Copyright 2000 Federal News Service, Inc.
Federal News Service
June 8, 2000, Thursday
SECTION: PREPARED TESTIMONY
LENGTH: 4127 words
PREPARED TESTIMONY OF MR. CORBIN A. MCNEIL JR. CHAIRMAN, PRESIDENT, AND CEO PECO
BEFORE THE HOUSE COMMERCE
COMMITTEE ENERGY AND POWER SUBCOMMITTEE
Mr. Chairman and Members of the Committee:
I am Corbin A.
McNeill, Jr., and I am the Chairman, President, and Chief Executive Officer of
PECO Energy Company of Philadelphia. PECO Energy currently owns and/or operates
6 nuclear reactors at three sites in Pennsylvania and New Jersey. - PECO's
AmerGen partnership with British Energy owns and operates two reactors and has
agreements in place to acquire two additional units. Finally, PECO and Unicom
Corporation, the parent company of Commonwealth Edison Company, have announced
our intention to merge later this year. Once final regulatory approval is
received from a myriad of federal and state agencies, our combined company - to
be called Exelon Corporation - will own and/or operate 20 of the nation's 103
operating nuclear reactors.
Thank you for the opportunity to appear
before you today to discuss the current challenges facing nuclear energy and the
role nuclear energy can play as part of the nation's long-term National Energy
As the electric utility industry is deregulated, it will be
critically important to have a comprehensive and up to date National Energy
Policy in place. Only such a plan will guarantee that policy makers will have
the information necessary to make sound decisions for assuring a safe, clean,
reliable and economic supply of energy for the future. Electricity growth over
the last 25 years has largely paralleled economic growth in the United States.
Thus, assuring an adequate supply of electricity is vital both for our nation's
economic growth and for the quality of life of all Americans. Nuclear energy can
and, I believe, will continue to play an important role in providing that
My comments today will focus on three themes:
First, existing Federal policy towards nuclear energy can best be
described as one of neglect. This is distressing since nuclear energy is the
second leading source of electric generation.
Second, the NRC's current
regulatory reform efforts, paired with the consolidation of companies owning
nuclear plants, will help ensure the continued safe, clean, reliable and
economic operation of the vast majority of the nation's existing reactors.
Third, while the continued operation of existing plants and the
development of a new generation of plants will depend upon nuclear power's
ability to compete in a deregulated electric market, the Federal government has
a responsibility to provide a stable regulatory environment, to avoid artificial
distinctions which disadvantage nuclear energy, to uphold its commitments to
manage used nuclear fuel, and to provide honest and objective information to the
public to dispel public unwarranted concerns about risks related to nuclear
Current Federal Policy The Federal government's existing policy
toward nuclear energy can best be described as one of neglect, bordering at
times on open hostility. While this assessment may seem harsh, the facts speak
* With few exceptions, Federal policy makers completely
disregard the role of nuclear energy in meeting the nation's energy needs. It is
a constant source of amazement and frustration to read or listen to speeches by
the nation's leading energy policy makers - both within the Administration and
within Congress - which address energy and electricity policy without once
mentioning the word "nuclear." As recently as May 24, during this Subcommittee's
first hearing on National Energy Policy, the Department of Energy's written
statement, which was 20 pages long, mentioned nuclear energy only once, and then
only as part of a laundry list of research and development initiatives.
* In nuclear power, we have a mature baseload technology that generates
billions of kilowatts of electricity annually without emitting any of the
pollutants associated with acid rain, smog, haze, ozone, or global climate
change. Yet, nuclear power is rarely credited with its role in emissions
avoidance or cited as a source of future avoided emissions. To put the role of
nuclear power in perspective, if the U.S. closed all 103 nuclear plants and
replaced them with fossil fired plants, we would have to remove 90 million cars
from America's highways just to maintain the air quality at its current level.
* Just two years ago, funding for the Department of Energy's research
and development program for improving commercial nuclear power plants was
completely eliminated. In fiscal year 1998, not a single Federal dollar was
spent on research and development for an energy source that provides over 20
percent of the electricity generated in the U.S. Funding for this important
program was begun again, at a modest level, in 1999 and continues today. But
increased funding is necessary to avoid significant negative impacts on efforts
to recruit and sustain an educated workforce to design and operate nuclear
plants in the future.
* The nation's management program for used nuclear
fuel is at least 12 years behind schedule. The Federal government's failure to
meet its contractual and statutory deadline to begin accepting used fuel by 1998
threatens the continued operation of some of the nation's best run nuclear power
plants. The Clinton Administration has failed to offer a concrete plan for
addressing the crisis faced by these plants, while Congress has failed to reform
a flawed funding process that will lead to even more delays if the problem is
not resolved soon. President Clinton's veto of recently-passed used fuel
legislation ignored what has traditionally been broad, bipartisan support for
addressing this issue.
Given these facts, it is hard to argue that
Federal policy toward nuclear energy can be characterized as anything but
neglectful at best.
Nuclear power, as with all energy sources, is not
without its challenges, but those challenges can be addressed successfully and
should not overshadow the significant positive contribution of nuclear energy in
meeting America's energy needs.
Continued Operation of Existing Plants
Contrary to conventional wisdom just a few years ago, the future for the
existing fleet of nuclear reactors in the United States is bright. While some
forecasters predicted that dozens of current plants would shut down prematurely
and that dozens more would shut down at the end of their current licenses, many
of those same analysts are today predicting that only a handful of plants will
close prior to the expiration of their licenses and that the vast majority of
plants will seek 20 year renewal of their current licenses. In fact, some
studies now are predicting that total electric output from nuclear plants will
increase, even without new reactors coming on line, as a result of productivity
gains by current reactors.
What has sparked such a dramatic reassessment
of the industry? In addition to tremendous strides in operational efficiency,
outage reduction, and plant improvements, regulatory reform and the movement
towards consolidation of nuclear power plant ownership have presented the
nuclear energy industry with new and exciting opportunities to compete in the
From 1990 to 1999, increases in output as a result
of plant upgrades, increased capacity factors, and shorter maintenance outages
were the equivalent of adding 16 new 1,000 megawatt plants. These dramatic
improvements in plant performance have made nuclear plants increasingly
Two other factors are key to maintaining the
current nuclear capacity in the U.S.: the Nuclear Regulatory Commission's
transition to a stable, safety-focused regulatory regime and the trend toward
plant consolidation in the industry.
The NRC in recent years has served
as a model of regulatory reform, adopting a new oversight process that relies on
performance-based, objective indicators to judge acceptable levels of plant
operations. The new process is more transparent and open than the old system and
uses quantitative performance indicators. Revised inspection and enforcement
programs have been integrated into this process as well.
approach enhances safety by focusing management and regulatory attention on
areas with the greatest safety significance. The NRC is to be commended for
implementing this new system.
Consolidation of nuclear plants will also
have a significant impact on efforts to retain the current capacity of nuclear
plants by allowing many plants that may be marginally economic on a standalone
basis to continue to operate as part of a much larger nuclear organization.
Consolidation achieves savings by having one organization handle
operations, maintenance, outage planning and administration for a number of
plants. These costs can be spread over a number of plants instead of being borne
by a single unit.
This consolidation is occurring through plant
purchases, mergers, and operational arrangements. PECO's AmerGen partnership
with British Energy has completed the purchase of two plants and has agreements
in place for the purchase of two additional units. Entergy Corporation has
completed one purchase and has an agreement to purchase two other plants. Other
companies have expressed serious interest in purchasing nuclear plants in the
U.S., and seven plants in the Midwest, belonging to five different utilities,
are now being operated by a newly formed nuclear operating company. The number
of plant transfers is expected to increase as states deregulate their electric
Three policy changes are important to remove
potential barriers to permitting otherwise economical plant consolidations:
revision of Section 468A of the Internal Revenue Code which addresses the tax
treatment of nuclear decommissioning trust funds, repeal of the Public Utility
Holding Company Act (PUHCA), and elimination of the statutory requirement that
the Nuclear Regulatory Commission conduct an anti- trust review when conducting
a license transfer proceeding.
The decommissioning trust fund issue
involves the updating of the current tax code to recognize that - in a
deregulated environment - nuclear plants may be owned and operated by an entity
that is unregulated in a historic cost of service sense. The tax code currently
provides for the tax-free transfer of Qualified Nuclear Decommissioning Funds as
part of a plant sale or license transfer when a plant is transferred from one
regulated entity to another. These provisions were written in 1984, a time when
Congress did not envision the possibility of a nuclear plant being sold to an
unregulated entity. While the IRS has used its discretionary authority to permit
a tax free transfer of these fund in Private Letter Rulings related to the three
plant sales completed to date, Congress should amend Section 468A to make it
clear that plant sales to unregulated entities should not trigger a taxable
event when decommissioning trust funds are transferred.
been introduced in the House by Congressmen Jerry Weller and Ben Cardin (H.R.
2038) and in the Senate by Senators Frank Murkowski and John Breaux (S. 1308) to
address this issue. The provisions of the Weller-Cardin bill are also included
in H.R. 2944, Congressman Barton's Electricity Competition and Reliability Act.
Some of the provisions of H.R. 2038 were included in H.R. 2488, the Financial
Freedom Act of 1999, and some provisions were included in President Clinton's FY
2000 budget proposal.
Repeal of PUHCA, as you know, is a primary feature
of nearly every bill pending before Congress to address the restructuring of the
electric utility industry. PUHCA is an outdated law that has outlived its
usefulness, as evidenced by even the Securities and Exchange Commission's report
a few years ago advocating its repeal. To the extent that PUHCA concerns prevent
utility mergers, consolidation of nuclear plants will be less likely.
Finally, the NRC has recommended as part of a package of proposed
amendment to the Atomic Energy Act that Congress repeal the statutory
requirement that the Commission conduct an anti-trust review when conducting a
license transfer proceeding. Such an analysis is duplicative of reviews
conducted by other Federal agencies.
Long-Term Prospects for Nuclear
Energy Though the future is bright for nuclear energy in the United States, that
future will only be realized if industry and government, working together, can
meet the long-term challenges facing nuclear power. These challenges, while
significant, can be successfully addressed if Congress and the Administration
have the political will to act.
Let me be clear that the nuclear energy
industry's future in the United States should not be based on inappropriate
government subsidies. It will be the ultimate responsibility of the industry to
ensure that a new generation of nuclear plants will be safe, clean, economic,
reliable, efficient, and acceptable to the public.
is an important role for the Federal government to play if the United States is
to benefit from extended operation of our current nuclear plants and a new
generation of nuclear power plants:
* first, the Federal government must
continue to move towards safety- focused regulation;
* second, the
Federal government must treat nuclear power like any other electric generating
technology and should not make arbitrary distinctions that disadvantage nuclear
energy (this includes the recognition in Federal environmental policies the
non-emitting benefits of nuclear energy);
* third, the Federal
government should meet is statutory commitment to develop and operate a
repository for the permanent disposal of used nuclear fuel; and
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.
Safety-Focused Regulation The Federal government
must continue to move toward true safety-focused regulation that provides
objective and transparent standards for assessing the performance of nuclear
power plants. As I stated earlier, the Nuclear Regulatory Commission's efforts
in this regard deserve particular recognition as a model of regulatory reform
The NRC must continue to adapt to a maturing industry and to develop an
effective, safety-focused regulatory framework. The NRC has made substantial
efforts to reform its regulatory approach by implementing an innovative
regulatory oversight process that is more safety-focused and performance-based
and, more broadly, by developing risk informed, performance-based regulations.
While the industry supports the NRC's ongoing efforts to develop a more
effective regulatory regime, Congress should continue its oversight of the NRC
to ensure that the agency's actions recognize outstanding industry safety levels
and that the NRC implements sound budgeting practices and long-term strategic
Consistent Regulatory Treatment Retaining nuclear energy as
part of a sound national energy policy requires that nuclear energy be treated
in a manner consistent with other fuel sources, whether it be in regulation of
radiation at all electricity production facilities or disclosure of benefits and
adverse impacts in consumer labeling of electricity sources. Nuclear energy can
compete today and in the future, but policy makers must treat nuclear energy as
they would any other energy source and apply the same rules to all competitors
in the newly deregulated electricity market.
In the coming years, the
federal government and its administrative agencies must pursue policy
initiatives to address issues that will have a significant impact on the
industry's future. Those issues include recognizing the value of nuclear energy
as an emission-free source of electricity and eliminating duplicative and
Policy makers must explicitly recognize the
intrinsic economic value of nuclear power as a greenhouse gas emission-free
energy source. Maintaining nuclear power's emission free capacity is necessary
to prevent increases in the emission-reduction requirements imposed on emitting
power sources, such as natural gas or coal. Policy makers should (1) consider
ways to allow nuclear energy to capture the clean air compliance value produced
by emission-free sources of generation, (2) ensure that nuclear energy is fairly
labeled, and (3) ensure that nuclear energy is treated equally with other
non-emitting grid capable electric generating sources if an emission-free
portfolio standard is adopted.
The Energy Information Agency reported in
Utility Fossil Fuel Receipts and Costs - The Year 1999 in Review, that "a
1-percent increase in the annual nuclear plant capacity factor . . . translates
into a reduction in annual consumption of either approximately 4.3 million short
tons of coal, 14 million barrels of petroleum, or 89 billion cubic feet of gas.
Most likely, it would be a combination of each."
According to EIA data,
the capacity factor for nuclear plants in 1999 was 86 percent, compared to 78
percent in 1998. Clearly, nuclear energy offers a tremendous value in helping
make our air cleaner. In fact, it would be difficult, if not impossible, to meet
Clean Air Act emissions standards in some parts of the country without nuclear
Nuclear energy, as a source of electric generation that emits no
air or water pollution, should benefit from any Federal incentives awarded to
other generation sources because of their clean air and clean water
Congress must eliminate duplicative regulation that has
allowed the Environmental Protection Agency to become involved in issues that
are more appropriately subject of NRC authority. (For example, EPA has
threatened to overturn NRC's regulatory decisions by seeking remediation under
Superfund for sites decommissioned in accordance with NRC requirements. Another
example of unnecessary and unproductive dual regulation is the application of
the Resource Conservation and Recovery Act to commercial mixed wastes.)
Meeting Commitments on Used Fuel Management The federal government must
fulfill its longstanding obligation to provide for central storage of used
nuclear fuel. The national policy for management of used fuel was codified in
the Nuclear Waste Policy Act of 1982 and in 1987 amendments to the Act. Although
DOE currently is evaluating the suitability of a repository at Yucca
Mountain, Nevada, the program will not yield timely results without
additional legislation, forcing many plants to build temporary onsite storage at
a cost of millions to consumers at each plant. The government's breach of its
contractual obligation is creating a taxpayer liability that could eventually
cost taxpayers billions of dollars.
In addition to programmatic changes,
it is imperative that Congress address the budgetary mechanism for funding the
Department of Energy's used fuel program. If Yucca Mountain is
designated as the site of the permanent repository, the program budget will need
to increase tremendously to keep the project on its revised schedule. It is
difficult to imagine Congress appropriating the necessary funds given the
current budgetary constraints on the program. Congress should take steps to
place program spending on the mandatory side of the budget so that it is not
subject to the budget caps. (Money collected from the Nuclear Waste Fund is
scored as mandatory receipts.)
Energy Secretary Bill Richardson should
be applauded for his efforts to address, at least partially, the financial
burden placed on utilities due to DOE's failure to meet its contractual
obligations by offering to enter into settlement agreements as directed by the
Federal courts. Under such agreements, utilities could be compensated for costs
incurred as a result of DOE's delay in accepting used fuel from reactor sites
beginning in 1998. Nevertheless, compensating utilities for the costs of on-site
storage is not a long-term substitute to centralized storage of used fuel.
Congress and the Administration should work together to put this program - which
is already 12 years behind schedule - back on track.
integrated solution to managing used fuel is a political, not a technical,
problem. The issue is not how to manage used fuel, but where to manage it.
Public Education The federal government can and should play an important
role in educating the public about the very low and manageable risks related to
commercial nuclear power as compared other endeavors in society. DOE's public
education efforts should clearly convey the relative risks associated with all
energy forms and uses.
Similarly, DOE should respond aggressively to
correct misinformation regarding the risks and safety record of the commercial
nuclear energy industry. Whether it is a television network developing a
made-for-TV movie featuring a runaway train with atomic fuel on board that
"explodes," or an irresponsible allegation that nuclear fuel shipments are the
equivalent of "mobile Chernobyls," the Department of Energy should publicly
denounce such misinformation.
The public looks to the federal government
for guidance on complex issues, and while DOE should not be an advocate for
nuclear energy, it should be responsible for challenging characterizations that
deliberately mislead the public.
New Technologies to Improve Efficiency
and Reduce Environmental Impacts Mr. Chairman, one of the issues the committee
asked witnesses to address was the potential for new technologies that would
improve efficiency and reduce environmental impacts.
The good news is
that such technology already exists in the form of today's commercial nuclear
reactors. Efficiency improvements have increased dramatically over the last
decade, and I have cited in detail the environmental benefits to be gained from
continued reliance on nuclear energy. Nuclear energy accounts for nearly
two-thirds of all the emission-free electricity generation available to the U.S.
electric grid today.
In terms of the long-term outlook, the next
generation of nuclear reactors has already been designed and is being built in
overseas markets. The Nuclear Regulatory Commission has certified three advanced
reactor designs - the Westinghouse AP600, the GE Advanced Boiling Water Reactor,
and the ABB System 80+. While I personally believe that the future of current
advanced light-water designs in the emerging competitive U.S. marketplace is
uncertain, I would note that these advanced plants are being built today in
My personal view is that the next generation of plants to be built
in the United States will be modular reactors as small as 100 megawatts in size.
These "Generation IV" plants, as they have been called by some, may offer great
opportunities for both increased safety - in that such reactors could remove the
risk of severe fuel damage - and appropriate cost and market risk features that
would make such plants attractive to investors. These plants could be
technically and economically feasible within the next five years.
anticipation of the development of a small, modular reactor design, Congress
should consider changes to the Price-Anderson Act when it is renewed to reflect
these design advances. Specifically, Price- Anderson's annual premium should be
based on plant size ("per megawatt") rather than levied as a flat "per reactor"
fee. As you know, Price-Anderson is scheduled to be reauthorized during the next
Congress. I would urge the Committee to begin its review of Price- Anderson soon
to ensure timely reauthorization of this important legislation.
Conclusion Mr. Chairman, this is not an exhaustive list of the Federal
changes needed to ensure nuclear energy's continued role as part of the nation's
diverse and secure energy supply, but it addresses some of the major concerns
facing the industry.
The nuclear energy industry fully recognizes that
in a competitive marketplace, it will have the primary responsibility for
ensuring the viability of nuclear technology. The industry must be responsible
for making sure that nuclear plants are operated safely, cleanly, reliably, and
economically. At the same time, the Federal government has a vital role to play,
a role that industry cannot. These government responsibilities include:
providing a stable regulatory environment, avoiding artificial distinctions in
its environmental and other policies which arbitrarily disadvantage nuclear
energy, upholding its commitments to manage used nuclear fuel, and providing
honest and objective information to the public to dispel public unwarranted
concerns about risks related to nuclear power.
Mr. Chairman, thank you
again for the opportunity to appear before you today. I will be happy to answer
any questions that you may have.
June 10, 2000