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June 8, 2000, Thursday


LENGTH: 27973 words





JUNE 8, 2000




















































BARTON: The subcommittee will come to order. We're going to go ahead and proceed. A number of members have indicated that they're on their way, and hopefully, if I give an extremely long-winded opening statement, they will be here by the time I conclude.

Today's the second in our series of subcommittee hearings examining the national -- our national energy policy. On May the 24th, the first hearing addressed the supply of oil and natural gas. Today's hearing will look in detail at nuclear power and coal. These two energy sources form the mainstay of our current electricity- generation capacity with approximately 20 percent of our electricity coming from nuclear reactors and a little over 50 percent coming from coal-fired power plants.

In the near term, we cannot afford to lose the generating capacity represented by coal and nuclear power. There is no ready replacement for 70 percent of our electrical power. But there are pressures from various directions to reduce our present reliance on nuclear and coal.

The most significant impediment to nuclear power in the near term is the lack of a centralized facility for the permanent disposal of spent nuclear fuel. The federal government has failed to fulfill its legal obligation to dispose of spent nuclear fuel beginning in 1998. The earliest that the Department of Energy says it can open a repository at Yucca Mountain is the year 2010, 12 years late. Yet the Clinton administration has blocked every attempt by Congress to accelerate that schedule.

This delay in solving the disposal question impacts the continued operation of nuclear reactors in this country, increases the price of electricity generated by nuclear power, delays the clean-up of decommissioned reactor sites.

Most damaging perhaps, the government's inaction on the Yucca Mountain repository affects public confidence in nuclear power. It suggests there is a major technical hurdle yet to be resolved, when the real problem is a lot of political will regarding the siting of the repository.

Looking beyond the next decade, we have to ask what role nuclear power should play in our future energy portfolio. As concerns increase about greenhouse gas emissions causing global climate change, we ought to rethink our assumptions about nuclear power in this country.

Until fusion power becomes real, if ever, we may need to rely on the next generation of advanced reactor technologies for safe and climate-friendly electrical power. Such advanced reactor technologies may also represent a significant market export -- export market for the U.S. companies.

The near-term challenge for coal revolves around air quality and controlling the emissions of sulfur dioxide, nitrogen oxides and particulates, all pollutants presently regulated under the Clean Air Act.

The long-term focus will also be on air quality but may shift to limiting the emission of greenhouse gasses, particularly carbon dioxide, from the combustion of coal.

The answer to both the near-term and long-term challenges in coal may lie in advanced coal technologies that will enable a cleaner, more efficient use of coal in electrical power generation. However, we need to be sure that the Department of Energy is making the right policy decisions and technology investments today to support such a future for coal.

The larger question here is how this country goes about establishing and implementing a comprehensive, long-term national energy policy. What is our energy policy today, where do we go, where do we want to go in the future, and what long-term policies will enable us to get there? What is the process we use to resolve conflicts and stay on course for our long-term objective?

Some of these questions need to be addressed at the end of our series of hearings on energy policy, but some are very relevant to the particular challenges of nuclear and coal power. For both energy sources, it seems to me that the short-term political and environmental issues dominate over any coherent long-term policy. It is not clear to me that we know as a country where we are headed with nuclear energy and coal power, but I am hopeful that our hearing today will shed some light on that question.

I want to welcome our witnesses before us on this panel and the next panel. We look forward to your testimony.

The gentleman from Georgia wish to make an opening statement?

NORWOOD: Mr. Chairman, I will submit it for the record, but I want to tell you and thank you for holding this hearing. I think it's very appropriate that you keep our attention on the future, particularly of nuclear, which I'm a big supporter of, and I think we need to, as you pointed out eloquently, we have to deal with our problem of storage of it. And I hope we'll just keep focusing away on this until we finally wake up and set a policy for our future. With that, I'll thank you.

BARTON: The gentleman from Kentucky wish to make an opening statement?

WHITFIELD: Mr. Chairman, I'm just delighted that we're having these hearings. And, as you know, nuclear and coal provides about 72 to 75 percent of the electrical power in America, and I think it's vitally important that we have this hearing, listen to these experts and obtain a better understanding of where we're going and what we can do to maintain a reliable nuclear energy and coal industry in the U.S.

BARTON: The gentleman from Ohio wish to make an opening statement?

SAWYER: Thank you, Mr. Chairman. I have a longer statement. I would welcome the chance to insert it in the record, as you always make room for.

BARTON: Without objection.

SAWYER: Let me just make an observation. That -- and I hope that in the course of our afternoon we will hear from you regarding this.

With coal it is a concern. With nuclear it is of critical importance that among the transitions that we're going through today, both state by state and nationally, is the movement away from universal service territory, rate-of-return regulation, in which the investment in continuous maintenance and the cautious management of generating capacity is a part of the allowable rates to be charged. An arena in which competition and the ability to provide low cost is one dimension of the service that will be a factor in that competition.

It seems to me that the safety and security of our generating capacity is very much at stake. And I hope that you will speak to that in the course of your testimony today.

With that, I'll yield back the balance of my time. And thank you, Mr. Chairman.

BARTON: The chair would ask unanimous consent that all members not present have the requisite number of days to insert an opening statement in the record at this point in the record. Is there an objection to that? Hearing none, so ordered.

We want to welcome our first panel that's going to focus on nuclear energy. We want to especially welcome Mr. William Magwood, who is the director of the Office of Nuclear Energy, Science and Technology at the U.S. Department of Energy.

It's our normal policy when we have administration witnesses to put them on a separate panel, and we put you -- and we also have a DOE witness on the second panel, because we have so many people, and if I had to go to four panels as opposed to two it would take a lot longer. So it is not disrespectful that we've asked you to be with the rest of the group, but it expedites the efficiency of the hearing.

So I want to let you know that there's absolutely no disrespect meant by having you -- normally you would be on a panel all by yourself, but because of the number of people and the time we're starting the hearing we've done this at two panels.

We're going to recognize you first. We'd ask that you summarize your written statement, and thank you for having it in on time. I've been chastising some of my administration witnesses for being tardy. I want to compliment you for being on time. And we'll give you seven minutes and then we will go through the rest of the panel. So welcome, Mr. Magwood, and you're recognized for seven minutes.

MAGWOOD: Thank you...

BARTON: You really have to put that microphone close to you.

MAGWOOD: Thank you, Mr. Chairman. And I appreciate your remarks about having our testimony on time. We did struggle hard to do that and I'd like to thank my staff for working so hard to get that done.

And also, Mr. Chairman, I'd like to say that I am actually very proud to serve on a panel with these illustrious gentlemen to my left, and particularly Mr. McNeill and Mister -- Dr. Klein and others down the road here. I know most of them very well and really appreciate the opportunity to testify with them today.

I am William Magwood, director of the department's Office of Nuclear Energy, Science and Technology. And to begin let me also thank you and congratulate you for holding this hearing and for the series of hearings you've held on this subject. I think this is a very important opportunity to focus on these issues and to get a lot of facts on the table.

This is a propitious time to address the subject of nuclear energy. We at DOE at working hard on many aspects of nuclear technology and believe that the United States has some very important choices to make about the future of nuclear power.

That said, I believe that the approach to energy that our nation has employed over the last 20 years, reliance on the free market, has served us very well. Unlike many other nations, the United States has a wide range of energy options to choose from and we have been able to apply coal and nuclear and other sources to fuel America's homes and businesses.

Currently about half our electric power, as you noted, is derived from coal, the subject of the next panel, and nuclear provides about 20 percent overall.

Many people are surprised to learn that the United States continues to increase its use of nuclear-generated electricity. Last year, because of the increased efficiency of our 103 nuclear power reactors, the U.S. added the equivalent of seven new nuclear power plants to the grid.

While the amount of U.S. electricity derived from nuclear power is now at an all-time high, we have not started construction of any new nuclear power plants for some two decades. This fact should be seen as a decision by the market, a decision, first, based on the fact that the United States has, in recent decades, enjoyed a relatively large supply -- surplus in the supply of electric; and second, on the uncertainties utilities face in controlling the cost of constructing the last set of nuclear power plants in the late '70s and the 1980s.

The future, I believe, has great potential for resurgence for new market prospects for new U.S. nuclear power plants. This is because of many encouraging and interesting signs that are taking place right now.

First, U.S. nuclear utilities are not only producing more electricity than ever before, they are doing so more economically as well. U.S. nuclear power plants are now some of the most cost- effective generators of electricity on the market, the average nuclear power plant producing electricity at 1.9 cents per kilowatt-hour, which is quite an achievement.

For this reason, operating nuclear power plants has become a sought-after commodity in today's market. In all, 23 nuclear units are on the market or have been sold since last July. Most recently, two plants in New York, representing over 1 -- over 1,700 megawatts of efficient capacity were purchased for approximately $1 billion.

These trends are most interesting in that they demonstrate that the electricity industry can and will make significant investments in new -- in nuclear plant capacity, and highlights the desire of some companies to pursue a supply strategy that specializes in nuclear generation.

Further, the march towards renewing the licenses of U.S. nuclear power plants continues. Just five years ago, some analysts were predicting the mass closure of U.S. nuclear power plants in the fact of relatively low natural gas prices and electricity competition. Even our own Energy Information Agency predicts a significant downturn of electricity coming from nuclear power in the next few decades. Reality, however, is overtaking these projections.

In March, the NRC granted permission for Calvert Cliffs to extend its operation for an additional 20 years. And just last week, Duke Power's Oconee plant followed Calvert Cliffs' footsteps and became the second plant to receive a 20-year extension. These renewals have come at a fraction of the projected cost and years earlier than many predicted.

Our consultations with utility executives confirm that the overwhelming majority of the nation's nuclear power plants can be expected to apply for and receive license renewals for continued operation well into the middle of the century.

The operation of our nuclear power plants has helped many states deal with their obligations to meet Clean Air Act targets while still increasing the electricity supply.

In 1999, operation of the nation's nuclear power plants provided the greatest share of clean energy in the United States. Seventy percent of America's emission-free generation were provided by nuclear power, with most of the rest coming from hydroelectric resources.

This presents a challenge for the future. Even with dramatic improvements in efficiency, the EIA projects that U.S. energy consumption will increase substantially by 2020, with about 300,000 megawatts of new generating capacity required to meet demand and replace retiring capacity.

As a result, if the U.S. is to simply maintain its current proportion of non-emitting capacity, we will have to build about 108,000 megawatts of new capacity from hydroelectric, non-emitting renewable or nuclear power. It's therefore important that nuclear remain a viable option for the future, and helping assure that this future is possible is part of role of government.

NRC, Nuclear Regulatory Commission, has done its part. They've done an outstanding job, in my opinion, in becoming a very efficient regulatory agency whose safety oversight utilities can work to plan for the future.

The negative experiences of the past have not been replayed by NRC's successful implementation of license renewal. Many in industry now believe NRC could also be a good partner in the construction of new nuclear power plants under the one -- under the new but untested one-step licensing rules possible for the three certified advanced light water reactors.

We at DOE are doing our part as well. We are asserting U.S. leadership in international exploration of future nuclear power technologies. We have successfully reinvigorated the U.S. nuclear R&D with our peer-reviewed Nuclear Energy Research Initiative and our new industry cost-shared Nuclear Energy Plant Optimization program where we receive our 60 percent of the funding for the program through the Electric Power Research Institute.

We're also planning with our international partners for the long- term future by engaging in discussions in what have become known as generation IV nuclear power systems. Generation IV systems are next generation advanced technologies that will be economically competitive with the most efficient natural gas systems and will be deployed over the next 20 years.

DOE initiated this consideration in January, when it sponsored a workshop with representatives of the governments of Argentina, Brazil, Canada, France, Japan, South Africa, South Korea and the United Kingdom to begin discussing the interest of these other countries in the future of nuclear power. We have provided a copy of a joint statement issued by that meeting for your use.

Our advisory committee, the Nuclear Energy Research Advisory Committee, or NERAC, is helping us shape the future as well. Interacting with the broad research community, NERAC has made recommendations to shape the future of R&D activities. While, like the President's Committee of Advisers on Science and Technology before it, NERAC calls for significant increases in the federal investment in nuclear R&D, its recommendations are modest and quite carefully targeted.

There are many other challenges to be dealt with. We must move forward dealing effectively with the disposition of spent nuclear fuel, as you stated in your opening statement, Mr. Chairman. While we would all like to see things move faster, they are moving, and this forward momentum is an essential element in the long-term future of nuclear energy.

We must preserve and enhance our education system as well. The declining numbers of students graduating with nuclear engineering degrees has been startling, down two-thirds over the last decade or so.

But we've also seen positive signs in this area. DOE's increased focus on our university programs has paid some dividends by reversing the precipitous decline in the numbers of students. Clearly this is just a start, but it's a movement in the right direction.

This is an area -- other areas we've been making lots of starts, but there's a lot of work to do, and with your support and guidance we hope to do more.

With that, I look forward to the other witnesses' statements and to your questions.

BARTON: Thank you, Mr. Magwood.

We now want to hear from Mr. Corbin McNeill Jr., who's the chairman, president and chief operating officer of Peco Energy Generation in Philadelphia, Pennsylvania. He's a graduate of the U.S. Naval Academy and had a distinguished career in the United States Navy before going into the private sector. His company is making major moves into the -- into generating power by nuclear means.

Welcome to the committee.

MCNEILL: Thank you very much, Mr. Chairman. As you said, I am Corbin A. McNeill Jr., the chairman, president and chief executive office of Peco Energy Company of Philadelphia.

Peco Energy currently operates -- owns or operates six nuclear reactors at three sites in Pennsylvania and New Jersey. Additionally, Peco's AmerGen partnership with British Energy, the nuclear-generating company in Great Britain, owns and operates two reactors and has agreements in place to acquire two additional reactors.

Finally, Peco and the Chicago-based corporation Unicom, the parent company of Commonwealth Edison, are intending to merge later this year, and once the final regulatory approval is received our combined company, which will be known as Exelon Corporation, will own and/or operate 20 of the nation's 103 commercial nuclear reactors.

And I'm here today to provide the perspective of the nuclear energy industry, representing all 103 nuclear power plants which safely produce 22 percent of our nation's energy -- electricity.

As the electricity industry is deregulated, in Pennsylvania -- my experience is that Pennsylvania was one of the first to deregulate -- it will be essential to have a comprehensive, updated nuclear energy policy. Only such a plan will guarantee that policy-makers have the basis to make sound decisions for assuring a safe, clean, reliable and economic supply of electricity for the future and one that ensures energy security through fuel diversity.

Unfortunately, the existing federal policy toward nuclear, as you expressed earlier, can best be described today as one of neglect. This is distressing given the -- given that nuclear energy is our largest source of emission-free electricity and the second-largest generator of electricity overall.

Despite a cumbersome approach to national energy policy, there have been progress -- or has been progress in policies that will position the industry as well as we enter the new century. As Mr. Magwood mentioned, the Nuclear Regulatory Commission's regulatory reform efforts, paired with the consolidation of ownership of nuclear power plants, will help ensure the continued safe, reliable and economic operation of the vast majority of today's nuclear plants.

And while the continued operation of these plants and the development of advanced reactor designs rely on nuclear power's economic viability in a deregulated electricity market, the federal government has a responsibility to provide a stable and predictable regulatory environment, to avoid artificial distinctions that may disadvantage nuclear energy in the marketplace, to uphold its contractual commitment to manage used nuclear fuel, and to dispel what I believe are unwarranted public concerns about the perceived risks related to nuclear energy.

Three other policy changes are appropriate to ensure that the -- that otherwise economical plant consolidations are not necessarily burdened. For instance, revision of Section 468(a) of the Internal Revenue code, which addresses the tax treatment of nuclear decommissioning trust funds; the repeal of the Public Utility Holding Company Act; and the elimination of statutory requirement that the Nuclear Regulatory Commission conduct an antitrust review when conducting a license transfer proceedings would be helpful.

The most important of these is the decommissioning issue, which relates to the need to update the current tax code to recognize that in a deregulated environment nuclear plants may be owned and operated by an entity that is unregulated in a historic cost-of-service sense.

Section 468(a) currently provides for the tax-free transfer of qualified nuclear decommissioning funds as a part of a plant sale or license transfer when a plant is transferred from one regulated entity to another.

And while the IRS has used its discretionary authority to permit a tax-free transfer of these funds in private-letter rulings related to the three plant sales which have been completed to date, Congress should amend Section 468 to make it clear that plant sales to unregulated entities should not trigger a taxable event when decommissioning trust funds are transferred.

I believe that the future is very bright for nuclear energy in the United States, but that future will be realized only if industry and government, working together, can meet the long-term challenges facing the industry. These challenges can be successfully addressed if Congress and the administration have the political will to act.

Let me be clear that the industry's future should not be based on government subsidies. It is the ultimate responsibility of the industry to ensure that a new generation of nuclear plants be safe, reliable, efficient and acceptable to the public.

Nevertheless, there is an important role for the federal government to play if we are to benefit from the extended operation of today's nuclear plants and a new generation of emission-free plants.

First, the federal government must continue to move toward a safety-focused regulatory system. In addition, Congress should eliminate the duplicative regulation that has allowed the Environmental Protection Agency to become involved in issues that are more appropriately a subject of NRC authority.

Second, the federal government must treat nuclear power like any other electric technology and should not make arbitrary distinctions that disadvantage nuclear energy and competitive markets. Nuclear energy must be treated consistent with other fuel sources, whether it be in regulation of radiation at all electric production facilities or the disclosure of benefits and inverse impacts in consumer labeling of electricity sources.

This means that the federal government should also recognize in its environmental policies the clean air benefits of nuclear energy. Nuclear energy, as a source of electric generation that emits no air or water pollution, should benefit from any federal incentives awarded to other generation sources because of their clean air and clear water characteristics.

Third, the federal government, as you mentioned, Mr. Chairman, must meet its statutory commitment to develop a repository for permanent disposal of used nuclear fuel.

And finally, the federal government should strive in its public education programs to emphasize the reality that the risk from nuclear energy is small compared to other risks in society.

In that regard, I'd like to respond to Mr. Sawyer's request to address the issue of deregulation and its impact on safety.

While conventional thought might relate cost pressure to declining safety, in fact the reverse is true. In a deregulated environment, my company bears the risk of a poor safety record much more so than it did in a regulated environment. If equipment failures or regulatory shutdowns were to occur, my shareholders will bear all of the cost of that shutdown, and that's unacceptable. Therefore, as the chief executive office, I must ensure that the highest levels of safe, reliable operation are maintained.

In my personal experience and that of the industry, we have found that safety and economic cost are not mutually exclusive. Over the last decade, we have demonstrated that the lowest cost plants, in terms of operation, are in fact have the best safety records. And this has been the promise of nuclear energy since its inception and one that is now proving to, in fact, be the reality.

To condense the rest of my statement, Mr. Chairman, to stay on time, just would tell you that we do have a bright future. Mr. Magwood has mentioned that the Department of Energy has supported the Nuclear Plant Optimization Program and the Nuclear Energy Research Initiative; that in fact we see the promise of potential new reactors in the next five years, whether they be the currently licensed new generation or whether they be small modular designs.

In closing, as you prepared in the next several years to address Price-Anderson Act renewal, one of the things that I would suggest to you is that with small modular designs they need to be treated differently than the large reactor and that, in fact, we might look for ways to fund Price-Anderson liabilities in a different manner than we do today on a per-reactor basis, but maybe on a capacity basis.

That concludes my remarks, and I thank you very much, Mr. Chairman.

BARTON: Thank you, Mr. McNeill.

BARTON: We now want to hear from Mr. Dale Klein, who is vice chancellor for special engineering programs, the University of Texas. He is on the Department of Energy's Nuclear Energy Research Advisory Committee and is the subcommittee chair. He is very active with the Pantex facility up in Amarillo and is an expert in nuclear issues.

You're recognized for seven minutes and your entire statement's in the record in its entirety.

KLEIN: Thank you, Chairman Barton.

And thank you, members of the subcommittee. I'd like to acknowledge and thank you also for holding these hearings. And I appreciate the opportunity to comment on the national energy policy that has to do with both coal and nuclear power.

As Chairman Barton indicated, I'm a professor of mechanical engineering and have been at the University of Texas since 1977. The -- even though I have tenure, I should make comments that while I'm giving an academic perspective, they do not reflect any position by the University of Texas or the University of Texas system.

One of the things that we should certainly recognize is that we have one of the best electrical generation systems in the world and we need to certainly take positive steps to maintain that activity.

As you know, the current base load generation of electricity comes from primarily three fossil fuel sources and two non-fossil fuel sources. The fossil fuel sources are coal, natural gas, oil. The non-fossil are nuclear and hydroelectric. And as Chairman Barton indicated in his opening comments, nuclear accounts for about 20 percent, coal about 52 percent. And these numbers will not change significantly over the next few years simply because it takes too long to get significant plants in operation today.

There are five areas that I would like to address briefly today. And just first talk about the importance of nuclear and coal in our electrical generation; briefly about regulatory reform; talk about the spent nuclear fuel program, the low-level waste; and the need to maintain a nuclear power infrastructure.

As was indicated earlier, nuclear and coal account for over 70 percent of our electrical generation. Both of these sources are extremely important for our national security and our economic viability. It's not a question of which one of these sources do we need for the future, we need both.

It does not take long for all of us to realize the importance that electricity plays in our lives today. I grew up on a farm in central Missouri, and I've seen first hand what the importance of electrical supply has done for the average farm family. When we look around in our daily lives and we see the use of stereos, air conditioners, robotics, computers -- just the very mention of high- tech implies an increased electrical utilization. Therefore, it is important that we maintain that supply so that we do have a robust and strong economy.

In terms of nuclear issues, there's certainly a lot of misinformation on things involving radiation. There's a House bill before -- during this time, House Bill 4566, that deals with issues of radiation in terms of the metals industry. And I would encourage you to look at regulation standards, and as you address some of these issues, to base nuclear issues on fact rather than fears so that we can move forward in a positive way.

Another positive way that we have been moving forward in the -- certainly in the nuclear arena is with the initiatives undertaken by Bill Magwood at the Office of Nuclear Energy and Science and Technology. The generation IV concept that he's proposing has certainly captured the interest in a lot of our students. It's an area in which we can address and hopefully move forward in a very positive manner.

On the front of regulatory reform, I think the NRC should be complimented in moving towards a safety-based form of regulation environment. We don't want to spend all of our time counting paper clips. We need to look at the issues that make a difference, do them right and do them carefully.

I think the NRC is moving forward in a positive way. One activity that I believe Congress could examine, as they look at the NRC budget, is currently the Nuclear Regulatory Commission is required to do 100 percent cost recovery. These fees are based -- put the burden on all the licensees. And there's a significant fraction of the NRC's budget that is not directly attributable to the licensee's activities but involve international programs and others, and I think it would be helpful if the Congress would take a look at the NRC's budget and fund those parts that really are the responsibility of the federal government rather than put the burden on the current licensees.

I'll just briefly comment on the spent nuclear fuel disposal. As Chairman Barton indicated, we have not moved forward on a centralized storage facility. I was one of three commissioners that served on a Monitored Retrieval Storage Review Committee in 1988, '89. Our commission recommended that a centralized storage facility be constructed; that the importance of a centralized facility enhanced as the repository was delayed and as reactors shut down prematurely, both of which have occurred. And therefore, I think the federal government does need to move forward in an expeditious manner to solve the high- level waste program.

One activity I believe this committee could pursue is in its oversight responsibility to hold DOE accountable for the schedule in making the decision on Yucca Mountain.

In terms of low-level waste disposal, this is an area in which work began in 1980 with the Low-Level Waste Authority Act. Several compacts were created to address the low-level waste issue. That issue has not moved forward in a positive manner. No new sites have been selected. Again, it's a very complicated issue from the standpoint of siting, but unless we make some positive decisions on moving forward with low-level disposal, it has a very negative impact on our research universities and on medical facilities that are users of isotopes -- of radioactive isotopes.

I'd now like to comment on one of the most important issues, and that is maintaining a strong nuclear infrastructure within the United States. There's an overwhelming majority among the scientific community, government regulators, industrial individuals, that believe that nuclear power should remain one of our options as we proceed forward.

Therefore, the United States needs to have a strong nuclear infrastructure in order to speak on global issues and to have an influence worldwide as well as in the United States arena. There's -- it's very important that the facilities at the universities and the national laboratories are maintained and expanded so that we can make decisions from a scientific and strong position rather than one of weakness and intimidation.

There are several recommendations I'd like to make in terms of maintaining a viable nuclear power option. The first of which is to maintain that current infrastructure and expand it. The second is to increase the nuclear R&D budget, primarily through the offices of Bill Magwood in NE, so that we're funding research and development on the order of $200 million to $300 million per year.

We need to increase our engineering education support to over $20 million a year, and we need to support our university reactors at a level of over $20 million a year. We also need to fund research and development programs in isotope production, both with accelerators and new reactors. And we need to enhance graduate student support so that our best and brightest continue to pursue these exciting fields rather than just go into areas where they get stock options.

In summary, I'd like to commend Congress for taking a lot of positive actions in the past. I know Chairman Barton and others on the committee have been very supportive of long-range issues. We need to make some very positive aspects and include regulatory reform, solve the high-level and low-level waste issues and maintain a strong nuclear environment.

I'd like to thank you for those comments and look forward to your questions.

BARTON: Thank you, Doctor.

We now will hear from Mr. James Graham, who is president of -- is it ConverDyn, is that how you say that?

GRAHAM: Yes, sir.

BARTON: Which is a joint venture between Honeywell and General Atomics. Mr. Graham currently serves on the board of governors of the World Nuclear Fuel Market and is the past chairman of the Nuclear Energy Institute's Nuclear Fuel Supply Forum.

We welcome you to the committee and would ask you to summarize your written statement in seven minutes.

GRAHAM: Thank you, Mr. Chairman and members of the subcommittee.

As stated, my name is Jim Graham, and I am indeed the president and CEO of ConverDyn, the nation's sole remaining uranium converter. And I would like to thank you for the opportunity today to speak on behalf of the U.S. domestic nuclear fuel supply industry.

And as stated for the sake of time, I will summarize my key points that can be found in my written testimony.

The conditions and outlook of our business have never been worse in the United States. In fact, market conditions are so serious that uranium mining, uranium conversion, and even enrichment are on the brink of disappearing in this country.

If this situation were merely a normal business cycle, I would not be here today giving this testimony. But sadly it is beyond any reasonable doubt that several key decisions and actions by the federal government over the past several years have created this precarious position.

We have heard today that nuclear power accounts for over 20 percent of the U.S. electrical power production and makes a substantial contribution to U.S. energy and national security. This is because, at this present time, we have within our own borders the capability to mine, convert, enrich and fabricate uranium into nuclear fuel. But the U.S. capabilities in the entire fuel cycle are presently under extreme duress because of recent actions taken by the U.S. government.

Two of these major actions would be the 1998 privatization of the U.S. Enrichment Corporation; USEC's aggressive sales of large volumes of uranium and conversion, transferred at privatization by DOE at zero cost has been clearly documented to have helped drive the market price for uranium and conversion to near record lows.

In 1993, the U.S. and Russian governments signed an agreement calling for the U.S. to purchase up to 50 metric tons, or -- excuse me -- 500 metric tons of HEU from Russian weapons over a 20-year period of time. This HEU, which has been blended down to LEU, contains enrichment, conversion, and uranium. This large source of additional material in the U.S. has also greatly depressed the market price for the components.

Taken together, these actions have resulted in overwhelming amounts of the three materials, uranium, conversion and enrichment, entering the U.S. market, with devastating impacts on the domestic fuel supply capabilities. As examples, for mining, we see that, since 1998, expenditures for uranium exploration and mine development has declined by almost 59 percent. In 1999, three uranium processing facilities closed, two in Texas, one in Louisiana. Employment in the U.S. uranium exploration mining and milling has decreased by almost 30 percent.

In conversion, we see that in 1999, production at the ConverDyn facility in Metropolis, Illinois, was cut back by 25 percent, and employment reduced by over 12 percent. Sales are expected to decline by another 10 percent in 2000, while at the same time, the price of new contracts moving forward has dropped well below production costs.

Short of timely government intervention, it is very doubtful that the ConverDyn facility will remain in business much longer.

With enrichment, we have seen employment at Paducah and Portsmouth enrichment facilities substantially reduced. Profitability has declined by hundreds of millions of dollars annually. The value of USEC's stock has plummeted since privatization. Needed upgrades to existing plants can no longer go forward due to lack of capital. And USEC is rumored to be shutting down one, if not both, of their existing plants in the near future.

The end result of the actions taken to implement various U.S. government policies has been to force the domestic nuclear fuel cycle to the brink of collapse. The issues of maintaining a complete nuclear fuel cycle capability in our country is very, very important, both for U.S. energy and national security reasons. If the federal government agrees with this statement, then it must act immediately to ensure that this capability is preserved.

We would like to table several proposed recommendations for the action by the government.

Firstly, level the playing field for domestic uranium and conversion supplies, by enforcing the provisions of the USEC privatization act that calls for the maintenance of a viable domestic nuclear fuel supply industry.

Second, it is clear that the privatization of USEC has been a massive failure, and absent any viable alternative, the enrichment industry should be refederalized.

Thirdly, to ensure continuation -- and I stress, continuation of the HEU agreement, the government should consider purchasing all of the HEU feed component to prevent further deterioration of the domestic uranium conversion industry.

Mr. Chairman. in the past decade, our nation has gone to war in the Middle East over energy. We invest billions of dollars annually to ensure secure oil supply from the Middle East and elsewhere. But ironically, at home the federal government has unwittingly been taking actions that have seriously undercut the ability of key domestic industry to do its part in support of our national energy security.

Given the importance of secure energy supplies to our economy and to national security, it is very important that the federal government take timely action and steps to reverse the damage that has been done and to ensure a viable domestic industry.

Mr. Chairman, thank you for the opportunity to address this subcommittee today on behalf of the domestic nuclear fuel supply industry.

BARTON: Thank you, Mr. Graham.

We now want to welcome Dr. Richard -- excuse me, let me get -- Dr. David Lochbaum -- I apologize -- who is with the Union of Concerned Scientists and is a nuclear safety engineer. Dr. Lochbaum has been personally responsible for pointing out a number of safety problems at operating nuclear plants around the country and insisting, at some peril to his career, that those problems be corrected.

Your statement's in the record in its entirety and we welcome you to summarize it in seven minutes.

LOCHBAUM: Thank you, Mr. Chairman and members of the committee. Thank you for inviting the Union of Concerned Scientists to provide our views on nuclear power's future.

The future of the nuclear industry will depend on the credibility and commitment of the industry and its regulators to nuclear safety. That future could see existing plants retired prematurely, or see many licenses extended, or perhaps even see new nuclear plants.

To succeed in the future, however, nuclear power must contain something that has been absent from its past, in an effective regulator. The nuclear industry's worst enemy has always been the few corner-cutters that have focused public attention on unresolved safety problems. The past has shown that the key difference between safe and unsafe plants was plant owner's effectiveness meeting minimum safety standards.

The Nuclear Regulatory Commission is supposed to establish minimum standards and enforce them. The NRC has simply not done its job. As a direct result, millions of Americans have been placed at undue risk. Eventually, the failure to enforce the standards is exposed, costs of the repairs are required, but the damage to the industry and the NRC's credibility, which is still in need of repair, is likely to be the greatest long-term cost.

Three years ago, the General Accounting Office reported on how the NRC handled three troubled nuclear plants: Cooper in Nebraska, Millstone in Connecticut, and Salem in New Jersey. Salem was closed for over two years. The NRC had a list of 47 items that had to be fixed before the plant could resume safe operation. The NRC knew about 42 of the items before Salem shut down. If each item had to be fixed before Salem could safely restart, why weren't they addressed when the plant was running?

Salem is not an isolated case. UCS released a report last October listing 23 nuclear reactors that have been shut down for longer than a year since 1984. The Donald C. Cook plant in Michigan, for example, has been closed since September of 1997. Among the items being fixed at Cook are things that have been wrong since it first started up in the early 1970s. Thus, this plant has always operated below the NRC's minimum standards. How far below? The plant's owner spent nearly three years and over $500 million to get up to the minimum standards.

Fire protection is another example. Following the 1975 fire at the Browns Ferry plant in Alabama, NRC implemented more rigorous fire safety regulations. But the NRC has failed to enforce these regulations. Instead, the NRC has granted more than 1,000 exemptions and waivers to 103 plants.

In 1992, the NRC testified to this Congress about temporary measures that would be used by plant owners for about six months until fire safety problems could be fixed. Eight years later, those temporary measures are still being used at U.S. nuclear plants instead of meeting the minimum standards.

Nuclear power's past is dismal, but its future could be even worse. As Americans get older, we see medical professionals more often and spend more money on health care. As America's 103 operating nuclear plants get older, they see fewer safety inspectors and have less money spent on maintenance.

The NRC is allowing plant owners to cut back on safety inspections based on performance data compiled over the past two decades. Unfortunately, the NRC is neglecting a well-known fact that it applies to light bulbs, computers and nuclear plant components: Equipment fails most often during the break-in and the wear-out phases. The NRC is using data taken from the peak performance period to allow plant owners to cut back on safety checks, ignoring the fact that failure rates will increase as components enter the wear-out phase. It could be a recipe for disaster.

Nuclear power can have a future only if it has an effective regulator. The agency has yet another plan to increase its effectiveness, but deeper changes to the NRC's culture will be needed to implement it successfully.

When nuclear plants are shut down for extended periods, a culture of complacency has often been identified as a root cause. There are always senior management changes. New senior managers or at least mentors are recruited from outside the company, not because they have the missing plan, but because they have a proven track record for taking the actions required for any plan to be successful, and because new leadership is essential for changing the corporate culture.

The NRC's culture of complacency has been documented by the GAO, the NRC's Office of the Inspector General, and many others. The NRC's senior managers have strong technical backgrounds. Most are well- intentioned. But they lack the experience and the independence to lead the broad-based transformation of the agency.

New managers are needed to shake up a system that has long accepted excuses instead of compliance, promises instead of performance, and luck instead of vigilance. Congress should compel the NRC to bring in the experienced management talent it needs to complement the capable technical talent it already possesses.

This new NRC management might determine that it needs short-term budget increases to fund the agency's transformation. Congress must ensure that the NRC has the budget it needs to do this change.

Congress must also ensure that the NRC's transformation is achieved to restore its credibility and provide any hope for a nuclear future.

Thank you.

BARTON: Thank you.

Next, we'll go to Mr. Robert Ebel, director of energy and national security, Center for Strategic International Studies. Welcome. Your full testimony is inserted in the record, if you'd summarize. And you have seven minutes.

EBEL: Thank you very much, Mr. Chairman.

Mr. Chairman, at CSIS we're nearing the completion of a detailed examination of the geopolitics of energy out to the year 2020. And this is a study which is co-chaired by former Senator Sam Nunn and by James Schlesinger. And we have four congressional co-chairs: Senators Murkowski and Lieberman and Representatives Tauscher and Gilman.

I'd like to share with you this afternoon our preliminary findings and policy considerations in as much as they have particular relevance to current and future U.S. energy policy and in particular to future nuclear power policy.

Let me begin with our key findings. By the year 2020, the developing countries of the world will be consuming more energy in absolute amounts than the industrialized countries of the world. In relative terms, the share of oil, coal and nuclear power, in terms of total energy consumed, will each decline. The share of renewables, largely hydro-power, will be unchanged, while the share of natural gas will increase.

By the year 2020, two-thirds of all the oil produced in the world will come from the Gulf, as compared with just 41 percent this year. Global warming is attracting increasing attention and that, combined with the energy appetite of the developing world, holds tremendous implications for all of us.

I would like to isolate a particular finding. Our estimates indicate that electricity will be the most rapidly growing form of energy use during the coming two decades. This growth, not surprisingly, will be concentrated in the developing countries where electricity use will more than double.

As these countries enter the electricity age, a particular concern emerges. Can adequate electricity supply be developed in these countries while at the same time protecting the environment? What can we do to help assure that the developing world has a full range of energy options available to them?

Clearly, we will all benefit if developing countries have access to clean, adequate and secure sources of energy. At the same time, these countries are not going to place environmental policy ahead of economic growth. To assist these consumers, it is essential that clean coal technology is a viable option, given their high coal consumption. Equally important, nuclear power must be promoted as a viable option in the developing world to supply electricity in rural areas and to promote general industrialization.

Let me ask, does the United States have a forward-looking plan for nuclear power? No, it does not.

Does Russia? Yes, the minister of atomic energy recently stated that there are plans to quadruple the generation of nuclear electric power by the year 2030.

Does China? China today has 10 nuclear reactors under construction or in plan, and will build 20 nuclear power stations by the year 2020.

Does Japan? Despite a recent shift in public opinion, yes. The government currently plans to add 20 new reactors by the year 2010.

Mr. Chairman, I can visualize our leadership slipping away. The nuclear option faces a difficult choice. Exercise the option through government support -- and it's our judgment that the market alone won't do it -- or accept that pollution will worsen.

I noted earlier that the relative share of nuclear electric power and the worldwide consumption of energy will decline over the coming years. This decline will lead to a commensurate increase in worldwide carbon emissions at a time when the world is increasingly aware of the need for emissions-free energy, and at a time when the developing world is confronted with dramatically large future energy requirements.

How can we respond? We propose a government-private sector partnership to fund R&D efforts to design a fourth generation of nuclear reactors, smaller in size, producing less toxic waste, using a nuclear fuel having little military application.

We looked at our assessments at a whole through the year 2020, we find that they stress prospects for instability and interference in energy supplies, but we do this only to alert policy-makers as to just how fragile timely supplies of energy really are.

Well, what lies beyond the year 2020? I can't say with any particular degree of certainty, other than anticipating mounting pressures on adequate supplies of energy, particularly energy with minimal pollutant levels, and that means nuclear, hydro- and other renewables.

Unfortunately, the future for hydro-electric generation is rather dim, and whenever an oil supply crisis emerges, a call for the greater use of solar, wind, geothermal and biomass inevitably arises. Their future is always just around the corner, but we have yet to turn that corner and I cannot say for certain that we ever will.

That leaves the nuclear option. The nuclear industry is far more regulated than are competing forms of energy. With electricity becoming more essential to our way of life, is it not time to develop a set of criteria to measure the effectiveness of the individual forms of power generation to give nuclear energy the benefit of a level playing field?

Thank you, Mr. Chairman. I look forward to your questions.

SHIMKUS: Thank you, Mr. Ebel, appreciate your testimony.

And I'll start with my five-minute round of questions and discourse. And I'm just going to add to part of your opening statements to you both so I don't think -- not only do we not have a nuclear national policy for the foreseeable future, we really don't have a fossil fuel strategy. We don't have a hydroelectric. We don't have a -- really a biofuels.

This is our second hearing, the fourth year on the committee for myself, and a national energy policy that's foresighted is lacking. I think that came out in our hearing. So I appreciate your testimony.

I'd first like to turn to Mr. Graham. And since I'm a southern Illinois representative, I do not represent Metropolis. But my good friend, David Phelps, does and has great concerns over the facilities there. Would you explain how the closure of the ConverDyn facility would impact the enrichment facilities at Paducah and Portsmouth?

GRAHAM: Yes, sir.

Right now, 100 percent of what we produce, in the form of conversion services, are delivered to the U.S. Enrichment Corporation across the river. At the rate of eight million SWU a year, which they're currently producing or at least they did in 1999, that represented approximately 75 percent of their feed component.

Should our facility in Metropolis close, then, for the long-term prospects, the facility would rely -- Paducah facility would rely on inventories and foreign supply. Once those inventories are depleted, it would be relying 100 percent on foreign supply. There is not enough excess foreign supply to feed the U.S. enrichment facility, and as I've stated before in prior testimony, we would be the first domino to fall in a nuclear fuel cycle in the States.

SHIMKUS: You testified that your present contracts are below the cost of production. Is that correct?

GRAHAM: That's correct, sir.

SHIMKUS: How -- if this is correct, how are you going to stay in business partly?

GRAHAM: What we have is, going forward, the market is such that any new contracts we sign today are below our costs, approximately -- well, I'll not say for the record, but substantially for our operating costs. As we look forward, new contracts make a larger percentage of our base load. There will reach a time, and we're forecasting by the end of this fiscal year, that the economics will be so detrimental that unless can see something on the horizon, we cannot afford to incur these substantial losses and are facing closure.

SHIMKUS: Thank you.

I'd like to turn to Mr. McNeill, and first say "Beat Navy." And secondly, wasn't Admiral Nimitz -- isn't he the father of the nuclear Navy? Is that correct?

MCNEILL: Admiral Rickover was.

SHIMKUS: Rickover, that's right. In fact, I had a classmate who...

MCNEILL: (OFF-MIKE) was a Westpoint graduate.


SHIMKUS: The -- I'm sure you listened to the opening statements, as most of us here did, and can you respond to Dr. Lochbaum's claim of safety concerns? Because I think in your testimony, you, in essence, stated how safe the industry has operated and I'd like to give you an opportunity to respond to those accusations.

MCNEILL: Yes. Well, first of all, I am a promoter of a strong safety regulator in the industry. Clearly, the public is best served with the technology with a safe regulator. And some of the examples that he has given, at least in his oral testimony -- I've not read the written testimony, but in his oral testimony -- are factually correct. I think there are some interpretations of those though that bear some, at least, counter-interpretations.

And first of all, let's say where his general comment is is that a large number of safety deficiencies have been identified prior to a shutdown, and then the plant was not allowed to start up until those safety issues had been corrected.

I think, in general -- and clearly we could debate individual cases here, but in many cases you would find that a large number of those safety deficiencies were modest -- minor to modest in nature and may not individually, and to some extent collectively, warranted the shutdown of the plant. What they really should have done is focus management attention upon correction of those deficiencies.

I think his observation that in -- when plants do run into trouble, you frequently see changes in management as within most organizations that have, you know, business organizations that have difficulty. And I think that that's the clear message here -- is that each individual nuclear organization needs a internal renewal structure so that it does not get complacent, so that safety issues are addressed before they are collectively too large.

But we, in fact, have very strong defense in depth. Even if you did not correct a certain deficiency here and it caused a small problem, there are probably four other defensive measures in place that would prevent an accident from occurring, and clearly there are even more than that that will prevent endangering the general public.

SHIMKUS: Thank you. And I'd move on but, in respect to my colleagues, I think I'll now move to my colleague from Ohio, Mr. Sawyer, for his five minutes.

SAWYER: Thank you, Mr. Chairman.

Mr. McNeill, thank you very much for your comments with regard to who bears the cost of an inefficient operation. It is comforting to know that that's the case coming from a sound operator.

I don't know how widespread Dr. Lochbaum's corner-cutters are, but I suspect that that's where the problem lies and the reason that you would be such a strong advocate for a strong safety regulatory structure.

Can you describe the structure that you think would be effective in that regard?

MCNEILL: Yes. The concept is that it's risk-based and it's predictable. That's the fundamental essence of what we need.

In its early years, when we had the Three Mile Island accident, that the Browns Ferry which was referenced, we did not have a historical perspective of operations and operational difficulties that, in fact, provided a basis for design that would have prevented those, to some extent. And after they did occur, we did go through a large -- now and this is about the time that I entered the civilian industry which was shortly after TMI...

SAWYER: ... '79, you said...

MCNEILL: ... '79 was the Three Mile Island accident. I retired from the Navy in 1980, so it was shortly thereafter.

And I entered the industry at a time when there was near pandemonium in responding to just a series after series of requirement changes that were placed upon the industry in response to the accident at Three Mile Island and that had come into place as a result of the fire at Browns Ferry.

We could not manage that, very candidly. And that's why costs went up both in operations, the temporary staffing levels of consultants at plants just grew by orders of magnitude, and things of that nature, and you could not manage it correctly.

Fortunately, as we have implemented those changes and most of them were done by the end of the 1980s, the technical issues around and the training issues around plant operation really, sort of, stabilized. However, the regulatory climate was such that it responded to all deficiencies in a similar manner whether they were really important -- and in fact, the examples that Mr. Lochbaum has outlined here to -- in some degree were regulatory failures, where things were allowed to get out of hand.

Millstone is clearly one of those particular instances which -- there wasn't a proper regulatory response. But there was a lot of activity at the NRC at that point in time.

So we've begun to move...

SAWYER: Can I assume that...


SAWYER: ... at least from a historical perspective that Dr. Lochbaum's assertion that the NRC is not -- has not been an effective safety regulator in that regard has some merit?

MCNEILL: I would -- it has some merit. I would not go as far as he has clearly. And I think the NRC has recognized some of those deficiencies along the way.

But we have moved to understanding more what is important with respect to safety of the general public, and how to measure that, and how to then -- to identify, both from a regulatory standpoint and from an operator standpoint, where to focus our attention at any particular point in time to sustain reliable and safe operations.

SAWYER: Dr. Lochbaum, could you comment on Mr. McNeill's observations?

LOCHBAUM: Well, first I need to point out that prior to joining UCS, I was a consultant and one of Mr. McNeill's facilities, the Limerick plant in Pennsylvania. And Peco had, at that time, and still has, a very fine organization.

Your comments and your question was that, What's the gap between fine-running organizations and others? It's quite large, because I was a consultant at some that Mr. McNeill did not run and there's a distinct difference.

There is -- been a problem at the NRC. They've recognized regulatory failure, they made the cover of Time in 1996 and not for good things, and they've made a lot of changes. So they're now facing the right direction, but they need some help in ensuring they reach the right goal.

And that was the theme of my comments, is they can't just have a plan to get to the right destination. They need some help in making sure that plan is successful. And I think they need some help from the outside, because the people they have are very good technically, but they've never overseen or led such a dramatic change that they're going to have to go through to downsize and still perform efficiently.

SAWYER: Would that mesh well with Mr. McNeill's observations that they were -- if I could paraphrase what you're saying -- that there was not a sense of perspective in differentiating among large needs and small?

LOCHBAUM: I think that that needs to happen. You have to focus on the right areas. I'm concerned that the NRC's process for focusing on the right areas is still flawed, and it's still reactive rather than proactive. And they need to get a better balance between -- they have to react to problems. I'm not saying that. They need to do a better job of preventing problems from occurring, like the Millstones and any other plants that have -- problem plants we've had.

SAWYER: Thank you for your patience, Mr. Chairman.

SHIMKUS: The gentleman yields back. I know turn to my colleague from Kentucky, Mr. Whitfield, for five minutes.

WHITFIELD: Thank you, Mr. Chairman.

Mr. McNeill, can you tell me what percent of your enriched uranium or SWU comes from domestic sources?

MCNEILL: I don't have a specific number but it is a large percentage.


MCNEILL: I would think it's in the neighborhood of above 75, probably closer to 85 percent.

WHITFIELD: And Mr. Graham and others who are not on the panel today have expressed some concern that the U.S. may be heading to a position where there may not be a domestic source of enriched uranium. Is that of concern to you?

MCNEILL: To some extent, yes. I'm torn on this issue because the moratorium -- while there is in the marketplace, in the short term the lower cost I get, the more economic it is for me to generate electricity. But if I put a long-term perspective on that, I think there is value to a balanced approach to maintaining a viable energy supply -- at least North American energy supply; let's put it that way. I don't know specifically that it has to be purely U.S. but let's say North American supply would be viable.

WHITFIELD: Now how would you feel if the Commerce Department grants an exemption to the suspension agreement and allows USEC to purchase commercial?

MCNEILL: I think it's, while not on the record, I think in the press you've seen of -- at least excerpts of a letter that I wrote to the secretary, both the secretary of energy and secretary of commerce, objecting to that particular thing. And it's mostly around making USEC the monopoly controller of a low-cost supply.

WHITFIELD: So basically, your position is that if they do that, that they should not make them the sole source...

MCNEILL: That ought to be -- that source ought to be available to all users.


Now, Mr. Magwood, I know you've been very much involved from the peripheral on issues relating to USEC. And what is your position on whether or not the U.S. should have a policy that guarantees a domestic source of enriched uranium?

MAGWOOD: It's a very difficult subject, Mr. Whitfield. I think that one of the things that we certainly try to do, in creating USEC and then privatizing USEC, was to find a way to have a long-term solution to having a viable enrichment enterprise.

If you recall back in 1992, when the law was passed that formed USEC, there was a great deal of concern in Congress, in fact in this panel, about the future of enrichment enterprise and the need to do something. The fact that we're now seeing reasons for concern, I don't think -- recall the original policy that was made jointly by the administration at the time and also by the Congress and the question. I think what it does is it does call into some clarity the fact that a lot of things have happened in the nuclear fuel market at the same time and that these have lead to significant problems, such as Mr. Graham has outlined.

I think there is very, very real reason to have -- or to want to have, from a government perspective, a domestic enrichment capability. How we actually go about doing that, how we make sure that that stays in place is a very complicated issue, that the secretary has asked the enrichment oversight committee to think about -- I think you're familiar with that -- and that we're continuing to study. And the secretary has asked us to look at a lot of options about that.

So it's something that's being looked at actively in the government right now. I don't think we have a clear path forward at this point. It's a very complicated issue.

WHITFIELD: Well, you know Mr. Graham from his testimony today, it sounds like the uranium mining industry is not going to be around very long unless some action is taken relatively soon. Do you agree with that?

MAGWOOD: Well, I think that Mr. Graham's assertion was really focused on the future of ConverDyn. And I have met with Mr. Graham and his, or at least his employees in ConverDyn, and talked about this issue. And I think what they're worried -- that if action isn't taken, ConverDyn could wash up down before the end of the year. And I think that's a very serious matter.

Uranium issues are a little more complicated, but ConverDyn is the only domestic converter. And I think that it's a very -- it really crystallizes the issue when the CEO of the only domestic converter tells you that he's going to shut his plant down unless action is taken. So it's something we take extremely seriously.

That said, it's not clear what the government role here is. It's clear that we're concerned about it. It's not clear that the department should ask Congress for money to sustain ConverDyn. It's not clear that Congress would do that if we asked for it. But it's something I think Congress and the administration have to work on together and we have to do so very quickly obviously, from Mr. Graham's comment.

SAWYER: You know for the third time in less than two years, the shipments under the Russian HUE agreement have been interrupted, most recently by the lawsuit by the Swiss trading company which, I think they won in their courts and now they've filed suits in New York and Kentucky. What -- if they win those lawsuits, what would the impact of that be?

MAGWOOD: Well, I guess I shouldn't speculate on the lawsuits at this point.

SAWYER: I'm not asking you to speculate, but I mean do you have any idea if they win, what would the impact be?

MAGWOOD: If they win, I'm not sure I know all the impacts, quite frankly. I think there's a lot -- there's lots of ways that enrichment could flow. There's lots of questions about monies that come into question with those lawsuits, and it doesn't necessarily mean that the flow of enrichment would stop coming to the U.S. from Russia if these lawsuits were to be successful. It simply means that somebody would have to pay money to somebody else.

I think that the crux of your point is, Is Russia a reliable supplier? And I think that's something that all of us have to wrestle with over time. I think that if you look at the history of the HEU agreements actually have been rather successful. That while there have been problems, we've converted 80 metro tons of highly enriched uranium -- weapons grade uranium, taken out of Russia. And from a national security and nonproliferation perspective, I think you have to say that in many ways the HEU agreements has been very successful.

That said, it's also clear that there continue to be needs for the government to stay involved very carefully and to watch the process, and to continue to guide USEC and the Russian executive agent as the process goes forward. And that's what we're doing right now. We are -- the government is very involved in the negotiations. We are working very closely to understand what's happening, what the proposals are, and evaluate the proposals. And, you know, we're staying engaged.

WHITFIELD: Mr. Chairman, thank you.

BARTON: The gentleman yields back his time. (inaudible) my colleague, Heather Wilson.

WHITFIELD: Well, I didn't yield back time. My time had expired, Mr. Chairman.

BARTON: Well, the gentleman's time has expired. With that I'll move to Congressman Heather Wilson for your five minutes.

WILSON: Thank you, Mr. Chairman. Beat Army.

A couple of questions with respect to different issues raised by your testimony.

BARTON: The gentleman's time has expired.


Your time's expired.


WILSON: Thank you, Mr. Chairman.

Mr. Graham, last week some folks from the USEC briefed members of the Commerce Committee staff on the SWU plan, on the purchase of commercial SWU from Russia. And their general view was that the plan would get a better price on the SWU that USEC purchases under the U.S.-Russian ATU Agreement. And what I'd like you to -- if you can -- to the extent you're aware of this proposal, what you can tell us about this proposal and how it would affect the domestic uranium and conversion industries.

GRAHAM: I will do my best, Congresswoman.

It's our understanding that the agreement with USEC and their Russian counterpart is one to fix the price going forward such that current agreement and the current pricing for USEC doesn't place USEC under such duress. The current price is almost equal to their operating costs.

What it does when we bring additional material into the marketplace, be it any form, through government action, will continue to add more material to an already-over supplied market. By conditioning their long-term agreement on a short-term, what they call sweetener, to bring more SWU in for them to sell, that SWU is transported as EUP. And of course, EUP has all three components: uranium, conversion and enrichment.

So in summary, what it does is just enters into the market with no restrictions, or little restrictions, more material that would further stress the uranium market, both domestic and internationally, and quite definitely the conversion market, putting us at greater risk to exit the market earlier.

WILSON: Mr. Magwood, I wonder if you would comment on that and on the SWU agreement, and whether you -- what you think this agreement does in terms of U.S. energy security. And I recognize there's a balance here with national security -- non-proliferation.

MAGWOOD: Let me -- let me say in response to that that when we learned of the proposal, it certainly was something we were very concerned with because of the issues that you were raising.

It's really an issue that's really an open item in the government now. It's something that's being looked at very closely. The secretary is looking at it personally. He's been involved in it.

And my understanding is that USEC was instructed not to finalize the agreement until there was further review by the government because of these issues. And for that reason, it's still under investigation. So we're still trying to understand what the impacts are and what path forward to choose at this stage.

WILSON: Thank you. Also, Mr. Magwood, I had another question on a slightly different subject, on your projections for U.S. electricity demand over the next 20 years and beyond and your long-range strategy for keeping nuclear power as a viable long-range option.

I was struck by the -- by some of the charts in the testimony and the comments about the fact that current nuclear reactors are not going to be replaced. And the sense in various pieces of the testimony that this is going to be a dying source of electricity for this country. What will replace that? And is there any strategy to keep this as a viable part of U.S. energy supply?

MAGWOOD: One of the things we've always found very interesting is to try to look at projections to the future, because I think that one of the -- one of the practices I've always enjoyed is simply going back in history and see how accurate predictions 20 years out have been. And in general, they aren't very good.

We -- I'm aware that there are projections that show the nuclear disappearing in 20 or 30 years. While we understand how those projections were arrived at, we don't agree with them all. We think that they underestimate exactly how many nuclear power plants will be relicensed. I think they over estimate the cost of relicensing a nuclear power plant.

It's my understanding that from -- as I stated in my testimony, that the vast majority of nuclear power plants will seek new licenses, and with those 20-year extensions can be expected to operate well into the middle of the century.

On -- for our part, what we are doing is we are working closely with the industry to find technologies to keep existing nuclear power plants in operation as long as they can be safe and economic. We're finding ways to make them more efficient than they are now. We're finding ways to incorporate advanced control technologies. And we're working very closely with EPRI, the Electrical Power Research Institute, to do that.

Beyond that, we're also working with our international partners to explore next-generation nuclear power technologies. Technologies beyond our advanced light water reactor technologies, which are currently being built overseas. Like to see some of them built here, but right now they're being built in places like Japan and Korea.

And we think that there will first be opportunities for next- generation nuclear power, for advanced light water reactors be built in this country some time over the next 10 years. There are opportunities for that. It's up to people like Mr. McNeill to see if the economic case is there. I think that the -- there is certainly reasons to look at nuclear power as an option.

And I think beyond 10 years, we want to try find these new technologies and explore these new approaches to nuclear power that can be much more efficient than what's available. Certainly safer and more reliable, more -- less -- during less than field.

So these are things the department's currently actively working on.

And let me say, just in response to some earlier comment that I think that Mr. Ebel made, that simply because the U.S. doesn't set out a target for how many nuclear power plants we want to see built -- the government doesn't put out targets, doesn't mean we're not interested in nuclear power. It simply reflects the fact that our role as a government is to promote research and development technology and provide options for industry to make the choices.

So it really isn't up to the government to make the -- to build nuclear power plants. It's up to the government to make sure the technology's available if industry wants to build nuclear power plants.

WILSON: Unanimous consent for one additional question?

BARTON: Without objection, the gentleman may proceed.

WILSON: Thank you.

I just -- I find your answer to be startling. You talk about this investment in research and development and the appropriate federal role. And yet in your testimony, on page nine, "nuclear energy research and development has collapsed in this country."

How can we talk about these things in general terms without making the R&D investment? And do you believe that the R&D investment in nuclear energy is sufficient?

MAGWOOD: Collapsed is really a good word for it. We -- I was there...

WILSON: Golly, I...

MAGWOOD: Yes, it fell completely down to zero in 1998, I believe. And I was with the office when that happened. It was a very disconcerting event.

Since that time, and since the time I've been director of the office, we've been working very hard with the Congress and within the administration to reverse that, and we have brought nuclear R&D back somewhat.

While we don't have the high levels of the past, we're up to about $50 million in research and development activities right now. Our Nuclear Energy Research Advisory Committee, as Dr. Klein indicated, has recommended that that be increased from about $50 million now to about $200 million or $300 million out about five years.

We certainly would like to work towards higher levels of nuclear R&D funding. And I think that if we do get funding like that, we will be able to show real value for it for the country.

And Mr. Chairman, I'd like to note that Mr. McNeill was trying to get attention.

WILSON: My time has expired, thank you, Mr. Chairman. Although I...

BARTON: I'll ask for unanimous consent for one additional minute for you so Mr. McNeill can get his response to the question.

Without objection.

MCNEILL: In this response, I speak for myself personally, not representing the industry.

But right now the competitive prices of electricity don't really support the projected cost of the new light water reactor. They're too large. They're 12,000 to 1,400 megawatts in size. That kind of plant, in my opinion, only fits in a controlled economy like China, Taiwan, Japan.

There are significant -- in light water reactors you have to have significant safety systems and containment. They take too long to build. You know, anywhere -- I mean, historically they've taken up to 10 or 12 years. But even if you were to build one today, it'd probably take you six years. And you're building new gas-fired plants at -- in two or two and half years.

I think the promise looks at smaller, let's say 120 megawatt plants, that are modular in design. There are some designs that are under consideration at MIT here in the United States and in South Africa. They do have the promise of both lower cost -- and in fact, the elimination of the threat of fuel meltdown, which, you know, was the event that occurred at Three Mile Island.

But it's -- we are several years away from having a confidence in that design with which we could undertake an investment of it right now.

And I'm not so sure that extensive research is required for that specific purpose today. It's an engineering effort more than anything else.

BARTON: The gentlewoman yields back her time.

We're going to go around -- a second round of questions for those who want to stay. And then we'll move to the second panel.

I'd like to first just make some observations and talk about, one, part of the nuclear -- initial nuclear growth was based upon energy productions -- or energy demand that really didn't occur. And part of the energy dereg debate that states have addressed are the stranded costs issues to address the growth.

So as much as we have projections of demand, based upon my short time looking at in this debate, they don't always fulfill.

But I am concerned and consistently discuss energy security. So I'd like to ask Mr. Ebel, if the sea lanes were closed today -- and I know you're with this mostly the nuclear table, but let's just assume that's true for the importation of the fuel that we're receiving from Russia, and the fact that we have one facility -- what would that do to demand and cost, simplistically?

EBEL: Well, I know you've had hearings on oil and gas, and I'm sure during those hearings you touched upon the rising dependence of this nation on oil. And our dependence on oil reaches, let's say 56 percent, and is growing and is likely to never come down.

Now I've listened to the testimony today about the generally deplorable status of our domestic nuclear fuel supply situation. Here we have an opportunity to maintain a healthy domestic fuel supply situation, to keep us from becoming overly dependent on foreign sources of supply. And we should not miss that opportunity to do so.

We do not have that opportunity to when it comes to oil. Our supply of oil simply is declining physically at a time when demand is growing. So, I would -- I think this country would be remiss and would stand at risk if we were to let our domestic nuclear fuel supply industry decline.

If it -- if the shipments were to stop today, I would presume that the domestic industry could respond. But 10 years from now? Probably could not.

BARTON: Thank you.

And I'm also intrigued by the discussion of the smaller units and the modular design. And I was under the impression that part of the high cost of nuclear power has been the fact that no two plants are the same. And that with regulatory changes as the industry grew -- who has any assurance that a modular design, even with a smaller plant, would be accepted and not pose the same risk as previous nuclear plants?

Mr. McNeill?

MCNEILL: Well, I think this is one of the lessons that the industry has learned that -- and in fact, it had learned that toward the tail end of the last construction cycle, when in fact the SNUPS plants, or the Standard Nuclear Unit Power Supply system, had been designed. And in fact, we built two of them and there were a whole bunch of them on the drawing boards when Three Mile Island accident happened.

So I think we understand now the essence of standardization. And in fact, licensing activities that occurred in the 1980s of licensing a design would help -- I mean, would be the -- is the appropriate mechanism to ensure that we were able to use that without extensive changes during the construction process.

So you've got a pre-approved design by the NRC. You then go license a site and you build a plant. And we haven't tested that all licensing process yet, but that's what's in regulation today.

BARTON: Thank you.

And I wanted not to leave Dr. Klein out. But in your testimony you talked about the importance of a centralized storage facility; am I correct? And I hope I'm still remembering that correct.

KLEIN: You're correct.

BARTON: Not from any notes, but reiterate the importance of that and the failure of us as a body and the importance of that to actually really the costs and the safety issues involved in probably over 60 sites across the nation because we do not have a centralized site.

KLEIN: There are about 72 sites, and what happens is the -- as each facility becomes full with nuclear fuel, they will have to build additional storage facilities at their sites. And so what you end up is having 72 additional dry cast storage facilities or one centralized storage facilities.

In our commission's view -- and subsequent analysis shows that it's much better to have one facility designed to handle that spent fuel rather than put that burden on each utility site to store that fuel. So it's both an operational and an economic advantage to have one centralized facility.

Once we get to a repository, we'll have to have a centralized storage and processing facility anyway. And it would be beneficial if we could do that as soon as possible so that additional reactors don't have to build at-reactor storage. So it is both operational and economic.

BARTON: Mr. Sawyer?

SAWYER: Everybody's bailing out here. Yes, that's exactly right.

Thank you very much, Mr. Chairman.

Mr. Graham, you spoke about three events and their devastating impact on the American nuclear industry. The one that struck me most was the -- your portrayal of the effect of the privatization of USEC. Is it your sense that it ought to be refederalized? And if so, what form should that take? Would it be a stock buy-back? Would it involve full price? Would it -- just what -- if that is the problem, what is the solution?

GRAHAM: Congressman Sawyer, that's...

SAWYER: Got your attention, didn't it?

GRAHAM: Yes. Yes. That's a difficult question. But you know, had I -- I had testified in an earlier hearing regarding the U.S. Enrichment Corporation and had stated that of the events occurring in our industry had one or the other two significant events, the HEU and privatization, occurred, the industry could have handled it. We could have worked it into the ongoing operations of the industry. Both of them occurring simultaneously is devastating us.

When we look at the U.S. Enrichment Corporation and the aspect of refederalizing it, I know for a fact that our industry were not incurring such pain prior to the privatization. The method of returning it to where it came, I think would return us to where we have a level playing field and a competitive marketplace. And that's really all we're asking for is level the playing field.

The mechanism to get it, we've thought about. We've looked at it ourself. It would be difficult, I think, at this point, because of the deterioration of the corporation. A lot of value has been lost. A lot of infrastructure has been lost. But I think -- our recommendation is that the government and industry get together and tackle the problem, come up with a solution. Without it, I think the long-term, as Mr. McNeill has indicated, is in jeopardy.

SAWYER: Are you suggesting it might be easier, more efficient to start from the ground up and rebuild that capacity?

GRAHAM: If you're referring to the technology, I think not. It's there. It is what it is. I think it's outdated. It's not the best. It's not the most economical. I think one would have to look at the value of the company as it is today. I think the capitalization is $450 million and probably the debt is another $500 million.

I think the U.S. government received $1.9 billion. So it'll be a slight profit in taking it over again. But I think it would be a difficult procedure to do, but I think it can be done. Again, in conjunction with the industry.

SAWYER: Thank you.

Mr. Ebel, you spoke in terms of government support to expand the nuclear industry. Can you expand upon what you were -- what you were talking about? What forms that might take if in fact the market is not sufficient?

EBEL: Yes. It is in our judgment that the market by itself won't do it; that it will require government support.

We would recommend in our study that a joint government-private sector partnership and a development of a kind of reactor that would meet the needs of today, which is reduce proliferation, to try to be proliferation resistant, low cost, modular. Modular in part because it needs to respond to the needs of developing countries, where you could build as their demand for electricity grows.

Moral support, yes, but financial support also.

SAWYER: And do I hear you correctly that you're talking largely about research and development in terms of that? Or are you talking about capitalization?

EBEL: Well, there are, I think, available some thoughts about what a fourth-generation reactor would look like. And we should proceed from that basis, yes.

SAWYER: Other comments?

Thank you, Mr. Chairman.

BARTON: Yes, sir.

Mr. Ebel, I was pleased to hear your comment. I think that was a very good comment that we are quite dependent upon foreign oil, and many of us are concerned about becoming dependent upon enriched uranium from foreign sources.

And I think, Mr. McNeill, you also said you would be concerned about it, but not so much if it came -- as long as it was a North American source. And how many sources are there in Canada, for example?

MCNEILL: Well, Canada does -- there are mines in Canada and they process unenriched uranium, but there are no enrichment facilities there. And I don't know the extent to which there is conversion facilities.

My issue was around -- we have a fairly stable political climate in North America. And I don't think we're subject to the risks that we are by going, you know, to Europe or Asia for supplies.

BARTON: But if you did have to rely exclusively on Europe or Asia, you would be more concerned?

MCNEILL: I would be more concerned, yes. I think from a national security perspective I would be concerned.

BARTON: Right.

Mr. Magwood, if Secretary of Commerce Mr. Daley, called this afternoon and asked would you support the exemption to the suspension agreement so that USEC would be able to buy this commercial grade uranium from Russia, what would be your position?

MAGWOOD: I would probably refer him to Secretary Richardson.


BARTON: Do you have any idea what he might say?


MAGWOOD: I think -- I said earlier that this is really under active analysis. And I think we still -- and I think -- I think Congress and DOE are working together to some degree on this. And I expect that we'll be able to have some position announced on that pretty soon.


What is the status of the RFP for the construction of the two uranium hexaflouride conversion facilities in Paducah and Portsmouth?

MAGWOOD: We've made a commitment, and we're on track to meet that commitment, to have that RFP in final form on the streets in October.

BARTON: In October.

MAGWOOD: And we're still on track to do that.

BARTON: OK. Thank you.

I have no further questions.

Mr. Burr?

BURR: Thank you, Mr. Chairman.

Just a few general comments. And I apologize because I can't see names. So I'm going to try to ask you questions that I open to all of you.

I've got to admit, Mr. Chairman, as I heard -- as I sat here and heard about the questions about the possible refederalization of USEC, the one thing that went through my mind was I wondered whether we could afford the buy out of Mr. Timbers' contract based upon his parachute that's there. But I'm sure that's something we'll tackle if in fact -- I wouldn't want him to think just because he wasn't here that I had forgotten about him.


If I understand the participation of nuclear to our overall market, it's about 16 percent. Am I accurate?

It's not?

MCNEILL: I think it's closer to ...

(UNKNOWN): Twenty-three.

BURR: Closer to 20 percent. Even more important.

Will the absence of a permanent disposal facility for spent reactor fuel accelerate the closure of nuclear generation in this country?

I open it to anybody that would like to respond.

Yes, sir.

MCNEILL: I'm not so sure that it will accelerate the closure. I think that the impacts of the government's failure to fulfill its responsibilities under the Waste Policy Act clearly increases the cost of electricity from nuclear power plants because we have to provide alternate mechanisms of storage rather than moving it directly to the permanent storage.

In a couple of states -- and this is probably the risk. In Minnesota, for instance, there is a state law which limits the amount of temporary storage there is. And if that is not resolved, it could force the shutdown of plants in that state.

Also, it -- you're exposing the federal government to significant legal liabilities because it's under contract to take this material and it's going to fail to do that. And it's a contract law resolution issue that could be.

And there are several other, you know, impacts here that are to some extent more psychological, such as the failure to resolve that issue provides a forum for ideologues that don't like nuclear power to argue that we ought to shut plants down or we shouldn't develop new plants and things of that nature.

BURR: But if I understand what you've said, if plants who meet capacity in their pool file for an expansion of their pool and that expansion is not granted, whether it's the pressure within the community or the approvals that they have to go through, then it would accelerate the closure of the facility because of the lack of storage.

MCNEILL: Yes. If there is no other alternative, yes.

BURR: And with the exception of the permanent site or the pools that they currently use, there is no other option right now, is there?

MCNEILL: Well, the other option is temporary cask storage on site.

BURR: And we've sort of talked about that up here. And it was received about like some of the president's budget.

MCNEILL: Well, I just got done building one. I'm moving my first fuel there next month, so.

BURR: Is there anybody that would agree that this stands a chance of accelerating closure of facilities?

EBEL (?): I think it certainly is. I think the plant that Mr. McNeill referred to, Praire (ph) Island is a classic example. And I think there are other states that could implement similar situations, it could cause a difficulty.

And I think the bottom line on not moving forward with a centralized storage facility and a permanent repository, because you will need them both at some point in time, is that the rate-payers are paying twice. They're paying for a permanent facility and then they have to pay additional cost for additional at-reactor storage.

BURR: How many people at the table believe by 2010 that the Department of Energy will have taken spent fuel?


Is there anybody at the table from the Department of Energy? Mr. Magwood.

It really concerns me when you don't believe that the Department of Energy won't take spent fuel by 2010.

Did you just not hear my question?

MAGWOOD: I think Mr. McNeill was trying to distract me so I wouldn't hear the question.

I think that we're on track to do that. I think that the department has a plan to go forward to take -- to begin -- open Yucca Mountain in 2010. I do, however, think that it will require a great deal of hard work from both the administration and Congress to get the money to do that.

The funding profile for the Yucca Mountain project is going, by I think 2003 or so, begin to accelerate pretty dramatically. And if the funds to move this along aren't available, we're going to be in trouble.

And let me say that, just since the 1998 viability assessment came out on Yucca Mountain, the funding for the Yucca Mountain project is about $100 million behind what the projections were back in 1998. So on the path we're on now, we're not going to make it.

And I think it's going to really take some, I guess, some more resources to make this -- to make this happen. But I do think it's possible.

BURR: One of the big issues -- you've got five gentlemen sitting beside you. I would assume that they all pay federal taxes. They live in some member's district. None of them believe that you will have taken this by 2010. And there are many more of them that live in the districts of each of us who say, How is this money being spent?

We've got some accountability that's tied to the release of funds that says there has to be an expectation that there's an end point to this; that we can with confidence turn to an industry and say, It will be taken. Not it might be taken or it might be taken if do this. Or it will never be taken would probably be a better situation than what we're in right now.

But we understand the statement you're making. We know that at some point we have to work to make sure that more of that money on the annual basis is appropriated. We just have to have a belief that there's a will at the Department of Energy to live up to the date.

And I guess you're telling me there is.

MAGWOOD: My understanding is that the director of that -- the Office of Civilian Reactor Waste Management, Mr. Ritkin (ph), will be up here in two weeks to talk about this in great detail.

He and I did confer before this -- before this hearing. And he is very confident that they're on a track to take spent fuel on the schedule that they've projected. He is, however, concerned about the funding.

And I -- let me just add one last thought. And that is that I believe that, while there are a few plants that could become endangered because of the delay in taking spent fuel from the original schedule, I think that the forward motion of the program provides some confidence to people that are operating plants right now that at least something is going on; that there is a plan to take care of it.

And I think that's as important as the actual taking of the spent fuel when you look at the longer term. And hopefully those who didn't rise to the occasion and support the department and saying they're sure that they'll take -- the department will have that -- meet this schedule, at least believe that we're moving in some -- in the right direction and are doing the best we can. And if -- I think if they don't believe we're doing the best we can, we certainly hope they'll come back and tell us how we can do better.

BURR: Well, I can assure you, I think that as the time goes on and as the money gets more, I think that the Congress will weigh in even more boisterous than we have. I've given up the belief that I will ever participate in a hearing in Congress where somebody from a federal agency walks in and says, You gave me too much money. Clearly I expect the request for more.

Last question, and just to the whole group, Mr. Chairman.

Twenty percent loss over some period of time of generated electricity; what replaces it? Is there anybody that believes that new nuclear is going to be built?


Then I would assume that your answer to that replacement is new nuclear.

For the other four, what replaces that lost nuclear generation?

(UNKNOWN): I think in the short-term what we will see to meet that capacity, as others have said, is the additional burning of natural gas, because it's quick and those costs will be passed on to the consumer.

I think that the difficulty that we have in planning is that we don't look as far long-term. And when you talk about building base- load coal and nuclear plants, you end up taking time. It takes time to build them, get them licensed. And we're making decisions now on the short-term, things that we can accomplish fairly quickly.

And we need to have an infrastructure and a policy in place that will let us make these long-term decisions for a stable electrical supply that will not be subjected to rapid increases of costs. With an interruptible supply, for example, if there's an interruption of oil, as we had seen previously, that will impact the cost of natural gas. And then we will see those costs immediately passed on to our electricity bill.

So I think as a country we need to look at long-term energy strategies that include nuclear and coal as our base load.

BARTON: I think that -- I'm told the gentleman's time expired about five minutes ago.

BURR: The gentleman's time had expired about five minutes ago. The gentleman from Kentucky was very generous to me.

BARTON: He told me he was -- he liked North Carolina, so...

BURR: I would just say to the chairman...

BARTON: But we do have Virginia yet to go.

BURR: I am very enlightened at the fact that the Department of Energy raised their hand in the belief that we would build new nuclear. And I've not heard that out of the Department of Energy before today, so.

BARTON: Did they say what century we'll build new nuclear in?

BURR: Clearly I wasn't quite that crafty.


BURR: Thank you, Mr. Chairman.

BARTON: OK. The gentleman from Virginia wish to ask questions?

Has the gentleman from Ohio been given a chance to ask questions?

Two chances.

Well, I have some questions but I'm going to submit them for the record. We do still have a coal panel and we really want to give them an equal opportunity.

Want to thank you gentlemen for coming. It's obvious there's a lot of interest in the nuclear industry, and we look forward to working with you in the coming years to revitalize our industry.

This panel is released. And if we could have our next panel come forward as soon as the first panel has vacated the witness table.

Welcome, gentlemen. This is our second panel.

We want to welcome Mr. Robert Kripowicz, who is the principal deputy assistant secretary in the Office of Fossil Energy, from the Department of Energy. Like I told your contemporary on the first panel, we appreciate your willingness to appear on a panel with private sector employees. It does facilitate our hearing. And we want to thank you for having your testimony in on time. We appreciate that.

So, we're going to recognize you, Mr. Kripowicz, for seven minutes. Your statement's in the record. And then we're going to go to General Lawson, Mr. Bailey, Mr. Gehl and Dr. Schobert. So, welcome to the committee.

KRIPOWICZ: Thank you Mr. Chairman.

BARTON: You've really got to put that microphone close to you, and speak into it.

KRIPOWICZ: Mr. Chairman, members of the subcommittee, I appreciate the opportunity to represent the Department of Energy and to discuss our views on the future of coal. Rather than address every point in my prepared statement, in the interest of time, I'd like to focus on one key aspect of the future of coal, and that's technology.

Coal is our most abundant fossil fuel resource, and its low cost is one of the major reasons why the consumers of this nation benefit from some of the lowest electricity rates of any free market economy. But abundance and low cost alone do not guarantee coal's future. Environmental acceptability has been, and will continue to be the key factor in the use of coal.

I'm convinced -- and I believe my colleagues on this panel share this view -- that advanced technology can overcome concerns about coal's impact on the environment. For the last 30 years or more, the use of coal has been challenged with increasingly stringent environmental requirements, and each time the nation's coal scientists and engineers have responded.

For example, when the 1970 Clean Air act was passed, many utilities installed scrubbers. But scrubber technology was expensive and unreliable. Today, because of our investment in technology, scrubbers are one-fourth as expensive as those of the '70s, and reliability is no longer a serious concern. That investment alone has saved American rate-payers more than $40 billion since 1975, and reduced compliance costs.

Nitrogen oxides are another example. When acid rain and urban smog became major environmental issues in the '80s, we had very limited technology to control nitrogen oxide pollutants -- or NOX. But we invested in research, and in the clean coal technology program. And today we have advanced burners that reduce NOX at one-tenth the cost of controls in the '80s. Nearly 75 percent of today's coal-fired generating capacity uses these lower polluting burners.

Today, as a result of technology, we can burn coal in a fluidized bed boiler, and eliminate 95 percent of the sulfur and nitrogen pollutants inside the combustor, removing the need for a scrubber.

We now have entirely new ways to use coal to generate electricity, by gasifying it, rather than burning it. One of the cleanest power plants in the world operates outside of Tampa, Florida. At its heart is a coal gasifier, and a system that produces coal- derived gas, with virtually the same environmental characteristics as natural gas. It is a product of our clean coal technology program.

The future of coal is a future driven by technology, and at the Energy Department we're developing new technology for coal that could produce a virtually pollution free energy plant by the year 2015. I've displayed on the easel, an artist's concept of such of plant, and we call it our Vision 21 concept. I brought this drawing to make one key point: The coal plant of the future may not look at all like your father's power plant.

A Vision 21 plant would be capable of processing a wide range of fuels -- coal alone, or coal mixed with petroleum coke, or in this concept, coal mixed with municipal waste from a major metropolitan area. It would gasify this fuel, or combust it in an advanced combustion process. Perhaps it would incorporate fuel cells, or turbines, or a hybrid combination of the two. In one concept, it would generate only electric power. In other configurations it would produce multiple products, processing some of the coal to make liquid fuels, or high-value chemicals, in addition to power.

As a power plant, a Vision 21 plant would incorporate technologies being developed today, that could double the efficiency of power generation. That would reduce carbon emissions by 40 percent or more, a major step in greenhouse gas control. As a fuel producer, we estimate that such a plant could produce liquid petroleum substitutes in the $20 per barrel range. That would be a major step forward in reducing our growing dependence on foreign oil.

Most importantly, a Vision 21 plant would have near-zero emissions of today's regulated air pollutants. That means it could be sited near urban centers, where future demand for electric power is likely to be the greatest. To make that point in the artist's concept, our engineering plant configured a plant for Roosevelt Island in the East River in New York City.

Let me stress that this is not pie-in-the-sky speculation. Each of the major components of a Vision 21 plant has either been demonstrated, or is in the development stage today. The key will be to link them together in a commercially viable concept, competitive with natural gas.

Skeptics might say, OK, you've solved the air pollution problem, but what about global climate change? The plant still uses coal, albeit much more efficiently, and it still emits carbon dioxide -- a greenhouse gas. That's where the second of our major coal priorities will play a role. Carbon sequestration is a relatively new part of our program, but it holds significant promise. Carbon sequestration is the capture, and either storage or recycling of carbon gasses to prevent their build-up in the atmosphere.

There are a variety of ways to do this, but virtually all will require more research before they're proven reliable, affordable and environmentally safe. That research is recently under way, and industry, to its credit, is coming to the table. In one of our first major competitions, we received more than 60 proposals, with private cost sharing averaging around 40 percent. Within the next few weeks, we will announce the first set of winning projects. And in almost all of them, the industry contribution will be above the 40 percent mark. That is a very positive development, and beyond our original expectations.

So, Mr. Chairman, we don't see coal as a fuel that's seen its better days. Coal has faced challenges before, and it faces them today. But we've called on technology before, to meet those challenges, and we believe we can call on technology again.

And that concludes my opening statement.

BARTON: Thank you Secretary Kripowicz. We appreciate that.

We now want to hear from General Richard Lawson, who's president and CEO of the National Mining Association. He assumed that position after a career in the United States Air Force, where he was four-star general, and a Vietnam combat veteran, with over 73 combat missions.

We appreciate your service to your country, sir, and we appreciate your testimony today, on behalf of the National Mining Association. Your statement's in the record in its entirety, and we would ask you to summarize it in seven minutes.

LAWSON: Thank you, Mr. Chairman, members of the committee. I am Richard Lawson, the president of the National Mining Association, and thank you for inviting the mining industry to participate in this hearing.

Mr. Chairman, the United States has the resources to have an energy policy that supports the use of all domestic fuels, while at the same time balancing economic, security, social and environmental considerations. Unfortunately, we do not have such a policy in place today. Our policies are not balanced. They support the environmental extreme over the reasonable. And as a result, our energy future is vulnerable on several fronts. We are now dependent on imports for 54 percent of our oil supply -- a far higher dependency than just before the 1991 Gulf War, when I appeared before this same committee to talk about exactly this same subject.

Reserve margins in our electric utility industry are lower than ever before, making our electricity supply vulnerable to the unexpected planned outage, or heat wave. And policies that govern access to our domestic fossil reserves are preventing us from taking full advantage of our own energy sources: oil, natural gas, uranium, coal even hydro-power.

You asked me to talk about coal, and coal-fired electricity. Coal is the mainstay of both the U.S. and the global energy supply. Coal provides almost a quarter of the energy that we use in our country today, and is the fuel that generates over half of our electricity. Your home state of Texas, Mr. Chairman, is the number- one user of coal: over 110 million tons last year.

Globally, coal's contribution to the energy mix is about the same as the U.S.: 25 percent. And in developing countries that percentage is higher: 35 percent. Coal represents nearly 95 percent of the U.S. fossil energy reserves, and almost 70 percent of the worldwide fossil reserves. So, coal will continue to be used because it's widely available, it is reliable, and it provides the fuel for low-cost electricity.

Here in the United States, the Energy Information Administration expects coal use to increase by some 200 million tons over the next 20 years. In developing countries, including China, coal use will increase by some 1.8 billion tons, mostly to make electricity. I use these numbers to illustrate my point: Coal is here to stay in the United States, and elsewhere.

While coal is used more efficiently, with lower emissions today, than ever before, technologies are being developed which will convert coal into electricity with even greater efficiency, while effectively eliminating emissions. Changes in policy are required however, both to maintain current coal generating capacity, and to ensure that the future fleet of electric power plants include coal-fired capacity.

There are constraints on coal supply. Recent actions by the administration to declare large areas of public lands as national monuments, along with attempts to place large blocks of Forest Service lands off-limits for any use, are reducing the quantities of coal reserves available for mining. There are even more constraints on coal use. The environmental protection agency has proposed, or is attempting to implement many new regulations that affect not only new coal-fired capacity, but will have the effect of either shutting down existing coal capacity, or requiring expensive modifications. The possibility of stringent requirements to reduce greenhouse gas emissions, such as those suggested by the Kyoto Protocol, compound the problem.

I've discussed these issues in my written statement, and I will not repeat them here.

Taken individually, these actions have the same effect: Existing coal capacity will be shut down, new coal capacity will not be brought online. Research on new technologies is on-going, and we'll continue using and building upon the results of the DOE Clean Coal Technology Program. Efficiency in emission reduction goals, and of the technologies needed to achieve these goals are described in the technology road map contained in my written statement.

Incidentally, Mr. Chairman, your action in sponsoring the Energy and Climate Policy Act of 1999, in the House, has helped move these technologies along.

LAWSON: Vision 21, outlined by Deputy Assistant Secretary Kripowicz, is an important part of this research effort to develop the zero-emission coal-fired power plant of the future. And the coal industry is working on a number of projects to sequester carbon, as those technologies will also be vitally important in the future, if it is found that reduction of CO2 emissions is, indeed, necessary.

In addition to initiating a program that focuses on existing generating capacity, and continuing the R&D programs that address long-term technology needs to improve efficiency and reduce emissions from coal-based generation, two additional elements are needed: first, a financial incentives program designed to cushion the financial burden of applying technologies to existing coal utilities, to improve emissions control, and increase efficiency; and second, a demonstration program that provides tax incentives and/or financial assistance to deploy the initial commercial scale applications of advanced coal-based generating technologies. This is required to reduce the significant risk inherent in using first-of-a-kind technologies, a risk the utilities cannot take in this new area of deregulation.

Mr. Chairman, all energy sources have a unique and important role to play in meeting the growing energy demands of tomorrow. National energy policy should use all available domestic energy to permit the realization of the maximum national energy security. Of necessity, our greatest and lowest-cost domestic energy source, coal, can and should be a major source of energy for the electric generation industry of the future. We look forward to working with this committee to make our nation's energy future, and coal's future a positive reality.

BARTON: Thank you, General. Thank you for those kind words, also, about some of the legislation that I've sponsored.

We'd now like to hear from Mr. Paul Bailey, who is vice president for the environment, at the Edison Electric Institute. In prior positions, he has been a special assistant at the Department of Energy, working in the Fossil Energy Department. Mr. Bailey, your statement's in the record, and we ask you to summarize it in seven minutes.

BAILEY: I will do that. Thank you, Mr. Chairman. Good afternoon, Mr. Chairman, and members of the committee.

We appreciate the opportunity to appear today, on behalf of the Edison Electric Institute and the electric utility industry. The EEI is the association of the U.S. investor on electric utilities and industry affiliates worldwide.

Mr. Chairman, under your leadership, this committee has addressed a number of important energy issues, including reporting of legislation to restructure the electric utility industry. We are witnessing the transformation of the electricity industry, which will entail substantial changes in fuel mix for power generation over the next two decades.

Today, energy policy is being driven, to a substantial degree, by environmental policy. However, energy policy and environmental policy are both critical national goals that must be harmonized. The United States has dramatically reduced air emissions, while electricity generation from coal-fired power plants has doubled. While air emissions policies will have a significant on our future energy choices, other policies will also play a role. These include clean water, waste disposal, the relicensing of nuclear and hydro-plants, and energy siting and drilling constraints.

Various policies have the effect of foreclosing options in the future. For example, because of relicensing issues, nuclear waste disposal uncertainties and requirements that may render hydro plants uneconomic, both nuclear and hydro capacity are at risk. In addition, there are a number of environmental regulations that affect coal-fired electricity.

The cumulative impact of these rules on the use of coal, and electricity generation, has not been adequately considered in the context of energy policy. For example, the availability of coal-fired generating plants to meet demand over the next few years in key parts of the country could be in question due to the implementation schedule for EPA's NOX SIP Call Rule and 126 Petition Rule. The potential adverse consequences of many of these rules could be avoided by balancing energy-supply needs with air-quality improvements.

In terms of future generation, the combination of environmental policies, and electricity deregulation have lead utility and non- utility power suppliers to opt for natural gas, which will make an important contribution to the future generation mix. However, natural gas supply is not without its own limitations. Administration officials and others have proposed closing off-shore drilling sites even as current wells are being depleted. Additionally, the siting and building of gas pipelines also face environmental challenges.

Mr. Chairman, in short, my message to this committee today is that we need to recognize that maintaining electricity options is a sound energy policy objective that should be pursued simultaneously with the country's environmental objectives. Too often we consider the impacts of individual environmental regulatory initiatives separately, without considering their cumulative implications. Let me urge that we take a broader perspective that will enable us to make better decisions that won't needlessly close off options for tomorrow's electricity supply.

As we go forward, this committee can take a proactive role by encouraging and supporting policies that provide regulatory flexibility, along with market-based incentives, in order to achieve the nation's environmental goals in the most efficient manner.

As an example, the EEI, along with its members, has been seeking such new approaches. We've been discussing the idea of integrating various air-quality initiatives faced by coal-fired electric utilities in a manner that would provide flexibility and regulatory certainty. We believe this approach has the potential to help us meet environmental goals at a lower cost.

In closing, I respectfully urge the committee to continue the examination you've initiated today of the long-term prospects for energy supply options in the cumulative impact of our environmental regulatory agenda on future energy policy.

Thank you, Mr. Chairman.

BARTON: Thank you, Mr. Bailey.

We'd now like to hear from Mr. Steve Gehl, who's director of strategic technology alliances for Electric Power Research Institute, which we call EPRI.

Your statement's in the record in its entirety. We would ask that you summarize it in seven minutes, sir.

GEHL: Thank you, Mr. Chairman. Good afternoon, members of the committee. Thank you for the opportunity to comment on the role of coal power in national energy strategy and policy.

I'd like to emphasize four points in my testimony this afternoon. First, achieving the goals of global electrification will require a broad portfolio of power-generation technologies. One of the greatest threats to the environment and global security, in the new century is the current unavailability of commercial energy to nearly half the world's population. Our first priority should be efficient global electrification. This will provide the infrastructure for sustainable productivity growth, for the efficient use of resources, and reduced reliance on foreign oil.

Consistent with this goal, the U.S. needs an integrated environmental and energy policy that allows us to meet environmental targets with minimal disruption on the economy. The bottom line is that there is no one silver bullet for either fuel or technology choices. We need a broad mix of energy technology -- coal, natural gas, nuclear power, and renewables -- to confidently meet rapidly growing user requirements for electricity.

Second, coal will have a continuing role in the electricity- generation portfolio, if we develop advanced technologies for coal utilization. In the near-term the continued use of coal will be predicated on improving the energy conversion efficiency and environmental performance, while retaining coal's cost advantage. The advanced technologies for coal utilization described in the EPRI electricity technology road map, and in DOE's Vision 21, and in the material that General Lawson referred to, all have the potential to achieve substantial improvements in energy conversion efficiency, greater than 50 percent, and in some cases, much greater than 50 percent, as well as greatly reduced capital costs of a coal-fired power plant, thus making new, clean coal generation competitive with natural gas combined-cycle technology, in the timeframe of 2010 to 2020.

Another approach that we've heard about this afternoon -- carbon sequestration -- decreases the net CO2 venting of fossil fuel use, either by capturing CO2 at the point of generation and storing it, or by removing CO2 from the atmosphere. However, there are many environmental, chemical and physical challenges that have yet to be resolved as part of the larger R&D agenda in this area.

Third, the U.S. should undertake a focused R&D program to develop the needed coal utilization and carbon sequestration technologies. Existing R&D programs are insufficient to meet the requirements of clean and abundant electricity for the 21st century. The EPRI electricity technology road map documents the funding shortfall in several key technology areas, and concludes that additional funding of approximately $2 billion per year -- $700 million of that for coal technology -- will be needed over the next 10 years to resolve the energy-carbon conflict with the urgency anticipated in public policy proposals.

Failure to maintain coal as a key element of national and global energy strategy can have disastrous consequences. A recent EPRI study concludes that the current regulatory policy direction fails to reconcile proposed emissions reductions with the realistic timelines for developing the technologies that can decrease the cost of these emissions. This is particularly so for CO2. Moreover, our study concludes that the relatively short horizon of proposed regulations does not allow sufficient time to make a transition to a sustainable U.S. energy system without excessive disruptions and risks.

Fourth, public-private collaborative efforts are needed to develop a robust generation technology portfolio. Collaboration is the most effective way, in EPRI's experience, to ensure that necessary resources are committed and properly focused on the results that will make a difference. Importantly, this means that industry should be a partner with government in defining, financing and managing the R&D efforts. This means also that the current trends in energy related R&D investment must be reversed.

U.S. energy industry today invests only about 0.5 percent of its revenues in R&D, and the trend is downward. Moreover, U.S. federal energy R&D funding is at its lowest level in 30 years, relative to GDP. Energy has been, and remains at the bottom of the R&D investment ladder. To reverse this situation, we must align public and private support to leverage scarce R&D dollars, pursue technology opportunities over a longer time horizon, and create incentives for investing in the power system of the future.

Mr. Chairman, I'd like to conclude with the following recommendations. First, recognize that policies to reduce greenhouse gas emissions must encourage universal global electrification as the foundation for economic growth and environmental protection.

Second, we must develop a broad portfolio of advanced-generation technologies, including coal-based options, to meet U.S. and global needs for the coming decades.

Third, we must coordinate the efforts of policy makers, scientists, and technologists, to assure the cost-effective approaches for long-term reduction of greenhouse gas emissions.

And finally, we must increase R&D support for the coal option, and create the leadership and incentives for the formation of public- private consortia to conduct the needed research and deploy the resulting technologies.

Mr. Chairman, thank you for your time and attention. I welcome your questions and comments.

BARTON: Thank you, Mr. Gehl.

We'd now like to hear from -- last but not least -- Dr. Harold -- is it Schobert?

SCHOBERT: Yes, sir.

BARTON: ... who is a professor of fuel science at Penn State University, and the director of their energy institute, and to my eyes, bears a striking resemblance to Karl Marx...


... which we know your philosophy is totally different, but when I saw you walk in the room, I really thought that you were maybe his great-great-grandson, or something.

So, welcome to the committee. Your testimony is in the record in its entirety. And we ask you to summarize it in seven minutes.

SCHOBERT: Thank you, Mr. Chairman. Never in my life have I had an introduction like that.


I would like to point out, sir, that the usual resemblances that I've been mentioned is Jerry Garcia.

BARTON: Well, that's what my Democrat friend, Mr. Boucher, said.


SCHOBERT: I see. All right, well, thank you, Mr. Boucher.


Well, that gets things off to a great start.


Mr. Chairman, and members of the subcommittee, I am pleased to be here to talk about coal today, and I thank you for the opportunity, as well as the remarkable comments on my appearance.

I certainly believe that there is a great future for coal in the United States in our energy economy. I believe that will be true at least through the middle of this new century and probably beyond. I believe that for two reasons. The first is the importance that exists today for coal in electric power generation, and the continued importance for coal in that arena for quite some years to come.

In preparing my remarks for -- my oral remarks for you today, I was very much hoping that Mr. Kripowicz and General Lawson would talk about Vision 21, which spares me from repeating much of what they said. I believe that the Vision 21 concept that was outlined to you by Mr. Kripowicz is a bold, exciting and remarkable initiative undertaken by the Department of Energy. We at Penn State certainly are very intrigued by it, and very supportive of it, and look forward to seeing the time when it comes to fruition.

The other reason, sir, and members of the committee, that I believe that coal has a very important future, is that we have to recognize that burning coal in power plants is not the only thing to do with it. There are many other potential new uses for coal, and some of these, at least, derive now from a much greater understanding of the fundamental chemical basis of coal. That understanding is the fruition of many years of long, patient work, that was undertaken by -- mostly by the national laboratories and various universities, with support from the federal government.

I'd like to give you just two examples of what I mean by that. The first is an example that bears directly, not only our energy economy, but our national security, and that is the prospect of making the next generation of military aviation fuel from chemicals derived from coal. This is a program that is already under way. The reason behind it is that the next generation of aircraft will be so lightweight and so high-performance, that there is a significant problem simply in absorbing the heat that these airplanes generate.

If the conventional jet fuel that's in use now, is used also as a coolant on the aircraft, it will decompose to form carbon in the fuel line or burner nozzle, and I think the implications of that are pretty obvious. The extreme temperatures that a fuel in the future will have to withstand without decomposing are 900 degrees Fahrenheit. We have learned that a fuel that will take that temperature can be made, largely consisting of components of coal, and so we perceive that a coal-based jet fuel is a significant component of the liquid fuel scenario in the future.

The other area is in the production of high-tech carbon materials from coal. You might, at first sight, say, Well, OK, carbon material -- that's not really burning the coal, so it's not energy. But in many ways, it is.

In a single example -- carbon-carbon composites -- these are materials that are lighter than aluminum, stronger than steel, and will not rot, rust or corrode. A car made from carbon-carbon composites will be substantially lighter, therefore require substantially less gasoline. And we have heard both from this panel and the previous panel on the concern for imported oil, and the affect of that on our economy. Therefore, even though we are not using the coal necessarily to burn it to release its energy content, using the coal to produce high-tech carbon materials can result in energy savings in other sectors throughout the energy economy.

In conclusion, I would say two comments, which I hope do not appear to be self-contradictory. First of all, I do believe -- and I echo the comments of the others on this panel -- that coal has a great future. It is and will be an important component of our national energy economy for decades to come.

The other comment, in conclusion, actually I don't know whether I stole it from Mr. Kripowicz, or vice versa, but I have been paraphrasing the Oldsmobile ad that said -- you may have seen on television -- "it's not your father's Oldsmobile." Well, what we're looking at in the 21st century is not your father's coal industry, either. It's going to be a great one, but it's going to be very different.

And so, Mr. Chairman and members of the subcommittee, I thank you.

BARTON: Thank you, Dr. Schobert. I want to find out what all these bells mean before we start questions.

I think we're going to go back in at 4:30 or 4:15. The chair is going to recognize himself for the first five minutes of questions. I'm going to -- I think we're going to be here until at least 10:00, unfortunately. It's a recess until 3:45 on the floor.

Mr. Kripowicz, when we passed the Clean Air Act amendments back in the early '90s, through this committee, the goal was to reduce SO2 emissions in half by the year 2000. Could you give us any information, or anybody else on the panel, have we met that goal?

KRIPOWICZ: To my knowledge, we've exceeded that goal. I don't have the exact numbers, but yes we have met that goal.

BARTON: So, and coal was reputed to be the big culprit in SO2 emissions. So, if we've actually met the goal nationally, then coal has done its part. The scrubber technology that you talked about has come a long way since then and...

KRIPOWICZ: And the use of low-sulfur coal. The combination of those two things has led to the reduction in SO2.

BARTON: OK. I'd like to ask General Lawson, since you're here on behalf mining industry, when we have some of environmental group witnesses, they talk about, you know, coal may be environmentally correct now at the use for generation -- as a fuel source in the power plant, but if you take the total life cycle, how much it costs to get out of the environmental damage, mining it, getting it out of the ground, transporting it, that we still shouldn't be using coal. Could you comment on that a little bit?

LAWSON: Well, here's what I tell them when they give that sort of a statement, Mr. Chairman. Coal today in the United States is enabling it to have the cheapest electricity anywhere in the world. Our records -- across the coal industry in terms of efficiency, we are twice as efficient as the number two producer of coal on the earth.

In terms of safety, we are now rated by the Department of Labor as number 22 out of 23 industries measured for safety. We were beat out accountants and financial advisers only.

BARTON: Well, they do damage in other ways.

LAWSON: Well, I suspect if the market keeps jumping up and down, we may get them this year.

I think in terms of environmental acceptability, the response is give me a specific rather than some kind of a gut feel about your problem, because if we can't solve it with technology, we will stop doing it. And our record, I think, speaks for itself across the country. We doubled the use of coal in this country since 1976 and we've reduced all emissions. Despite doubling the use of coal, we're reduced all emissions by more than 30 percent.

So, our record here in this country will stand on its own. And as far as any other country on the face of this earth, we have far outdistanced them. We are now the standard that everybody holds themselves up to.

BARTON: Thank you, sir.

This would be for Mr. Kripowicz and also Dr. Schobert. You talked about gasifying coal and then using that in power generation, and Dr. Schobert talked about some alternative uses. If we use coal as a fuel source for power generation through this gasification process, compare that in efficiency to just using coal and burning it straight. Is it -- is it just as efficient? Do you get as much as the heat per ton of coal by going through that process as if you just burn the coal directly?

And Dr. Schobert if you want to comment on that.

KRIPOWICZ: Yes, you do, Mr. Chairman. Existing coal plants operated around 33 to 35 percent efficiency. A combined cycle gasification plant that we have operating in Tampa, Florida, operates at efficiencies in the neighborhood of 43 to 45 percent. So, it's a third more efficient.

If we add new technologies that we're developing to make those plants even more efficient, plus add the possibilities of using fuel cells in advanced turbines, we can get efficiencies, as we project in the Vision 21 Program, of up to 60 percent, which would be almost doubling the efficiency of the existing coal plants.

BARTON: Dr. Schobert, do you want to comment on that?

SCHOBERT: Yes, sir. In terms of the net overall efficiency of a plant, that is starting with the chemical energy in the coal, and electricity going into the bus bar at the other side, I would agree with Mr. Kripowicz's statements. I don't have the exact numbers but certainly substantively, I agree.

BARTON: So, that's -- environmentally, is there a downside to doing it that way? If there's no downside in terms of efficiency, using -- converting the coal to a gaseous state before you burn it, what kind of an emission effect? Does it enhance the emission effect in terms of it being less -- less environmentally negative, or is it worse or about the same?

SCHOBERT: There are two concerns. First of all, during the process of gasification, and subsequent use in the plant, it's possible to do some purification along the way, so one can actually capture potential pollutants before they would even be formed and emitted.

The second critical thing to bear in mind is that, with the increased efficiencies that Mr. Kripowicz was referring to, you can generate the same amount of electricity by burning somewhat less coal. That's one way to look at it. That has an immediate and direct effect on carbon dioxide emissions.

BARTON: OK. Thank you. My time has expired.

The gentleman from Virginia, Mr. Boucher.

BOUCHER: Thank you very much, Mr. Chairman. I want to commend particularly Dr. Schobert for his testimony today. I think you did a far better job than we could have expected from Karl Marx...


SCHOBERT: I would like to think that, sir.

BOUCHER: I won't compare your performance to Jerry Garcia. He made a lot of money performing. So, but you did quite well.

I am intrigued by your discussion as coal potentially being the high-speed aviation fuel of the future. How realistic do you think it is to suggest that some considerable volume of coal might be consumed for that purpose? And how rapidly do you think the technology will develop so that there's any demand at all for coal for that purpose?

Give us a little bit of your thinking about when this might happen and what the volume of coal consumed for that purpose might be.

SCHOBERT: OK, thank you, sir. In terms of the technology I have a bottle of the prototype fuel in my briefcase that you may have if you wish.

BOUCHER: Thank you. I will put it in my airplane. We will see...


SCHOBERT: Well, not necessarily. That might get me back into the Karl Marx business. But -- or Groucho perhaps.


But, in -- let's put it this way, sir. Let's focus first on just the military aspect without considering the commercial arena. The United States Air Force consumes 10 percent of the jet fuel produced in America, which is 1 percent of total refinery output. Our refinery capacity today is 16 million barrels of oil a day; 1 percent of that goes to the Air Force.

We, in our prototype fuel, can displace at least half of that with materials derived from coal. That is not -- that in turn requires that coal be converted into those materials. I'm running out of my ability to do arithmetic in my head, but the market for coal there is modest.

If that fuel were then to be transitioned into the entire commercial aviation fleet, the market for coal in that application would be substantial.

BOUCHER: I would assume that the cost of that fuel per gallon is substantially higher than traditional aviation fuel. Therefore, one would anticipate that this fuel would only be used for high-speed applications, where the different molecular composition is required. Is that accurate to say?

SCHOBERT: There are no accurate economic estimates on this fuel at the present time. I will say two things though. First of all, that the Air Force target is that it costs no more than five cents per gallon more than the conventional JP-8.

One of the processes that is being studied at present would produce, as a byproduct material, some of these high-tech carbon substances that I mentioned in my testimony. If -- if that pays off, the profit from the high-tech carbon material would virtually pay for the jet fuel. So, in that case it would be perhaps even less expensive than potential petroleum derived fuel.

However, there's much work that has to be done to make sure that comes to fruition.

BOUCHER: Now, that's really, really fascinating. Are you getting any support in developing this fuel from Mr. Kripowicz and other entities in the government, perhaps the Department of Defense?

SCHOBERT: Presently, sir, our work is funded by the Air Force Office of Scientific Research.

BOUCHER: And Exxon?

Well, thank you very much. I appreciate you bringing that information to us today. I had actually read an article in, I think it was Business Week, about this about this three months ago, and I was hoping we would have some mention of this development here today.

SCHOBERT: Thank you.

BOUCHER: I would like to ask perhaps General Lawson or maybe some of the other witnesses who might have information on the subject, about the trends that are present today in the coal industry itself, in terms of a switch from a reliance on eastern or Appalachian coal to coal that is mined in the West. To what is extent is that trend occurring? And if you have information about it, what is the trend in terms of the comparison between the volumes of deep-mined coal and surface-mined coal that are being derived at the present time?

LAWSON: I will provide the specifics on 1999 for you by note. But just roughly speaking, we're at about 55 percent/45 percent surface to underground across the country.

BOUCHER: With surface being the higher number?

LAWSON: Surface is the higher number.

The discussion earlier with regard to SO2, talked about sulfur and the amount of sulfur in coal. I think the industry has made giant strides in the blending of coal which has permitted the eastern coal, especially that plus the Illinois basin coal, to maintain a stable or slightly declining position vis-a-vis, say, a decade ago.

The increases are certainly coming from the western coal fields in Wyoming and Montana, that being lower-sulfur coal, and also its expense in producing that coal is significantly below.

So, it is on the increase, the eastern coal. And Illinois basin coal is holding its own or slightly declining.

BOUCHER: Holding its own in terms of numbers of tons produced.

LAWSON: Yes, sir.

BOUCHER: But in terms of a percent of the overall coal market declining, and...

LAWSON: Yes, sir.

BOUCHER: ... can you tell me what the rate of that decline is as measured against the entire coal market?

LAWSON: It's been about 2 percent on an annual basis. And again, I will give you the last decade so that you can get an idea of what that looks like.


Mr. Kripowicz, I have one question of you and Mr. Chairman, if you were to indulge me for a...

BARTON: This will have to be the last question in this round for you.

BOUCHER: It will be. Thank you.

Mr. Kripowicz, I understand over the last couple of years there have been two basic sources of the funding that you administered for your department for coal research and development. One of those has been the Clean Coal Technology Demonstration Program, which I think has now been terminated or is very near its end.

The other is the basic coal research and development budget within the general fossil energy research and development budget administered by DOE. What has been the trend and funding for that later component, the basic coal budget within the larger fossil energy research budget at DOE?

KRIPOWICZ: The actual coal numbers have gone up slightly in just a few years. They were on a decline until fiscal year 1999, and then they've increased slightly in both 2000 and our 2001 request, up to a figure of about $125 million to $126 million.

BOUCHER: Do the other members of the panel think this is an adequate number, or should we be pushing for higher levels of coal research and development?

Yes, sir, Mr. Gehl?

GEHL: Thank you. We -- our own analysis that I...

BARTON: Would you use the -- speak in the microphone, Mr. Gehl.

GEHL: The analysis that I described earlier and suggest that we need about -- ramping up over the next 10 years -- an annual average of around $400 million for coal and another $300 million for sequestration, which would include other fossil fuels as well as coal.


Dr. Schobert?

SCHOBERT: Well, sir, I believe, without being able to give specific numbers, that A, the figure is inadequate, and B, what the federal government presumably through the Department of Energy needs to do is to ensure that there is a steady and solid base of fundamental work on coal.

BOUCHER: OK. Thank you very much.

Mr. Chairman, thank you for your indulgence.

BARTON: It is refreshing to know the Department of Energy is spending some money on real energy research, though. I mean, I think given all the other things they spend money on, it's good they're spending it on this.

Mr. Whitfield for five minutes.

WHITFIELD: Thank you, Mr. Chairman.

Mr. Kripowicz, I notice in your testimony, you touched on the recent lawsuits filed by EPA against various utility companies around the country and -- charged with violating the new source requirements. And you said that Tampa Electric was one of -- is the only company that had entered into a settlement. And as a result, that they're going to pay a $3.5 million fine and retire significant coal capacity.

And I was curious, now that -- that particular facility is not -- that's different than the Tampa Polk Electric -- Tampa Electric Polk Power Station isn't it?

KRIPOWICZ: Yes, sir. That emits essentially no sulfur dioxide or no nitrogen oxides.

WHITFIELD: Because that's the new gasification...

KRIPOWICZ: That's correct.

WHITFIELD: And that's quite clean I understand.

KRIPOWICZ: That's very clean.

WHITFIELD: And there are what, three of those around the country?

KRIPOWICZ: There are two in operation and one that's in start- up, that's right. And there's one that's in Kentucky that's doing an environmental impact statement now so that...

WHITFIELD: Now, is that the one that General Electric was involved in or...

KRIPOWICZ: I'm not aware of who's doing the turbines. It's Global Energy that's -- has the gasification technology. Could be that General Electric is doing the turbines but I'm not sure.

WHITFIELD: Now do you -- does your office -- do you have a working group or task force with EPA that you all meet on a regular basis on coal issues?

KRIPOWICZ: We don't have such an organization. But we do have quite a bit of interaction with EPA, particularly when we're trying to develop technology prior to the formation of regulations and we've done that several times, particularly with low-NOX burners. We provided the information that allowed them to provide a reasonable role for low-NOX combustion.

We've done work that we've shared with EPA on air toxics which basically allowed them to not regulate toxics, although we're working now on the possible regulation of mercury. All of those things we do in conjunction with -- with EPA. And EPRI has also been involved been involved in some of those studies.

And we're looking at strategies for BM 2.5, in particulate monitoring also.

WHITFIELD: You know, Mr. Lawson, in responding to the question asked by the chairman, was talking about how the coal use had doubled over the last number of years, and emissions had been reduced by 30 percent. And I think everyone recognizes that significant progress has been made in the coal industry in cleaning up emissions.

But there also is the sense that I certainly have, and I think many people have, that EPA definitely does have a base against coal. Now do you agree with that statement or not?

(UNKNOWN): I know that they look at existing coal plants very, very strongly. But they also -- their regulations are regulations that can be met with existing technology.

WHITFIELD: I would just...

(UNKNOWN): They also look at health effects which we don't necessarily...

WHITFIELD: ... I'd just like to ask the rest of the members of the panel, do you think EPA has a bias against coal?

LAWSON: Well, let me give you one example, sir. We own -- that's the National Mining Association -- the three most sensitive air measurement devices in existence. And EPA, about six months ago, endeavored to put out as regulation that would have required a sensitivity that we did not have the capability to measure with those most sensitive devices existing in the world, and the people who made those devices for us said it would take another three years of technology improvement before they would be able to measure to the degree that the EPA regulation was asking for from coal-fired generation.

BAILEY: If I can add, I have been asked that question before and I'm always reluctant to impart motives to people I don't know that well. Coal has been politically incorrect for probably a decade or two, is the way I feel about it. Whether there's a deliberate agenda there focused on coal-fired generation or not, the effect of that is you feel the bias if you own a coal-fired power plant right now.

I think one of the attachments to my written testimony shows all of the regulatory programs that coal-fired power plants face just in the next decade; forget what's happened, gone on -- what's gone on in the past.

You can count probably a dozen programs who are going to regulate the same two pollutants -- SO2 and NOX. And at some point in time, those coal-fired power plants do become uneconomic because of that.

WHITFIELD: Do you two remaining gentlemen have any comments on that subject?

GEHL: Yes, I would say that what we have tried to do is to take a look at the consequences of the various regulations and I think, along with Mr. Bailey, I'm reluctant to assign motives, but the net effect of current and planned regulations, would be to really make coal-fired generation an awful let less economical than it is now.

And there's a thought that we would do a lot better is the industry and the EPA collaborated more at the initial stages of developing recommendations, rather than having this analysis come in somehow in the middle of the process.

WHITFIELD: Mr. Schobert?

SCHOBERT: Well, I'm -- like my previous colleagues here, I'm not able to impart motives, but certainly some of the activities undertaken by EPA have seemed wrong-headed or downright bizarre, not the least of which is the recent attempt to declare coal ash as a hazardous waste. If that were to take place, and utilities were to be faced with the cost of dealing with that as a toxic substance, the net affect to America is the lights will go out.

WHITFIELD: Right. Well, I agree. I mean, last fall, the EPA failed to support the policies adhered to by every administration since 1977, regarding the application of the Clean Water Act to valley fills. And you go on and on and on.

And I mean all of us were interested in a clean environment. The industry has made great progress. They're reducing emissions, using more coal, but EPA continues to push for standards even more strict than even the Clean Air Act calls for. And I think that they do have a bias, and I hope that we can maintain a dialogue with them to understand that this industry does provide about 51 percent of the electricity in the country, and we're not going to get away from it, and we need to work together in solving these problems instead of adversely with each other.

BARTON: Does that conclude the gentleman's questions?

OK, the first gentleman from Ohio, Mr. Sawyer. Then we will go the other gentleman from Ohio, Mr. Strickland.

SAWYER: Thank you, Mr. Chairman.

There are any number of questions that -- Mr. Kripowicz -- or Secretary Kripowicz, the -- you and others have talked a good deal about a fluidized bed combustion and coal gasification. I gather from what you said that the actual applications at this point are at pilot or demonstration level or below. Can you foresee for us the pathway from that level of application to commercial, widespread commercial application?

KRIPOWICZ: Yes, sir. The -- I think fluidized beds are commercial now both in small-scale industrial plants as well as in large-scale utility boilers. So, fluidized bed technology is commercial.

SAWYER: At the level of efficiency that you were talking about?

KRIPOWICZ: No, they're -- the efficiency of the fluidized bed combusters is roughly equivalent to that of pulverized coal plants.

SAWYER: I see.

KRIPOWICZ: But it does remove the vast amount of the sulfur and nitrogen oxides without scrubbers. So, you have some advantage there.

For gasification, we have commercial-scale demonstration plants but they -- what they need to do in today's market is compete with natural gas, and at this point, the technology is not proven enough and has not been replicated enough to reduce the costs so that it will be competitive with natural gas. We figure that that will take place over the next 10 years or so, but it is not something that's going to happen immediately.

That's one of the focuses of our R&D program, is to develop the technology that will produce that high efficiency and also reduce the capital costs.

SAWYER: General Lawson, Secretary Kripowicz mentioned that next week we're -- or soon we're likely to be looking at markup of an electric restructuring bill. You mentioned assistance to the coal side of the industry from government. Have you given any thought to what form that should take without upsetting the rest of the playing field as we try to achieve a competitive restructured electrical environment?

LAWSON: We've done a good a bit of work, both internally in the industry as well as with the utilities and some consultations with the other energies as well.

We have a saying that we're pretty proud of: We think there's no such thing as a bad domestic energy in an environment where you have to import 54 percent of your oil, and it's quite clear that we're talking about rationalization for the good of the country.

So, we've put together a package that looks at tax incentives for certain kinds of technology introduction. And we're in the process now of beginning the work on that with the appropriate staffs, and this staff will be one of the first stops in our efforts.

SAWYER: If you could share materials on that with us, we'd appreciate it.

LAWSON: We surely will.

SAWYER: Thank you.

Dr. Schobert, you touched a subject close to my heart. I come from Akron, Ohio where, for 65 years, we've been learning how to build tires out oil because we knew we couldn't get latex during the war. And is it at the heart of what you're talking about, about using -- we used petroleum-derived feed stocks for hydrocarbon, and a wide range of synthetic materials that have some from this. And the kinds of materials that have been developed have just been amazing, just when you look at what things like Kevlar and Nomex have done.


SAWYER: Those actually are first -- or earlier generation synthetic hydrocarbon materials. How would you compare the state of the art with regard to the use of goal, in developing similarly high performance materials to those that -- to those earlier generations of polymer-derived synthetics?

SCHOBERT: The -- there's a tremendous opportunity to use coal in that application. It is in the early days of research and development.

Basically, the -- some of the molecular structures that can be derived from coal are in very high demand and very high priced as the building blocks to make the next generation of material. If I could site just one example sir, a videotape made from this next generation would be half as thick, but twice as strong as the existing plastic videotape.

That would allow you to get 12 hours of Jerry Garcia on a cassette instead of six hours.


And so -- but again, I have to emphasize it's in the early days. The potential is fantastic. Some figures are cited in my testimony, and I could supply others.

SAWYER: Could you have off-the-shelf materials that could you share that I could make use of in a lay environment?

SCHOBERT: I believe so, sir.

SAWYER: I would appreciate it if you could pass them on. Thank you.

SCHOBERT: Yes, thank you, sir.

BARTON: That completes...

SAWYER: Thank you, Mr. Chairman.

BARTON: The gentleman -- the other gentleman from Ohio, Mr. Strickland for five...

STRICKLAND: Thank you, Mr. Chairman.

Mr. Bailey, among the areas of regulator uncertainties that you utilities are facing is the NOX SIP Call as well as the EPA's action under Section 126 of the Clean Air Act.

The original NOX SIP Call contained a deadline for individual sources covered by the SIP, such as electric generating units, to implement the SIP's emission control requirements, and that deadline was May of 2003. Legal challenges have ensued, and the situation is a little confusing and perhaps uncertain.

For example in March of this year, the D.C. circuit sent certain aspects of the SIP Call back to EPA for more work. What was sent back included the very definition of electric generating unit, for example.

Nevertheless, it seems that EPA intends to require these reductions under either Section 126 actions or the SIP Call or both by May of 2003. And I would like for you to share with us if you would, if you think this compliance timeframe is reasonable or if not reasonable -- achievable?

In your testimony, you indicated that there could be potential for short-term power supply interruptions, and could you please expand upon that concern?

BAILEY: Oh, I would be delighted to.

The deadline currently is May of 2003, so a number of coal-fired power plants around the country face the prospect of deciding what kind of technology to install, doing the engineering work on that, getting constructed and having it operating by May of 2003. Some of them have already begun that. Some of them have not.

Legally, I am not a lawyer so I will disqualify myself right there. But right now as I understand it, EPA is going to ask the court to lift the stay and then they will talk about whether that 2003 deadline still makes sense. But that's essentially what we're facing right now.

Do we consider that a rational deadline? No, in light of what needs to be happen between that stay being lifted and reducing NOX emissions. There have been a number of studies as to whether that creates any concerns about reliability or electricity supply. And of course of them conflict with each other, which is the nature of this game. We think the most definitive study on that was done by NERC recently, which put a lot of thought into it.

They identified two regions of the country, Ecar (ph) and Maine, in which they saw the potential for outages. Without getting at all the technicalities of it there, basically what they planned for is about one outage every 10 years. That's what utilities plan for. That's what these reliability regions planned for.

They were looking at the possibility of outages of up to one every three and a half months in some regions of the country. So going from one every 10 years to one to every three and a half months, depending upon what kind of assumptions you make about the availability of capacity.

And so we are very, very concerned about that right now. Don't know quite frankly how we're going to resolve it.

STRICKLAND: Thank you for that very candid answer.

The committee is going to be considering deregulation of the electric utility industry. Now we're being told that this is going to bring lower prices. On the other hand, what seems to have been suggested, Mr. Bailey, by you and I think others, is that if we continue to pile environmental regulations on the industry, this could result in an increase in electricity prices. Aren't we perhaps working at cross purposes?

BAILEY: We may be if we're not very, very careful here. Again, there are a number of studies that look at the effect of environmental requirements. We have studied that also. Again, we're very concerned about the increase in costs there, particularly considering what may be lack of a commensurate benefits.

The studies that we have done show capital costs -- capital cost increases of something in the range of $22 billion. Now that's without -- that's without everything imposed on us. That's where the most of what's in EPA's agenda right now. And the annual costs on that are almost as high, somewhere in the range of $15 billion a year by the year 2010.

So, yes if we do the wrong things environmentally, we're going to be wasting a lot of money here; that's right.

STRICKLAND: Mr. Chairman, I have one additional question.

Most of the fuel sources, Mr. Bailey, that you mentioned for electricity generation -- we're talking about nuclear and coal and hydro -- are opposed by one or more organizations. Nuclear, coal and hydro combined account for about 86 percent of our electricity generation. But if nuclear, coal and hydro capacity are reduced, what can replace that lost capacity?

How can we replace 86 percent from the remaining possible sources? And I think I see you smiling.

BAILEY: Well, I'm only smiling in response to other people on the subcommittee. I think that's -- I think nobody has the answer to that question. I've heard people from the other side try to address that and they -- if I can say this -- they seem rather uncomfortable responding to that question. I don't know how we provide the electricity if we don't have all the sources.

That's one of the points I'm trying to make here. We need to have a number of options. Marketplace and to some effect, environmental policies will help us sort out those options. But we need to have a number of options. It's not good energy policy not to have a lot of options.

STRICKLAND: You know...

(UNKNOWN): Excuse me, I was going to say I've on that same question -- I pressed the community very hard on that very issue. And I come away with a very distinct impression that they're most wiling to accept constraints on economic activity as required and forced by that kind of reduction.

And I'm not sure the American people are willing to accept those kind of constraints. But I think they are.

STRICKLAND: Well, sir, I guess living comfortably, and you've never actually been deprived, it may be easy to make those decisions for other folks. I serve a region where one of my counties has 17.1 percent unemployment, and we are facing the loss of over 800 deep coal mining jobs in the next year and a half. And so, I think these are terribly relevant questions and it seems to me that they're important enough that we ought to be trying to find answers to them.

Thank you for your comments and your opinions. Thank you.

Thank you, Mr. Chairman.

BARTON: Thank you, Congressman Strickland.

We're going to have additional written questions for this panel. We're going to conclude. I want to make just one concluding remark.

We really haven't had an energy policy the last 10 years, but we have had an environmental policy, and the environmental policy has driven energy policy. And Congressman Strickland's question kind of hit it right on the head, if continue to allow environmental policy to constrain energy policy, there will be an economic consequence as General Lawson pointed out, and it won't be positive; it will be negative.

So, in our previous hearing we talked about oil and gas issues. This hearing has been nuclear and coal. The next hearing we will hold will look at alternative fuel sources, conservation, and perhaps electricity as a stand alone. And then we will put our heads together and see if we can come up with a draft legislative comprehensive energy policy to at least put out for discussion purposes, pending the next administration.

So, I want to thank you again. I want to apologize to Dr. Schobert, if you took any personal offense at my...

SCHOBERT: None whatsoever...

BARTON: ... allusion to you as Mr. Marx, because I certainly didn't mean any personal offense.

And we look forward to working with you in the months ahead as we look at some drafts of our energy policy.

This hearing is adjourned.


Unknown - Indicates speaker unknown.
Inaudible - Could not make out what was being said. 
off mike - Indicates could not make out what was being said.


LOAD-DATE: June 9, 2000

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