital cost for building the first two AP1000 reactors at one site is 
less than $1,400 per kilowatt. This includes all the first-time costs 
for completing design, engineering and licensing of the first project. 
After the first few projects have been completed, the capital cost for 
later plants will be approximately $1,000 per kilowatt, which is 
competitive with other sources of baseload electricity. Once those 
first reactors are built and capital costs reach the $1,000-per-
kilowatt range, all future plants would be financed and built without 
federal government financial assistance.
    The Westinghouse-Bechtel estimate of less than $1,400 per kilowatt 
has a solid analytical basis, has been peer-reviewed and reflects a 
rigorous design, engineering and constructability assessment.
    GE Nuclear Energy and its partners have built two ABWRs in Japan, 
and are building two reactors in Taiwan (the Lungmen project). In 2002, 
GE and Black & Veatch (B&V) completed an independent cost estimate of 
the ABWR. This study resulted in volumes of data, including quantities, 
vendor costs and construction labor rates. The source of information 
for every piece of data is referenced. Most references for quantities 
of materials are to the Lungmen project database, and thus accurately 
reflect what would be required to build a plant.
    This cost estimate was reviewed by GE, B&V and a U.S. utility. The 
estimate was based on actual experience from current and previous ABWR 
projects, and is considered a valid forecast of new reactor costs.
    The bottom line: a single unit ABWR could be built for $1,445 per 
kilowatt. Two units on the same site roughly one year apart would have 
an average cost of $1,300 per kilowatt. These estimates are for a 
1,450-megawatt reactor and include owner costs, supplier profit and 
contingencies.
    These costs are slightly higher than the estimates for the AP1000 
because the AP1000 incorporates a number of ``passive'' safety features 
that reduce the capital cost. GE Nuclear Energy is developing a 
boiling-water reactor design that incorporates similar advanced passive 
safety features. The company expects that overnight capital cost for 
this design will be lower than for the ABWR.

                               CONCLUSION

    Electricity generated by America's nuclear power plants over the 
past half century has played a key part in our nation's growth and 
prosperity. Nuclear energy produces more than 20 percent of the 
electricity used in the United States today without producing air 
pollution. As our energy demands continue to grow in years to come, 
nuclear power should play an even greater role in meeting those needs.
    The nuclear energy industry is operating its reactors safely and 
efficiently. In addition, the industry is striving to produce more 
electricity from existing plants. The industry is also developing more 
efficient, next-generation reactors and exploring ways to build them 
more cost-effectively.
    The public sector must help create the conditions that will spur 
investment in America's energy infrastructure, including new nuclear 
power plants. The passage of comprehensive energy legislation that 
addresses the business and regulatory risks of building new plants is 
an important step. The federal government also must continue to support 
efforts that encourage the industry to continue pursuing new plants, 
such as Nuclear Power 2010. Finally, Congress must enact policies that 
recognize nuclear energy's contributions to meeting our growing energy 
demands, ensuring our nation's energy security and protecting our 
environment.
    Mr. Chairman, on behalf of NEI, I thank you for the opportunity to 
discuss nuclear energy's significant role in providing electricity to 
our nation today and its vital importance as a clean, reliable and safe 
energy source for the future.

    Senator Alexander. Thank you, Mr. Fertel.
    Mr. Bernhard.

  STATEMENT OF J.M. BERNHARD, JR., CHAIRMAN AND CEO, THE SHAW 
                          GROUP, INC.

    Mr. Bernhard. Thank you, Chairman Alexander and Senator 
Craig, for allowing me the opportunity to testify today. My 
name is Jim Bernhard. I am the chairman, chief executive 
officer and founder of The Shaw Group.
    The topic for today's hearing, nuclear power generation, is 
a particularly important one. Providing for the Nation's 
growing energy demands safely, securely, at reasonable costs 
and with minimal impact to the environment are challenging 
goals. Last year nuclear power provided over 20 percent of 
America's electric supply safely and with near record high 
capacity factors. The Shaw Group takes great pride in being 
part of the rejuvenated nuclear industry.
    In 2000, The Shaw Group purchased the assets of Stone & 
Webster. As you already know, Stone & Webster is a recognized 
leader in the nuclear industry with over 115 years of 
experience as a premier architect/engineer. Stone & Webster and 
Westinghouse, for example, were responsible for building the 
Nation's first commercial nuclear power station at 
Shippingport, Pennsylvania. Since those early days, Stone & 
Webster has been involved in the engineering and/or 
construction of over 17 nuclear power stations. We have 
provided services in one form or the other to over 95 percent 
of the operating plants in America.
    Shaw is already a major player in the environmental 
infrastructure business. Although you may not be aware of it, 
Shaw has worked right here in the Senate office buildings, 
providing the anthrax cleanup at the Hart Building next door. 
Shaw is active throughout the Government sector, supporting 
infrastructure at our Nation's military bases, homeland 
security efforts, various nuclear and non-nuclear cleanup 
activities, and working closely with the national laboratories 
and the Corps of Engineers.
    I would like to take this opportunity to touch upon three 
key aspects. First, the Browns Ferry restart. The Tennessee 
Valley Authority is a long-term and valued client of The Shaw 
Group. Shaw has supported TVA at all of its nuclear units for 
over 3 years and we currently provide maintenance and 
modification support to TVA's operating units.
    In 2002, TVA made a decision to restart Browns Ferry unit 
1. This $1.8 billion effort is slated for completion in the 
spring of 2007, and The Shaw Group is providing the 
construction services for this very important project.
    Shaw currently has over 1,300 staff working at the Browns 
Ferry restart, and we expect that number to peak at roughly 
1,700. Most of the staff are local hires, greatly supporting 
the economics of northern Alabama and Tennessee.
    Our scope of work for the project includes asbestos 
abatement, retubing the main condenser, extensive control room 
panel and instrumentation upgrades and modifications. Over 
35,000 feet of pipe is being replaced, along with approximately 
674,000 feet of electrical cable. To date the restart effort at 
Browns Ferry unit 1 is on schedule and within budget.
    Worker safety on the project is our top priority. Our 
incident and lost time rates are some of the best in the 
industry and, I am happy to report, is far below the industry 
averages.
    Number two, our engineering technological advances and 
engineering construction methods have not stood still since the 
last large plant was constructed in the United States. The 
status quo is not an option in a highly competitive and dynamic 
nuclear service market. Technological advances such as 
modularization, induction in cold bending the pipe, automatic 
welding techniques to name a few.
    Improvements in computer software and hardware have been 
put to good use. Today Stone & Webster is involved in design of 
two 1,350 megawatt advanced boiling water reactors on the 
island of Taiwan. Before a single piece of concrete, steel, or 
piping is put in place, our engineers and designers built the 
turbine hall in three-dimensional virtual reality using 
sophisticated computer-aided design software. Today's 
electronic methods offer us far greater coordination, 
communication, and control of these projects. These advances 
have not only served to reduce the costs and duration of the 
project, but further improve the project's overall quality and 
reliability.
    Nuclear activities, number three. Progress on the nuclear 
front is widespread. For example, nuclear power uprates have 
already added over 2,000 megawatts to the grid by 2000 and 
should result in another 1,500 by the year 2007. Stone & 
Webster has been in the forefront of the nuclear power uprates 
in this country, with involvement in over 38 different sites.
    The nuclear industry is also working hard to develop the 
next generation of reactor design, generation IV.
    Recently the Idaho National Laboratory has been designated 
the Department of Energy's center for expanded nuclear energy 
activities. We are excited about DOE's plan to rebuild a 
demonstration generation IV reactor at INL and to couple that 
with hydrogen generation. Just as the race to the moon in the 
1960's resulted in a myriad of offshoot technologies that we 
rely on today, it is these type of grand visions that will 
become the basis of our future energy infrastructure.
    On the regulatory front, steps have been taken to reduce 
the license risks associated with new nuclear construction.
    Maintaining a trained nuclear workforce is vitally 
important.
    The Congress has done much in the past year to support 
nuclear research and development throughout the yearly 
appropriations bills. These modest expenditures have 
reinvigorated the research community and spurred increasing 
enrollments at our Nation's nuclear universities. As a company 
who already employs thousands with nuclear backgrounds, we need 
this new supply of talented recruits to work hand in hand with 
our experienced staff to become the next generation of our 
nuclear professionals.
    In closing, with growing concerns over climate change, 
nuclear power is a source of reliable baseload power that avoid 
greenhouse gases and other atmospheric pollutants. Nuclear 
power's contribution to the Nation's energy supply and security 
deserves recognition. We must redouble our efforts to ensure 
that the prospect of plant construction in the not too distant 
future becomes a reality, a reality that provides greater 
energy independence and energy security for our great Nation.
    Members of this committee have been instrumental in the 
development and stewardship of the energy bill as it currently 
stands, and I thank and commend you on the work so far. I urge 
you to continue efforts in that respect.
    Mr. Chairman, I would like to thank you for the opportunity 
to present my testimony today.
    [The prepared statement of Mr. Bernhard follows:]

      Prepared Statement of J.M. Bernhard, Jr., Chairman and CEO, 
                          The Shaw Group, Inc.

                              INTRODUCTION

    Thank you, Chairman Alexander, Ranking Member Graham, and members 
of the committee and staff for affording me the opportunity to testify 
before you today. I am truly honored to be here.
    My name is Jim Bernhard and I am the CEO, Chairman of the Board, 
and founder of The Shaw Group. With The Shaw Group corporate 
headquarters, and indeed my home of many years, located in Baton Rouge, 
I would particularly like to thank the Senator from the great State of 
Louisiana, Ms. Landrieu.
    The topic for today's hearing--Nuclear Power Generation--is one 
that is particularly important to me, the Shaw Group, and indeed the 
nation as a whole. Providing for the nation's growing energy demands, 
safely, securely, at reasonable cost and with minimal impact to the 
environment is a challenging goal. Luckily, the nation's 103 operating 
nuclear power plants are up to the task and performing at record 
levels. Just last year nuclear power provided over 20% of America's 
electric supply or an estimated 762 billion kilowatt-hours of 
electricity. It did so with exceptional levels of safety and security 
and with near-record high capacity factors approaching 90%. The Shaw 
Group and its Stone & Webster subsidiary have played a leading role in 
helping the industry obtain those impressive numbers.
    I founded The Shaw Group in 1987 in Baton Rouge as a small pipe 
fabricator dedicated to supporting the power and process industries. 
Through the years, The Shaw Group has grown, internally and through 
strategic acquisitions, to become the nation's number one supplier of 
fabricated piping to the power, process and petrochemical industries. 
Shaw fabricates specialty alloy and standard carbon and stainless steel 
piping, fittings and pipe supports used throughout modern nuclear and 
fossil power plants. Our nine domestic shops and four international 
fabrication shops currently have the capability to produce an aggregate 
of 42,000 pipe spools (9,000 tons of product) per month using the 
latest manufacturing and pipe bending technology.
    In 2000, The Shaw Group purchased the assets of Stone & Webster. As 
you hopefully already know, Stone & Webster is a recognized leader in 
the nuclear industry with over 115 years of experience as a premier 
Architect-Engineer to the power industry. Stone & Webster and 
Westinghouse were responsible for building the nation's first 
commercial nuclear power station at Shippingport, Pennsylvania and 
Stone & Webster engineers were actively engaged in the Manhattan 
Project and the building of Oak Ridge National Laboratory. Since those 
early days, Stone & Webster has been involved in the engineering design 
or construction of over 17 nuclear power stations. We have provided 
services, in one form or another, to over 95% of the operating plants 
in America.
    Following the Stone & Webster acquisition, Shaw acquired the former 
``IT Group'' in 2002. This acquisition brought to Shaw consulting, 
construction and technology leaders in the environmental and government 
services arena. The IT Group was merged with other Shaw assets to form 
our Environmental and Infrastructure (E&I) subsidiary. Although you 
might not be aware of it, Shaw E&I has worked right here in the Senate 
office buildings, providing the anthrax cleanup services in the Hart 
Building next door as well as the extensive cleanup at the local 
Brentwood postal facility. Shaw is active throughout the government 
sector--supporting infrastructure at the nation's military bases, 
homeland security efforts, various nuclear and non-nuclear cleanup 
activities such as FUSRAP and Chemical Demilitarization, and is working 
closely with the national laboratories and Corps of Engineers. We are 
actively supporting the rebuilding of Iraq and have recently opened an 
office in Baghdad.
    Currently, the integrated Shaw Group employs over 15,000 employees 
worldwide. Our revenue in 2003 was over $3.3 billion, the majority of 
which, 85%, came from US operations. Power generation represented 
roughly 50% of our revenue for 2003 and comprises 30% of our future 
workload. Nuclear power-related activities were $1.1 billion of last 
year's revenue. Needless to say, nuclear is a big part of The Shaw 
Group. I take great pride in Shaw being the world's only vertically-
integrated supplier of services to the power industry. Our services can 
take a plant from cradle to grave with permitting, engineering and 
design, fabrication of piping and steel, construction, commissioning, 
operation and maintenance and eventually decommissioning. The Shaw 
Group has achieved unprecedented growth throughout our history due in 
large part to technical innovation and an entrepreneurial culture.
    Shaw remains committed to the nuclear industry. One of the 
challenges facing the nuclear industry today is maintaining a highly-
skilled nuclear workforce. Through our varied involvement in nuclear 
projects, Shaw has been able to maintain, and indeed grow, a highly 
experienced cadre of engineers, designers and craft labor who support 
the industry. We are one of only a few who maintain the American 
Society of Mechanical Engineering (ASME) Section III N stamp 
qualifications and we are members of both the Nuclear Energy Institute 
(NEI) and the Institute of Nuclear Power Operations (INPO).
    The nuclear industry today is more robust than it has been in many 
years. Part of that is the result of the exceptional high performance 
and safety levels attained by the operating nuclear fleet. As I 
mentioned, plant capacity factors have risen to nearly 90%, with 
refueling and maintenance outages being completed in record times. 
Nuclear-generated electricity is the low cost leader at an average cost 
of generation of only 1.7 cents/kilowatt-hour.
    Credit for the recent nuclear revitalization is to be shared among 
many parties. The utilities have made great strides at improving 
operations and maintaining their plants. NEI has also done much over 
recent years to support its member utilities and deserves credit. 
Furthermore, the NRC is to be acknowledged for streamlining its review 
process while maintaining the firm oversight role that is the heart of 
its mission.
    The Shaw Group is also part of the nuclear success story. As the 
nation's largest provider of craft labor to support maintenance and 
modification efforts at the plants--peaking at over 5000 employees--we 
have striven for and achieved great success in helping our clients meet 
their performance and safety goals.
    Having provided that short background on The Shaw Group, I would 
like to take the opportunity today to touch upon three key aspects. 
First, I will address Shaw's role in the restart of TVA's Browns Ferry 
Unit 1 which I believe is of interest to the Chairman and committee. 
Second, I would like to mention some of the technological advances that 
have taken place since the nation's last nuclear plant was built and 
the role of Architect-Engineers like Shaw in bringing those advances to 
bear to help revitalize the nuclear industry. Finally, I wish to hit 
upon other developments in the nuclear arena and some of the 
challenges, and more importantly, the opportunities that we face as we 
move forward with a revitalized nuclear power sector.

      RESTART OF BROWNS FERRY UNIT 1 AND SUPPORTING THE TVA FLEET

    Serving over 8.3 million customers in the Southeast, the Tennessee 
Valley Authority is a long-term and valued client of The Shaw Group. 
With five operating reactors at three locations providing over 5700 MWe 
of power, TVA plays a key role in the U.S. nuclear industry. Stone & 
Webster has provided maintenance and modification services to TVA for 
the past seven years and will continue in that capacity under a 
recently renewed contract. Just last week, Shaw had nearly 750 staff 
supporting TVA maintenance and modifications efforts at their Sequoyah, 
Watts Bar and Browns Ferry operating plants.
    In 2002, TVA made the decision to restart the Browns Ferry Unit 1 
boiling water reactor which had been shutdown since March of 1985. The 
$1.8 billion effort is slated for completion in the spring of 2007. The 
Shaw Group is providing the construction and construction management 
services for the restart. We are uniquely suited to the task, having 
successfully provided similar efforts during the Browns Ferry Unit 3 
restart effort that ended in 1995.
    Shaw currently has over 1300 staff working on the Browns Ferry 1 
restart effort in the field. We expect the maximum number of staff to 
approach 1700 at the peak of the forecasted work. The majority of staff 
(80%) is local hire, greatly supporting the economy and small 
businesses of northern Alabama and Tennessee. Of all subcontracted work 
awarded by Stone & Webster Construction Inc. in the last quarter of 
2003, 71% was awarded to local Tennessee Valley firms, 79% was awarded 
to small businesses and 49% was awarded to Disadvantaged, Woman-Owned, 
or Veteran-Owned Businesses.
    Our construction restart services include asbestos abatement, re-
tubing the main condenser, support activities to refurbish the main 
turbine, turbine generator and associated pumps and valves along with 
extensive control room panel and instrumentation upgrades and 
modifications Over 35,000 feet of large and small bore pipe is being 
replaced along with 674,000 feet of electrical cable and 142,000 feet 
of electrical cable tray and conduit. To date, the restart effort at 
Browns Ferry Unit 1 is on schedule and within budget, with the asbestos 
abatement and condenser re-tubing complete, and over a third of the 
large bore piping already installed.
    I fully expect the Browns Ferry Unit 1 restart project to be a 
success and bring online much-needed additional generation capacity to 
the growing Southeastern US economy. I should clarify--to a very large 
extent ``emission free'' additional generation, since nuclear power 
plants avoid millions of tons of nitrous and sulfur dioxides and carbon 
dioxide from being introduced into the atmosphere.
    Make no mistake about it, the Browns Ferry Unit 1 restart program 
is a large effort, and, any project of this magnitude and scope faces 
risks which are, to a large extent, outside the immediate control of 
the project team. Labor unrest, material shortages, and extreme 
commodity price swings, are examples of risks that have the potential 
for delaying a project. This far into the project, the availability of 
material and labor has had positive impacts on both schedule and cost. 
And, it is our mission to bring about the restart safely, with high 
quality and reliability, on time and on budget. The BF-1 restart team 
fully expects that these goals will be met.
    One aspect of the Browns Ferry 1 restart is the attention to safety 
of those working on the project. Shaw prides itself on its safety 
program and it is an integral part of every employee's job through our 
ShawSAFE program. The Shaw Group incident and lost-day rates are some 
of the best in our industry, far below industry averages, and we have 
won numerous local, state and nationwide awards for our commitment to 
safety. We will continue to work closely with TVA, and indeed all of 
our utility clients, to maintain our excellent safety record.

                NEW TECHNOLOGIES, INDUSTRY DEVELOPMENTS

    TVA's Watts Bar Unit 1 was the last plant brought into commercial 
operation in the United States in 1996. Since that date, no new plants 
have been brought online in the US and no new plants have been ordered 
since 1979. However, that doesn't mean that the nuclear engineering and 
construction industry has stood still. It hasn't.
    The nuclear engineering and construction business continues to 
incorporate new technology into the way it does business. Standing 
still in this respect is not an option--otherwise your competitors will 
overtake you. And let me assure you that the nuclear services industry 
is a highly competitive and dynamic marketplace.
    A large part of any nuclear plant is ``piping''. I mentioned 
earlier the manufacturing and bending technologies that Shaw utilizes. 
Our induction bending machines have the ability to bend a 66 inch 
diameter pipe with as much as a 5 inch wall thickness. The importance 
of induction or cold bending is the fact that this reduces welding in 
the field thereby reducing both cost and schedule on large projects. 
Advances in automatic or ``orbital'' welding have led to greater 
quality of critical piping welds along with reduced time and cost. Bar-
coding of piping and other equipment allow for ease of tracking during 
manufacturing and construction. Advances in engineering and 
construction technology not only serve to reduce the cost and duration 
of a project but further improve the project's overall quality and 
reliability.
    Progress in the computer sector has likewise led to significant 
advances in engineering and design. Today, Stone & Webster is involved 
in the design of two 1350 MWe Advanced Boiling Water Reactors (ABWR) on 
the island of Taiwan. Before a single piece of concrete, steel or 
piping is put in place, our engineers built the turbine hall in three-
dimensional virtual reality using sophisticated Computer Aided Design 
software. This ensures that everything fits together properly without 
interferences, further reducing construction efforts in the field. The 
software generates the design drawings from which the plant piping is 
manufactured and ultimately from which the entire plant is constructed. 
Furthermore, today's designs are ``intelligent'' in that critical 
information from specifications, calculations and drawings are 
maintained and shared across databases affording us far greater access 
to information for tracking and control over the duration of the 
project. Today there is far greater coordination between the engineer, 
manufacturer, constructor and ultimately operator of power plants. The 
computer tools of today provide the information needed to better manage 
large projects. Needless to say, communications technologies have 
greatly improved in recent years and they are being adeptly put to use.
    Another significant advance is that of ``modularization.'' 
Assembling the various parts of a large nuclear plant is a complex 
technical and logistical challenge. Any time that portions of the plant 
can be pre-assembled in a controlled environment and then shipped to 
the construction site for installation, cost and schedule savings are 
achieved. Shaw has extensive experience in modularization, with a 
dedicated 60 acre Gulf-Coast facility used for both power and 
petrochemical projects.
    Shaw and the TVA Browns Ferry 1 restart team are bringing numerous 
technical advances to bear. Gamma scanning equipment has been used to 
locate high radiation sources so that we can eliminate them and lower 
overall radiation exposure. To the greatest extent possible we 
modularize our equipment purchases. The project utilizes special 
machining equipment to cut and prepare piping spools in the field along 
with state-of-the-art automatic welding equipment for critical piping 
welds. Ground penetrating radar equipment is used to locate rebar in 
the concrete walls and slabs prior to installing concrete anchors. 
Laser templating has been used to record as constructed locations and 
laser photogrammetry will be employed for critical piping needs. Three 
dimensional computer modeling and graphics are employed to display the 
design configuration of components within the containment drywell and 
further serves to assist in planning the work sequences necessary to 
implement plant modifications.
    As we all know, the cost overruns and schedule delays of some 
plants built in the 1970's and 1980's are entirely unacceptable in 
today's marketplace as they were then. The future of nuclear power in 
the U.S. demands that any new project be completed on schedule and 
under acceptable capital risk. Current expectations in the industry are 
that a large grassroots nuclear plant could be completed in less than 
48 months and for overnight capital costs of under $1500 per installed 
kilowatt. All of the technological advances and innovations achieved 
over the past years, and an experienced and trained nuclear workforce, 
in both engineering and construction, must be brought to bear to meet 
those schedule and cost goals. There is no single entity that can bring 
about the success of a new nuclear plant. It will require a dedicated 
team of utility, reactor vendor (NSSS), equipment manufacturers, and 
architect-engineer firms all working together with a common goal.

   CURRENT NUCLEAR ACTIVITIES AND THE ROLE OF THE ARCHITECT-ENGINEER

    Progress on the nuclear front is widespread; more power is being 
generated from our existing stations, new reactor designs are being 
developed, the co-generation of hydrogen from nuclear power is gaining 
momentum, new nuclear plants are being completed internationally, and 
the regulatory framework for new nuclear construction domestically is 
in place. Importantly, enrollments at the nation's nuclear engineering 
programs are beginning to grow. A revitalized industry is poised to 
meet the nation's energy and security demands.
    Approved nuclear power uprates, for example, have already added 
2035 MWe to the grid since 2000. Another 240 MWe are under review and 
over 1286 MWe in uprates are planned for implementation by 2007. That 
is the equivalent of adding three new large nuclear stations. Stone & 
Webster is at the forefront of nuclear power uprates with involvement 
at 38 units covering 24 different stations. Power uprates, reduced 
refueling outages and better performance, combined with restart of 
shuttered units such as Browns Ferry 1, are resulting in ever more 
megawatts being delivered from the already-licensed existing plants.
    Current efforts are now underway to develop the next generation of 
reactor design or Generation IV plant. Such a design will address the 
challenging goals of being highly economical, with efficiency levels 
comparable to that of combined cycle natural gas plants, minimum waste 
generation, walk-away safety features and proliferation resistant fuel.
    Closely coupled to the Generation-IV effort is the growing 
technology related to hydrogen production. Fuel cells are rapidly 
gaining greater acceptance, both for stationary as well as 
transportation applications. New developments are taking place rapidly 
on this front. At their heart, fuel cells require hydrogen, either in 
pure form or from reformed hydrocarbon stocks. The infrastructure 
changes implicit with greater hydrogen use are no small challenge. New 
nuclear designs, particularly the emerging high temperature gas cooled 
reactor designs, hold great potential for being capable of not only 
producing electricity but also being co-located with a hydrogen 
production facility.
    Recently, the Idaho National Laboratory has been designated as the 
Department of Energy's epicenter for expanded nuclear energy 
activities. The Idaho lab has its roots in applying technology to meet 
the needs of society and, in particular, its energy needs. We are 
keenly interested in the success of the new INL, and indeed all of our 
national labs, since it is there and in the universities where 
tomorrow's technology is developed. We are all very excited about the 
DOE's plans to build a demonstration Generation-IV reactor at INL and 
to couple that with hydrogen generation. Just as the race to the moon 
in the 1960's resulted in a myriad of offshoot technologies that we 
rely on today, it is this type of grand vision that will become the 
basis for our future energy infrastructure.
    Also in the government sector, the design of the Mixed Oxide Fuel 
Fabrication facility at the Savannah River Site continues with the goal 
of turning the nation's stockpile of surplus plutonium to usable fuel 
and thus electricity. Shaw continues to be a leader in this area 
through the Duke-Cogema-Stone & Webster consortium.
    Progress is not only limited to the United States. New construction 
of nuclear plants continues in other parts of the world and many 
nations obtain an even greater percentage of their energy supply from 
nuclear than we do. Finland has recently decided to build a new nuclear 
station its fifth. New construction in China, South Korea, and Taiwan 
continues. In Taiwan, Shaw is actively engaged in completing the design 
of the balance of plant for the two Lungmen ABWR plants. We also are 
providing consulting engineering services for the four new units, Shin 
Kori 1&2 and Shin Wolsong 1&2, in South Korea.
    On the regulatory front, steps have been taken to reduce the 
capital and licensing risk aspects of new nuclear construction. The new 
``certified designs,'' either those already approved by the NRC or 
those currently under review, will greatly reduce licensing 
uncertainty. The combined construction/operating license approach under 
10 CFR 52 will also help and the DOE is requesting cost-share proposals 
on that front. As you likely know, three nuclear utilities have already 
applied for Early Site Permits in the hopes of banking a site for 
possible future nuclear expansion. All of these activities should serve 
to lessen the risk and enhance the potential for necessary new 
construction in the U.S.
    The Congress has done much in past years to support Research and 
Development at our laboratories and universities through the yearly 
appropriations bills. This is vitally important to ensure the future of 
the nuclear workforce. These modest expenditures have re-invigorated 
the research community in recent years. As a company who already 
employs thousands with nuclear backgrounds, we will need this new 
supply of recruits to work hand-in-hand with our experienced staff and 
to become the next generation of nuclear professionals.

                            CLOSING REMARKS

    The role of the nuclear Architect-Engineer and Engineer-Procure-
Construct contractor is a demanding one. While the researchers and 
scientists develop the concepts, it is the AE's task to bring those 
concepts to physical reality. The detailed and exacting design of the 
plant and its subsequent equipment manufacture and construction is our 
role and it is a vital one--absolutely necessary to bring about the 
success of any nuclear facility project. We are excited about 
developments on the Generation IV designs and we look to the success of 
DOE's Nuclear Power 2010 initiative. Shaw remains ready to support new 
nuclear development and construction and is uniquely qualified to do 
so.
    It is important to realize the significance of nuclear power to our 
ever-growing energy supply. Again, over 20% of our electricity comes 
from this fuel. The restart of Browns Ferry Unit 1, nuclear power 
uprates and upgrades at existing plants, and the not-too-distant 
prospect of new construction all point towards greater energy 
independence and energy security for the nation. With growing concerns 
over climate change, nuclear power is one source of large baseload 
power that does not introduce greenhouse gases and other atmospheric 
pollutants into the atmosphere during operations.
    Although the road ahead looks bright, challenges and obstacles 
remain. It is critical that an energy bill with the right mix of 
incentives to promote new nuclear construction is soon passed. The 
nation needs a comprehensive energy plan one that clearly addresses the 
importance and needs of the nuclear power sector. Members of this 
committee have been instrumental in the development and stewardship of 
the energy bill as it currently stands and I thank and commend you on 
your work so far. I urge your continued efforts in that respect.
    Mr. Chairman, I would like to thank you and the committee for the 
opportunity to speak here today, and would be happy to answer any 
questions you may have.

    Senator Alexander. Thank you very much, Mr. Bernhard.
    Mr. Asselstine.

  STATEMENT OF JAMES K. ASSELSTINE, MANAGING DIRECTOR, LEHMAN 
                         BROTHERS, INC.

    Mr. Asselstine. Thank you, Mr. Chairman.
    As I see it from a financial perspective, there are seven 
requirements that will have to be met if the industry is to be 
in a position to make commitments to new nuclear power plants 
in this country and if the financial community is to be 
comfortable with those commitments. I will summarize those very 
briefly and then we can move to questions.
    The first requirement is the continued strong regulatory 
and economic performance of the existing plants. We are well 
through the process of moving to competitive marketplaces in 
about half of the States in the country and companies that own 
nuclear assets have fared well in that process. Companies have 
been given a fair opportunity to recover their stranded costs. 
Decommissioning costs are viewed as an appropriate expense 
recoverable from retail ratepayers. And we have seen a fair 
amount of consolidation within the industry, which quite 
frankly, I think has contributed to improved performance. We 
have seen significant improvement in both the reliability and 
regulatory performance of the plants as well over the past 
decade. Capacity factors have improved substantially. 
Reportable events to the NRC have declined significantly. 
Refueling outages are considerably shorter, and production 
costs have come down. As a consequence, nuclear units today are 
very cost competitive from a production cost standpoint with 
power being generated by gas- and coal-fired power plants.
    In addition, as other speakers have already described, we 
have a new and, I think, improved regulatory framework in 
place, recognizing the improved performance that we have seen 
from the plants.
    So we have a regulatory framework that supports a move to a 
competitive industry and significant improvement in the 
operating performance of the plants.
    My second requirement for future commitments to new nuclear 
plants is that those units will have to be cost competitive 
with other generation alternatives. At the end of the day, the 
decision on which alternative to choose will be an economic 
one. Nuclear and, for that matter, coal-fired plants do face 
something of a disadvantage in that they are more complex 
machines. Initial construction costs are higher. Construction 
periods are longer, and it is no surprise that as you look at 
your chart, we have seen significant commitments to gas-fired 
power plants over the past several years which have a lower 
initial capital cost and can be built during a shorter period 
of time.
    I tend to agree with the industry representatives, that if 
we can bring in new nuclear plant designs in the $1,000 to 
$1,200 per kw range, nuclear can and should be very competitive 
with other alternatives in the future.
    My third requirement is the need for a high degree of 
assurance that a new nuclear unit will be built at a 
predictable cost and on a dependable schedule. This really 
turns on two issues: certainty around the construction process 
and costs and, second, certainty around the regulatory process. 
One distinction that nuclear has, compared with other 
alternatives, is the regulatory process that applies to 
licensing, building, and ultimately operating a new nuclear 
unit.
    We have a new licensing and regulatory framework that was 
established under the Energy Policy Act and that has been 
described by other speakers, but that process is, as yet, 
untested. We are working through tests of the early site permit 
and design approval portions of the process, but the key 
ingredient here is the issuance of a combined construction and 
operating license that should reduce uncertainty in terms of 
potential for delays in bringing a plant into operation after a 
substantial amount of capital has been invested in that unit. 
And that uncertainty will continue until we have tested the 
process out with a few plants.
    My fourth requirement is the need for appropriate financing 
arrangements to cover the construction costs of a new nuclear 
plant. There are a variety of ways to tackle the financing of a 
nuclear unit. Nuclear units, in my view, could be financed, as 
they have been historically, by a regulated utility using the 
full assets and cash flows of an ongoing operating utility.
    However, given the move to competitive markets, it is 
unlikely that a traditional regulated utility will be building 
new generation in the future. It is more likely that plants 
will be built by competitive generation companies. Clearly 
investors have been comfortable with several existing 
competitive generation companies that include operating nuclear 
units as a substantial part of their generating portfolio. The 
key is get through the construction process, get the plant in 
operation, demonstrate that the plant is meeting its 
performance requirements. After that, I think investors will be 
comfortable in taking nuclear operating risks, and that is 
really the key issue that will need to be addressed in the 
financing arrangements.
    Mr. Chairman, my remaining elements are fairly 
straightforward: public confidence, which will turn on the 
continued safe and reliable operation of the existing plants, 
and progress in dealing with the spent fuel disposal problem, 
and renewal of the Price-Anderson Act to extend the insurance 
indemnification provisions to new plants as well as the 
existing ones.
    Thank you.
    [The prepared statement of Mr. Asselstine follows:]

     Prepared Statement of James K. Asselstine, Managing Director, 
                         Lehman Brothers, Inc.

    Chairman Alexander, Ranking Member Graham, and members of the 
Subcommittee, my name is Jim Asselstine. I am a Managing Director at 
Lehman Brothers, where I am the senior fixed income research analyst 
responsible for covering the electric utility and power sector. In that 
capacity, I provide fixed income research coverage for more than 100 
U.S. electric utility companies, power generators, and power projects. 
As a research analyst, I also work closely with the large institutional 
investors who have traditionally been a principal source of debt 
financing for the power industry. I appreciate your invitation to 
testify at today's hearing regarding new nuclear power generation in 
the United States. In my testimony today, I intend to discuss seven 
requirements that I believe must be met if the industry is to decide to 
enter into commitments to build new nuclear power plants in this 
country, and if analysts and investors are to support that decision.
    The first requirement is the continued strong regulatory and 
economic performance of our existing nuclear plants. By way of 
background, we currently have 103 operating nuclear units in the United 
States. These units are located in 31 states and are operated by 27 
different companies. Together, these plants represent about 97 
gigawatts of generating capacity, or about 12 percent of total U.S. 
capacity. Because these are baseload plants that operate with high 
reliability, these units produce more than 20 percent of total U.S. 
electric output. The plants consist of two reactor types: 69 are 
pressurized water reactors; and 34 are boiling water reactors. Of our 
existing fleet, the last unit to enter commercial operation was TVA's 
Watts Bar 1 unit in June 1996.
    Following the enactment of the Energy Policy Act of 1992, analysts 
and investors focused considerable attention on the transition 
arrangements as we moved from regulated to competitive markets, and 
especially on the ability of the utilities to recover their stranded 
costs. (Stranded costs represent the difference between the book value 
of the utility's assets and their market value in the competitive 
market.) In many instances, capital investment in the existing nuclear 
plants represented a substantial portion of the utility's stranded 
costs. To date, about half of the states have adopted restructuring 
plans for the power industry. In essentially all cases, these plans 
have provided the utilities a fair opportunity over the transition 
period to competitive markets to recover most or all of their stranded 
costs. Further, the states have provided for the continued recovery and 
collection of nuclear plant decommissioning costs from retail 
ratepayers, recognizing that nuclear plant decommissioning is a health 
and safety requirement and a financial obligation that was largely 
incurred during the period of regulated operations. We have also seen 
considerable consolidation in the ownership and operation of the U.S. 
nuclear plant fleet. This consolidation has taken place through 
traditional mergers, purchases of nuclear units by other utilities, 
corporate restructurings, and new operating arrangements. Taken 
together, these industry restructuring arrangements have treated the 
existing nuclear plants in a fairly benign manner.
    We have also seen significant improvement in the regulatory, 
operating, and economic performance of the existing plants over the 
past decade. The number of significant events reported to the Nuclear 
Regulatory Commission has declined substantially, as has the average 
duration of refueling outages. Average capacity factors for the U.S. 
nuclear fleet have improved significantly, and production costs have 
declined. As a consequence, a well-run single nuclear unit now has 
production costs, including fuel, operations and maintenance expenses, 
ongoing capital requirements, general and administrative expenses, and 
taxes, of about $20/megawatt-hour, and large, multi-unit plants have 
production costs of below $20/megawatt-hour. These production costs 
compare very favorably with other forms of generation, including coal-
fired and gas-fired power plants. With the current high natural gas 
price environment, nuclear units, like coal-fired plants, are viewed by 
both the industry, and analysts and investors, as attractive assets. 
One issue affecting analyst and investor perceptions of the performance 
of the existing nuclear plants is the need for effective inspection and 
maintenance practices to maintain the material condition of the plants. 
As a result of the extended shutdown of FirstEnergy's Davis-Besse 
plant, the financial community is sensitized to the adverse economic 
impacts of poor maintenance practices that result in a substantial 
degradation of the physical condition of important plant equipment. The 
industry will need to continue to pursue aggressive inspection and 
maintenance programs to ensure that material condition problems are 
identified and corrected at an early stage, before they result in 
serious degradation of important safety equipment.
    My second requirement for future commitments to new nuclear plants 
is that those units must be cost competitive with other generation 
alternatives, most notably gas-fired and coal-fired generation. As we 
move to more competitive power markets, industry decisions on new 
generation, and how the financial community perceives those decisions, 
will be driven by the relative cost, and the risks and uncertainties 
associated with the available alternatives. As discussed above, the 
strong operating performance of the existing plants demonstrates that 
production costs for a new nuclear plant should be very competitive 
with other alternatives, especially if the new plant design represents 
an evolutionary step beyond the existing plant designs. The other 
variable is the capital cost of building the plant. Here, new nuclear 
units, and for that matter, new coal plants, face some challenges when 
compared with gas-fired generation. Nuclear and coal plants have a more 
complex construction process, and take considerably longer to build, 
than gas-fired plants. This results in higher capital costs and higher 
interest costs during the construction period. Also, a longer time 
period is required to recover the investment after the plant has 
entered commercial operation. Taking into account these factors, I 
agree with the industry representatives that a new nuclear plant will 
need to have a capital cost in the range of $1,000-$1,200/kilowatt in 
order to be cost-competitive with the other available alternatives.
    My third requirement is the need for a high degree of assurance 
that a new nuclear unit will be built at a predictable cost and on a 
dependable schedule. The industry and the financial community remember 
that a number of the existing plants that received their operating 
licenses in the 1980s and 1990s experienced delays due to regulatory or 
licensing issues that arose after most or all of the capital investment 
in the plant had been made. These delays were caused by a number of 
factors, including construction issues, quality assurance weaknesses, 
coordination issues between plant design and construction work, 
changing requirements, and the mechanics of the two-stage licensing 
process, which resulted in litigation at the pre-operation stage. The 
Energy Policy Act of 1992 and subsequent actions by the NRC have put in 
place a new regulatory process that should result in the resolution of 
licensing issues at an early stage in the process before large capital 
commitments to build the plant have been made. This new regulatory 
process provides for the pre-approval of new, standardized plant 
designs, allowing for the resolution of regulatory issues and the 
completion of substantial design work before construction work begins. 
The process also provides for the pre-approval of nuclear plant sites. 
As is the case with the design approval process, the use of early site 
permits should allow major siting questions to be resolved before a 
decision is made to proceed with a new plant. Finally, and perhaps most 
importantly, the new process provides for the issuance of a combined 
construction and operating license. The objective of the combined 
license, together with an agreement on the regulatory standards to be 
applied by the NRC in monitoring the construction process, is to 
resolve all key safety and regulatory issues before the start of plant 
construction, and to minimize the risk of delays in plant operation 
after the capital investment has been made. The NRC and the industry 
are now implementing and validating the standard design approval and 
early site permit features. This will provide some assurance that the 
new regulatory process will work as intended. Unfortunately, however, 
some uncertainty will remain until the first few plants have 
successfully completed the entire process of receiving a combined 
license, completing construction, and entering commercial operation. 
Until we gain this experience for the initial plants, both the industry 
and the financial community are likely to require some added measures 
to mitigate this construction completion and initial plant performance 
risk.
    My fourth requirement is the need for appropriate financing 
arrangements to cover the construction costs of a new nuclear plant. 
Historically, our existing nuclear units were financed by electric 
utilities as part of their regulated utility operations. Typically, the 
utility would demonstrate that the new nuclear unit was needed and 
represented the best available alternative. Following state regulatory 
approval and receipt of a construction permit from the NRC, the utility 
would proceed with construction. Most construction costs were met by 
the utility with a combination of cash from its other utility 
operations, and the proceeds of new debt and equity issuance by the 
utility or its parent company. Recovery of most of the investment in 
the plant would not take place until after the plant had received an 
operating license from the NRC, the plant had entered commercial 
operation, and the state regulators had determined that the investment 
in the plant was prudent and recoverable from ratepayers. Although 
there were some unpleasant surprises in terms of state regulatory 
disallowances of some investments in the current generation of nuclear 
units, this system worked fairly effectively as a means to finance new 
plant construction in the 1980s and 1990s. Going forward, a utility 
that elected to build a new nuclear unit could finance that plant as 
part of its regulated utility operations.
    Given the move to deregulated power markets, however, it is perhaps 
more likely that a future nuclear unit would be built and operated by a 
competitive generation company. Investors have been willing to invest 
in generation companies that have a substantial component of operating 
nuclear plants in their generation mix, especially if those plants have 
a solid track record of operating performance, are cost-competitive in 
their regional markets, and the generation company has stable revenues 
tied ultimately to retail customers or load-serving entities. Although 
it would be challenging, it is conceivable that a large competitive 
generating company with a diverse portfolio of operating assets, could 
finance the construction of a new nuclear unit with appropriate 
mitigation of construction completion and initial operation risk. 
Another alternative would be to finance a new nuclear unit through a 
consortium of a number of experienced nuclear companies, including 
utilities or generation companies, and manufacturers and suppliers. The 
consortium approach has the advantage of limiting the financial risk to 
any single party, but has other potential operational disadvantages. 
The most challenging alternative would be to attempt to finance a 
future nuclear plant on a stand-alone basis without recourse to another 
company or companies with other assets and revenues. Given the 
uncertainties associated with an untested licensing process, the length 
of the construction process, and the cost of the project, this non-
recourse financing approach does not appear to be feasible without 
substantial financial risk mitigation features.
    My fifth requirement is the need for a continued low cost supply of 
fuel and enrichment services given that low and stable fuel costs are 
an important component of the cost-competitiveness of nuclear units. 
With ample supplies of uranium, multiple sources of enrichment 
services, and new proposals for enrichment providers, this requirement 
appears to pose limited risk.
    My sixth requirement is public acceptance. Public acceptance of new 
nuclear plant commitments will likely turn on two issues: public 
perceptions of the safety of nuclear plants; and confidence that we 
will achieve a workable solution for spent fuel disposal. Public 
perceptions on the safety issue will likely be determined by the 
ongoing performance record of our existing plants. Continued progress 
in developing, licensing, building, and ultimately, operating a waste 
repository will likely be the determining factor on the spent fuel 
disposal issue.
    Finally, extension of the Price-Anderson Act will be needed to 
extend the nuclear liability indemnification system to new nuclear 
plants. It is doubtful that the industry or the financial community 
would proceed with a new plant commitment without this system in place.
    Mr. Chairman, your staff also raised several questions regarding 
TVA's ongoing program to return Browns Ferry Unit 1 to service, and its 
implications for future nuclear plant development in this country. The 
Browns Ferry Unit 1 refurbishment and restart effort is a significant 
undertaking, with a program that is expected to take up to five years 
and result in up to 2,400 temporary jobs, and with a cost estimate of 
$1.7-$1.8 billion. It appears that the Browns Ferry Unit 1 
refurbishment effort will be the most extensive effort involving a 
nuclear plant since the completion of the last round of new plant 
construction in the mid-1990s. As such, I believe that TVA's experience 
can be very valuable in building confidence within the industry and 
within the financial community that the scope of construction work on a 
new plant can be managed effectively. If TVA and the NRC can work 
effectively on this project, and if TVA can complete the refurbishment 
process and return Browns Ferry Unit 1 to service within the projected 
budget and time schedule, this would represent a positive contribution. 
But because Browns Ferry Unit 1 has an operating license, this 
refurbishment process will probably not reduce the uncertainties around 
the as-yet untested combined construction and operating license 
process. Conversely, cost overruns and delays could have negative 
implications depending upon the causes.
    The experience that engineering, procurement, and construction 
contractors have obtained on certain international nuclear power 
projects is also relevant in terms of building confidence within the 
U.S. industry and the financial community about a future nuclear plant 
here. Several of the international projects now underway are likely to 
be similar to the new standardized designs that would form the basis 
for a new plant order in the United States. Continued success in 
completing those international projects on budget and on schedule 
should provide added confidence in the schedules and cost estimates for 
new U.S. plants. Again, unfortunately, until we gain actual experience 
with the new NRC regulatory process, that major area of uncertainty 
will remain.
    In terms of potential financial community investment in the restart 
of Browns Ferry Unit 1, TVA has stated that it expects to be able to 
fund the cost of the refurbishment program and still achieve its debt 
reduction objectives. TVA enjoys strong and exceptionally broad-based 
investor support for its Power Bonds due to its very high credit 
quality, its status as a wholly-owned corporation of the U.S. 
government, its successful and low cost generation and transmission 
operations, and its rate-setting authority. It appears that TVA will be 
able to execute and finance its Browns Ferry Unit 1 restart effort as 
currently contemplated. It is possible that the restart program for 
that unit or another nuclear unit with an operating license could 
attract other sources of financing if needed, but the more extensive 
the effort, and the more it resembles the scope and scale of new plant 
development, the more the financing constraints and conditions for a 
new plant, discussed above, will apply. Thank you.

    Senator Alexander. Thank you very much. I will begin with 
questions. I will limit myself to 5 minutes and then we will go 
to Senator Landrieu, and then we will just go back and forth 
for a few minutes.
    If I may go to the TVA Chairman, Mr. Bernhard said that 
Browns Ferry is, so far, on schedule, on budget. Mr. Asselstine 
has said that one of the seven elements to building confidence 
and to creating an environment in which other nuclear power 
plants can be built is showing that such plants can be built on 
time and on schedule.
    What do we mean by on time and on schedule? I have read the 
figures, $1.7 billion in the year 2007. Is that what we are 
talking about when we say on time and on schedule? How do you 
measure that and what are the critical flags that you watch for 
to make sure that you are progressing properly?
    Mr. McCullough. Mr. Chairman, before the board considered 
this decision, first of all, it was driven by the need for 
additional baseload to meet the valley's economy. TVA spent 7 
months in a detailed scope of work. From that we got a precise 
estimate of the cost to complete that scope of work and a 
comprehensive work plan. We call it the DESEP, a detailed 
estimate of the scope estimate and plan. TVA did not do this 
alone. We had some of the best minds in the industry, external 
industry experts, who analyzed the scope of work that would 
have to be accomplished, the cost, and got a detailed estimate, 
and then formulated a detailed work plan.
    $1.8 billion was the cost. More precisely, $1.777 billion, 
and 60 months, a 60-month plan. TVA is 41 percent complete 
according to that plan, and we are on budget.
    Senator Alexander. Thank you, Mr. Chairman.
    If you should succeed, as you are today, it looks like TVA 
might have the opportunity to open a second or even a third 
nuclear power plant, should you choose to do so. What about the 
possibility of additional power plants at Watts Bar and 
Bellefonte? Where do those fit into TVA's strategic plan?
    Mr. McCullough. TVA's plan to build and develop will be 
driven by our need to supply the baseload demands in the 
Tennessee Valley. Our projections are right now that with the 
successful recovery of unit 1 scheduled for May 2007, we would 
not need additional baseload generating capacity until about 
2014. But as you note, we have valuable capacity at Watts Bar 
2. TVA also has valuable capacity for future economic growth in 
demand that could be brought on line at the Bellefonte site. 
But again, that decision will be driven by the need to furnish 
additional baseload for the valley.
    Senator Alexander. And at the moment, you feel like you 
have got capacity to meet the needs until 2014.
    Mr. McCullough. Yes, sir.
    Senator Alexander. Are there any changes in the law or 
regulations--well, let me not say regulations. Are there any 
changes in the law that we should consider that would make it 
easier for you to complete this plant in a safe and efficient 
manner or to consider moving ahead with a second or third plant 
at some later time?
    Mr. McCullough. Well, Mr. Chairman, we have confidence in 
NRC's vigilance to ensure that the highest standards of safety 
are complied with, and it is a continuous improvement process. 
I know Dr. Travers and his colleagues at NRC worked with you 
and other members of the Senate.
    I would point out that TVA is supportive of the $18 per 
megawatt hour production tax credit that is a part of the 
pending energy bill. We think that that is a responsible 
incentive that investor-owned utilities could benefit from and 
could enhance the future of new nuclear technology to meet the 
Nation's baseload demand going forward.
    Senator Alexander. TVA itself could not benefit from that 
incentive. Is that correct?
    Mr. McCullough. That is correct, Mr. Chairman.
    Senator Alexander. Thank you. I have some other questions, 
but I think we will go to Senator Landrieu now.
    Senator Landrieu. Thank you, Mr. Chairman.
    This is to Mr. Bernhard. If you could just state for the 
record if there was a new plant ordered to be initiated--and we 
are hoping for the passage of the energy bill. There are a few 
things that need to be worked out. But in the event that it is 
passed, it hopefully will lay the groundwork for revitalization 
of the industry.
    Number one, if you could give us just your sense of how 
many new plants you think might be brought on line, I mean 
realistically, based on the need and what your understanding of 
the industry is.
    And, are there architect/engineering firms like yours 
prepared to bid, win, and execute the projects? Are there any 
complications that you might want to share with the panel based 
on the skill level, engineering, et cetera since this industry 
is, I would not say, dormant, but it has been in a non-
revitalized state for some time. So could you just make some 
comments about that?
    Mr. Bernhard. Sure. Thank you, Senator Landrieu.
    I cannot speak for all architect/engineering firms, but I 
certainly can speak to The Shaw Group and we are certainly 
capable and ready and willing to perform a successful execution 
of a new plant as we currently are with Browns Ferry, which in 
a lot of ways is more difficult than building a new nuclear 
power plant because existing structures have to be coordinated 
with new materials, et cetera. We have had a good plan there 
and are well underway of completing that project on time.
    One of the key things is having the quantity and quality of 
people to build a nuclear power plant. We are the largest 
company in the United States currently with over 5,000 people 
in the nuclear business serving the nuclear industry. We are 
doing engineering for Taiwan for Lungmen power units 1 and 2, 
and we just were awarded a project to do some preliminary 
engineering for the Korea Electric. So because of companies and 
facilities outside the United States, our engineering base has 
been kept current along with the ability to do uprates for the 
nuclear power industry.
    I think the difference here is today, as in all 
construction, because of the computer-aided design where we are 
able to do plants a lot more efficiently, not only on planning 
and scheduling, but actually have a virtual reality of what the 
plant would look like, it creates an atmosphere of efficiency 
and reliability that was not available 25 years ago because of 
technology, and that technology today has allowed nuclear power 
facilities to be built in a lot surer, more definitive time 
frame than had been in the past.
    The important aspect of building plants going forward is 
certainty of government regulations from the beginning, and 
what has hurt the construction process in the past is when 
regulations or intervenors in the middle of the construction 
process after the plant had begun construction on the site that 
would stop and we would have to redesign and move forward then. 
I think the certainty of the process is important so a plant 
can be built in a little over 3 years.
    Senator Landrieu. Well, that brings me to my next question. 
Thank you very much. That was very helpful.
    But, Dr. Travers, following up on that question, could you 
maybe state for the record some more specifics about what the 
NRC has done to facilitate the licensing and siting of nuclear 
power plants? Being optimistic in the sense that this energy 
bill will pass and we will get a green light, how much can you 
add to this statement of Mr. Bernhard's about how the process 
could go more smoothly, more safely, more efficiently, and less 
costly, which I think would be helpful to all concerned?
    Dr. Travers. Yes, thank you, Senator. I think a big step 
forward for the NRC was the promulgation of our relatively 
new--they have been existent for a while now--licensing 
regulations. Safety has always been job one, but in the past 
years, NRC has taken on a renewed commitment, I would say, to 
look at how we can be more effective in what we do, add 
predictability to the process.
    Those new regulations have been successfully used, in part, 
to certify three designs now that can be referenced for any 
construction project for any organization that decides to 
actually build a plant. And all of the safety issues that were 
decided in connection with those certifications are essentially 
decided. They are put aside. They are not revisited unless some 
very high hurdle of safety concern is raised.
    The other side of that equation is the environmental piece. 
As we have heard today, the nuclear industry is taking 
advantage of the possibility of obtaining early site permits. 
Those early site permits are another way of establishing 
predictability of the process. It allows you to argue that the 
site you would use ultimately, if you were to construct a 
nuclear power plant, is satisfactory. You obtain hearings in 
advance of spending any money to construct a plant. So you 
establish a predictability that you can bank that site for 
between 10 and 20 years, and ultimately the vision is that you 
could, when you wish to construct a plant, reference both the 
design certification and an early site permit to effectively 
allow you to come before the NRC once more but without 
revisiting all of the issues that were decided and resolved at 
those two points in time, and in a much more efficient process, 
license for construction and operation a new nuclear facility.
    We have been actively attempting to test portions of our 
process. We have engaged the nuclear industry and the public 
with pieces of issues that have arisen and have been identified 
early so that we can reach resolution so that when the day 
comes, if it comes, we are prepared and we have the process in 
place that can be used most efficiently, again, with the focus 
principally on safety, to disposition that application.
    Senator Landrieu. Can I follow up with one? That was very 
helpful, but let us talk about safety for a minute because that 
term had a certain definition before 9/11 and it has a 
different definition today. It is a very important issue that 
the people of our country are very focused on. I think it would 
be very helpful if you, Dr. Travers, would speak for just a 
moment about that. And if anybody else on the panel wants to 
take a shot at what would be the--you know, if asked at a 
reception or a party, are new nuclear power plants safe given 
post-9/11, would each of you take a minute and a half to go on 
the record with what you would say if asked? How would you 
answer that?
    Dr. Travers. I would be happy to. We think nuclear power 
plants were safe before 9/11. In fact, if you look, they were 
probably the most safe and secure, guarded commercial 
facilities in the United States.
    After 9/11, though, legitimately some concerns were raised. 
The NRC took actions, working with the industry very 
cooperatively, very successfully I would have to say. We took a 
number of actions, and those actions have resulted in even a 
higher level of security and safety for nuclear power plants 
today. I could tick off a few specifics that relate to things 
such as the numbers of security personnel required at plants, 
the additional security posts, training for security members, 
time frame requirements for work hours, standoff distances for 
vehicles, security checks, a whole host of issues including the 
background checks and tightened access requirements that have 
been put in place since 9/11.
    We have been doing a lot. I would have to say the nuclear 
industry has been doing a lot, and today the view is that in 
the post-9/11 environment, nuclear power plants are even more 
secure and safe than they were before 9/11.
    Senator Landrieu. Mr. McCullough or would anybody else like 
to add?
    Mr. McCullough. With your permission, Senator, I would like 
to ask Ike Zeringue, our president, to comment on that.
    Senator Landrieu. Thank you.
    Mr. Zeringue. We have essentially made it more difficult to 
access the general facility. We have hardened access to the 
plants. We have significantly increased our response time, and 
we have successfully performed a number of assault drills, 
special forces type assaults against the plant. There has been 
significant training there, increased background threats, and 
significant expenditure of resources to improve a variety of 
capabilities from training to armed response. We will spend on 
the order of an additional $30 million this year on improving 
security at our facilities.
    Senator Landrieu. Thank you.
    Mr. Fertel.
    Mr. Fertel. Senator Landrieu, I would echo what both Dr. 
Travers and Ike said, but let me just maybe take it industry-
wide. We have increased the number of security officers from 
5,000 to over 7,000. By the end of this year, we will have 
spent $1 billion across our industry. Ike mentioned $30 million 
at TVA. It will be $1 billion across our industry, keeping in 
mind what Dr. Travers said, which was the plants were not only 
safe but had huge security requirements before 9/11. So we feel 
from a security standpoint, the plants are more secure today.
    I think if there is an issue from a Senate standpoint or a 
national standpoint, it is how do you fit the nuclear plants, 
what we are doing into the critical infrastructure. We started 
off very secure. We are even more secure today, and when we are 
looked at, we are looked at almost in isolation.
    What we worry about--in your State you have nuclear plants. 
You have a lot of chemical plants and fertilizer plants and 
they are all right next to each other. I have great confidence 
our nuclear plants are secure. I have less confidence, because 
I know less about it, that the other facilities in our critical 
infrastructure are nearly as secure. What we believe is 
necessary is to look across the spectrum of a critical 
infrastructure and make sure that both governmental and private 
resources are appropriately allocated.
    Just one last point because you often hear in our industry 
that the industry is reluctant to do things, and I find it 
personally sometimes insulting because 1,000 people work at our 
plants, and if something was to go wrong at the plant, who at 
first is in jeopardy, but the people that work at the plant. 
Where do you think their families live? Around the plants. So 
no one wants to make sure that the plants are safer or more 
secure than the people that work there, and no one wants to 
make sure the assets are better protected than the owners and 
the management responsible for those.
    So I think that the NRC has required us to do a lot of 
things, most of which may make sense, some of which we may not 
think make sense, but most does. We think you need to look 
broader to make sure that as a Nation we are really allocating 
resources going forward correctly to all our critical 
infrastructure.
    Senator Landrieu. Well, I thank you all. I will just 
summarize by this, Mr. Chairman; as a supporter of this 
industry and getting it back up on its feet and revitalized and 
robust and moving forward, I think while the issues of safety 
that are raised and the concerns are most certainly legitimate, 
I would just cite to those here and listening the explosion of 
the tanker off the coast with a tank full of ethanol and the 98 
percent of containers that come into this country that have 
absolutely no security, no check, no monitoring, and the kind 
of requirements that are necessary to keep those safe.
    So I want, as an advocate, to just express for the record 
that the industry has made extraordinary steps to increase the 
safety and that you could almost argue that nuclear power may 
be among all the infrastructures, the safest part of that 
infrastructure. A, it can be identified. There are not 1,000 of 
them. They are specific sites. We know where they are. There 
are not going to be 1,000 nuclear power plants. The technology 
is there to protect it. I would argue that if we could get to 
that same level on chemicals, containers, railroads, tankers 
coming in and out of our ports, we would all be better off. So 
it is a red herring, and I hope that we can move forward and 
hopefully this energy bill give us that platform.
    Senator Alexander. Thank you, Senator Landrieu.
    Let me direct a line of inquiry first to Mr. Fertel and 
then to Chairman McCullough.
    I think the way you presented the environmental advantages 
to clean air of nuclear power is striking in your complete 
testimony. I want to make sure that I understand it right.
    Mr. Fertel. Sure.
    Senator Alexander. As I understand what you said in your 
complete testimony, your written testimony is that the nuclear 
power plants we have operating today in the United States, 
which produce about 20 percent of all the electricity we have, 
have avoided SO2 emissions in an amount that exceeds 
the reductions imposed between the clean air amendments of 1990 
and 2002. Did I get that right?
    Mr. Fertel. In just 1 year our----
    Senator Alexander. In just 1 year. 1 year's operation of 
those--excuse me. Go ahead.
    Mr. Fertel. In just 1 year, the operation of the nuclear 
plants in our country avoid about 3.4 million tons of 
SO2 emissions. In the entire period from 1990 to 
2001, the reduction in all of the SO2 emissions from 
the rest of the fossil generation source was 5 million tons. So 
in 1 year, we do 3.4. It took 11 years to reduce 5 million tons 
from all the fossil units. Now, that is not saying they are 
doing bad. It is just saying that nuclear has a very, very 
significant impact on achieving clean air goals in our country.
    Senator Alexander. And then you go NOX, 
nitrogen. We are talking basically about soot and smog of the 
kind we increasingly see in our part of the world. You say that 
the NOX emissions avoided by the power plants are 
equivalent to eliminating NOX emissions from 6 out 
of 10 passenger cars.
    Mr. Fertel. That is correct, sir.
    Senator Alexander. And you say that the carbon emissions 
avoided by the nuclear power plants we have operating today are 
equivalent to eliminating the carbon emissions from 9 out of 10 
passenger cars.
    Mr. Fertel. That is true too, and in our voluntary carbon 
reduction program, nuclear energy makes up about 45 percent of 
the total voluntary reductions for our Nation from every 
industry, not just the electric power industry.
    Senator Alexander. I wonder if you have considered, as we 
talk about various clean air proposals in the Congress, say, 
taking the President's Clear Skies proposal or Senator Carper's 
proposal, which I am a cosponsor of, which is a little tougher 
on NOX and SO2 and adds carbon, and 
comparing that to nuclear power. I think it is very helpful and 
it helps make the case of why it is a useful alternative.
    Mr. Fertel. We could look at making a comparison. 
Unfortunately, nuclear on clean air is kind of like electricity 
for us as Americans. When we did some focus groups years back 
on where does electricity come from, what we got back from the 
focus group were the switches and the outlets. So if I wanted 
more electricity, I would put in more switches and more 
outlets. Now, when you had more discussion, they realized power 
plants were somehow involved, but electricity is taken for 
granted, except when we miss it. So is clean air.
    Senator Alexander. Well, when people have to start driving 
at 55 miles an hour and stop cooking in their back yards and 
going into some place and standing in line to get a car 
emissions sticker, then they begin to pay a little bit more 
attention, which is what is about to happen all across 
Tennessee.
    Mr. Fertel. Yes, sir.
    Senator Alexander. If I may switch over to Mr. McCullough. 
TVA's coal fleet, which is most of the power--what percent of 
TVA's power production is coal?
    Mr. McCullough. About 56 percent, Mr. Chairman.
    Senator Alexander. And my information is that the coal 
fleet is 40 to 45 years old. It is the oldest coal fleet in the 
Nation. Would that be right?
    Mr. McCullough. I would have to do some research, but 47 is 
the average age. You are right.
    Senator Alexander. How much does it cost to put a scrubber 
on a coal-fired power plant smokestack? I know I hear TVA is 
spending $1 million a day on air pollution. What is the cost of 
that?
    Mr. McCullough. Approximately $250 million per scrubber.
    Senator Alexander. Per scrubber.
    Mr. McCullough. Yes, sir.
    Senator Alexander. Yet, I read the other day that TVA has 
just signed a 20-year contract to buy $3 billion of high sulfur 
coal. Why does it make sense to buy high sulfur coal and then 
pay $250 million per scrubber to scrub out the sulfur?
    Mr. McCullough. It is a matter of the capital cost to 
replace the generation. We can install a scrubber and we use a 
detailed model to determine which is the lowest cost, 
environmentally compliant baseload generation source.
    Senator Alexander. But what I am getting at is why not buy 
low sulfur coal.
    Mr. McCullough. We do buy low sulfur coal to the extent 
that we can.
    Senator Alexander. Why would you buy $3 billion of high 
sulfur coal over a 20-year period of time when 80 percent of 
the State is about to be in violation of the Federal Clean Air 
Act?
    Mr. McCullough. May I ask Ike Zeringue to respond to that?
    Senator Alexander. Yes.
    Mr. Zeringue. We cannot meet the requirements of the Clean 
Air Act by simply replacing high sulfur coal with low sulfur 
coal at our plants. As a result, we are putting scrubbers on 
these facilities to remove the sulfur from those plants, and we 
will have removed approximately 75 to 85 percent of the sulfur 
emissions by 2010.
    Senator Alexander. But would it not cost more to remove 
sulfur from high sulfur coal than from low sulfur coal?
    Mr. Zeringue. No, sir.
    Senator Alexander. It does not?
    Mr. Zeringue. No, sir.
    Senator Landrieu. Why is that?
    Senator Alexander. I will take your word for it, but that 
sounds odd to me.
    Senator Landrieu, may I ask one more question?
    Senator Landrieu. Oh, sure.
    Senator Alexander. And then I will go to you for whatever 
time you would like.
    What I would really like to get at is if there is such an 
advantage to nuclear power in terms of clean air--and in the 
Knoxville area especially in the Great Smoky Mountains, which 
is a class 1 protected area, we have a difficult problem and we 
have it in terms of ozone and we are going to have it next year 
in terms of particulate matter. And I salute you for this 
decision you have made to reopen Browns Ferry.
    Why would it not make sense to move more rapidly if the 
Browns Ferry opening stays on cost and on schedule, as it is 
today and as we hope it will be? Why would it not make sense to 
move more rapidly to reopen Watts Bar and perhaps Bellefonte 
and close the most offensive of the coal-fired power plants 
which are producing so much nitrogen and sulfur emissions, as 
well as carbon?
    Mr. McCullough. Yes, sir. We evaluate the fuel costs and we 
evaluate also TVA's responsibility to cleaner air. We evaluate 
a diverse portfolio that we have to maintain against the 
capital cost that would include either a scrubber or the 
capital cost to bring on line Watts Bar 2 or to bring on line a 
unit at Bellefonte. My answer, Senator, is that it is more cost 
effective and environmentally responsible for us to invest in 
scrubbers, and we do buy as much low sulfur coal as we can. 
There is an economic model that determines really the optimal 
point.
    But I think in the future you will see the expansion of 
safe, reliable nuclear, but there is economics involved there 
and also a fuel supply cost involved there. We will be happy to 
sit down with you and go into more detail.
    Senator Alexander. I would look forward to that. I know 
that you make long-term plans. I do not intend to try to be the 
Chairman of the Tennessee Valley Authority or a manager, but it 
would seem to me that along that theory, unless a boiler blows 
up, you are going to be operating these coal-fired power plants 
forever. What I am wondering is whether it might not be wiser 
to accelerate nuclear power development and begin to close the 
most offensive of those plants. But we will talk about that at 
a later time.
    Thank you, Senator Landrieu, for letting me pursue that.
    Senator Landrieu. Thank you, Mr. Chairman. I most certainly 
did not mean to interrupt. This is your area, TVA.
    But I am just curious. Do we get all of our coal locally, 
the coal that we were just speaking about? Or does some of it 
come from other places in the world?
    Mr. McCullough. The coal that TVA burns is domestically 
mined.
    Senator Landrieu. All of it?
    Mr. McCullough. Yes, ma'am.
    Senator Landrieu. Thank you. That is all I wanted to know.
    Senator Alexander. Do you have any other questions?
    Senator Landrieu. No.
    Senator Alexander. We have a vote at 4 o'clock and it is 
about time to bring this to a conclusion anyway.
    This has been very useful testimony. Your written 
statements are extremely helpful.
    The purpose of this hearing has been to talk about the 
future of the nuclear industry, to highlight the impediments 
and the opportunities there. It, of course, had an opportunity 
to highlight what the Tennessee Valley Authority is doing with 
the Browns Ferry plant, which the whole country is watching, 
which the Congress will watch very closely.
    I am glad to see that the Nuclear Regulatory Commission 
over the last several years has been able, while we are moving 
in a safe and efficient way, to create a clearer path from 
beginning to establishment of a new plant, one of which we have 
not had in 30 years.
    We heard from Mr. Asselstine what his six or seven criteria 
are for private investment coming back. We have heard about the 
environmental advantages, and we have heard that France and 
Japan and India and Russia are all taking a technology we 
invented and doing much more with it than we are able to.
    So perhaps we have reached a point where we will have 
steady progress toward the revival of the nuclear power plant 
as a way of help keeping jobs in America, not moving overseas, 
help cleaning our air and providing reliable, efficient energy 
at a reasonable cost.
    Thank you very much for coming.
    [Whereupon, at 3:58 p.m., the hearing was adjourned.]


                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

                                                     March 25, 2004
Mr. Glenn L. McCullough, Jr.,
Chairman, Board of Directors, Tennessee Valley Authority, Knoxville, 
        TN.
    Dear Mr. McCullough: I would like to take this opportunity to thank 
you for appearing before the Senate Committee on Energy and Natural 
Resources hearing on March 4, 2004 regarding New Nuclear Power 
Generation in the United States.
    Enclosed herewith please find a list of questions which have been 
submitted for the record. If possible, I would like to have your 
response to these questions by April 8, 2004.
    Thank you in advance for your prompt consideration.
            Sincerely,
                                          Pete V. Domenici,
                                                          Chairman.

              Responses to Questions From Senator Bunning

    Question. TVA is over $26 billion in debt. This is very close to 
the $30 billion debt cap. In 1997, TVA promised, in exchange for a rate 
increase, to lower its debt level by half from $26 billion to $13 
billion. Seven years later, TVA has barely reduced its debt. TVA has 
proposed, however, restarting its Unit 1 Browns Ferry facility at a 
cost of approximately $1.8 billion. Why does TVA believe that 
restarting Unit 1 is a prudent business policy? How does TVA believe 
restarting Unit 1 will better serve the TVA customers?
    Answer. TVA will need the base load generation that Browns Ferry 
Unit 1 will provide when it is restarted in May of 2007. Demand for 
electricity in the Valley is projected to grow at 1.8% over the next 
five years. The region has grown at a faster pace than the national 
average. With the help of independent analysts, we spent almost two 
years investigating the prudence of restarting Unit 1 at Browns Ferry 
and determined that it was the most cost effective way of achieving our 
new base load needs. The cost of the restart was evaluated against 
additional purchases from IPP's, coal gasification, etc. In fact, our 
current resource-planning analysis shows that this nuclear unit will 
help us meet our growing energy needs at a very competitive cost by 
reducing our delivered cost of power by about .09 cents per kilowatt-
hour in its first year of operation, and the unit is expected to have 
paid for itself seven years after start-up.
    Although there is currently an excess capacity of generation caused 
by the construction of gas plants in or near the TVA region, this does 
not change the economic advantage of restarting Browns Ferry nuclear 
unit 1. At gas prices of $4 $6mmbtu, the total cost of power produced 
by the most efficient of these new plants is $35 $50 megawatt hour. In 
contrast, the total cost of Browns Ferry 1 will be near $26 megawatt 
hour.
    Question. Under current law, TVA may only serve power to its own 
region and may not sell electricity outside its ``fence''. It is my 
understanding that TVA already has a 40% surplus supply of power within 
the ``fence''. If TVA cannot sell outside its fence, why does TVA 
believe it is necessary to increase their debt by restarting Unit 1 
Browns Ferry to increase its supply of power?
    Answer. TVA is taking advantage of the opportunity to purchase 
power from IPP's in the region when it represents the best business 
decisions for consumers. We have contracts with Tractebel and Calpme.
    When TVA was considering the restart of Browns Ferry Unit 1, it 
carefully considered alternatives for purchasing necessary baseload 
capacity and determined that restarting Browns Ferry Unit 1 added to 
the strength of our generation mix and lower TVA cost of power.
    For the summer of 2004, TVA's own reserve margin will be 13%--a 
highly appropriate reserve margin under industry standards to ensure 
reliable supply of power to the TVA region. When Browns Ferry Unit 1 is 
returned to service in the summer of 2007, it is anticipated that TVA's 
reserve margin will be 13.2%, demonstrating that Browns Ferry Unit 1 is 
devoted to meeting the needs of TVA's power customers inside the 
``fence''.
    Question. For a fraction of the cost of restarting Unit 1 Browns 
Ferry, TVA could upgrade its electricity grid and interconnect it with 
some of the many new clean burning gas plants that have been 
constructed in the last 5 years and receive twice as much power as can 
be produced by a 40 year old nuclear power plant design. Has TVA done a 
cost benefit analysis of importing power from other sources to meet 
their electricity needs compared to restarting a 40 year old nuclear 
plant'?
    Answer. Although there is currently an excess capacity of 
generation caused by the construction of gas plants in or near the TVA 
region, this does not change the economic advantage of restarting 
Browns Ferry nuclear unit 1. At gas prices of $4 $6mmbtu, the total 
cost of power produced by the most efficient of these new plants is $35 
$50 megawatt hour. In contrast, the total cost of Browns Ferry 1 will 
be near $26 megawatt hour.
    In making this decision, TVA studied several potential options, 
including purchase power prices, combined-cycle gas turbines, coal 
gasification, startup of one of the Bellefonte nuclear units, and the 
recovery of Browns Ferry nuclear unit 1. Each potential option was 
studied in terms of fuel price stability; long-term cost to produce 
power; environmental impact; potential impact to TVA's long-term 
ability to reduce debt; capital cost; and estimated capacity factor for 
meeting baseload needs. Numerous sensitivity studies were conducted on 
each option, utilizing TVA and industry forecast data to compare each 
to forecasted future electricity, gas, and uranium prices. Results of 
these studies indicated that recovery of Browns Ferry Unit 1 would be 
very favorable to meeting TVA's baseload requirements.
    Unit 1 is a viable asset that will effectively and efficiently 
provide clean, affordable and reliable power to meet the future power 
demands of people in the Tennessee Valley. We're refurbishing Unit 1 in 
the same manner that we accomplished for Units 2 and 3, and they are 
both running well.
    Browns Ferry Unit 1 has been maintained in its present 
configuration using long-term lay-up programs monitored and inspected 
by the Nuclear Regulatory Commission. A thorough analysis of the scope 
of work we needed to do to ensure safe, reliable operation was 
performed and we are implementing that scope of work. These results 
also indicated that it would be able to produce the needed energy at 
very competitive rates as compared to the other available options, 
while maximizing TVA's investment in an existing asset.
    Question. TVA continues to tell Congress that it will reduce its 
debt. It has increased my Kentucky constituents' power rates in an 
effort to reduce its debt. However, the debt still remains large at $26 
billion and my constituents who use TVA power have some of the highest 
electricity rates in Kentucky. Outside of the nearly $1.2 billion that 
the federal government forgave of TVA's debt, how close are you to 
meeting your goal of cutting your debt in half from $26 billion to $13 
billion?
    Answer. No portion of TVA debt's has been forgiven by the federal 
government, but $3.2 billion of long-term debt held by the Federal 
Financing Bank was paid off in full and refinanced at lower interest 
rates in FY 1999, thus saving substantial interest costs. Further, the 
U.S. Treasury receives payment each year on the government's original 
investment of $1.4 billion dollars plus interest. To date, 
approximately $3.5 billion has been repaid.
    The assumptions used to establish the debt reduction target in the 
earlier 1997 plan did not take into account any Clean Air expenditures 
beyond those known and budgeted at the current time or the debt impacts 
of for building new base load and peaking generation (power needs were 
accounted for; it was assumed that it would be purchased, as it is in 
the current plan beyond building Browns Ferry). Nonetheless, TVA 
reduced its debt by approximately $2.9 billion from FY 1997 through FY 
2003. As you know, TVA completed a transaction MLGW to prepay $1.5 
billion of its future power purchases; TVA used those proceeds to 
reduce statutory debt. This transaction is not included above as this 
was a FY 2004 transaction. Our recently released Strategic Plan 
identifies a debt reduction target of $3 to $5 billion over the next 10 
to 12 years.

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