Copyright 2000 Federal News Service, Inc.
Federal News Service
July 25, 2000, Tuesday
SECTION: PREPARED TESTIMONY
LENGTH: 6309 words
HEADLINE:
PREPARED STATEMENT BY MAUREEN KOETZ DIRECTOR, ENVIRONMENTAL POLICY NUCLEAR
ENERGY INSTITUTE
BEFORE THE HOUSE SCIENCE
COMMITTEE SUBCOMMITTEE ON ENERGY AND ENVIRONMENT
BODY:
My name is Maureen Koetz, and I am director of environmental policy
for the Nuclear Energy Institute (NEI). NEI develops public policy for its more
than 270 members of the nuclear industry that represent a broad spectrum of
interests. In addition to representing every U.S. utility that operates a
nuclear power plant, NEI's membership includes nuclear fuel cycle companies,
suppliers, engineering and consulting firms, national research laboratories,
manufacturers of radiopharmaceuticals, universities, labor unions and law firms.
On behalf of NEI, I would like to thank Chairman Calvert, Ranking Member
Costello and the members of this subcommittee for inviting NEI to testify on the
value of America's nuclear power plants to our nation's energy security and
environmental protection.
As we move to the 21st century, environmental
and energy challenges are once again upon us. And as Shakespeare said, Past is
prologue. Issues related to reliability of supply and the need for emission
controls again are converging as they did in the 1960s and 70s, demanding a
comprehensive energy policy that effectively uses all forms of electricity
generation to their full potential and advantage.
Added to the policy
challenges today and for future generations is the potential for climate change
due to man-made emissions of greenhouse gases. As with air quality challenges in
the past, a robust, safe nuclear energy program again will be the lynchpin in
efforts to address these emissions while preserving the affordable electricity
system that is the foundation for America's economic growth.
The
political rhetoric of a few has largely shouted down the quiet but steady energy
security and environmental success at our country's 103 nuclear power reactors.
As a result, the industry rarely is recognized or credited for nuclear energy's
role in protecting our air quality, the industry's ability to minimize and
safely manage its byproduct materials, and the industry's success in reducing
dependence on foreign oil and underpinning American energy independence.
Federal policymaking, especially national energy policy, must re-
examine the unique and irreplaceable value of this expandable, emission-free
energy source, and should craft policies and programs so electricity markets
recognize and reward that value. This testimony provides a brief overview of the
state of the industry, and discusses the policies and programs NEI believes will
maintain and expand the irreplaceable contribution of nuclear energy to our
energy and environmental goals.
I. A HISTORY OF SUCCESS
Growth
and Performance Unrivaled in the Electric Industry
In the relatively
short period since construction on the first commercial nuclear reactor began at
Shippingport, Pa., in 1955, nuclear energy has evolved into a reliable,
affordable, and essential baseload electricity technology. In 1999, nuclear
plants generated a record 728 billion kilowatt-hours of electricity, 53 billion
kilowatt- hours more than the previous year and 151 billion kilowatt-hours more
than in 1990. Last year's record performance capped the best decade in the
industry's history. Even with growth in overall energy demand and production,
America's nuclear power plants have kept pace and, as our nation's second
largest source of electricity, continue to provide approximately 20 percent of
the nation's electricity.
The dramatic increase in electricity
generation by America's nuclear stations can be viewed as one the most
successful energy efficiency programs of the last decade. It was equivalent to
adding nineteen 1,000-megawatt power plants to our nation's electricity grid.
And, the growth in nuclear power production avoided the environmental
disruptions and impacts that would have occurred if new electric generation had
to be brought on line to meet these needs. The lack of new nuclear construction
since the 1980s often is identified as a sign of industry stagnation, when in
fact, expanded operation of existing facilities has actually been the
environmentally preferable alternative for making additional electricity.
Nuclear power plant capacity increases and operating efficiencies are
continuing. Plant uprates, improved maintenance and reduced outage times will
contribute to even higher operating efficiency and additional electricity output
from existing power plants. But these increases are finite, limited to the
maximum capacity of each reactor. To meet future demands of an
electricity-hungry digital economy, especially when environmental requirements
limit some options, some electric companies are beginning to examine the market
for new nuclear power plants.
Nuclear Plant Safety Unparalleled Among
Energy Providers America's nuclear energy industry, in more than 2,400
reactor-years of operation, has compiled a safety record that is unparalleled
among the world's energy providers. The number of events triggering any of the
multiple nuclear reactor safety systems decreased from 2.37 events per reactor
in 1985 to the current level of 0.03, with a successful resolution of each
event. This means that the defense-in-depth safety systems at these plants were
activated less than one time on average for each plant. The reduction in
"triggering events" represents an 80- fold improvement over the past 15 years.
This and other continually improving safety and performance measures clearly
demonstrate the industry's proven and unwavering commitment to excellence in
operational safety.
Nuclear Energy's Promising Economic Future During
1999, the average production cost of electricity generated by nuclear power
plants was between two and two and a half cents per kilowatt-hour, making the
one-two punch of coal and nuclear the most affordable electricity in the United
States. Reduced production costs and growing electricity demand are leading the
vast majority of nuclear power plant owners to extend their operating licenses
for an additional 20 years. This April, the NRC approved the first license
renewal for two reactors at the Calvert Cliff's nuclear power plant in Maryland.
Another three reactors at the Oconee nuclear power plant in South Carolina also
have received NRC-approved license renewals. Twenty-five other reactors have
begun the renewal process or announced their intention to do sodramatic evidence
of the promising economic future for nuclear energy.
As recently as
three years ago, some energy forecasters were predicting that dozens of nuclear
power plants would shut down prematurely and that many more would shut down at
the end of their 40- year licenses. Today, many of those same analysts are
predicting only a handful of plants may close prior to the expiration of their
licenses, and recognize that the vast majority of plants will extend their
operating licenses beyond the initial 40-year period. We should expect total
electric output from nuclear plants to continue to increase along with increases
in productivity and additional plant uprates.
Energy Security and
Reduced Dependence on Foreign Oil At the time of the first oil embargo in 1973,
approximately 20 percent of U.S. electricity supply came from oil-fired power
plants. In some parts of the nationthe Northeast, for examplethe percentage of
oil- fired electric generation was considerably higher. Also in 1973, just five
percent of U.S. electricity came from nuclear power plants.
In the
subsequent decades, 89 new nuclear reactors began operating, effectively
replacing oil as a fuel source for electricity, and making nuclear energy one of
the most successful energy security programs. Today, nuclear power reactors
continue to provide a reliable hedge against volatile fuel prices and other
energy supply disruptions, protecting American businesses and homes from
fluctuating cost and providing a reliable supply of electricity.
Successful Waste Management Protects Public, Environment Like other
electricity sources, nuclear power plants have byproducts that must be managed
safely. The storage of used nuclear fuel by electric companies is one of the
most successful solid waste management programs in the industrial sector. Used
fuel rods are stored in deep steel-lined pools or in robust stainless steel
containers. Throughout the nuclear generation cycle, the small volumes of waste
byproducts actually created are carefully contained, packaged and safely stored.
And, as a result of improved process efficiencies, the average volume of waste
generated at nuclear power plants has decreased significantly in the past two
decades.
The high-level radioactive waste, in the form of used fuel
rods, totals less than 20 tons per nuclear plant each year. The trillions of
kilowatt-hours of nuclear electricity generated over more than 40 years have
produced about 38,000 tons of used fuel rods. These rods, if stacked together,
would fill a football field to a depth of a little more than four yards.
Although U.S. policy originally envisioned recycling reactor fuel to separate
the small volumes of waste and reuse the fuel remaining, the Ford and Carter
administrations chose instead to dispose of the fuel after only one use in a
deep geologic repository, leading to the disposal facility undergoing site
characterization at Yucca Mountain.
Overall, the
environmental policies and practices at nuclear power plants are unique in
having successfully prevented significant harmful impacts on the environment
since the start of the commercial nuclear industry more than 40 years ago.
Effective waste avoidance, minimization and management practices have
successfully prevented or mitigated adverse impacts on water, land, habitat,
species and air from releases or emissions in the production of nuclear
electricity.
Air Quality Protection Perhaps the most undervalued aspect
of nuclear generation is its ability to avoid the emission of harmful pollutants
while producing significant amounts of electricity. The Clean Air Actthe
principal federal statute addressing air quality and man-made emissionssets
concentration levels allowable in the ambient air for pollutants, such as sulfur
dioxide, ozone (and its precursor nitrogen oxide) and particulate matter.
Regulations then prescribe various limitations on emissions required to meet
these ambient air quality standards, and states take appropriate actions to
limit overall emission levels to comply.
The emission caps and permit
restrictions that result represent a finite level of pollution permitted for a
range of industrial activities in a defined area, including electricity
production. The permissible levels of emissions have decreased over time, as
restrictions have become tighter. Concurrently, the total amount of electricity
needed to satisfy demand in states and regions has increased.
Much of
the burden for reducing concentrations of harmful air pollutants to meet Clean
Air Act requirements has been focused on the electric utility industry because
of the ease and cost effectiveness of controlling large, stationary sources of
emissions compared with smaller, mobile sources such as automobiles. Reducing
emission levels at new and existing facilities was the focus of many of the
regulations implemented under the law. Technologies such as scrubbers, bag
houses and low-emission burners have become standard tools in reducing emissions
from combustion-based sources of electricity.
However, reducing
emissions is not the only method employed to achieve compliance with
increasingly stringent Clean Air Act limitations. Avoiding the emissions in the
first place while meeting increased electricity demand has also been an
important compliance tool. In fact, between 1970 and 1990, the increased use of
nuclear energy eliminated more nitrogen oxide emissions than actions taken to
comply with Clean Air Act restrictions.
Nuclear energy, by avoiding
additional emissions as electricity output grows, acts as a vital partner in
Clean Air Act compliance. So at the same time the United States was responding
to the oil and gas shocks of the 1970s by re-balancing the energy supply
portfolio to include nuclear energy, it was also aiding in the implementation of
Clean Air Act requirements in states where the plants operated. Attainment
designations, permit programs and other compliance actions under State
Implementation Plans implicitly rely on the continued availability of existing
non-emitting electricity. And as the United States takes steps to address the
possible atmospheric impacts of carbon and other greenhouse gases, nuclear
energy will be needed to bridge the gap between emissions abatement and
continued energy security.
Environmental protection and energy security
are among the reasons why two out of three Americans favor nuclear energy.
Sixty-five percent of college graduates/registered voters and 62 percent of the
general public favor the use of nuclear energy as one of the ways to provide
electricity. One reason for the steady support for nuclear energy is the
perception that nuclear energy is a fuel of the future and is important for
future generations. Americans tend to see solar and nuclear energy as sources of
the future. In addition, there is broad support for the continued operation of
existing nuclear power plants (76 percent) as well as for maintaining the option
to build more nuclear power plants in the future (73 percent).
II.
ENERGY SECURITY + GREENHOUSE GAS ABATEMENT = NUCLEAR ENERGY This spring and
summer, America is again experiencing the effects of relying on imported sources
of energy, although the impacts are not as severe as the oil shocks of the
1970s. At the same time, increasing pressures to limit air emissions of all
kinds further strain the energy supply as new power plant construction and
capacity additions are delayed or constricted to stay within emission standards
or caps. Adding to this equation is the growing recognition that prudent
measures to limit greenhouse gas emissions may be necessary to forestall their
possible negative effect on the climate.
Lessons learned about the role
of emission avoidance technologies in meeting Clean Air Act requirements during
the last 20 years are prologue to the long-term, technology-based solutions that
will be needed to control man-made greenhouse gases, such as carbon dioxide or
methane. Unique factors affecting the control or abatement of these gases make
avoidance technologies even more critical. Unlike nitrogen or sulfur oxides, the
primary greenhouse gascarbon dioxideis derivative of the energy source in the
fuel, not a byproduct material that can be eliminated through end-of-pipe
controls or low-content fuels. Therefore, carbon control can be far more
expensive than conventional pollution control programs, making technologies that
avoid emissions all the more important.
As with pollutants controlled
under the Clean Air Act, climate change policies generally focus on sources that
emit greenhouse gases or on technologies that reduce them. This narrow view
fails to recognize the embedded reliance on non-emitting technology for
emissions control. When the 1990 greenhouse gas emission baseline was calculated
for the United States, 20 percent of our electricity was being supplied by
nuclear power plants, avoiding the release of 141 million metric tons of carbon
emissions if carbon-based fuels had been used instead. In 1999, U.S. nuclear
plants avoided 167 million metric tons of carbon, and that grows each year as
electricity production at nuclear power plants increases. Cumulatively, nuclear
energy has avoided more than two billion metric tons of U.S. carbon emissions
since 1973.
From a compliance perspective, this emission avoidance role
is essential. Based on current emission levels, the United States would be
required to reduce greenhouse gas emissions by 162 million metric tons to
achieve its original voluntary commitment under the United Nations Framework
Convention on Climate Change (UNFCCC). Without nuclear energy's role in avoiding
carbon, the United States would have to reduce carbon by more than 349 million
metric tons to meet the 1990 baseline.
The existing treaty commitment
prompted the Clinton Administration, through the Department of Energy, to call
for voluntary commitments by industry to reduce carbon emissions. In response,
electricity providers and other industries have voluntarily mitigated greenhouse
gas emissions. In 1999, nuclear power plants provided about one-half of the
carbon reductions achieved by U.S. industry under the voluntary reporting
program established in Section 1605b of the Energy Policy Act (EPAct).
Voluntary reductions at nuclear power plants, the largest contribution
by far to the program, were achieved by avoiding emissions primarily through
increased efficiency and uprates in nuclear power plant capacity. Thus, the
improved operation of nuclear power plants resulted directly in the avoidance of
millions of additional tons of air emissions as it provided one of the most
successful energy efficiency programs of the last decade.
As lawmakers
develop public policy on air quality, they should recognize that a ton of
pollution avoided is as valuable as a ton reduced. NEI supports improving the
National Inventory and Voluntary Reporting provisions in Section 1605b of EPAct
so that all energy sources that avoid greenhouse gas emissions are equally
recognized and rewarded by DOE anti-pollution programs. DOE should develop
standardized benchmark measurements for calculating emissions avoided, based on
emission levels of likely substitute electricity production, so that all
non-emitting forms of electricity can be more accurately valued and priced in
the marketplace for their contribution to air quality.
In the past, the
emissions avoided by nuclear plants were generally counted as internal offsets
for regulated utilities required to meet both electricity demand in their
service territory and environmental restrictions on their emitting generation.
In a competitive market, not all energy providers may own a generation mix that
allows such offsets to be calculated. With a benchmark providing a standardized
figure (e.g., the emission rate in the regional power pool), companies that own
and operate avoidance technologies can still calculate the emissions they are
avoiding, and participate in programs, such as the 1605b effort.
This
need for standardized benchmarking holds true for all non- emitting
technologies, such as hydro and renewables. Production increases at those
facilities should not have to rely on offsets against co-owned emitting
generation to be counted and recognized. These accounting improvements will
provide accurate and transparent government-sponsored reporting to identify the
technologies that are managing greenhouse gas emissions so consumers and the
market can respond.
The challenge for Congress is to develop public
policy that will fully recognize and reward technologies that avoid the
production of greenhouse gases and other air pollutants in tandem with efforts
to reduce emissions from existing and future sources. Effectively crafting tax
or other economic policies that encourage the use of low- or non-emitting
technologies can produce such an outcome.
International negotiations are
continuing to convert the voluntary restrictions in the Climate Convention to
mandatory requirements. Ironically, many non-governmental organizations and
other parties supporting the Kyoto Protocol also support efforts to exclude
nuclear energy projects from the technology transfer programs and incentives the
protocol creates as part of its Flexible Mechanisms program. These market-based
credit-trading devices, such as the Clean Development Mechanism, have been
designed to ease compliance costs and allow developing countries to benefit from
the economic development likely to result from increased application of
climate-friendly technologies. The United States' position in the negotiations
has been to oppose the arbitrary and discriminatory exclusion of nuclear energy
from these international credit trading and technology transfer programs.
Excluding nuclear energythe largest source of emission-free electricity in the
United States and many other countriesfrom those technologies worthy of
incentives for playing a major role in meeting Kyoto Protocol requirements would
undermine any credible program to meet the requirements of the protocol.
The Kyoto Protocol faces significant hurdles before it, or any agreement
like it, could come into force in the United States. However, to the extent
carbon abatement measures are considered prudent and appropriate, those measures
should include the safe international deployment of nuclear energy as part of
the global response to climate change. Large-scale, non-emitting technology,
such as nuclear energy, is undeniably essential for any meaningful participation
in greenhouse gas emission abatement in advanced developing countries as
contemplated by the Byrd-Hagel resolution. For economies that are not yet
producing significant levels of greenhouse gases due to underdevelopment,
emission avoidance will be the major alternative available to provide meaningful
participation without limiting future economic growth. Policies that ensure the
United States retains its role as the leader in commercial nuclear technology
are both a domestic compliance requirement and are crucial for a global solution
to climate change.
Federal Policy Imperatives for Energy Security,
Environmental Protection Nuclear energy is, and will continue to be, an
essential component of U.S. policy to provide both energy security and
environmental protection. Though the future is bright for nuclear energy in the
United States, that future will only be fully realized if industry and
government, working together, effectively address the few long-term challenges
facing the industry. The industry stands poised to provide a new generation of
nuclear plants that are safe, economic, reliable and acceptable to the public.
It also intends to operate existing plants safely, efficiently and economically.
There is an important role for the federal government to play if the
United States is to benefit from extended operation of current nuclear plants
and a new generation of commercial reactors. The policy proposals outlined in
this testimony will go a long way toward ensuring that nuclear energy sources
can fairly compete with baseload alternatives and continue to provide the energy
security and environmental protection that have been nuclear energy's hallmark
for more than 40 years.
1. Preserve U.S. Global Leadership In Nuclear
Science & Technology "Perhaps the most important reason that the government
today is not doing all that it should in (nuclear) energy research and
development is that the public has been lulled into a sense of complacency by a
combination of low energy prices and little sense of the connection between
energy and the larger economic, environmental and security issues that people do
care very much about,"(1) according to an assessment of R&D funding by the
President's Committee of Advisors on Science and Technology (PCAST). If the
federal government does not do "all it can," the United States risks
relinquishing its position as the world leader in nuclear science and
technologya position it has held since World War II. PCAST understood this
potential peril in 1997 when it said: "If the pace of technological progress is
not sufficient, the future will be less prosperous economically, more afflicted
environmentally, and more burdened with conflict." (2)
The United States
has the largest number of nuclear power reactors (103) and the largest nuclear
energy capacity (about 100,000 MW) of any nation. In 1999, electricity from
nuclear plants in 31 states was enough to meet all of the electricity demand of
France and the United Kingdom combined, or all of Central and South America.
Simple logic would dictate that we also should be the world leader in funding
for nuclear R&D. In its 1999 report, PCAST noted that its recommendation for
nuclear R&D funding by the year 2003 ($120 million) would
merely return the U.S. level of effort to that of 1995.(3)
In fiscal
year 1998, funding for the Department of Energy's research and development
program for improving commercial nuclear power plant technology was completely
eliminated. Funding for this important program was revived at a modest level in
1999 and continues today at $28 million. But, as PCAST
recommends, increased funding is essential to avoid significant negative impacts
on efforts to recruit and sustain an educated workforce to design and operate
nuclear plants in the future.
The Nuclear Energy Research Initiative
(NERI) and Nuclear Energy Plant Optimization (NEPO) research programs should be
funded at levels double the Administration's 2001 budget request. These programs
are designed to produce generic improvements that reduce capital and operating
costs for both current reactors and advanced reactor designs available for new
nuclear plant construction. Funding also is important for the Energy
Department's University Support Program, which helps maintain research reactors
and enhances educational programs in nuclear science and technology at our
nation's colleges and universities.
In what may be viewed as a response
to congressional energy policy initiatives, the Clinton Administration is
collaborating with more than a dozen nations to lay the foundation for an
international research and development program for globally deployable advanced
reactor designs. The International Nuclear Energy Research Initiative (NERI/I)
is funded jointly by all participating nations to promote bilateral and
multilateral research that is focused on advanced technologies to improve safe
and efficient nuclear power plant operation and waste management. NERI/I is
strongly supported by the nuclear industry and should receive equally ardent
backing by Congress.
Continued research and development is needed to
maintain existing capacity and build new plants to meet our future energy and
environmental challenges.
In comparison to other electricity generating
sources, nuclear energy unequivocally is the most economical federal research
and development investment. In 1998, the federal government spent one cent on
nuclear energy R&D for every kilowatt-hour of electricity generated at
nuclear power plants. By comparison, the cost of natural gas R&D per
kilowatt- hour of electricity generated was 36 cents; for solar photovoltaics,
$21,566; and for wind energy $10,700.
Obtaining a fair share of R&D funding is essential for the expanded use of
nuclear energy.
2. Support Nonproliferation Programs The industry
strongly supports the Clinton Administration goal to reduce stockpiles of
nuclear weapons materials around the world. An important policy to meet this
goal is the disposal of excess weapons- grade nuclear material by blending it
into mixed-oxide fuel for use in nuclear power reactors in the United States and
Russia. As part of the program, DOE is working with Russia on developing a gas
reactor for plutonium disposition. The industry urges Congress to provide
sufficient funding to ensure the successful implementation of the MOX fuel
program for two reasons: The threat of weapons proliferation and conflict will
be reduced, and commercial nuclear facilities will be assured of additional fuel
supplies in support of continued greenhouse gas abatement. NEI also urges the
Congress to instruct DOE to provide Congress with detailed five-year projections
of the expected program costs for construction and operation of plutonium
disposition facilities.
3. Assure Adequate Funding for the Repository
Program at Yucca Mountain The Department of Energy's program to
manage used nuclear fuel is at least 12 years behind schedule. The federal
government's continued failure to meet its contractual and statutory deadline to
begin accepting used fuel by 1998 threatens the continued operation of two of
the nation's best-run nuclear power plants. The Clinton Administration has
failed to offer a concrete plan for fulfilling its obligation until a federal
repository is in operation in 2010 at the earliest. The Senate and House of
Representatives passed legislation that would have provided early acceptance of
fuel at the proposed Yucca Mountain repository in 2007 if it is
determined to be a suitable site and licensed by the Nuclear Regulatory
Commission. But President Clinton's veto of the bill has continued to thwart the
bipartisan congressional support for resolving this issue.
Keeping the
federal repository program on track toward a presidential decision in 2001 on
whether to proceed with licensing and construction of Yucca
Mountain is imperative. The nuclear industry is encouraged by the
impressive scientific foundation for decision-making that has been established
and supports full funding for DOE's Yucca Mountain Project in
fiscal year 2001 to ensure that approaching program milestones can be met.
4. Continue Improvement in NRC's Regulatory Oversight Program The NRC in
recent years has served as a model of regulatory improvement, adopting a new
reactor oversight process that is safety focused and relies on
performance-based, objective indicators to judge acceptable levels of plant
operations. The new process is more transparent and open than the old system and
uses quantitative performance indicators. Revised inspection and enforcement
programs have been integrated into this process as well. This new approach
enhances public and worker safety by focusing management and regulatory
attention on areas with the greatest safety significance. The nuclear industry
strongly supports the ongoing changes at the NRC and commends the Congress for
its effective oversight of that agency.
Congress should eliminate
duplicative regulation that has allowed the Environmental Protection Agency to
become involved in issues that are more appropriately subject to NRC authority.
For example, the EPA has threatened to overturn NCR's regulatory decisions by
seeking remediation under Superfund for power plant and other nuclear facility
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.
In a recently
completed report titled, Radiation Standards: Scientific Basis Inconclusive, and
EPA and NRC Disagreement Continues, (GAO/RCED 00-152, June 2000), the General
Accounting Office recommended that sound public policy requires that radiation
safety standards be consistent and science based.
5. Extend
Self-Insurance Pooling Under The Price-Anderson Act The public has
$9.7 billion of insurance protection in the event of a nuclear
reactor accident. The nuclear reactor operatorsnot the public or the federal
governmentpay for this insurance. This utility self- insurance pool was first
established in 1957, when Congress passed the Price-Anderson Act. The act
provides an umbrella of no-fault insurance protection for the public, and
ensures that money will be immediately available to pay liability claims that
could result from a major nuclear accident. Price-Anderson most recently was
amended in 1988, and the deadline for reauthorization is 2002.
In a 1998
report to Congress, the NRC recommended that the act be extended for an
additional 10 years. DOE also has recommended that Congress approve an extension
of the Price-Anderson law. Both agencies recommended reauthorization with
minimal change. The nuclear industry strongly supports the reauthorization of
the Price-Anderson Act.
6. Level the Electricity Competition Playing
Field In recent years, state and federal initiatives have accelerated the
transition to a competitive electricity market. As companies prepare to do
business in this new market, the unbundling of their products and services will
require a re-examination of costs and allocation of value to activities that
previously were not valued. Nuclear energy remains a low-cost source of
electricity in the emerging deregulated electricity market. Free-market
competition demands that the playing field be level for all electricity
generators. Congress can enact several legislative initiatives that remove
unnecessary impediments to nuclear power and pave the way for sensible,
market-based business decisions that will preserve and extend the operation of
today's nuclear power plants.
First, Congress should eliminate
unnecessary requirements that may prevent effective ownership transactions in a
competitive market. Consolidated ownership of nuclear plants allows for
economies of scale in operations, maintenance, outage planning and
administration. These transactions will also likely improve safety because
ownership and operating responsibility will be consolidated in the hands of
large companies with the financial and management resources to operate the plant
at the highest possible levels of safety and reliability. Resulting cost savings
encourage continued plant operation by reducing the operating costs of plants
when it is operated as part of a larger nuclear organization.
Industry
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 interest
in purchasing nuclear plants, and a newly formed nuclear operating company is
now operating seven plants in the Midwest, belonging to five different
utilities.
The number of nuclear plant transfers is expected to increase
as states deregulate their electric generation markets. Policy changes are
important to remove potential barriers to permitting otherwise economical plant
consolidations, including revision of Section 468A of the Internal Revenue Code,
which addresses the tax treatment of nuclear decommissioning trust funds.
The tax code must be updated to recognize that in a deregulated
environment, nuclear power plants may be owned and operated by an entity that is
unregulated. The tax code 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 the IRS did not envision the possibility of a
nuclear plant being sold to an unregulated entity. Although 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 completed to date, Congress
should amend Section 468A of the tax code to clarify that plant sales to
unregulated entities should not trigger a taxable event when decommissioning
trust funds are transferred.
Legislation has been introduced in the
House of Representatives by Reps. Jerry Weller and Ben Cardin (H.R. 2038) and in
the Senate by Sens. Frank Murkowski and John Breaux (S. 1308) to make these
changes. The provisions of the Weller-Cardin bill are also included in H.R.
2944, Rep. Joe Barton's Electricity Competition and Reliability Act. Some of the
provisions of H.R. 2038 also were included in H.R. 2488, the Financial Freedom
Act of 1999, and some provisions were included in President Clinton's FY2000
budget proposal.
In addition, public policy incentives to encourage
carbon abatement or avoidance technologies must be equally applied, whether they
are production and/or investment tax credits to address climate change, access
to market-based pollution control mechanisms, or access to favorable financing
and other funding mechanisms. The importance of nuclear energy to clean air and
carbon abatement is one of the previously unvalued services for which companies
must receive economic benefit to prevent competitive disadvantages, and position
nuclear power plants to continue their crucial environmental contribution.
Any plausible strategy to mitigate greenhouse gas emissions will require
an expanded use of nuclear energy in the United States and around the world.
Equal treatment in these market and incentive programs will allow new nuclear
plants to effectively compete with alternative forms of generation, extending
nuclear energy's unique ability to provide energy security and environmental
protection.
Conclusion This year, the world celebrated the 30th
anniversary of Earth Day, including the significant environmental strides the
United States has made since 1971. One of the most prominent environmental
protection advancements in the industrial sector has been the increased reliance
on domestically available nuclear energy to power our fast-growing digital
economy while improving air quality. Congress should not lose sight of this
important energy security and clean air compliance resource, and policymakers
should employ a strategy that maximizes nuclear energy's potential to power our
economy and improve our air quality.
Together, the nuclear energy
industry and the federal government can ensure that nuclear energy will continue
to help meet our nation's public policy goals regarding energy production and
environmental protection for the 65 million consumers who use electricity
generated at nuclear power plants.
NOTES:
(1) Federal Energy
Research and Development for the Challenges of the 21st Century, Report of the
Energy Research and Development Panel of the President's Committee of Advisors
on Science and Technology, Page ES-31, November 1997.
(2) November 1997
PCAST Report, Page ES-7.
(3) November 1997 PCAST Report, Page ES-5.
END
LOAD-DATE: August 1, 2000