[Senate Hearing 109-103]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-103
 
                       NUCLEAR POWER 2010 PROGRAM

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                                   ON

         THE DEPARTMENT OF ENERGY'S NUCLEAR POWER 2010 PROGRAM

                               __________

                             APRIL 26, 2005


                       Printed for the use of the
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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho                JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming                DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee           BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
RICHARD M. BURR, North Carolina,     TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida                MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri            DIANNE FEINSTEIN, California
CONRAD BURNS, Montana                MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia               JON S. CORZINE, New Jersey
GORDON SMITH, Oregon                 KEN SALAZAR, Colorado
JIM BUNNING, Kentucky

                       Alex Flint, Staff Director
                   Judith K. Pensabene, Chief Counsel
                  Bob Simon, Democratic Staff Director
                  Sam Fowler, Democratic Chief Counsel
              Clint Williamson, Professional Staff Member
                  Jonathan Epstein, Legislative Fellow



                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Alexander, Hon. Lamar, U.S. Senator from Tennessee...............     2
Asselstine, James K., Managing Director, Lehman Brothers, Inc....     4
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     7
Craig, Hon. Larry E., U.S. Senator from Idaho....................     3
Diaz, Dr. Nils J., Chairman, Nuclear Regulatory Commission.......    12
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     1
Salazar, Hon. Ken, U.S. Senator from Colorado....................    25
Sell, Clay, Deputy Secretary, Department of Energy...............     8
Wallace, Michael J., Executive Vice President, Constellation 
  Energy Group, Baltimore, MD....................................    29


                       NUCLEAR POWER 2010 PROGRAM

                              ----------                              


                        TUESDAY, APRIL 26, 2005

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met at 9:04 a.m., in room SD-364, Dirksen 
Senate Office Building, Hon. Pete V. Domenici, chairman, 
presiding.

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

    The Chairman. The hearing will please come to order.
    I want to say to the witnesses first thank you both. I know 
that you are both very busy and we appreciate your taking time 
to come here today. We will try to be as brief, yet productive 
as we can.
    And Senator Bingaman was unfortunately tied up in a Finance 
Committee hearing. And he has been working hard on issues in 
that committee and he will be here as soon as possible. But we 
are going to proceed without him and indicating through his 
staff that we are to proceed.
    It is obvious the purpose of the meeting. It is to evaluate 
the progress of the Department and their Nuclear Power 2010, NP 
2010 Program. We would like to get a better overall sense of 
the commitment the administration or lack of commitment, 
whatever the case is--I think it is a commitment--regarding 
nuclear power.
    Thank you for coming, Senator Craig.
    The program, we hope, will be discussed in the context of 
an integrated American strategy through the administration for 
a renaissance of nuclear power in our country.
    Currently we have 103 power plants that are operating here 
in our country. These reactors provide a little over 20 percent 
of the total generation. It is all free of greenhouse gas 
emissions. And that is an important diversity with reference to 
our supply.
    We all know that they provide many things and we all know 
that we are engaged in a very dedicated and firm effort with 
reference to nuclear waste. I am not frightened of the issue. I 
think we are going to put ourselves in a position where 
science--we are going to do it on a scientific basis where we 
can provide a solution.
    Everyone knows there are many stumbling blocks. One of them 
obviously is the high up-front capital costs. The second is, 
although we have a new regulatory scheme or system, the fact 
that it is untried in its totality also is something that is a 
drag on proceeding.
    But I believe that it is a legitimate new process and I 
think it is going to work and I think industry is beginning to 
understand that with some statutory help and some language help 
in the bill, they are going to be able to proceed.
    But lack of progress on the spent fuel management is a 
stumbling block, but I believe it is going to be worked out.
    Now, nuclear plants are being operated and built elsewhere 
in the world. Four of these plants are under construction in 
Japan. I think that is correct. Two in China, two in Taiwan, 
two in Korea, one in Finland, and France is close a final 
legislative action to move them ahead.
    So I said many years ago that we needed a renaissance in 
this area. Clearly we are moving. I am delighted to have been a 
part of that. I hope I will be part of really seeing that 
renaissance occur. I am enthusiastic speaking now to the 
Nuclear Regulatory Commission.
    The pending early sites permits, ESPs, for three utilities 
are under review. I hear that there may be more on the horizon. 
This is a key step on the road to new plants in the United 
States.
    Additionally there are three consortia, NuStart, Dominion, 
and TVA, that have been awarded moneys in a cost-share 
arrangement by 2010, NP 2010, to put together a combined 
construction and operating license, a COL, for submittal to the 
NRC.
    This too is one of those areas where we open the door for 
new plant construction down the line and, in this case, not too 
far down the line.
    Now, having said that, I am very pleased that a number of 
Senators on this committee are energized by the idea of having 
nuclear power in our diversification portfolio and that I think 
two of them are right here. There are more than the two that 
are advocates.
    And before we proceed with the testimony, and I do thank 
both of you, I want to ask Senator Craig, Senator Alexander in 
the reverse order because he was here early, waiting, if you 
have any comments, starting with you, Senator Alexander, and 
then, Senator Craig, and then we will proceed.

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

    Senator Alexander. Thank you, Mr. Chairman. I am here 
mainly to listen.
    But to underscore the urgency of this hearing and what we 
are talking about, natural gas prices are at record highs, 
threatening to move tens of thousands, maybe hundreds of 
thousands of manufacturing jobs overseas, threatening to 
bankrupt farmers, and threatening to cause homes to be too 
expensive to heat and cool.
    And one way to reduce the price of natural gas is for us to 
move ahead with nuclear power because virtually all of our new 
electricity plants are natural gas.
    So I think a part of this hearing, Mr. Chairman, is to help 
the American people understand that gas prices at the pump are 
one problem, but I think natural gas prices are a bigger 
problem.
    And I do not see any other sustained solution for the next 
few years to that, as well as to clean air and clean energy 
generally other than what you call a renaissance of nuclear 
power.
    So I am anxious to hear what the witnesses have to say and 
to join you and Senator Craig and Senator Bingaman in creating 
a framework in which nuclear power can succeed. We invented it. 
We have operated in the Navy since the fifties without a single 
incident. We ought to be able to move ahead with it.
    The Chairman. Thank you, Senator.
    Senator Craig.

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

    Senator Craig. Well, Mr. Chairman, you have laid out all of 
the issues that are before us that are of extreme importance to 
us. And there is no question the two gentlemen in front of us 
this morning are an important player in all of it.
    What I would hope to hear from you all this morning is 
where the potential stumbling blocks may be. Can we do 
construction operating licenses through the Nuclear Regulatory 
Commission? Do you have the money? Do you have the staff? Can 
we move these kinds of things forward?
    NP 2010, Mr. Secretary, have you got the budgets necessary 
to carry it off or are we giving lip service to an idea that is 
important in helping industry facilitate it?
    All that Senator Alexander has said, all that Senator 
Domenici has said is true. There are a lot of industries 
looking at us at this moment saying we have got to build base 
load in the decade ahead. And the only way to get it done right 
now based on technologies and clean energy and emissions 
concerns is nuclear.
    I also find it fascinating when we talk about gas prices, 
in our ability to cite LNG facilities, this is not without its 
problems too. And there is always complications involved.
    Government has to get involved in this in a proactive way 
to knock down the barriers and to clear the path forward in so 
many phases of our energy ramp-up again.
    And we simply got to get at it. That is what this committee 
is all about. I am anxious to hear your testimony.
    Mr. Chairman.
    The Chairman. Thank you very much.
    I want to insert in the record an editorial op-ed piece by 
John Rich in this morning's ``Washington Post'' entitled ``The 
Key to our Energy Future'' and then it is all about nuclear 
power.
    The writer is a director general of the World Nuclear 
Association. He was a U.S. Ambassador to the International 
Atomic Energy Agency and other U.N. agencies in Vienna from 
1993 to 2002. It is an excellent piece.
    The Chairman. And before I yield to Senator Bingaman, I do 
want the record to reflect that James Asselstine, the managing 
director of Lehman Brothers was scheduled to be here, but his 
mother passed away on Sunday afternoon and he was with his 
family today.
    So I want to extend our condolences to him and his family 
and we are sorry for their loss.
    Mr. Asselstine contacted the committee incidentally and 
offered to submit his testimony, although he could not be here, 
and we will accept that. It will be received and briefed for us 
by our staff.
    [The prepared statement of Mr. Asselstine follows:]
     Prepared Statement of James K. Asselstine, Managing Director, 
                         Lehman Brothers, Inc.
    Mr. Chairman and members of the Committee, thank you for the 
opportunity to appear before you today. 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. In 
addition, I served as a member of the Secretary of Energy Advisory 
Board's (SEAB) Nuclear Energy Task Force, and assisted in the 
preparation of the Task Force's January 10, 2005 draft report entitled 
``Moving Forward with Nuclear Power: Issues and Key Factors.''
    I appreciate your invitation to testify at today's hearing 
regarding the status of the Department of Energy's Nuclear Power 2010 
Program. Mr. Chairman, in your letter of invitation, you asked that my 
testimony focus on the financial community perspective on the growing 
interest in the future of nuclear energy in this country, especially on 
the potential for new reactor orders for the first time in thirty 
years.
    With respect to our existing nuclear plants, the financial 
community has an increasingly positive view of the value of nuclear 
assets based upon their strong regulatory and economic performance. 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 about 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. Avoiding 
similar Davis-Besse situations in the future, and ensuring the 
continued strong economic and regulatory performance of the existing 
plants will be important factors in building financial community 
support for new nuclear plant commitments in the future.
    As analysts and investors consider possible future nuclear plant 
commitments by the industry, they are likely to focus on two key 
questions: is the proposed new nuclear plant cost competitive with 
other available alternatives for new baseload generating capacity? And, 
are the construction completion, and regulatory approval and licensing, 
risks for a new nuclear plant adequately addressed to give the 
financial community confidence that the new plant can be brought into 
commercial operation within the expected time and budget? Both the 
financial community and the industry itself are likely to require that 
new nuclear plants be cost competitive with other baseload 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 
potentially significant 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 suspect 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. Based upon the presentations received by the 
SEAB's Nuclear Energy Task Force, it appears likely that the fourth or 
fifth, and subsequent, units of a particular reactor design type can 
meet this cost target, but that the initial three to four units for 
each design type cannot. The difference is due to cost efficiencies in 
the construction of subsequent units and especially to the first-of-a-
kind engineering, or FOAKE, costs needed to develop a sufficiently 
complete design to receive a final standard design approval from the 
Nuclear Regulatory Commission. According to the industry, these FOAKE 
costs are likely to be in the $300-$500 million range for each major 
reactor design type. Absent a backlog of firm orders for subsequent 
units, the reactor manufacturers are unlikely to absorb these FOAKE 
costs themselves, and adding them to the initial unit, or first few 
units is likely to make those units uneconomic when compared with other 
available alternatives. For this reason, the SEAB's Nuclear Energy Task 
Force recommended a cost-sharing mechanism under which the Federal 
government would pay fifty percent, up to a cap of $200 million, of the 
FOAKE costs for each of up to three major reactor types. The Task Force 
also recommended that the Federal government charge a royalty payment 
of $12 million per reactor for the first 50 reactors using these 
designs to recover the government's contributions to the FOAKE costs 
over time.
    As to the construction completion, and regulatory and licensing, 
risks, analysts and investors will likely need 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, the lack of design standardization, changing 
regulatory requirements, and the mechanics of the two-stage licensing 
process, which resulted in a number of cases 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, and combined 
license applications could be submitted to the NRC as early as 2007-
2008. The Department of Energy's Nuclear Power 2010 Program provides 
critical support for testing the design and early site approval, and 
combined license processes. 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 
commissioning risk.
    The nature and extent of these mitigation measures is likely to 
depend upon the 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 regulated utility that elected to build a new nuclear unit 
could finance that plant as part of its regulated utility operations. 
Investors are likely to be most comfortable with this financing 
approach because they have access to all of the assets and cash flows 
of the company's regulated utility business.
    Given the move to deregulated power markets in many regions of the 
country, however, it is perhaps equally 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 commissioning 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, and perhaps even customers. 
The consortium approach has the advantage of limiting the financial 
risk to any single party, but presents other potential operational 
difficulties.
    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 project financing approach does not appear to be feasible 
without substantial financial risk mitigation features such as a loan 
guarantee or direct government loan.
    The SEAB's Nuclear Energy Task Force concluded that some Federal 
government financial incentives are needed, in combination with 
contractual provisions among the project participants, to ensure the 
dual objectives of cost competitiveness and mitigating commissioning 
risks to ensure the availability of financing, for a limited initial 
group of new nuclear plants. The Task Force also found that the 
relative value of different financial incentives is likely to vary 
depending upon the financing arrangements used for the plant. 
Accordingly, the Task Force recommended that the Federal government 
provide a package of financial incentives that would be sufficient to 
permit financing under all of the different financing arrangements, and 
allow project sponsors to select individual financial incentives up to 
a total cost to the government of $250 million per reactor for the 
first four reactors using each approved major design type. The Task 
Force recommended the following financial incentives: a Federal loan 
guarantee or direct government loans; a Federal power purchase 
agreement; accelerated depreciation; an investment tax credit; and a 
production tax credit. Mr. Chairman, I believe that a limited array of 
government financial incentives for a limited number of initial units, 
similar to the elements recommended by the SEAB's Nuclear Energy Task 
Force, in combination with appropriate contractual provisions for the 
project and with the benefits of the Department's Nuclear Power 2010 
Program, should be sufficient to obtain the needed financing for a new 
nuclear plant under each of the different potential financing 
arrangements.
    Finally, Mr. Chairman, I believe the financial community, like the 
industry, will look for two additional elements before supporting new 
nuclear plant commitments. The first of these is continued progress 
toward development of a long-term storage solution for spent nuclear 
fuel. The second of these is extension of the Price-Anderson Act to 
make the nuclear liability indemnification system available 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, I appreciate the invitation to provide 
testimony on this important initiative. Thank you.

    The Chairman. Having said that, Senator Bingaman.

         STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR 
                        FROM NEW MEXICO

    Senator Bingaman. Thank you very much, Mr. Chairman.
    I gather you already mentioned that I am sort of caught 
between two hearings today, so I appreciate the chance to at 
least make this statement. I think this is a very important 
subject and I appreciate the witnesses being here.
    Mr. Asselstine, as you indicated, is also a witness I had 
looked forward to hearing. His testimony, as I understand it, 
deals with the whole issue of financing options for new nuclear 
power plants which is an important issue we do not get into in 
great depth in this hearing.
    But I do think that much of our focus needs to be on what 
are the appropriate financial incentives that the Government 
should try to provide both for new generation nuclear plants, 
but also IGCC power plants.
    And I know that Senator Alexander has taken quite an 
interest in that. I think that I need to understand that 
better. I think the whole committee probably does.
    And I look forward to learning what I can from the 
testimony at this hearing and then have a chance to look into 
that as well more in the future.
    Thank you.
    The Chairman. Thank you, Senator.
    Let us proceed now with our witnesses.
    First of all, both of the gentlemen that are before us we 
know very well they have distinguished records, serving on 
behalf of their country, one the current Chairman of the 
Regulatory Commission.
    The Honorable Nils Diaz is well known by all of us. And 
also we have with us the Honorable Clay Sell, Deputy Secretary. 
We know him well. We appreciate your taking the job you have.
    And now we will proceed with you, Mr. Secretary, first, 
then the Chairman.

           STATEMENT OF CLAY SELL, DEPUTY SECRETARY, 
                      DEPARTMENT OF ENERGY

    Mr. Sell. Thank you, Mr. Chairman, Senator Bingaman, 
Senator Craig, Senator Alexander, members of the committee.
    It is a pleasure to be here today to discuss the Department 
of Energy's Nuclear Power 2010 Program. I have submitted 
written testimony that I ask be made a part of the record and I 
would like to summarize it briefly.
    The Chairman. It will be.
    Mr. Sell. But before I begin that summary, I would like to 
address the questions that you raised in your opening 
statement.
    You asked if the administration was, in fact, committed to 
a renaissance of nuclear power and we, in fact, are. And one of 
the reasons it has been easy to come to that decision is 
because it is the right decision and, second, because of the 
great leadership you and this committee have provided in 
leading the way to that decision.
    Senator Alexander raised the questions about natural gas 
and the incredibly high prices. And, in fact, Senator 
Alexander, the United States has the highest natural gas prices 
in the world and it is having a significant effect not just on 
the cost of electricity but it is having a tremendous effect on 
the petrochemical industry, fertilizer manufacturers, and that 
affects the cost of food and the cost of farming.
    And so nuclear power, it is important to address that 
specific problem as well as advance coal technologies as well.
    In these times of growing dependence on foreign energy and 
increasing concerns about air emissions, nuclear power's 
advantages over other methods of electricity production are 
gaining renewed prominence.
    Nuclear power is the only currently available technology 
that can reliably produce the large amounts of base-load 
electricity our country needs without emitting any pollution or 
greenhouse gases.
    Moreover, nuclear power does not have to depend on any 
foreign resources which helps strengthen our energy security 
and helps keep more of America's energy dollars here at home.
    But despite these benefits, the last time construction 
began on a new nuclear plant in this country was back in the 
1970's and no new projects are currently in the works.
    The 103 nuclear plants in America today are operating 
safely and economically, providing about 20 percent of our 
Nation's electricity. But during their development and 
construction, the builders and owners of many of these plants 
had to overcome some major financial and regulatory problems.
    Plants that originally were projected to cost under a 
billion dollars ended up costing several billion dollars and 
taking years longer to complete than anticipated which caused 
serious financial hardship in the utility sector.
    One reason for this was the overall economy at the time. 
The late 1970's when many of these plants were under 
construction were times of high inflation and double digit 
interest rates, conditions that had a huge financial impact on 
capital-intensive projects like power plants.
    The country had also ended up with a complex, lengthy, 
difficult and uncertain and often contentious process for 
siting and licensing nuclear power plants which drove 
construction and development costs as well as investment risk 
premiums so high that the capital markets would no longer 
support new nuclear projects.
    As a result, the newest nuclear plant now in operation was 
ordered in 1973. The last new plant order came in 1978. But 
because of the high cost and regulatory uncertainties, all the 
plants ordered after 1973 and before the last order in 1978 
were canceled.
    In the nearly three decades since, however, advances in 
technology and management improvements have made U.S. nuclear 
power plants some of the safest, most efficient, and most cost-
effective industrial facilities we have.
    And new reactor designs will make the next generation of 
nuclear plants even safer and more efficient than the current 
fleet. But the high project development costs, regulatory 
uncertainties, and licensing concerns of the past remain in 
place, dimming the prospects of building any new commercial 
nuclear power plants.
    Addressing these regulatory and financial challenges is the 
goal of the Nuclear Power 2010 Program. This program is 
designed to work with industry in a 50/50 cost-share 
arrangement to demonstrate the Nuclear Regulatory Commission's 
new one-step licensing process.
    It is also designed to identify suitable sites for new 
plants and certified new state-of-the-art designs to pave the 
way for an industry decision to build new advanced light-water 
reactors in the United States in the next few years.
    The President's fiscal year 2006 budget, to go to Senator 
Craig's question, supports the successful completion of the 
Nuclear Power 2010 initiative with a request of $56 million. 
That is an increase of $6 million over the current year.
    And the administration is committed to cover half the cost 
of the full $1.1 billion Nuclear Power 2010 Program over the 
next 6 years.
    The program is making good progress toward its goals. We 
are moving ahead with two major cost-share projects with 
utility lead consortia to demonstrate streamline siting and 
licensing procedures for two new advanced reactor designs.
    Today I am pleased to announce that the Department has 
finalized a cooperative agreement with one of these consortia, 
the NuStart team, consisting of nine major utility companies 
along with equipment manufacturers, General Electric, and 
Westinghouse, which will initiate the team's process of 
establishing a project schedule and budget and then site 
selection.
    Mr. Chairman and members of the committee, your leadership 
and guidance has been essential to the progress this important 
program has achieved thus far. And on behalf of Secretary 
Bodman and our colleagues at the Department of Energy, we look 
forward to your continuing counsel and support in the days and 
years ahead.
    I would be pleased to answer any questions you may have. 
Thank you.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. Sell follows:]
Prepared Statement of Clay Sell, Deputy Secretary, Department of Energy
    Mr. Chairman, Senator Bingaman, and Members of the Committee it is 
a pleasure to be here to discuss the Department of Energy's Nuclear 
Power 2010 program
    For most of our nation's history, America's vibrant economy and 
society have benefited from the abundant energy options we have had 
available. Even though we have increased our oil imports in recent 
decades, most of the energy used in the United States--including energy 
for home heating and electricity--is produced domestically. Our coal, 
oil, natural gas, nuclear, and renewable resources all contribute to a 
diversified and reliable energy picture.
    However, we are entering a new era in energy supply. As highlighted 
in the President's National Energy Policy, forecasts indicate that our 
need for energy--even with ambitious energy efficiency measures across 
all sectors of the economy--will continue to grow as our economy grows. 
The Energy Information Administration forecasts that by 2025, the 
United States will import 68% of its energy for transportation uses and 
38% of its total energy supply. Most notably, the U.S. will experience 
an increasing dependence on imported natural gas, which is increasingly 
important for generating electricity. Increased natural gas imports 
will require us to expand our capacity to accept shipments of liquefied 
natural gas.
    Providing adequate and reliable supplies of electricity, while 
reducing emissions and meeting the other challenges, will require the 
development and application of advanced technologies. New technology 
can help us to exploit renewable energy sources when they are 
practical, and enable coal--which generates more U.S. electricity than 
any other fuel--to continue as a viable, long-term element of our 
energy supply. In addition, the President made it clear in his State of 
the Union address that we must also consider new nuclear power plants 
as part of our long-term energy picture.
                          nuclear power today
    Today, American utilities operate 103 nuclear power plants. These 
efficient and reliable facilities provide one-fifth of the nation's 
electricity. These plants are emissions-free and can operate year-round 
in all weather conditions--unlike renewable sources such as wind, solar 
and hydro.
    Over the past 15 years, nuclear utilities in the United States have 
become better managed, and have improved both efficiency and safety. In 
the early 1990s, U.S. plants were available to produce electricity only 
70% of the time on average. These plants are now producing power more 
than90% of the time. More efficient operation has allowed nuclear 
plants to produce more energy than ever before, adding availability 
equivalent to 25 new power plants since 1990--without building a single 
new plant.
    The companies that today own and operate the nation's nuclear 
generating units have demonstrated that they are excellent operators 
with the ability to manage and operate the plants in a safe, cost-
effective, and reliable manner. As a result of this success, 
essentially all U.S. nuclear plants are expected to apply for renewed 
licenses to stay in operation into the middle of the century. There 
will also be some new generation, with The Tennessee Valley Authority 
restarting a third unit at the Browns Ferry Nuclear Plant in Alabama 
that ceased operating in 1985. TVA expects to invest $1.8 billion to 
bring this unit on line and add 1,280-megawatt (electric) generating 
capacity to the TVA system in the spring of 2007.
               challenges facing nuclear energy's future
    Four basic challenges to the deployment of new nuclear power plants 
have been identified by the utility and financial markets: regulatory 
uncertainty; financial uncertainty; permanent nuclear waste 
disposition; and Price Anderson indemnification. While the Department 
is working to address all four challenges, the Nuclear Power 2010 
program is specifically focused on addressing regulatory and financial 
uncertainties. Regulatory uncertainty is centered on building industry 
confidence in the Nuclear Regulatory Commission's untested, combined 
licensing process to expedite construction and commissioning of new 
plants. Financial uncertainty, while potentially related to regulatory 
uncertainty, is based on the owners and operators of nuclear plants 
being able to accurately estimate the cost of a new plant and manage 
cash flows between the time the decision is made to build and the time 
the plant becomes operational and begins making money. Since February 
2002, the Department has been working with industry to develop and 
execute a roadmap for addressing the regulatory and financial 
uncertainties hindering the near-term deployment of new nuclear power 
plants.
    The Nuclear Power 2010 Program is designed to work with the nuclear 
industry in a 50/50 cost-shared arrangement to establish a market-
driven, public-private effort to address the technical, regulatory and 
institutional challenges to new plant construction. The program's basic 
missions are to demonstrate the new Nuclear Regulatory Commission 
licensing processes, identify suitable sites for new plants, and 
certify state-of-the-art (or ``Generation III+'') designs for new 
nuclear power plants. The goal of the Nuclear Power 2010 program is to 
facilitate an industry decision to build and operate at least one new 
advanced light-water reactor plant in the United States early in the 
next decade.
                           nuclear power 2010
    While it is too early to determine success, the Nuclear Power 2010 
program appears to be on the right track. Three utilities--Dominion 
Energy (North Anna, Virginia), Entergy (Grand Gulf, Mississippi), and 
Exelon (Clinton, Illinois)--are working with the Department to obtain 
``Early Site Permits'' for three sites across the country the first 
time this important regulatory tool has ever been used. The Nuclear 
Regulatory Commission is reviewing the three Early Site Permit 
applications submitted by the utilities in the fall of 2003 and is 
expected to make decisions on the permits in 2006. The successful 
demonstration of the Early Site Permit regulatory process in pre-
approving plant sites will avoid the problems in siting that 
substantially increased the cost of some plants in the 1980s and 
partially contributed to the abandonment of others. The results from 
these 50% cost-shared partnerships with industry also will include a 
streamlined and predictable Early Site Permit process for future 
applicants and a catalogue of lessons learned by the power companies 
from navigating the process. The Early Site Permit application and 
approval process, like all major Federal government construction 
projects, includes critical public participation in open meetings and 
through the National Environmental Policy Act Environmental Impact 
Statement process.
    The Department is also working with the Tennessee Valley Authority 
(TVA) to conduct a detailed evaluation of the cost and schedule 
requirements for deploying an NRC -certified General Electric Advanced 
Boiling Water Reactor (ABWR) at TVA's Bellefonte site in Alabama. In 
addition to TVA, the team includes General Electric, Toshiba, Bechtel, 
USEC, and Global Nuclear Fuels. The final report from this study is 
expected in September of this year and will be considered in any 
decision regarding the viability of proceeding with this advanced 
reactor design at the site. Geological and seismological evaluations as 
well as transmission access and site infrastructure surveys are being 
conducted, with completion scheduled for the end of 2005. The 
Department has also recently received two new proposals from power 
companies to explore additional sites for new nuclear power plants, 
including existing nuclear sites and ``greenfield'' sites. The 
Department expects to make decisions on whether to proceed with these 
two new projects by the end of next month (May 2005).
    In November 2004, the Department took another step forward in the 
Nuclear Power 2010 program by awarding two major cost-shared projects 
to utility-led consortia to implement plans that could lead to the 
construction and operation of new plants. Learning from the experiences 
of the early 1990s, when the Department directly funded U.S. reactor 
vendors for design certification activities, the Department is 
requiring these projects be led by utilities--the ultimate owners and 
operators. Central to this effort, these projects will provide first-
time demonstration of the Nuclear Regulatory Commission's combined 
Construction/Operating License (COL) process. These utility-led 
projects could result in the first license applications for a new 
nuclear power plant beginning in 2007. The two consortia are the 
Dominion Energy-led project with General Electric and Bechtel and the 
NuStart Energy-led project that includes nine power companies (Entergy, 
Exelon, Constellation, Florida Power & Light, Southern Company, 
Progress Energy, TVA, Duke and EDF North America), General Electric, 
and Westinghouse. While the Department is committed to a 50/50 cost-
share for the regulatory demonstration and technology certification 
activities, the actual cost of construction of any new nuclear plants 
will be borne completely by the project sponsors. The Department is 
committed to this seven-year, $1.1 billion effort of which 50 percent 
would be non-Federal funding. The Department did experience a delay in 
initiating these two projects as a result of a change by Dominion in 
its preferred reactor technology, which occurred just prior to the 
planned issuance of its cooperative agreement in December 2004. We 
believe that Dominion's change from the Atomic Energy of Canada Limited 
Advanced CANDU Reactor, ACR 700, to the General Electric Economic 
Simplified Boiling Water Reactor, ESBWR, resulted from the longer-than-
expected certification schedule set forth by the Nuclear Regulatory 
Commission for the AECL reactor. This longer certification schedule did 
not meet Dominion's deployment plans. The selection of the GE reactor 
technology affected the issuance of the Dominion cooperative agreement 
as well as the scope and funding for the NuStart project, because the 
GE technology is also part of that project. The Department asked these 
two consortia to work out an equitable arrangement and resubmit their 
cost proposals such that the work on the GE technology was split 
between the two projects. These cost proposals and cooperative 
agreements were re-evaluated by the Department's procurement staff 
prior to finalizing the cooperative agreements. In addition, 
intellectual property rights and royalty payment terms and conditions 
took longer to negotiate than expected.
    The Department finalized its cooperative agreement with Dominion 
Energy on March 31, 2005, and Dominion has initiated the planning phase 
of the project, which will establish the detailed project schedule and 
baseline budget. Later this fiscal year, the Dominion-led project will 
submit a design certification application for the General Electric 
Economic Simplified Boiling Water Reactor (ESBWR) to the Nuclear 
Regulatory Commission. The Dominion team is focused on deploying the 
General Electric ESBWR technology at Dominion's North Anna site in 
Virginia.
    The Department will finalize its cooperative agreement with the 
NuStart Energy team today, at which time the consortia will initiate 
the planning phase of the project to establish the detailed project 
schedule and baseline budget. Later this fiscal year, the NuStart-led 
project will complete its site selection process, which could result in 
the identification of a single site for a new reactor or multiple 
sites. The NuStart Energy team is focused on developing the General 
Electric ESBWR and Westinghouse AP1000 advanced reactor technologies.
    Without the construction of new plants, nuclear power's 
contribution as a percentage of the nation's total energy mix will 
steadily decline. Nuclear power helps to maintain a more diversified 
energy supply and it has no emissions; nuclear power today comprises 
almost 75% of all the non-emitting power generation in the country.
    The President's FY 2006 budget supports the successful continuation 
of the Nuclear Power 2010 initiative in FY 2006 with a request of $56 
million (an increase of $6.4 million compared to FY 2005).
                               conclusion
    Our nation cannot rely on any single energy technology to secure 
its future. A broadly diverse energy supply has served us well in the 
past and must be available for the future. Nuclear energy should be a 
part of that diverse portfolio as we look to support our growing 
economy while limiting air emissions and enhancing America's energy 
independence.
    The Department of Energy's goal is to work with the private sector, 
our overseas partners, and other agencies to assure that the benefits 
of nuclear technology continue to increase the security and quality of 
life for Americans--and other citizens of the world--now and into the 
future.
    This concludes my prepared statement. Your leadership and guidance 
has been essential to the progress the program has achieved thus far 
and your support is needed as we engage the tasks ahead.
    I would be pleased to answer any questions you may have.

    The Chairman. Chairman Diaz.

           STATEMENT OF DR. NILS J. DIAZ, CHAIRMAN, 
                 NUCLEAR REGULATORY COMMISSION

    Dr. Diaz. Thank you, Mr. Chairman, Senator Craig. It is a 
pleasure to be here, to appear before you to consider Nuclear 
Power 2010. My full testimony has been submitted for the 
record.
    On behalf of the Commission, my statement today will focus 
on actions the Commission has taken, and is taking to ensure 
the continued safe, and secure civilian uses of nuclear 
technology and to provide a stable, efficient, and predictable 
framework for licensing and regulation.
    In particular, I will address actions relating to early 
site permits, design certification, and combined license 
applications for new reactors. We take very seriously our 
commitment to enable the beneficial use of safe and secure 
nuclear power.
    Mr. Chairman, the bottom line is that the NRC is prepared 
to discharge its responsibilities regarding licensing of new 
nuclear power plants. New enhancements and resources are 
continually being assessed.
    The new process in Part 52 established three new components 
of our licensing structure: design certification, early site 
permit, and combined license.
    First, the NRC developed a standard design certification 
process by which the NRC extensively reviews the proposed 
reactor design and then, if appropriate, approve the design 
through public rulemaking.
    The Commission has already certified three new reactor 
designs, is nearing completion of a fourth design, and is 
prepared to receive a fifth application in the summer of 2005. 
Discussions are ongoing for several additional reactor design 
applications.
    Part 52 also includes an early site permit process which 
allows early resolution of site-related issues, including 
certain environmental issues.
    The NRC received three early site permit applications in 
late 2003 for sites at which operating reactors already exist 
in Virginia, Illinois, and Mississippi.
    Schedules are in place to complete the safety reviews and 
environmental impact statements in approximately 2 years from 
the date of an application. I would like to say, Mr. Chairman, 
that we are on track.
    Finally, Part 52 provides for a combined construction/
operating licensing process which allows applicants to seek, in 
a single application, a license authorizing both construction 
and operation, prior to construction.
    This leads to combining adjudication of licensing issues in 
one hearing instead of the two hearings utilized previously.
    Furthermore, the efficiency of NRC's safety-focused reviews 
would be substantially increased if applicants utilize an early 
site permit and certified design in their combined license 
applications.
    We believe this process will provide the needed stability 
and predictability in licensing reviews for new nuclear power 
plants, key components of which, I may add, have been or are 
being demonstrated by the new reactor design certifications and 
the ongoing work on the early site permit applications.
    The NRC is using experience gained from the license renewal 
process to improve the efficiency of Part 52 combined license 
application reviews.
    The Commission has also worked actively to ensure that its 
adjudicatory proceedings are conducted in a fair, effective, 
and disciplined manner now and in the future.
    Based on our experience, an application needs to be 
complete. It needs to be of high technical quality and 
responsive to staff questions to enable and enhance the NRC's 
ability to make the appropriate safety determinations, meet our 
review schedules, and stay within resource estimates.
    In conclusion, Mr. Chairman, I am here to assure you that 
the Commission is fully committed to making sure that our 
agency is ready to meet the expected demand for new reactor 
licensing.
    The Commission believes the agency is prepared to accept 
and process applications in accordance with the applicable laws 
and regulations, continuing to focus on safety and utilizing 
risk-informed and performance-based regulations as appropriate.
    The Commission must determine the additional resources for 
nuclear reactor licensing that will be needed to fully support 
and expand the Nuclear Power 2010 initiative.
    Although specific plans are not yet available from the 
industry, the NRC may be faced with up to five combined license 
applications beginning in 2007 or 2008. To meet expected 
demand, NRC will need to begin preparatory activities soon to 
accommodate such large growth.
    The Commission has benefited from strong congressional 
oversight and counsel, and stakeholder interactions, and we 
will continue to keep Congress informed about the impact of new 
reactor activities on the NRC.
    Thank you and I welcome your comments and questions.
    The Chairman. Thank you very much.
    And both of your statements are in the record as you 
submitted them.
    [The prepared statement of Dr. Diaz follows:]
           Prepared Statement of Dr. Nils J. Diaz, Chairman, 
                     Nuclear Regulatory Commission
                              introduction
    Thank you, Mr. Chairman and members of the Committee. It is a 
pleasure to appear before you as you consider ``Nuclear Power 2010--New 
Nuclear Power Generation in the United States.'' My testimony today on 
behalf of the Commission will focus on actions the Commission has taken 
and is taking to ensure the continued safe and secure uses of nuclear 
technology and to provide a stable, efficient, and predictable 
framework for licensing and regulation of the civilian uses of nuclear 
materials. In particular, I will address actions relating to early site 
permits, design certification, and combined license applications for 
new reactors.
    The U.S. Nuclear Regulatory Commission (NRC) is dedicated to the 
mission mandated by Congress--to ensure adequate protection of public 
health and safety, common defense and security, and the environment--in 
the application of nuclear technology for civilian use. In carrying out 
this mission, the Commission is mindful of the need to enhance safety, 
security, and regulatory predictability, when appropriate and 
justified. We take very seriously our commitment to enable the safe and 
secure beneficial use of nuclear power.
             regulatory framework for new reactor licensing
    The NRC is prepared to discharge its responsibilities regarding 
licensing of new nuclear power plants, though enhancements and 
resources are continually being assessed. In 1989, the NRC instituted a 
new combined construction/operating license process through the 
promulgation of 10 CFR Part 52, as an alternative to the separate 
construction and operating licensing steps specified in 10 CFR Part 50. 
The process was later addressed by Congress in the Energy Policy Act of 
1992. The Part 52 licensing process is designed to resolve safety and 
environmental issues, including emergency preparedness and siting 
issues, early in the process and, thus, to provide a more stable, 
efficient, and predictable regulatory framework for utilities that 
might wish to pursue a new reactor license.
    Part 52 established three new components of our licensing 
structure--design certification, early site permit, and combined 
operating license. First, NRC developed a standard design certification 
process by which the NRC extensively reviews a proposed reactor design 
and then, if appropriate, approves the design through public 
rulemaking. The Commission has already certified three new reactor 
designs and codified them in the regulations, making them available for 
new plant orders. The proposed design certification rule for a fourth 
design was recently published for public comment. The NRC is also 
prepared to receive a fifth design certification application in the 
summer of 2005. As a result of experience gained during previous design 
certification reviews and to promote additional regulatory 
effectiveness, the NRC encourages early communication with potential 
applicants to identify unique design features or challenging licensing 
issues through the pre-application process. Currently, the NRC is 
engaged in conducting pre-design review or preliminary review 
discussions on six additional reactor designs, so we could receive 
several more design certification applications in the near future. I 
cannot stress enough the need for applicants to provide complete and 
high quality technical information.
    The NRC also established a process for obtaining an early site 
permit, which allows applicants to seek approval of sites for new 
reactor units separate from an application for a construction permit or 
combined construction/operating license. By obtaining an early site 
permit, applicants can resolve site-related issues, including certain 
environmental issues, before the early site permit is issued. The NRC 
received three early site permit applications in late 2003 for sites at 
which operating reactors already exist in Virginia, Illinois, and 
Mississippi. Schedules are in place to complete the safety reviews and 
environmental impact statements in approximately two years from the 
date of an application. In fact, the NRC staff has already issued draft 
safety evaluation reports on all three early site permit applications. 
Also, draft environmental impact statements for two of the three early 
site permit applications have been issued for public comment. The NRC 
staff is currently reviewing the public comments received on these 
documents. The mandatory adjudicatory hearings associated with the 
early site permits are currently ongoing; conclusion of these hearings 
is, in part, dependent upon completion of all associated staff reviews. 
While I am pleased to be able to provide this information on the status 
of the reviews of the three early site permit applications, the 
Commission serves in an adjudicatory capacity in reviews of our 
Licensing Board's decisions and, thus, it would be inappropriate for me 
to address substantive issues associated with the resolution of these 
early site permit proceedings.
    Finally, Part 52 provides for a combined construction/operating 
license process which allows applicants to seek, in a single 
application, a license authorizing both construction and operation. 
This leads to combining adjudication of licensing issues in one 
hearing, instead of the two hearings that have attended the licensing 
process utilized previously. Furthermore, the efficiency of NRC's 
safety-focused reviews would be substantially increased if applicants 
utilize an early site permit and certified design in their combined 
license applications. We believe this process will provide the needed 
stability and predictability in licensing reviews for new nuclear power 
plants, key components of which have been, or are being, demonstrated 
by the new reactor design certifications and the ongoing work on the 
early site permit applications. The NRC is working to clarify and 
refine the 10 CFR Part 52 licensing process further in order to 
incorporate recent experience gained from design certification reviews, 
current early site permit reviews, discussions with nuclear industry 
representatives, and input from the public. I am convinced that these 
measures, individually and in combination, are providing a means to 
enhance safety for nuclear power generation in the future.
    License renewal for existing operating reactors provides another 
example of how the NRC has sharpened the safety focus of its licensing 
process. The NRC has received license renewal applications for 48 
reactor units and has approved 20-year extensions for 30 reactor units; 
an additional application covering two reactor units was recently 
returned to a licensee as unacceptable for docketing. These reviews 
have been consistently completed in a timely fashion, meeting the NRC's 
schedule of 22 months for completing a review without a hearing request 
and 30 months when a hearing is requested. NRC is using experience 
gained from the license renewal process to improve the efficiency of 
Part 52 combined license application reviews. The agency is committed 
to a continuing holistic improvement of our regulatory review 
processes, with a sharpened focus on matters important to safety. This 
has been well demonstrated by the use of disciplined review processes 
in many licensing activities, including the review of applications for 
license renewals and for power uprates. Our experience to date is that 
an application that is complete, of high technical quality, and 
responsive to staff questions has a direct impact on the NRC's ability 
to make the appropriate safety determinations, meet our review 
schedules, and stay within resource estimates.
    The Commission has also worked actively to ensure that its 
adjudicatory proceedings are conducted in a fair, effective, and 
disciplined manner, now and in the future. For example, the Commission 
revised its rules of practice for agency adjudication early last year 
and has just published a final rule that adopts model milestones for 
presiding officers to use in scheduling and managing hearings. The 
Commission continues to exercise oversight of the adjudicatory process.
                        new reactor construction
    Licensing of new reactors requires a revised approach for 
inspecting new reactors during construction and pre-operational 
testing. Key challenges include establishing a state-of-the-art 
construction inspection framework; ensuring that safety is built into 
each phase, whether it be design, construction, or operation; ensuring 
the availability of an adequate number of qualified inspection 
personnel; ensuring that appropriate information systems are in place 
to efficiently and effectively perform the necessary inspections, 
tests, analyses, and acceptance criteria verifications; and responding 
to the anticipated use of multi-national modular construction 
techniques.
    The industry is presently considering the construction of new 
plants in a modular fashion, with many of the modules fabricated at 
locations away from the plant site, including facilities located 
abroad. The industry's estimate for completing construction varies by 
plant design, but has been in the range of about 60 months and could be 
decreasing as new modular techniques are added.
    The NRC is paying special attention to human resource requirements, 
especially the need for the construction inspection staff to have the 
requisite combination of construction knowledge and inspection skills. 
The NRC is utilizing the know-how of our senior inspectors with 
construction experience and incorporating their insights and lessons 
learned into the revised construction inspection program, procedures, 
and training. The NRC is actively revising its construction inspection 
program to provide an enhanced safety focus and ensure timely support 
to all phases of the license application and construction processes. We 
are working with industry and public stakeholders as we go through this 
revision process and are confident that our revised program will be 
well established and in place before new construction would begin.
      resources for the expected demand for new reactor licensing
    The FY 2006 President's budget request includes $37 million for the 
NRC's continuing work on new reactor licensing, including review of the 
three early site permit applications, review of two standard design 
certification applications, and development and updating of the 
agency's regulatory structure to accommodate new, advanced reactor 
designs. The demand for new reactor licensing is now expected to grow 
more rapidly than previously anticipated and budgeted. These demands 
have been identified in response to the Department of Energy's Nuclear 
Power 2010 Program solicitations, industry letters, and press releases.
    Although specific plans are not yet available from the industry, 
the NRC may be faced with a significant increase in its workload for 
new reactor licensing, including receipt of up to five combined license 
applications beginning in 2007-2008. To meet this expected increased 
demand, NRC would need to begin preparatory activities soon to 
accommodate such large growth. This includes ensuring a state-of-the-
art regulatory framework and conducting associated technical 
activities, obtaining sufficient NRC staff and contractors in the 
relevant disciplines, securing space, developing and conducting 
training, and putting in place the appropriate organizational structure 
that would allow timely completion of the newly anticipated work. The 
NRC will also have to assess how to manage such a workload in light of 
other high priority activities, such as security and fuel cycle work. 
In short, NRC must determine the additional substantial resources for 
nuclear reactor licensing that will be needed to fully support the 
Nuclear Power 2010 initiative.
                                summary
    The Commission is dedicated to enabling the safe and secure use and 
management of radioactive materials and nuclear technology for 
beneficial civilian purposes. To that end, the Commission is fully 
committed to making sure that our agency is ready to meet the expected 
demand for new reactor licensing. The Commission believes the agency is 
prepared to accept and process applications in accordance with the 
applicable laws and regulations, continuing to focus on safety and 
utilizing risk-informed and performance-based regulation as 
appropriate. The NRC's Part 52 processes are safety-focused and should 
be stable, efficient, and predictable. We are also addressing our 
challenges. These include ensuring a strong regulatory and oversight 
framework; meeting the NRC's resource needs associated with the 
potential for receiving multiple combined license applications; 
establishing our technical and legal staff and contractor requirements 
early; and seeking additional funding as needed. We will continue to 
work with stakeholders to address issues associated with implementation 
of our licensing process. The Commission has benefitted from strong 
Congressional oversight, and we will continue to keep Congress informed 
about the impact of new reactor activities on the NRC.
    I appreciate the opportunity to appear before you today, and I 
welcome your comments and questions.

    The Chairman. I am going to ask some questions first of the 
Chairman. And later on, after Senator Craig, I will talk more 
on some subjects that are much different than these.
    Let me now ask, how much funding, additional funding, if 
any, would the NRC need in its 2006 and 2007 budget to ensure 
that you at the NRC are fully ready to review new reactor 
license applications as you currently envision them?
    Dr. Diaz. Mr. Chairman, if the present expectations are to 
be realized, we will need approximately $20 million in 2006 and 
about an equal amount in 2007 to have the structure, personnel, 
infrastructure, and the resources needed to aggressively 
address the schedule that is being presented to us.
    The Chairman. Now, Mr. Chairman, for new construction, new 
plant construction, domestically and internationally, do you 
have any ideas on ways to better enhance the construction and 
safe operations of new nuclear power plants?
    Dr. Diaz. I believe we are trying to get to that issue, 
sir, because fundamentally what is happening is that the world 
has become a smaller place. And the regulatory infrastructure 
that exists in the world is not capable of handling an expanded 
nuclear reactor deployment.
    Therefore, we are considering different types of 
initiatives that will allow us to pair with our regulatory 
colleagues abroad and be able to ensure that those issues 
regarding components, major components that could be handled in 
regulatory space, without going into the licensing capability 
of the other nations, to make sure we have a smoother process.
    We are all too different, Mr. Chairman, and sometimes I 
think it is imperative that we realize that the safety of these 
plants and the analysis that we can conduct and the technical 
aspects of it are very similar. And so efforts in this regard 
would actually help everybody in the world.
    The Chairman. How much repetitive work is required to be 
performed as an applicant moves from one part to another? Are 
there provisions in the regulations whereby an applicant for a 
combined construction and operating license does not have to 
repeat the work that was performed to secure an early site 
permit? That was part of the problem before. I just ask, do we 
have anything that might minimize that?
    Dr. Diaz. I believe we do, Mr. Chairman. The early site 
permit, which really goes at the heart of qualifying a site for 
a reactor, be it an existing site or a green site, has in it a 
series of processes including an environmental impact 
assessment that will be and should be used by the combined 
license applicant.
    Now, in this way, the combined license application, which 
will be a major Federal action, will actually be banking on the 
environmental impact on the sites, and the determinations that 
were made for the early site permit.
    So there might be some small overlap, but there is no 
significant duplication. They can utilize what has already been 
determined and adjudicated and go forward from that point on.
    The Chairman. One last question, which includes an 
observation and a question.
    Last year's conference report on the energy bill provided 
for a number of sources of energy, wind, solar, and nuclear and 
others, what is called a production tax credit, meaning a 
credit for actual production, a relationship between the credit 
and the production dollars.
    Senator Bingaman raised the issue before he had to leave 
for another meeting that he would have been interested in 
talking to the Lehman Brothers' operative executive who could 
not be here.
    And the reason as stated by Senator Bingaman was because 
there remains an issue that is practical and surrounds all the 
issues we have discussed and that is will the marketplace, that 
is the capital available institutions, will they fund plants in 
the future based upon the history that Senator Craig raised and 
that you raised talking about 1973, 1978 as being terminal 
years for this program.
    Now, the question then is, what can we do to have more 
certainty of construction finality once a nuclear power plant 
is fully licensed and the construction license is issued and 
work is started?
    I already know we will get the after-market people in and 
talk to Senator Bingaman and anybody else who will not have a 
chance to have a formal hearing, but they are going to say that 
is the issue.
    Can they put the money in, will the market let them, if 
during that construction, which might be much less than before, 
if there is great risk that it could be stopped for non-safety 
issues, non-substantive?
    Is there anything being considered to maybe make that 
problem less in the future and, if so, could you describe it?
    We are working on something legislatively and hope we are 
vetting it with you, but either of you. Perhaps, Secretary, you 
could start and then go to the chairman.
    Mr. Sell. Mr. Chairman, the Department and the 
administration have taken a very hard look at the question that 
you have posed.
    And it has been our observation and a conclusion that we 
have drawn as a result of the work that we have done that there 
is considerable confidence that the cost of building a new 
nuclear plant, the life-cycle cost, is competitive today with a 
new natural gas plant, given where prices are, or a coal plant.
    The concern is one that is brought forward from this 
experience in the 1970's, is from the industry, that they have 
told us that we think we can build the plant in 5 years at a 
competitive cost. Our concern is the risk of a catastrophic 
delay on the back end due to a failure in the licensing 
process.
    And so in the past, where your effort here in the Congress 
and the emphasis has been on a need for construction incentives 
on the front end, it is our belief at the administration that 
that is really not the most important thing.
    The most important thing is providing certainty on the back 
end that an investor that chooses to make a commitment to a 
nuclear plant can with some level of confidence enjoy the 
benefits of that investment within a 5-year construction 
period.
    And so the effort of the administration has focused on the 
back end. And there are a number of proposals under review that 
I am not prepared to make an announcement on today, but we 
would look forward to working with the Congress moving forward 
in finding an appropriate way to address that risk.
    The Chairman. Thank you very much.
    Chairman.
    Dr. Diaz. Yes. Thank you, Mr. Chairman.
    I do believe that the process that we have established and 
several components of it have been tried and have been 
functional. The key one, though, the actual combined 
construction operating license as you remarked is untested.
    I do believe that up to the point where we have the hearing 
on the combined construction operating license, we have these 
processes very well down pat.
    I think the industry is concerned with the next step. Once 
you actually receive a license for construction and operation, 
the process continues. And then we enter into--if you look at 
this little graph in here, into that little black box in there 
or blue box, it is called verification.
    The verification is a system that is being really developed 
to verify that the conformance with NRC regulations is there. 
In other words, have the licensee build the plant and have the 
programs in place that they actually stated in their 
applications.
    It is kind of a trust and verify, Mr. Chairman. It is 
saying, yes, we are going to give you a license, but then we 
are going to verify that you are conducting your construction, 
you are establishing your programs in the way that they should 
be.
    And if that is so, that does not open that process to abuse 
or to inquiries or to delays. If there is a problem in that 
process, if it is a minor problem, it still goes forward.
    However, it does contain the fact that in that process, 
there is a substantial difference between the actual 
construction or the actual programs and what the licensees put 
in their applications, that could be contested. And in that 
case, there is a concern in that regard.
    The Chairman. Thank you very much on those questions to 
both of you.
    Senator Alexander.
    Senator Alexander. I want to make sure I have a clear 
understanding of what happens at the end, this uncertainty 
period.
    You have your combined license and the utility has to 
satisfy inspections, tests, analyses, acceptance criteria 
before the plant operation begins.
    Dr. Diaz. Correct, Senator.
    Senator Alexander. Now, that is your examination, correct?
    Dr. Diaz. Yes. We examine. However, I think it should be 
clear that the licensee proposes the inspections, tests, 
analyses, and acceptance criteria. We review them and then we 
inspect to make sure that they are in compliance with what they 
have proposed.
    Senator Alexander. But you come to your conclusion based 
upon your review of their proposed conditions?
    Dr. Diaz. Right.
    Senator Alexander. Then the plant may be turned on at that 
point?
    Dr. Diaz. That is correct. If they satisfied all the 
conditions.
    Senator Alexander. If they have satisfied you. All right. 
Now, then there may be judicial review of that, of your 
decision; is that correct?
    Dr. Diaz. No, sir. There is no judicial review unless there 
is a substantial nonconformance, unless there is someone that 
comes forward and prove--and the burden of proof is it has to 
be a substantial issue, not a minor issue--that the licensee 
has not complied with the license as given.
    Senator Alexander. But an aggrieved party, someone who does 
not like your decision, may ask for a hearing; is that correct?
    Dr. Diaz. But they cannot get it unless there is a 
substantial issue.
    Senator Alexander. Who do they ask? The Federal Court?
    Dr. Diaz. No. Well, they can always go to a Federal Court, 
sir, as you know. But they first have to come to the NRC and 
ask for a review or adjudication on that.
    Senator Alexander. So they could ask for a hearing, but 
there is a high threshold before they get the hearing?
    Dr. Diaz. There is a high threshold because we have 
determined that if all of these technical aspects and legal 
aspects of the license are complied with and the inspections, 
tests, analyses, and acceptance criteria are acceptable to the 
NRC, then, therefore, there should not be a substantial issue.
    So there is a burden of proof on whoever intervenes at that 
time to prove that there is a substantial issue.
    Senator Alexander. I understand. But you do not think that 
someone might not be able to go into the Federal Court and 
challenge your decisions?
    Dr. Diaz. I think that they can certainly do that, sir.
    Senator Alexander. If they were to do it, and I guess this 
is getting to the point, can you authorize or would you 
authorize the plant to go ahead on an interim basis while you 
were considering whether to hold a hearing yourself or during 
the pendency of any court application unless the court ordered 
you not to?
    Dr. Diaz. Yes, sir. We can do that. If we do not believe 
there is a substantial issue and we make the determination 
there is a reasonable assurance of protection of public health 
and safety, the plant could start and the judicial processes 
will continue on.
    Senator Alexander. So your intention would be to allow the 
applicant to recommend the standards, you review the proposed 
standards, and you come to a conclusion, and then you authorize 
the plant to be turned on even if someone is asking for a 
hearing?
    Dr. Diaz. If there is no substantial safety issue that has 
been shown, correct.
    Senator Alexander. Let me ask one other question. The Navy 
has operated since the 1950's dozens, maybe a few hundred 
nuclear reactors. I guess the number is classified.
    I jokingly suggested to some of my colleagues maybe our 
best nuclear power program would be to build ten new aircraft 
carriers and park them and plug them in. And we could build 
them fast and cheaper.
    The Navy apparently trains its officers in a 14-month 
training school. They have not, as I understand it, had one 
single incident with a reactor during that whole period of 
time.
    What can we learn from the Navy's experience since the 
1950's about how to have this renaissance of nuclear power on 
shore that Senator Domenici talks about?
    Dr. Diaz. Sir, we have been learning from the Navy from the 
very beginning. Half of my staff are Navy ``nukes'' one way or 
another. But the reality is that that process continued for 
many years.
    One of the issues is that, of course, the plants in the 
submarines and the carriers are plants that go in harm's way. 
They have substantial investments made in how strong these 
plants are and how they will be functional under battle 
conditions and all kinds of conditions. They also use different 
kinds of fuel.
    So the principles are the same. The new plants are coming 
in under design certification processes that are actually 
relaxations, if you want to, from the nuclear Navy programs 
because they do not have to meet certain criteria that they 
have.
    But in many ways, they are excellent plants. They have 
significantly enhanced the safety criteria that has been used 
in the design of these plants.
    So we keep learning and working with the nuclear Navy. I 
believe that the products that the industry has put forward are 
quite adequate for the present demands of this country.
    Senator Alexander. Thank you, Mr. Chairman. I think it 
helps the American public understand, since a lot of what we 
are battling here is public impression, is that I believe 
nuclear carriers, nuclear-powered carriers, submarines are 
welcome in any port in the United States; is that correct?
    The Chairman. In the world.
    Dr. Diaz. Correct.
    Senator Alexander. But at least in the United States which 
is where we would like. I mean, do they ever dock off 
California, off the coast of California?
    Dr. Diaz. I think they do.
    Senator Alexander. I imagine they do.
    Dr. Diaz. San Diego, yes.
    The Chairman. They do in Europe, too, though, do they not?
    Dr. Diaz. They do in Europe. We have ports in Europe and 
Spain and in the United Kingdom.
    The Chairman. And the point of Senator Alexander's inquiry 
here is that nobody clears out the port. There is civilian 
boats all over the place, right, when they park it there?
    And one of our big concerns is convincing Americans that it 
is not very dangerous to move things around. I mean, that is 
why right now we are talking about building new plants right 
where existing ones are because if you are going to locate them 
elsewhere, the question is going to always be how do you move 
the nuclear waste. That is still one of our problems.
    But out in the ocean, they are moving it around all the 
time with nobody running around saying I am going to get in 
front of this boat and drown like they do here.
    They are going to put themselves in the road and it is over 
my dead body you drive the train or whatever, which is kind of 
bothersome as I see it because the amount of travel over the 
amount of time in the waters of the world without an accident 
is an incredible number which I use frequently to try to 
convince an audience that moving it around is not very serious. 
Moving it around in water in a port ought to be more serious 
than moving it on the road, right? If it gets in the water, it 
goes everywhere. It flows.
    So, anyway, great line of questioning. Now, we are going to 
yield to Senator Craig.
    And, Senator, I want to say that your enthusiasm for 
nuclear power has been a tremendous part of moving this ahead 
and I thank you for supporting what I have been trying to do.
    And you made your State a leader in the civilian side and 
we are pleased with what is going on there. And we hope you 
will continually review what is being done so we will have the 
benefit of your evaluation.
    Senator Craig. Well, Mr. Chairman, thank you very much for 
that kind comment. I think we already recognize the importance 
of this industry to our country and as we look toward future 
energy sources.
    Commissioner Diaz, let us talk about siting for a moment as 
a component of this combined effort. How many current reactor 
sites has sufficient area at site for the construction of one 
or more new nuclear units?
    Dr. Diaz. Senator, I believe that the majority of the 
reactor sites are capable of adding one or two more units on-
site.
    So the present existing fleet have that capability. Some of 
them are better situated than others because of the need for 
cooling capabilities, the need for the infrastructure. But the 
reality is the majority of them would be capable of adding 
another nuclear power plant on-site.
    Senator Craig. Based on one of the inevitable problems with 
siting which occurs in any new major facility, whether it be 
nuclear or non, is the issue of not in my back yard attitude 
that is prevalent in some areas of our country.
    What advantages beyond a current operating reactor on-site 
in an area does a current site offer this in any expedited way 
toward moving a combined construction and operating license 
approach?
    Dr. Diaz. I think there is a significant advantage of an 
existing site because the people of the town, the communities 
are already well informed. We have had for years, and our 
licensees have programs to keep the communities informed and 
participating in the processes.
    So we find that the majority, not all--we always have a 
little problem in some parts of the Northeast where the 
questioning attitude of our communities in there is 
extraordinary. And we consider that a clear challenge. We are 
always working with them.
    But the reality is that at many of the existing sites, the 
communities are well educated. They know what nuclear power is. 
They realize that a lot has been done to protect the public 
from any potential hazards. They actually know what the 
emergency preparedness issues are. They have been working on 
it.
    So I think there is a significant social/political 
advantage with existing sites besides all the things you 
mentioned from the infrastructure and so forth.
    Senator Craig. So it is significantly a perceptual problem 
that you overcome by the presence of the current facility?
    Dr. Diaz. You are absolutely correct.
    Senator Craig. You mentioned in your testimony that the NRC 
has approved three design certification applications and is 
close to approving a fourth.
    Has there been any efficiencies gained in reviewing these 
applications?
    Dr. Diaz. Significant efficiencies. We started this process 
back in 1989 and because there was really not a major driver, 
we went through a very, very thorough process.
    Things we did, for example, the Westinghouse AP600 took 
almost 8 years to do, we now have been able to do the AP1000, 
which is similar in nature, in 2\1/2\ or 3 years.
    So there is significant efficiency that has been gained. 
Most of those are gained in the area of light-water reactors. 
We know light-water reactors back and forward. We know what the 
issues are. We can handle light-water reactors a lot better 
than we can handle any other type of reactors.
    Senator Craig. Clay, you mentioned in the announcement of 
this 2010 approach and the agreement that has just been struck 
with NuStart Energy Development a combination of project 
schedule, budget, and site selection.
    What kind of efficiencies do you expect to gain from this 
new issuance as it relates to the long-term approach that we 
have conceptually perceived under 2010?
    Mr. Sell. Senator, the real value that we see in funding 
these consortiums is further testing the early site process and 
then getting the two new reactor designs certified, both the 
new GE economic safe boiling water reactor and the AP1000 
reactor.
    And so the goal of Nuclear Power 2010 is for the Government 
to help substantially improve the new one-step licensing 
process and to get these two new reactor designs certified.
    And we think the two consortiums that we have chosen, the 
Dominion led team and the NuStart team, will go a long way 
toward doing that, resulting, we believe, ultimately in the 
application of a combined construction operating license in the 
next few years.
    Senator Craig. My next question, Clay, was going to be give 
us a timeframe. What do you expect based on these new 
relationships and the expenditure? What do you expect to see 
from it? I mean, you have basically explained what you expect 
to see from it. When do you expect to see it?
    Mr. Sell. We have laid out a program that runs through 
approximately 2011. And during that period, we expect to help 
fund the efforts that will result in an NRC certification of 
the AP1000 as early as the end of this year and of the GE 
reactor within a year or 18 months thereafter.
    Once the design is certified, then there is still at least 
2 to 2\1/2\ years of the first-of-a-kind engineering and design 
work that needs to be done. And this Department, the Department 
of Energy, is committed to funding half of those costs.
    But that does leave the possibility of a--that timeframe 
leaves the possibility of, we think, a very reasonable 
possibility of an application for combined license in the 2008, 
2009 timeframe.
    Senator Craig. With the money that you have got in the 
budget, the money that you are allocating in relation to these 
startups, Commissioner Diaz, you have talked about a need for 
additional resources, 20 plus in 2006, 20 plus in 2007.
    Tell us about your relationship here. What is the 
relationship we should understand between DOE and 2010 and the 
NRC and DOE 2010, these combined approaches and the necessary 
funding that will need to be put forth.
    Mr. Sell. Well, ultimately, of course, Senator Craig, the 
NRC is the regulator and that entity is completely independent 
from the Department of Energy.
    Senator Craig. I understand the independence. There is also 
a very direct relationship here with timing and resource.
    Mr. Sell. I believe, and Chairman Diaz, I am sure, will 
disagree with me if he holds a different view, but I believe 
the funding that we have committed is consistent with the time 
line and the resources that will be available to the NRC in 
order to accomplish the objectives that I have laid out. But I 
will see if the chairman agrees with that.
    The Chairman. Do not forget, Mr. Chairman, you are 
independent.
    Dr. Diaz. Yes, sir.
    Senator Craig. And we all know that is an important line, 
both in reality and in perception as it relates to the process 
and the public's understanding of the process.
    But I just want to make sure that the right hand and the 
left hand, although very separate on this body and on most, 
have some element of coordinated activity as it relates to 
budgets and requirements.
    Dr. Diaz. I believe that we are coordinating our 
activities. I believe that in the technical arena, we are 
trying to make sure that the NRC has the technical manpower, 
the resources, and the infrastructure to be able to address the 
issues in a manner that the Department of Energy is laying them 
out.
    We do have some, I will call it small, difference in timing 
in which we are hearing that we might have to be fully prepared 
to address a combined license application by as early as late 
2007, or the beginning of 2008.
    We cannot ramp up our manpower overnight. So if that is 
going to happen, we need to actually have the infrastructure 
that needs to be there and I think these are the issues that 
are coming out lately.
    I do believe, Senator Craig, that we are coordinating our 
activities. I do believe that we could do a little better and I 
believe that Deputy Secretary Sell and I are seeing issues that 
need to be addressed. We will put our staff to work together, 
maintaining the clear separation that is required by law.
    Senator Craig. I am running way over on time. Can I have 
one last question?
    Assuming you have the dollar resources, can you find the 
person power?
    Dr. Diaz. The answer, sir, is yes. We are going to hire 
them away from the industry. We are going to have hiring 
programs. We are looking right now. We are not waiting. We are 
bringing the people in.
    We have established a training program. We are establishing 
the training to do model work construction. We are looking at 
every single one of these aspects and this is why I believe we 
are a little busy, but I believe we are ready, sir.
    Senator Craig. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Craig.
    Senator Salazar, we welcome you and thank you for coming. 
You are a very participating senator and that means we look 
forward to you giving us your ideas as you put the energy bill 
together and nuclear power.
    We have not heard much from you about it, so it is good 
that you are here today, not that you have to tell us how you 
feel, but we are glad to have you here.
    Senator Craig. But we would like to know.

          STATEMENT OF HON. KEN SALAZAR, U.S. SENATOR 
                         FROM COLORADO

    Senator Salazar. That is why I am here, to learn.
    But, Mr. Chairman, let me just say thank you again for your 
leadership of this committee and thank you as well for your 
efforts to make sure that we have a bipartisan energy bill that 
we will hopefully all get done this year. Your leadership is a 
keystone to making this happen and I appreciate the leadership 
that you bring.
    This is an area where I personally am going to learn about 
and I am struck by the article which Senator Domenici shared 
with me this morning where it is stated among other things that 
we have 440 nuclear reactors in 30 countries, producing 16 
percent of the world's electrical energy base.
    And I am struck by that because it seems to me that we have 
a great information gap in terms of what is actually occurring 
with nuclear energy production in our world and in our country 
and what the people of the United States know about this.
    I was in France not so long ago with Senator Alexander. And 
I remember one of the conversations I think we had with one of 
the foreign ministers where they talked about how so much of 
the nuclear energy or so much of the electrical energy in 
France comes from nuclear production.
    So this is an area where I think we as Americans probably 
for the last 20, 30 years have really not been very well 
informed about what some of the progress is that has been made 
in this arena.
    I have a couple of questions for you, Chairman Diaz, if I 
may. One is, I understand that there are three sites that have 
been put forward for early site permitting in Illinois and 
Mississippi and Virginia. And I was wondering if you could tell 
us what the status is of the early permitting process with 
respect to those three sites. When will we get to the point 
where you have a permit in hand for the applicants of those 
projects?
    Dr. Diaz. All these three sites are in adjudication. So if 
you see me choosing my words carefully, it is because there are 
some things that I am not allowed to discuss.
    But the three permits are doing well. We have issued, as of 
today, the safety evaluation reports on all three sites. Two of 
the sites have their draft environmental statements and one is 
coming shortly.
    We believe we are on track to conduct and finish these 
processes within their established schedules, meaning that it 
would take about 24 months for the entire review and about 12 
months for adjudication.
    So it takes about 36 months for the process. We are on 
track to complete the early site permit phase on all three 
sites as scheduled.
    Senator Salazar. Let me ask you where the community is. We 
will just take one of those States, Illinois. And I do not know 
the answer to this question, so I just want to get your sense 
of where the community in Illinois is relative to supporting 
the process that you have undertaken.
    Where is the Governor? Where is the Illinois congressional 
delegation? Are they involved? Are they supportive? Are they on 
the sidelines watching what is going on? Tell me the level of 
the local and State government as well as the congressional 
delegation view of the Illinois project.
    Dr. Diaz. In looking at the three sites, each site is 
completely different. In the south, there is stronger support 
and more unified support for their site than there is in 
Illinois.
    However, we are finding that the community is well 
informed. There are issues that are in adjudication and we deal 
with those processes in a very fair and equitable manner.
    So I do believe that the communities are seeing that the 
NRC is diligent in answering their questions. I do believe that 
once these processes are finished that most of the answers will 
be given and understood.
    There is always going to be some opposition. After all, 
this is nuclear power and we always expect to have some dissent 
and some opinions that do not go along with what the record is.
    But those are always there and we deal with them in a very 
open manner. We try to go to these communities and discuss the 
issues with them.
    I do believe that the congressional part of it has not seen 
any significant opposition at the present time. I think we have 
done a reasonable job of explaining the process.
    One of the things the NRC has done now is we do have 
congressional-focused parts of the staff that actually go to 
the States and interact with both the communities and the local 
congressional people in an effort to make communications 
better.
    Senator Salazar. May I ask two more questions, Mr. 
Chairman? I see my light is up.
    The Chairman. Go ahead.
    Senator Salazar. I will ask one question to you, Chairman 
Diaz, and then to you, Mr. Sell, another question.
    I think since Chernobyl happened some decades ago, there 
has been kind of a freeze on consideration of nuclear energy 
and very controversial, I think, in this country.
    If you could just summarize for me in a minute or so, 
minute and a half, what the key lessons are and what the 
changes have been based on, I know, a huge evaluation of what 
went wrong there.
    And then for you, Mr. Sell, if you would comment on the 
issue of waste just very briefly. If, in fact, Yucca Mountain 
does not come on line the way that has been envisioned, what 
does that do then to the NP 2010 effort? What is the impact on 
it?
    Dr. Diaz. Senator, the nuclear power plants in the United 
States today are at a very good state of safety and security. 
We are very confident that the changes that have been in place 
for almost a generation now have made these plants better 
managed, safer and more secure.
    We believe that the U.S. fleet is probably the best fleet 
of nuclear power plants in the world. We occasionally have a 
problem. We identify the problems. We deal with the problems.
    So from the standpoint of a regulator, I am very satisfied 
that the fleet right now complies with every appropriate 
regulation, and they actually, in many cases, exceed our 
expectations for safe and secure operation of nuclear power 
plants.
    Senator Salazar. Thank you.
    Mr. Sell.
    Mr. Sell. Senator, the ``Nuclear Waste Policy Act'' 
required that the Department of Energy begin accepting spent 
nuclear fuel in 1998. We were not successful in doing that.
    The Yucca Mountain project is critical and it underlies 
every aspect of the discussion that we have had today. And the 
Government is absolutely committed to meeting its obligations 
under the ``Nuclear Waste Policy Act'' to accept and 
permanently dispose of spent nuclear fuel.
    We are very confident in the science that underpins our 
decision to recommend the Yucca Mountain site as the 
appropriate location for that. The political difficulties in 
moving forward have proved great.
    But in order to move forward with nuclear power in a manner 
the administration desires and in a way that I think many in 
Congress hope to, it is important that we make progress and 
eventually open Yucca Mountain for its stated purpose. And we 
are confident that we can do that.
    Senator Salazar. Thank you.
    The Chairman. Thank you for your questions and thank both 
of you for your answers.
    Senator Alexander, do you have anything further of these 
witnesses?
    Senator Alexander. No, Mr. Chairman.
    The Chairman. Senator Craig.
    Senator Craig. I have nothing.
    The Chairman. Mr. Chairman, let me just for the record talk 
with you a little bit about current law with reference to 
challenges of this process of permitting and construction and 
opening it.
    As I understand it, none of the statements by you to 
Senator Alexander are meant to say parties in the United States 
that want to challenge the sufficiency of a nuclear power 
plant's designs and safety features. They have a right to go to 
court, right?
    Dr. Diaz. Absolutely, sir.
    The Chairman. And that is part of the up-front activities 
under current law so that after the planning, designing, and 
before the licensing, the issue is the adequacy of what is 
going to be built, right?
    Dr. Diaz. That is correct.
    The Chairman. Now, at that point, somewhere in there, they 
can appeal to you that there is an insufficiency in that 
process and in what has come out of that process, right?
    Dr. Diaz. That is correct.
    The Chairman. And then they have a right to appeal and 
obviously the issue is going to be the adequacy for the public 
safety and compliance with law of that process and those 
construction designs, et cetera, right?
    Dr. Diaz. That is correct.
    The Chairman. Now, the difference between that and past law 
is after that is done and there is a final, you--if your appeal 
is final because they do not go anywhere or the court hears it 
and says, no, it is right, then the difference is that we do 
not rely any longer in the law, under the law, and subsequent 
appeals to the courts other than as provided in the new statute 
which talks about the fact that we have done up front what we 
have done is prima facie evidence that the plant is safe and, 
therefore, the contest, if any, is with reference to complying 
with what has been permitted in terms of design, construction 
requirement, et cetera; is that correct?
    Dr. Diaz. That is correct. And operational programs, 
programmatic programs. That is exactly correct, sir.
    The Chairman. Now, Senator Alexander, we had talked a 
number of times about America's past activities. And clearly we 
have both spoken about the incessant ability to go to court and 
the regularity--you can go one time, two times, and then how 
long it takes, as if the way we chose as a Nation to purify on 
behalf of the public, to make certain that the courts are the 
only way to do that. So we have said go to court. If the court 
approves it, surely the public is safe. And we have found that 
if that was the case, it always was something else. It was an 
invitation to get nothing done, right?
    And so when we did the new law, some of the people here, 
staff were participants. Some of the Senators who helped write 
it are not here, but the writing of the new law tried to take 
into account what I have just described and not deny an 
opportunity to go to court, but to say when and how.
    And I assume there could be a challenge of the whole 
statute. But we are not talking about that right now. That may 
be done, but the question there will be when they can raise 
that too. And I assume it is when they have a right to go to 
court, they challenge that.
    But this whole new process is what we are using in 
conjunction with the new program that Senator Craig talked 
about, NP what, 2010? That process in conjunction with 2010 
which is to help the companies go through this experiment, that 
is the new process which you conclude and the department 
concludes may, in fact, expedite in an appropriate way the 
licensing and opening of a plant; is that correct?
    Dr. Diaz. That is correct. It should expedite it. I would 
like to again repeat that the American public will have an 
opportunity that is open to contest every single aspect of the 
plant licensing, construction, and siting at one hearing point. 
After that has been resolved, then the NRC can license the 
facility and then these ITAAC issues will come in.
    One of the key things is to do those things correctly. And 
if the licensee does all that it does and gives us all the 
information and does the right thing, then there is a 
substantial burden of proof to say that they did not, I believe 
it is a fair process. We are committed to making it as 
equitable as possible to all parties involved and I believe it 
does lead to efficiencies in completing this licensing in a 
very good manner.
    The Chairman. Senator Salazar, I just wanted to answer one 
of the questions you asked. In kind of a rifle shot way, you 
asked about public support.
    There is a presite being considered at the Grand Gulf site, 
which is in Mississippi. And incidentally in that case, the 
local city council closest to the public political group has 
passed a resolution supporting the construction of a new 
reactor next to the current reactor.
    Now, that is not everywhere, but that is surely a change 
from when you were referring to immediately post Chernobyl and 
Three Mile Island atmosphere.
    Having said that, for myself, I want to thank both of you 
on the issue of nuclear power.
    Sometimes I say let us do it and then I look at the 
information and I say none of us are ever going to be around 
when it happens, because timelines are so long. But it looks to 
me like that horizon is getting shorter and we may, in fact, 
see some real action.
    Let us proceed by thanking you and ask for the next 
witness. Thank you both very much.
    Could we have the next witness, please. The next witness is 
Mr. Michael Wallace, executive vice president of the 
Constellation Energy and the president of the Constellation 
Generation Group.
    Again, former submarine officer, right?
    Mr. Wallace. That is correct, Mr. Chairman. I am proud to 
have served my country as a submarine officer.
    The Chairman. Did you train in Idaho?
    Mr. Wallace. Indeed I did, the S1W prototype. And it was 
that training and experience that has launched me on the path 
that brings me here today. Thank you, sir.
    The Chairman. Thank you.

  STATEMENT OF MICHAEL J. WALLACE, EXECUTIVE VICE PRESIDENT, 
           CONSTELLATION ENERGY GROUP, BALTIMORE, MD

    Mr. Wallace. Mr. Chairman, Senator Craig, Senator 
Alexander, Senator Salazar, members of the committee, thank you 
for the opportunity to appear before you today.
    I have prepared a statement for the record and I ask your 
permission to enter that statement in the record and then 
provide short summary this morning.
    The Chairman. That will be done.
    Mr. Wallace. Thank you.
    As you indicated, I am executive vice president of 
Constellation Energy and president of the Constellation 
Generation Group.
    I want to take just a minute to tell you about 
Constellation Energy. Constellation Energy, a Fortune 200 
company based in Baltimore, is the Nation's leading competitive 
supplier of electricity to large commercial and industrial 
customers and the Nation's largest wholesale power seller.
    Constellation Energy also manages fuels and energy services 
on behalf of energy-intensive industries and utilities. The 
company delivers electricity and natural gas through the 
Baltimore Gas & Electric Company, its regulated utility in 
Maryland. We are the owners of 107 generating units at 35 
generating locations in 11 States totaling 12,500 megawatts of 
generation capacity.
    In 2004, the combined revenues of the integrated energy 
company totaled more than $12\1/2\ billion, and we are the 
fastest growing Fortune 500 company over the past 2 years.
    Our portfolio based on electricity production produced is 
approximately 50 percent nuclear, 35 percent coal fired, 7 
percent gas, and 5 percent renewables.
    We own and operate the Calvert Cliffs nuclear plant in 
Maryland and the Nine Mile Point and Ginna nuclear plants in 
Upstate New York.
    Constellation is part of the NuStart consortium that is 
preparing an application to the NRC for a license that would 
allow us to build and operate a new nuclear plant.
    Additionally, in December of last year, Constellation 
submitted a proposal to the Department of Energy for studies 
that could lead to an application to the Nuclear Regulatory 
Commission for an early site permit as part of the Nuclear 
Power 2010 Program.
    So as you can tell, we have a vested interest in the 
continued success of Nuclear Power 2010 and we are bullish on 
the future of nuclear power.
    Although I am testifying here today on behalf of 
Constellation, this testimony is supported by our trade 
association, the Nuclear Energy Institute.
    The United States has 103 reactors operating today which 
represent 20 percent of our electricity. Over the past 10 to 15 
years, these plants have achieved dramatic improvements in 
reliability, safety, and productivity.
    Despite the impressive gains in reliability and output, 
however, the time has come to create the business conditions 
under which we can build new nuclear plants in the United 
States.
    We believe there are compelling public policy reasons for 
new nuclear generating capacity. New nuclear plants will help 
maintain the fuel and technology diversity that is the core 
strength of the U.S. electric supply system.
    New nuclear power plants provide future price stability 
that is not available from electric plants generating from 
natural gas. And, finally, new nuclear power plants will play a 
leading role in meeting U.S. clean air goals and reducing 
greenhouse gas emissions.
    The Department of Energy's Nuclear Power 2010 Program is an 
essential foundation in the joint government/industry 
partnership to build new nuclear power plants.
    The committee and in particular the chairman deserve credit 
for your leadership in ensuring adequate funding for the 
program in the 2005 fiscal year.
    Nuclear Power 2010 is designed to demonstrate the new 
licensing system for nuclear power plants including the process 
of obtaining early site permits and combined construction 
operating licenses and resolving generic combined licensing 
issues.
    It is an industry DOE cost-share program that includes 
sharing the cost of the detailed design and engineering work 
necessary to prepare COLs. This work is essential because it 
allows industry and the NRC staff to identify and resolve 
technical and regulatory issues that must be settled before 
companies can undertake high-risk, capital-intensive 
construction projects like new nuclear plants.
    The Nuclear Power 2010 Program is the springboard that 
launched a tangible and visible industry commitment to new 
plant construction. The industry's commitment to Nuclear Power 
2010 includes a planned investment of $650 million over the 
next several years on design, engineering, and licensing work 
which will create a business foundation for decisions to build.
    Three companies have applications for early site permits 
under review. In addition to these three, Constellation and 
possibly one other company are also considering ESP 
applications.
    The industry is developing at least three applications for 
construction and operating license, the first expected to be 
filed in late 2007, the second and third in 2008.
    As you know, the administration has proposed $56 million 
for the Nuclear Power 2010 program in the 2006 fiscal year. The 
$56 million funding proposed for 2006 is sufficient for the ESP 
and COL demonstration projects underway.
    It is not adequate, however, to cover more recent 
expressions of interest from Constellation and others and 
additional resources will be necessary to ensure the program is 
viable into the future.
    It is also important to recognize that Nuclear Power 2010 
is a multi-year undertaking. Certainly future funding and 
program stability are a big concern for the industry.
    One other concern with the Nuclear Power 2010 Program 
surrounds the time it has taken the DOE to award the grants. In 
the case of NuStart, we submitted our application in 2004 and 
we were not notified that we received the grant until November 
2004.
    I might add it is my understanding that today we may be in 
a position with the Department of Energy to begin the process 
of final sign-off on the application.
    As for Constellation's early site permit application, we 
submitted it almost 4 months ago and have yet to receive final 
word from Department of Energy.
    The DOE Nuclear Power 2010 Program is necessary but not 
sufficient as a step toward new nuclear plant construction. We 
must address other challenges as well.
    Limited Federal investment in a limited number of new 
plants for a limited period of time is necessary and 
appropriate to overcome the financial and economic hurdles 
facing the first few plants built.
    It is important to understand why Federal investment 
stimulus and investment protection is necessary and 
appropriate.
    Federal investment stimulus is necessary to offset the 
higher first-time cost associated with the first new nuclear 
plants.
    Federal investment protection is necessary to manage and 
contain the one type of risk that we cannot manage, namely the 
risk of a regulatory failure, including court challenges that 
delays construction or commercial operation.
    Only the successful licensing and commissioning of several 
new nuclear plants can demonstrate that the licensing risks and 
uncertainties have been resolved.
    Industry and investor concern over the potential regulatory 
impediments may require techniques like the stand-by default 
coverage and stand-by interest coverage contained in S. 887, 
introduced by Senators Hagel, Craig, and others.
    We recommend that the Federal Government's investment 
include incentives identified by the Secretary of Energy's 
Advisory Board Nuclear Energy Task Force in its recent report.
    That investment stimulus includes secured loans and loan 
guarantees; second, transferable investment tax credits that 
can be taken as money as expended during construction; third, 
transferable production tax credits; and, fourth, accelerated 
depreciation.
    The limited portfolio of incentives is necessary because it 
is clear that no single financial incentive is appropriate for 
all companies because of differences in the marketplace, namely 
whether the markets they serve are regulated or competitive.
    In addition, I would be remiss if I did not thank the 
chairman and the committee for the support for three additional 
programs that will assist in the construction of new nuclear 
plants in the United States.
    One, sustained progress with the Yucca Mountain project is 
essential. This includes the funding necessary to maintain the 
schedule, ensure timely filing of the license application, and 
access to the full receipts of the nuclear waste fund.
    Two, renewal of the ``Price Anderson Act'' which provides 
the framework for the industry's self-funded liability 
insurance. I am pleased to note that this is included in the 
recent House passed energy bill.
    And, three, updated tax treatment of decommissioning funds 
that would provide comparable treatment for unregulated 
merchant generating companies and regulated companies.
    This provision included in the energy tax legislation 
passed recently by the House would allow all companies to 
establish qualified decommissioning funds and ensure that 
annual contributions to those funds are treated appropriately 
as a deductible business expense.
    The U.S. electricity business and our Nation are paying the 
price today for our inability to strike an appropriate balance 
between what was expedient and easy in the short term and what 
was prudent and more difficult in the long term.
    We are paying the price today for 10 to 15 years of neglect 
of long-term imperatives and the oversupply of base-load 
generation in the 1990's.
    The United States faces a critical need for investment in 
energy infrastructure, including the capital-intensive, long 
lead time, advanced nuclear and coal fire plants that represent 
the backbone of the U.S. electricity supply system.
    While some may not realize it, the United States faces an 
imminent energy crisis today. Electric power sales represent 3 
to 4 percent of our gross domestic product. But the other 96 to 
97 percent of our $11 trillion a year economy depends on the 3 
to 4 percent.
    We cannot afford to gamble with something as fundamental as 
energy supply and the biggest problem we face with nuclear 
energy is not having enough of it.
    Thank you again, Mr. Chairman, and the members of the 
committee, for your support and that of your outstanding 
professional staff for nuclear power and for your continued and 
strong support of the Nuclear Power 2010 Program.
    With that, I will be pleased to take your questions.
    [The prepared statement of Mr. Wallace follows:]
  Prepared Statement of Michael J. Wallace, Executive Vice President, 
                          Constellation Energy
    Mr. Chairman, members of the Committee, thank you for the 
opportunity to appear before you today.
    I am Michael Wallace, Executive Vice President of Constellation 
Energy and President of Constellation Generation Group. I want to take 
just a moment to tell you about Constellation Energy. Constellation 
Energy, a Fortune 200 company based in Baltimore, is the nation's 
leading competitive supplier of electricity to large and industrial 
customers and the nation's largest wholesale power seller. 
Constellation Energy also manages fuels and energy services on behalf 
of energy intensive industries and utilities. The company delivers 
electricity and natural gas through the Baltimore Gas and Electric 
Company (BG&E), its regulated utility in Maryland. We are the owners of 
107 generating units at 35 different locations in 11 states, totaling 
approximately 12,500 megawatts of generation capacity. In 2004, the 
combined revenues of the integrated energy company totaled more that 
$12.5 billion and we are the fastest growing Fortune 500 Company over 
the past two years.
    Our portfolio based on electricity produced is approximately 50 
percent nuclear, 35 percent coal-fired, 7 percent gas-fired and 5 
percent renewables. We own and operate the Calvert Cliffs nuclear plant 
in Maryland, and the Nine Mile Point and Ginna nuclear stations in New 
York State.
    Constellation is part of the NuStart consortium that is preparing 
an application to the NRC for a license that would allow us to build 
and operate a new nuclear plant. Additionally, in December 2004, we 
submitted a proposal to the Department of Energy (DOE) for studies that 
could lead to an application to the Nuclear Regulatory Commission for 
an Early Site Permit as part of the Nuclear Power 2010 program. So, as 
you can tell, we have a vested interest in the continued success of 
Nuclear Power 2010, and we're bullish on the future of nuclear power.
    Although I am here testifying today on behalf of Constellation, 
this testimony is supported by our trade association, the Nuclear 
Energy Institute (NEI).
    My statement this morning will address four major issues:

    1. The strategic value of our 103 operating nuclear power plants, 
and the compelling need to build new nuclear plants to preserve our 
nation's energy security, meet our environmental goals, and sustain our 
economic growth.
    2. The critical importance of the Department of Energy's Nuclear 
Power 2010 program as a platform from which to launch the next 
generation of nuclear power plants in the United States.
    3. The need to recognize that the Nuclear Power 2010 program does 
not address all of the challenges facing companies interested in 
building new nuclear power plants, and that additional joint investment 
initiatives by the federal government and the private sector will be 
necessary.
    4. The urgent need for comprehensive energy legislation that 
squarely addresses the critical need for additional investment in our 
electricity and energy infrastructure, including advanced nuclear and 
coal-fired generating capacity, electric and natural gas transmission, 
and other areas. Construction of the next nuclear power plants in the 
United States will require some form of investment stimulus, but I know 
I speak for the entire electric sector when I say that the need for 
investment stimulus extends well beyond nuclear power. This sector is 
starved for investment capital, and new federal government policy 
initiatives are necessary to reverse that trend and place our economy 
and our future on a sound foundation.
               the strategic value of nuclear power and 
                 the need for new nuclear power plants
    The United States has 103 reactors operating today. Nuclear power 
represented 20 percent of U.S. electricity supply 10 years ago, and it 
represents 20 percent of our electricity supply today, even though we 
have six fewer reactors than a decade ago and even though total U.S. 
electricity supply has increased by 25 percent in the period.
    Nuclear power has maintained its market share thanks to dramatic 
improvements in reliability, safety, productivity and management of our 
nuclear plants, which today operate, on average, at 90 percent capacity 
factors, year in and year out. Improved productivity at our nuclear 
plants satisfied 20 percent of the growth in electricity demand over 
the last decade.
    Due, in part, to excellent plant performance, we've seen steady 
growth in public support for nuclear energy. The industry has monitored 
public opinion closely since the early 1980s and two key trends are 
clear: First, public favorability to nuclear energy has never been 
higher; and second, the spread between those who support the use of 
nuclear energy and those opposed is widening steadily: 80 percent of 
Americans think nuclear power is important for our energy future and 67 
percent favor the use of nuclear energy; 71 percent favor keeping the 
option to build more nuclear power plants. Six in 10 Americans agree 
that ``we should definitely build more nuclear power plants in the 
future.'' Sixty-two percent said it would be acceptable to build new 
plants next to a nuclear power plant already operating.
    The operating nuclear plants are such valuable electric generating 
assets that virtually all companies are planning to renew the operating 
licenses for these plants, as allowed by law and Nuclear Regulatory 
Commission regulations, and operate for an additional 20 years beyond 
their initial 40-year license terms. Sixty-eight U.S. reactors have now 
renewed their licenses, filed their formal applications, or indicated 
to the Nuclear Regulatory Commission that they intend to do so. The 
remaining 35 reactors have not yet declared because most of them are 
not yet old enough to do so. We believe that virtually all U.S. nuclear 
plants will renew their licenses and operate for an additional 20 
years. At Constellation, we are proud that our Calvert Cliffs station 
was the first U.S. nuclear plant to renew its license. At the time, the 
license renewal process was a novel concept. Today, thanks to efficient 
management of the process by the Nuclear Regulatory Commission, it is a 
stable and predictable licensing action. Ten years from now, we hope 
and believe that the issuance of combined construction/operating 
licenses for new nuclear plants--a novel concept today--will be 
similarly efficient and predictable.
    Although it has not yet started to build new nuclear plants, the 
industry continues to achieve small but steady increases in generating 
capability--either through power uprates or the restart of shutdown 
nuclear capacity. The Tennessee Valley Authority is restarting Unit 1 
at its Browns Ferry site in northern Alabama. This is a very complex 
project--fully as challenging as building a new nuclear plant--and it 
is on schedule and within budget at the midpoint of the project.
    However, despite the impressive gains in reliability and output, 
there are obviously limits to how much capacity we can derive from our 
existing nuclear power plants. The time has come to create the business 
conditions under which we can build new nuclear power plants in the 
United States. We believe there are compelling public policy reasons 
for new nuclear generating capacity.
    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 in the electric sector make 
investment in large, new capital-intensive technologies difficult, 
particularly 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.
    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, thanks partly to unsustainable 
demand for natural gas from the electric sector, 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.
    And finally, new nuclear power plants will play a strategic role in 
meeting U.S. clean air goals and the nation's goal of reducing 
greenhouse gas emissions. New 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.
    In summary, nuclear energy represents a unique value proposition: 
new nuclear power plants would provide large volumes of electricity--
cleanly, reliably, safely and affordably. They would provide future 
price stability and serve as a hedge against price and supply 
volatility. New nuclear plants also have valuable environmental 
attributes. These characteristics demonstrate why new nuclear plant 
construction is such an imperative in the United States.
          the critical value of the nuclear power 2010 program
    As I said earlier, the Department of Energy's Nuclear Power 2010 
program is an essential foundation in the joint government/industry 
partnership to build new nuclear power plants. This committee and, in 
particular, you, Mr. Chairman, deserve great credit for your leadership 
in ensuring adequate funding for this program in the 2005 Fiscal Year.
    Nuclear Power 2010 is designed to demonstrate the various 
components of the new licensing system for nuclear power plants, 
including the process of obtaining early site permits (ESPs) and 
combined construction/operating licenses (COLs), sharing the cost of 
the detailed design and engineering work necessary to prepare COLs, and 
resolving generic licensing issues. This work is an essential risk-
management exercise because it allows industry and the NRC staff to 
identify and resolve scores of technical and regulatory issues that 
must be settled before companies can undertake high-risk, capital-
intensive construction projects like new nuclear plant construction.
    The Nuclear Power 2010 program is the springboard that launched a 
tangible and visible industry commitment to new plant construction. The 
industry's commitment to Nuclear Power 2010 includes a planned 
investment of $650 million over the next several years on design, 
engineering, and licensing work, which will create a business 
foundation for decisions to build. Three companies have applications 
for early site permits under review at NRC. In addition to these three, 
Constellation and possibly one other company are also considering ESP 
applications. The industry is developing at least three applications 
for construction/operating licenses; the first will be filed in 2007, 
the second and third in 2008.
    As you know, the administration has proposed $56 million for the 
Nuclear Power 2010 program in the 2006 fiscal year. The $56 million 
funding proposed for 2006 is sufficient for the ESP and COL 
demonstration projects already underway. It is not adequate, however, 
to cover more recent expressions of interest from Constellation and 
others, and additional resources will be needed to ensure this program 
is viable into the future.
    It is also important to recognize that Nuclear Power 2010 is a 
multi-year undertaking. Certainty of future funding and program 
stability are a big concern for industry. However, our biggest 
frustration with the Nuclear Power 2010 program involves the time it 
has taken the DOE to award the grants. In the case of NuStart, we 
submitted our application in April 2004 and we were not notified that 
we received the grant until November 2004. As for Constellation's ESP 
application, we submitted it almost four months ago and have yet to 
hear from DOE.
    To support the ESP and COL demonstration projects currently 
underway and future projects, we anticipate that the Department of 
Energy will need to significantly increase funding for Nuclear Power 
2010 over FY 2006 levels.
    The process of developing the first COL applications, certifying 
new designs and completing NRC review of the first ESP and COL 
applications will take some time. We are looking for ways to accelerate 
that process, and the Congress may be able to help there--by ensuring 
sufficient funding for Nuclear Power 2010 and even accelerating that 
funding; and by providing NRC sufficient resources to ensure that the 
commission has adequate manpower to conduct licensing reviews and meet 
aggressive but realistic schedules.
  the nuclear power 2010 program does not address all the challenges 
                 facing new nuclear plant construction
    The Department of Energy's Nuclear Power 2010 program is a 
necessary, but not sufficient, step toward new nuclear plant 
construction. We must address other challenges as well. Our industry is 
not yet at the point where we can announce specific decisions to build. 
We are not yet at the point where we can take a $1.5 billion to $2 
billion investment decision to our boards of directors. We do yet not 
have fully certified designs that are competitive, for example. We do 
not know the licensing process will work as intended: That is why we 
are working systematically through the ESP and COL processes. We must 
identify and contain the risks to make sure that nothing untoward 
occurs after we start building. We cannot make a $1.5--$2 billion 
investment decision and end up spending twice that because the 
licensing process failed us.
    The industry believes federal investment is necessary and 
appropriate to offset some of the risks I've mentioned. We recommend 
that the federal government's investment include the incentives 
identified by the Secretary of Energy Advisory Board's Nuclear Energy 
Task Force in its recent report. That investment stimulus includes:

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

    This portfolio of incentives is necessary because it's clear that 
no single financial incentive is appropriate for all companies, because 
of differences in company-specific business attributes or differences 
in the marketplace--namely, whether the markets they serve are open to 
competition or are in a regulated rate structure.
    The next nuclear plants might be built as unregulated merchant 
plants, or as regulated rate-base projects. The next nuclear plants 
could be built by single entities, or by consortia of companies. 
Business environment and project structure have a major impact on which 
financial incentives work best. Some companies prefer tax-related 
incentives. Others expect that construction loans or loan guarantees 
will enable them to finance the next nuclear plants.
    It is important to preserve both approaches. We must maintain as 
much flexibility as possible.
    It's important to understand why federal investment stimulus and 
investment protection is necessary and appropriate.
    Federal investment stimulus is necessary to offset the higher 
first-time costs associated with the first few nuclear plants built.
    Federal investment protection is necessary to manage and contain 
the one type of risk that we cannot manage, and that's the risk of some 
kind of regulatory failure (including court challenges) that delays 
construction or commercial operation.
    The new licensing process codified in the 1992 Energy Policy Act is 
conceptually sound. It allows for public participation in the process 
at the time when that participation is most effective--before designs 
and sites are approved and construction begins. The new process is 
designed to remove the uncertainties inherent in the Part 50 process 
that was used to license the nuclear plants operating today. In 
principle, the new licensing process is intended to reduce the risk of 
delay in construction and commercial operation and thus the risk of 
unanticipated cost increases. The goal is to provide certainty before 
companies begin construction and place significant investment at risk.
    In practice, until the process is demonstrated, the industry and 
the financial community cannot be assured that licensing will proceed 
in a disciplined manner, without unfounded intervention and delay. Only 
the successful licensing and commissioning of several new nuclear 
plants (such as proposed by the NuStart and Dominion-led consortia) can 
demonstrate that the licensing issues discussed above have been 
adequately resolved. Industry and investor concern over these potential 
regulatory impediments may require techniques like the standby default 
coverage and standby interest coverage contained in S. 887, introduced 
by Senators Hagel, Craig and others.
    Let me also be clear on two other important issues:

    1. The industry is not seeking a totally risk-free business 
environment. It is seeking government assistance in containing those 
risks that are beyond the private sector's control. The goal is to 
ensure that the level of risk associated with the next nuclear plants 
built in the U.S. generally approaches what the electric industry would 
consider normal commercial risks. The industry is fully prepared to 
accept construction management risks and operational risks that are 
properly within the private sector's control.
    2. The industry's financing challenges apply largely to the first 
few plants in any series of new nuclear reactors. As capital costs 
decline to the ``nth-of-a-kind'' range, as investors gain confidence 
that the licensing process operates as intended and does not represent 
a source of unpredictable risk, follow-on plants can be financed more 
conventionally, without the support necessary for the first few 
projects. What is needed limited federal investment in a limited number 
of new plants for a limited period of time to overcome the financial 
and economic hurdles facing the first few plants built.

    In summary, we believe the industry and the federal government 
should work together to finance the first-of-a-kind design and 
engineering work and to develop an integrated package of financial 
incentives to stimulate construction of new nuclear power plants. Any 
such package must address a number of factors, including the licensing/
regulatory risks; the investment risks; and the other business issues 
that make it difficult for companies to undertake capital-intensive 
projects. Such a cooperative industry/government financing program is a 
necessary and appropriate investment in U.S. energy security.
    I hope this Committee can find a place for this type of investment 
stimulus in the comprehensive energy legislation now being developed
    In addition, I would be remiss if I did not thank the Chairman for 
his support for three additional programs/provisions that will assist 
in the construction of new nuclear power plants in the United States:

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

    The U.S. electricity business and our nation are paying the price 
today for our inability to strike an appropriate balance between what 
was expedient and easy in the short-term, and what was prudent and more 
difficult in the long-term. We are paying the price today for 10 to 15 
years of neglect of longer-term imperatives and the oversupply of base-
load generation in the 1990's.
    The United States faces a critical need for investment in energy 
infrastructure, including the capital-intensive, long-lead-time 
advanced nuclear and coal-fired power plants that represent the 
backbone of the U.S. electricity supply system.
    While some may not realize it, the United States faces an imminent 
energy crisis today.
    Electric power sales represent three to four percent of our gross 
domestic product. But the other 96 to 97 percent of our $11-trillion-a-
year economy depends on that three to four percent. We cannot afford to 
gamble with something as fundamental as energy supply, and the biggest 
problem we face with nuclear energy is not having enough of it.
    Thank you again, Mr. Chairman and the other members of the 
committee and your outstanding professional staff, for your strong 
support for energy policy initiatives, for nuclear power and for your 
continued and strong support for the Nuclear Power 2010 program.

    Senator Craig [presiding]. Thank you very much for being 
with the committee and thank you for, I think, an open and 
frank presentation.
    You have just observed the House markup of an energy bill 
and you have also outlined inadequacies that you feel are 
necessary to truly energize the industry back into the 
processes of building nuclear reactor generation.
    How adequate is that bill based on the four criteria you 
laid out as necessary stimulants for investment?
    Mr. Wallace. Senator, we believe there are aspects of that 
bill that are moving in the correct direction.
    Perhaps the most significant area that needs additional 
attention is to deal with the risk associated with regulatory 
delay or the risk that we refer to as commissioning risk which 
is to say a plant is fully constructed and ready to operate, 
but it falls prey to court challenges or other delays that 
would seem unwarranted in light of the safety objectives that 
the Nuclear Regulatory Commission will already rule on.
    And we believe attention will yet be necessary to assure 
that those risks are adequately addressed.
    Senator Craig. Based on what you know of the new COL 
process that the Nuclear Regulatory Commission is involved in, 
is that adequate in relation to your--well, I guess I would say 
it appears that it is from your opinion or your company's 
opinion not totally adequate as it relates to process and 
certainty. Could you address that and your concern there?
    Mr. Wallace. Yes, sir. We believe the process as it is 
established, and Chairman Diaz went through just a short bit 
ago, is an appropriate process. In fact, the industry had the 
opportunity to factor in the lessons learned from the eighties 
in fashioning the new ESP design certification and COL process 
in the ``Energy Policy Act of 1992.''
    It should work. Our concern is until it is actually proven 
out, we cannot be sure that there will not be unidentified 
pitfalls that may fall subject to litigation or intervention 
that cause delays that we believe should not occur. But until 
several plants have been through the process, we cannot be 
certain they will not occur.
    Senator Craig. The reason I linked the two together, in my 
conversation with a variety of industry people, it is the 
uncertainty of the newness where the indemnification or 
protection is needed in the short term.
    Making the assumption that these processes work, are you 
suggesting or not suggesting that after the second or third 
construction operating occurs that these kinds of tools would 
continue to be necessary in the marketplace for an expanded 
nuclear fleet?
    Mr. Wallace. Senator, after the first several plants--and I 
am not sure what that exact number is, three, four perhaps--we 
believe that should provide adequate demonstration that the 
process works.
    And from that point forward, new nuclear plants should be 
capable of being ordered on the basis of solid economic footing 
without any necessary Federal support.
    Senator Craig. I have to assume that a company like yours 
is now planning for the future and projected future base-load 
needs.
    In the absence of the ability to build nuclear, what would 
you be doing or what are you planning to do?
    Mr. Wallace. Truly, Senator, our focus is on new nuclear 
plants. And not to avoid the question, but we believe so 
solidly that that is the right thing for the future that we 
have redoubled our efforts working with members of Department 
of Energy through NuStart and so forth to assure that new 
nuclear plants really do come about, that that is the right 
answer.
    In addition, integrated, combined gasified plants or so-
called clean-coal technology, we believe is also a viable base-
load technology for the future.
    We have a very difficult time not seeing new nuclear plants 
as a fundamental part of our base-load capacity in the future.
    Senator Craig. In your decisionmaking, how large did the 
absence of emissions play in decisionmaking as it relates to 
plans to build certain types of facilities?
    Mr. Wallace. It is one of many factors that plays in 
support of new nuclear plants going forward in the future. 
Clearly with 50 percent of our megawatt hours generated by 
nuclear plants, we are quite proud of the environmental record 
that that produces and we are also quite pleased with the 
business sustainability that that will provide for us going 
forward in the future and that we are not subject to 
regulations that would add costs for environmental air 
requirements in the future.
    We believe that nuclear power from an overall environmental 
point of view is going to be the--should be the predominant 
base-load capacity for the future. It is also the one that 
supports our objectives for energy independence and it should 
be the most economic once we get past the first few plants.
    Senator Craig. I think all of us are pleased to hear that 
the industry is forecasting that they will file the first of 
three applications for construction operating license in 2007.
    What from your perspective beyond what we have already 
visited about does the industry need from DOE and the NRC to 
achieve these goals?
    Mr. Wallace. Senator, we need to assure that from the NRC, 
there are adequate resources, personnel to be able to 
accomplish the reviews, to support the activity that is growing 
in the industry right now.
    Chairman Diaz in his earlier comments recognized that there 
may be some step-up in submittals from the industry. I expect 
that will be the case. And we, therefore, look for the adequacy 
of resources for the NRC to support those applications.
    In the case of the Department of Energy, continued support 
for the NP 2010 objectives to take us all the way through COL. 
And then frankly from the Congress, the legislation that will 
help us deal with the risks in the construction period and the 
so-called commercial operation risk or commissioning risk is 
also going to be important.
    Senator Craig. Thank you very much.
    Senator Salazar, questions?
    Senator Salazar. Thank you, Senator Craig, and thank you, 
Mr. Wallace for your testimony.
    This issue at the end of the day seems to me counts very 
much on whether or not we can produce nuclear power in a manner 
that is safe here in America.
    And we obviously have a long track record here of having 
produced nuclear energy even though I do not think that the 
American public recognizes that we have 103 nuclear power 
plants and that a significant percentage of our base actually 
comes from nuclear power.
    You have just gone through your relicensing process--I do 
not know exactly when you did this--with respect to one of the 
power plants in your company. I think it is the Calvert Cliffs' 
relicensing process.
    So let me ask you this. What lessons did you take from the 
accidents that happened at Chernobyl and that happened at Three 
Mile Island as you went forward in the relicensing process?
    How has your company with respect to the nuclear power 
plants you have changed over the last 30 years in terms of the 
kind of technology and the kind of public safety measures that 
you are now employing?
    I mean, we are now at 2005. Those incidents at Chernobyl 
and Three Mile Island, I think, are still very much the mindset 
of Americans with respect to nuclear energy. A lot of time has 
passed since then.
    So how have you specifically in your company addressed 
those public safety issues and how were they addressed as you 
went through the relicensing process of Calvert Cliffs?
    Mr. Wallace. Senator, we as well as the entire industry 
learned significant lessons from the Three Mile Island event in 
1979. That led to significant changes in the way we evaluate 
our designs, in the way we establish our emergency procedures, 
in the way we operate and maintain our plants.
    And the changes evolved through the course of the eighties 
as regulations came from the NRC to focus more and more on 
those areas. And, frankly, the experience of the industry 
helped to inform some of that regulatory framework.
    So our plants were improved and modified. Our training was 
significantly advanced. Our emergency preparedness was 
significantly advanced. There were a number of intensive, 
independent third-party reviews. The Institute of Nuclear Power 
Operations was created as the industry's self-monitoring and 
oversight group and that has grown to quite a significant 
reputation, in fact such that it has now expanded worldwide 
through the creation of the World Association of Nuclear 
Operators.
    And that is a body where we are all policing each other 
recognizing that we are in a sense hostage to each other with 
the weakest link being the poorest performer. So we put 
pressure on each other in a far different way than was ever the 
case prior to Three Mile Island.
    And I think all of those lessons, design, maintenance, 
operations, training, peer pressure, have created a very 
healthy environment that we continually improve our operations.
    And, in fact, that is what has led to the track record of 
the nineties and even part of this century where our plants are 
now operating last year at a record 90.5 percent capacity 
factor. And it is not over yet because we continue to learn 
from our experiences.
    Senator Salazar. The fleet of 103 nuclear reactors that we 
have in this country, have they been upgraded constantly over 
time and through the nineties and through this century given 
the lessons of the past?
    Mr. Wallace. Yes, sir. That is a very accurate way to say 
it. Both in the physical equipment as well as in the training 
of the personnel.
    Senator Salazar. Let me ask a question concerning the 
siting of these facilities.
    Put aside the social or political issues that obviously are 
inherent in any kind of application process for a new facility.
    Just from a geophysical point of view, what kinds of 
locations are looked at relative to the siting of a nuclear 
power plant? What are the best kinds of geological areas that 
you would want as an industry to site these facilities?
    Mr. Wallace. Well, we look first for where the need for 
base-load capacity is going to be the greatest. And one of 
those areas is in Maryland where our corporate headquarters is 
located right now.
    We expect to reach an unacceptable level of base-load 
capacity or, said differently, that the need for new base-load 
capacity will exist about 2009. And, yet, we cannot make a 
base-load nuclear plant operate by 2009.
    So the first criteria is really where do we need the base-
load electricity in order to serve the needs of the customers.
    The second is where is there adequate transmission, water 
siting, and geological conditions that would support the 
criteria that go into a site, seismic criteria and the like.
    Senator Salazar. Spend a few minutes just on that latter 
issue. I mean, put location aside and need. Obviously a 
business decision. And we know the transmission issue is always 
going to be a big issue, how you get the power to where it is 
going to be consumed.
    Spend a little time elaborating for me, if you will, on the 
kind of geologic location that you look at with respect to the 
siting of these facilities. Does it matter whether it is on a 
coast line, on a river? Are you looking for places that have 
the kind of geology of the deserts or New Mexico or Nevada or 
the high mountains of Senator Craig's area in Idaho? What 
ideally geologically? When you look at a place to site a plant, 
what kind of place are you looking at?
    Mr. Wallace. Well, in a sense, the best place to locate the 
plants would be somewhere out toward the Midwest, but the 
problem is that is far away from where the need exists.
    Senator Salazar. Do not address the need at this point. Why 
do you say that the Midwest would be the best place ideally? If 
you would just look at it from a geological, public Safety 
point of view.
    Mr. Wallace. We look for areas where there is acceptable 
seismic history and those are the best areas. But, frankly, 
they do not become very limiting because whatever the seismic 
history of the area we are in, a plant might be located, we 
factor that into the design and then meet that criteria.
    So the area where the plant is needed from an electricity 
point of view is really the principal criteria. And then 
secondary to that it becomes the transmission lines and the 
water and the available land.
    And the best sites truly are those sites that already exist 
today because they tend to have all of those criteria in 
addition to the social benefits of near population being quite 
understanding and accepting of nuclear power.
    In fact, one of my plants in Upstate New York, Nine Mile 
Point, enjoys an initiative started by the mayor of the local 
city a couple of months ago passing a resolution encouraging us 
to site a new nuclear plant in that vicinity.
    So we find that time and again the communities nearest our 
plants are the ones that understand the technology and have 
become quite comfortable with it and look for the economic 
stimulus that goes with expansion.
    Senator Salazar. And, Mr. Wallace, if that statement, if 
you look across the 103 plants in this country, is that 
generally the case where there is community support by the 
surrounding community for the existence of those plants or are 
there places where the nuclear plants continue to create 
controversy among the local community as to whether or not they 
want the plant there?
    Mr. Wallace. I have to say that that is generally the case. 
I cannot speak specifically for all 103 in the country. There 
may be areas where there are focused issues.
    But I can speak for the five plants, units, that I have 
responsibility for today. Until the middle of the nineties, I 
had responsibility for twelve units in the Midwest and 
Illinois. I can speak for all those communities who were very 
much accepting and appreciative and, if anything, encouraging 
the company to do more in those areas.
    Senator Salazar. Thank you, Mr. Wallace.
    Senator Craig. Let me ask one last question. I am sitting 
here considering other involvements I have had of recent as 
relates to siting certain types of production units and their 
water requirements.
    What is your largest unit operating?
    Mr. Wallace. It is our Nine Mile Point unit, too, in 
Upstate New York.
    Senator Craig. What is its capacity?
    Mr. Wallace. Eleven hundred and fifty megawatts.
    Senator Craig. How much water does it require? Do you know 
the acre foot requirement or how you measure it?
    Mr. Wallace. I will answer it this way. We use a cooling 
tower, so we are not on a lake. And we draw the water from Lake 
Ontario. And I am not clear on what the volume of water is that 
we draw off Lake Ontario. And the water we draw off is merely 
to make up for evaporation that occurs through the utilization 
of the cooling tower.
    Senator Salazar. If I may, Senator Craig, how about the 
acreage, sort of the size of the site? May I ask that question, 
sir?
    Senator Craig. Sure.
    Mr. Wallace. Well, the size is actually quite small because 
we have a small pond that is not more than two acres in size. 
The purpose of which is to hold the water that comes drawn down 
from the lake and that condenses coming out of the cooling 
tower.
    Senator Salazar. How about the acreage for the entire site 
of the plant? What kind of acreage do you have there?
    Mr. Wallace. The entire site acreage is probably about 700 
acres.
    Senator Salazar. Thank you, Senator.
    Senator Craig. Mr. Wallace, thank you very much for taking 
your time to be with the committee this morning.
    The chairman will not be returning, so I will conclude this 
and will stand the committee in adjournment.
    [Whereupon the hearing was adjourned.]

                                  
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