[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
NATIONAL ENERGY POLICY: THE FUTURE OF NUCLEAR AND COAL POWER IN THE
UNITED STATES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ENERGY AND POWER
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
JUNE 8, 2000
__________
Serial No. 106-131
__________
Printed for the use of the Committee on Commerce
U.S. GOVERNMENT PRINTING OFFICE
66-466CC WASHINGTON : 2000
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
BILL LUTHER, Minnesota
LOIS CAPPS, California
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Energy and Power
JOE BARTON, Texas, Chairman
MICHAEL BILIRAKIS, Florida RICK BOUCHER, Virginia
CLIFF STEARNS, Florida KAREN McCARTHY, Missouri
Vice Chairman TOM SAWYER, Ohio
STEVE LARGENT, Oklahoma EDWARD J. MARKEY, Massachusetts
RICHARD BURR, North Carolina RALPH M. HALL, Texas
ED WHITFIELD, Kentucky FRANK PALLONE, Jr., New Jersey
CHARLIE NORWOOD, Georgia SHERROD BROWN, Ohio
TOM A. COBURN, Oklahoma BART GORDON, Tennessee
JAMES E. ROGAN, California BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ALBERT R. WYNN, Maryland
HEATHER WILSON, New Mexico TED STRICKLAND, Ohio
JOHN B. SHADEGG, Arizona PETER DEUTSCH, Florida
CHARLES W. ``CHIP'' PICKERING, RON KLINK, Pennsylvania
Mississippi JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York (Ex Officio)
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Bailey, Paul C., Vice President, Environment, Edison Electric
Institute.................................................. 77
Ebel, Robert E., Director, Energy and National Security,
Center for Strategic and International Studies............. 43
Gehl, Stephen M., Director of Strategic Technology Alliances,
Electric Power Research Institute.......................... 84
Graham, James J., President and CEO, Converdyn............... 27
Klein, Dale E., Vice Chancellor for Special Engineering
Programs, University of Texas System....................... 22
Kripowicz, Robert S., Principal Deputy Assistant Secretary,
Office of Fossil Energy, U.S. Department of Energy......... 62
Lawson, Richard L., President and CEO, National Mining
Association................................................ 69
Lochbaum, David, Nuclear Safety Engineer, Union of Concerned
Scientists................................................. 40
Magwood, William D., IV, Director, Office of Nuclear Energy,
Science and Technology, U.S. Department of Energy.......... 6
McNeill, Corbin A., Jr., Chairman, President, and CEO, Peco
Energy Generation.......................................... 14
Schobert, Harold, Director, the Energy Institute,
Pennsylvania State University.............................. 89
Material submitted for the record by:
Uranium Producers of America, prepared statement of.......... 107
(iii)
NATIONAL ENERGY POLICY: THE FUTURE OF NUCLEAR AND COAL POWER IN THE
UNITED STATES
----------
THURSDAY, JUNE 8, 2000
House of Representatives,
Committee on Commerce,
Subcommittee on Energy and Power,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:07 p.m. in
room 2123, Rayburn House Office Building, Hon. Joe Barton
(chairman) presiding.
Members present: Representatives Barton, Largent, Burr,
Whitfield, Norwood, Shimkus, Wilson, Bryant, Boucher, Sawyer,
and Strickland.
Staff present: Kevin Cook, science advisor; Karine Alemian,
professional staff member; Elizabeth Brennan, legislative
clerk; Sue Sheridan, minority counsel; and Rick Kessler,
minority counsel.
Mr. Barton. The subcommittee will come to order. We are
going to go ahead and proceed. A number of members have
indicated that they are on their way. Hopefully, if I give an
extremely long-winded opening statement, they will be here by
the time I conclude.
Today is the second in our series of subcommittee hearings
examining our national energy policy. On May 24, 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 can not afford to lose the generating
capacity represented by coal and nuclear power. There is no
ready replacement for 70 percent of our electrical power. Yet,
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. It increases the price of electricity
generated by nuclear power, and it 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 that there is a major technical hurdle yet
to be resolved, when the real problem is a lack 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 export
market for the U.S. companies.
The near term challenge for coal revolves around air
quality, and controlling the emissions of sulphur dioxide,
nitrogen oxides and particulates; all pollutants presently
regulated under the Clean Air Act.
The long term focus will also be on air quality that may
shift, limiting the omission of greenhouse gases, particularly
carbon dioxide, from the combustion of coal.
The answer to both the near-term and long-term challenges
for coal may lie in advanced coal technologies that will enable
a cleaner and 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. I look forward to your testimony.
Does the gentleman from Georgia wish to make an opening
statement?
Mr. Norwood. Mr. Chairman, I will submit it for the record.
But I want to thank you for holding this hearing. I think it is
very appropriate that you keep our attention on the future,
particularly of nuclear, which I am a big supporter of. I think
we need to, as you pointed out eloquently, deal with our
problem of storage of it.
I hope we will just keep focusing away on this, until we
finally wake up and set a policy for our future. With that, I
thank you.
Mr. Barton. Does the gentleman from Kentucky wish to make
an opening statement?
Mr. Whitfield. Mr. Chairman, I am just delighted that we
are having these hearings. As you know, nuclear and coal
provides about 72 to 75 percent of the electrical power in
America. I think it is vitally important that we have this
hearing, listen to these experts, and obtain a better
understanding of where we are going and what we can do to
maintain a reliable nuclear energy and coal industry in the
U.S.
Thank you.
Mr. Barton. Does the gentleman from Ohio wish to make an
opening statement?
Mr. 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.
Mr. Barton. Without objection.
Mr. Sawyer. Let me just make an observation, and I hope
that in the course of our afternoon that 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 are 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.
In an arena in which competition and the ability to provide
low cost as 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. I
hope that you will speak to that in the course of your
testimony today.
With that, I will yield back the balance of my time. Thank
you, Mr. Chairman.
Mr. 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 any objection to that?
[No response.]
Mr. Barton. Hearing none, it is so ordered.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. John Shimkus, a Representative in Congress
from the State of Florida
Good morning, Mr. Chairman and to all who have shown up this
afternoon. I am looking forward to this hearing today. I very much
wanted to keep my opening statement rather short, which I'm sure would
please the Chairman. Unfortunately for him, this hearing today will
focus on the future of two important energy sources to my home state of
Illinois.
Coal is a vital part of the growing Illinois economy, it is the
state's 3rd largest industry. 27 Illinois mines employ more than 5,000
miners, and generate roughly 25,000 spin-off jobs.
Illinois coal is used for power generation all over the world. The
top 7 utility users of Illinois coal are: PSI Energy, Illinois Power,
Tennessee Valley Authority, Central Illinois Public Service, Northern
Indiana Public Service, Tampa Electric and Union Electric.
There are many concerns across the country about the pollution
caused by burning coal. The future of coal hinges on whether clean coal
technologies become commercially available to coal-burning utilities.
In Illinois, we are continually working to find cleaner ways to burn
coal. The Illinois Clean Coal Institute's clean coal research
activities focus on the needs of coal users and producers in meeting
the standards of the Clean Air Act Amendments of 1990. The ICCI spends
over $3 million a year on research designed to make energy-rich
Illinois coal environmentally sound. It is the largest state-supported
coal research program in the country. The Illinois coal industry has a
powerful future, one that's worth fighting for!
Nuclear power also plays on important role in Illinois because my
home state generates about 40-45% of its power from nuclear reactors,
almost twice the national average. We depend on nuclear power. Almost
without a doubt, nuclear energy is and should be here to stay.
However, at a time when the future of nuclear energy looks brighter
than it has in many years, there is a dark cloud hanging over our own
domestic nuclear fuel capabilities.
My own state hosts the nation's sole remaining uranium conversion
facility. Every indication is that this facility is now on the brink of
going out of business. To make matters worse, the loss of this facility
and capability will be a further serious blow to both the uranium
mining and processing industries and to the U.S. enrichment
enterprise--all of which are already on the ropes.
I happen to think that our nation should not rely only on just one
energy source such as natural gas, coal or wind to generate power, but
all of these sources. It is the smart thing to do over the long haul.
Just like any good retirement portfolio, our energy industry should be
diversified.
Again, thank you for having this hearing today Chairman Barton and
focusing on two issues that are extremely important to my home state. I
yield back the balance of my time.
______
Prepared Statement of Hon. John B. Shadegg, a Representative in
Congress from the State of Arizona
Chairman Barton, thank you for holding this hearing on one of the
most vital aspects of our nation's energy policy: the role of nuclear
power in electricity generation. This is an issue of special
significance to me since Arizona is the home of Palo Verde, the
largest, as well as one of the newest, safest and most efficient,
nuclear power plant in the United States. It is also an issue which, as
today's witnesses are likely to explain, different policies are working
at cross purposes to hinder the further development of this important
energy source.
This hearing is very timely for a number of reasons. First, the
Energy Information Administration (EIA), an independent federal agency,
has estimated that nuclear generation capacity in the United States
will begin declining in approximately ten years, and will continue to
decline with no prospect of a subsequent revival. The EIA estimates
that 674 billion kilowatt hours of electricity were produced by nuclear
energy in 1998 and projects that, by the year 2020, nuclear generation
will have declined to only 427 billion kilowatt hours per year.
Second, the demand for electricity is projected to grow at a rate
of between one and two percent per year for the next twenty years. This
growth cannot be met solely by increased use of renewable energy
sources and conservation. As an illustration, Energy Secretary Bill
Richardson announced an initiative on June 21, 1999 that calls for
generating five percent of electricity from windmills by the year 2020.
In fact, the EIA has projected that windmills will only produce one
quarter of one percent of electricity generation by 2020. The EIA
projection is bolstered by the fact that, depending on weather
conditions, it would take between 121,309 and 181,963 windmills of some
of the largest type (750 kilowatts) currently in active use to produce
the five percent of electricity called for by the Administration, while
there are only five of these windmills currently in operation. This
shows that, despite the optimistic hopes of the present Administration,
we will continue to rely on non-renewable sources of energy for the
vast majority of our electricity supply.
Finally, there is continued worry about air quality issues,
including the role that combustible fuels play in emitting air
pollutants. I strongly support the continued use of coal and natural
gas for electricity production but these energy sources, while more
clean burning now than ever before, do emit air pollutants including
carbon dioxide, sulfur dioxide, and nitrous oxide. Nuclear power, of
course, does not emit any pollutants into the environment.
It is in the environmental arena that there is the greatest
disconnect between environmental protection policies and policies
towards nuclear power. The current Administration expresses tremendous
concern about the theory of global warming and the role which emissions
of so-called ``greenhouse gases'' like carbon dioxide may play. The
Administration has gone so far as to sign the Kyoto Protocol under
which it agreed to hobble the United States economy by reducing
emissions of these gases by seven percent from 1990 levels by the year
2012. Despite its professed concerns for air quality and global
warming, the Administration continues to discourage the use of the
largest non-emitting source of energy, nuclear power, by vetoing
legislation which would safely dispose of nuclear waste.
Mr. Chairman, nuclear power is a safe, clean, efficient source of
energy production. Countries like France, which produces over three
quarters of its electricity from nuclear power, recognize this but this
logic escapes the Administration. Nuclear energy is needed now and will
become even more necessary as energy consumption increases during the
next twenty years. It is more important than ever that a policy be
developed that will encourage its continued use and future development.
______
Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
I commend Chairman Barton for convening this second in a series of
hearings on national energy policy. The first hearing focussed on oil
and gas supply issues. We want to be sure our country has an energy
policy that addresses not only the ``crisis du jour,'' but positions
the United States for a stable and secure energy future.
Today's hearing looks at two more vital energy sources: nuclear
power and coal. Combined, nuclear energy and coal account for over
seventy percent of the electricity generated in this country. With
serious reliability concerns facing us this summer, it is essential
that we maintain our existing nuclear and coal generating capacity over
the near-term. Looking further down the road, we have to ask what role
nuclear and coal power should play in our future energy portfolio.
New technologies will be key, to our energy future. Such
technologies will enable this country to use its enormous coal
resources in a way that does not harm the environment. Advanced
technologies may also bring us a new generation of safer and more
efficient nuclear reactors.
Today's hearing, along with the other hearings in this energy
policy series, will inform us whether the federal government is taking
the right near-term and long-term actions to prepare us for a secure
energy future. I look forward to the testimony of our distinguished
witnesses today.
Mr. Barton. We want to welcome our first panel. It is 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 is our normal policy, when we have Administration
witnesses to put them on a separate panel. We also have a DOE
witness on the second panel, because we have so many people. If
I had to go to four panels as opposed to two, it would take a
lot longer.
It is not disrespectful that we have 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 is absolutely no
disrespect meant. Normally, you would be on a panel all by
yourself. But because of the number of people and the time we
are starting the hearing, we have done this in two panels.
We are going to recognize you first. We would ask that you
summarize your written statement, and we thank you for having
it in on time. I have been chastising some of my Administration
witnesses for being tardy. I want to compliment you for being
on time.
We will give you 7 minutes, and then we will go through the
rest of the panel. So welcome, Mr. Magwood. You are recognized
for 7 minutes.
STATEMENTS OF WILLIAM D. MAGWOOD, IV, DIRECTOR, OFFICE OF
NUCLEAR ENERGY, SCIENCE AND TECHNOLOGY, U.S. DEPARTMENT OF
ENERGY; CORBIN A. MCNEILL, JR., CHAIRMAN, PRESIDENT, AND CEO,
PECO ENERGY GENERATION; DALE E. KLEIN, VICE CHANCELLOR FOR
SPECIAL ENGINEERING PROGRAMS, UNIVERSITY OF TEXAS SYSTEM; JAMES
J. GRAHAM, PRESIDENT AND CEO, CONVERDYN; DAVID LOCHBAUM,
NUCLEAR SAFETY ENGINEER, UNION OF CONCERNED SCIENTISTS; AND
ROBERT E. EBEL, DIRECTOR, ENERGY AND NATIONAL SECURITY, CENTER
FOR STRATEGIC AND INTERNATIONAL STUDIES
Mr. Magwood. Thank you, Mr. Chairman.
I appreciate your remarks about having our testimony in on
time. I would like to thank my staff for working so hard to get
that done.
Also, Mr. Chairman, I would 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, Dr. Klein, and the
others down the row. I know most of them very well, and
appreciate the opportunity to testify with them today.
I am William Magwood, Director of the Department's Office
of Nuclear Energy, Science and Technology. To begin, let me
also thank you and congratulate you for holding this hearing,
and for the series of hearings you have held on the subject of
energy security. I think that this hearing is a very important
opportunity to focus on these issues, and to get a lot of facts
on the table.
This is an appropriate time to address the subject of
nuclear energy. We, at DOE, are 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 a free
market, has served us very well. Unlike many other nations, the
United States has a wide range of energy options to choose
from. We have been able to apply coal and nuclear and other
sources to fuel America's homes and businesses.
Currently, about half of 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 relative surplus of supply of
electricity; and second, on the uncertainly utilities faced in
controlling the cost of constructing the last set of nuclear
power plants in the late 1970's and 1980's.
The future, I believe, has great potential for resurgence
of new market prospects for new U.S. nuclear power plants. This
is because of many encouraging and interesting dynamics that
are taking place right now.
First, U.S. nuclear utilities are not only producing more
electricity than ever before, but they are doing so more
economically, as well. The U.S. nuclear power plants are now
some of the most cost effective generators of electricity on
the market. The average nuclear power plant is 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 1,700
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 nuclear power plant capacity, and highlights the
desire of some companies to pursue a supply strategy that
specializes in nuclear generation.
Further, the march toward renewing the licenses of U.S.
nuclear power plants continues. Just 5 years ago, some analysts
were predicting the mass closure of U.S. nuclear power plants
in the face 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 reactor operation for additional 20 years. Just last
week, Duke Power's Oconee Plant followed in Calvert Cliff's
footsteps and became the second plant to receive a 20 year
extension. These renewals have come at a fraction of the
projected costs, 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 have 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 has
provided the great share of clean energy in the United States.
Seventy percent of America's emission-free generation was
provided by nuclear power, with most of the rest coming from
hydroelectric resources.
This presents a challenge to 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 is therefore important that nuclear remain a viable
option for the future, and helping assure that this future is
possible is part of the role of government.
The NRC, the Nuclear Regulatory Commission, has done its
part. They have done an outstanding job, in my opinion, in
becoming a very efficient regulatory agency with 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 that NRC could also be a good partner in
the construction of new nuclear power plants 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 reasserting
U.S. leadership in international exploration of 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 about 60 percent
of the funding for the program through the Electric Power
Research Institute.
We are 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
system, and will be deployed over the next 20 years.
DOE initiated this consideration in January, when we
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
interests of 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 resource community, NERAC
has made recommendations to shape the future of R&D activities.
Like the President's Committee of Advisors on Science and
Technology before it, NERAC calls for significant increases in
the Federal investment in nuclear R&D. Its recommendations are
modest and carefully targeted.
There are many other challenges to be dealt with. We must
move forward with 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 decline in numbers of students graduating with nuclear
engineering degrees has been startling, down two-thirds over
the last decade or so. But we have 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 graduating with nuclear engineering degree.
Clearly, this is just a start, but it is movement in the right
direction.
In this, as in other areas, we have been making
considerable progress. but there is a lot of work to do. With
your support and guidance, we hope to do more.
With that, I look forward to the other witnesses'
statements, and to your questions.
[The prepared statement of William D. Magwood IV follows:]
Prepared Statement of William D. Magwood, IV, Director of the Office on
Nuclear Energy, Science and Technology, U.S. Department of Energy
Mr. Chairman and members of the Subcommittee, I am William D.
Magwood, IV, Director of the Department of Energy's Office of Nuclear
Energy, Science and Technology. I am pleased to be here today to
discuss the important role of nuclear energy for over forty years in
helping deliver reliable and competitive energy to the Nation--energy
that meets our national interests and values for energy security,
diversity of supply, and environmentally sustainable energy. I will
also address what we see as the need for nuclear energy, the
challenges, the opportunities ahead, and what the Administration is
doing to advance nuclear energy technology to meet today and tomorrow's
energy needs.
Over the last decade, the United States has experienced
unprecedented economic growth and prosperity. To a large extent, the
prosperity we see today is made possible because of access to reliable,
diverse, and affordable energy supply options. The country's energy
strategy over the last twenty years, has been one of market reliance--
that is, of reliance on a competitive market to meet supply and
demand--it is a strategy that has worked. The fact that new nuclear
energy plants have not been built in the U.S. in recent years should be
seen as a decision by the market. This decision is based first on the
fact that the United States in recent decades has enjoyed a
considerable surplus in electric supply options and second, on the
uncertainties utilities faced in controlling the costs of constructing
the last set of nuclear plants in the 1980's. I will comment further on
both of these factors later.
We believe that Government's role in the energy sector is primarily
to assure that the Nation has at its disposal for the future, a range
of energy technology options to provide diverse, economic, and
environmentally responsible energy choices to fuel our economy in the
twenty-first century. As reflected in detail in our DOE Research and
Development Portfolio (February 2000), the Administration supports a
wide range of energy production options, each with unique strengths and
challenges. It is our job to make these options available. We leave
their final selection and implementation to the market.
importance of nuclear energy to today and tomorrow's energy security
By all indicators, 1999 was a banner year for nuclear power in the
United States. Nuclear power plants surpassed the peak operating
performance records last set in the 1970's, increasing plant capacity
utilization to 85.5 percent. Despite the closure of some inefficient
nuclear units, nuclear energy delivered 20 percent of the Nation's
electricity, second behind coal, which provided 51 percent of
electricity.
Nuclear's share of the electricity market continues to increase as
plants increase availability and achieve greater operating
efficiencies, in 1999 adding the equivalent of seven 1,000 megawatt
plants to the grid. Contrasting this to 1990, when plant capacity
averaged 66 percent, nuclear plants have made dramatic progress in
improving efficiency and economic competitiveness, while at the same
time reducing the amount of waste generated and worker exposures. U.S.
nuclear power plants now produce electricity at an average of 1.9 cents
per kilowatt-hour and represent some of the most cost-effective
generation of electricity on the grid today.
In fact, operating nuclear power plants have become a sought-after
commodity in today's market. In all, 14 nuclear plants are on the
market or have been sold since last July, representing 23 reactor
units. Most recently, two plants in New York representing over 1,700
megawatts of efficient capacity were purchased for approximately $1
billion. We expect vibrant bidding for the Nine Mile Point reactors,
which are also located in New York. These trends are most interesting
in that they demonstrate the willingness of U.S. utilities and
independent power operators to make significant investments in nuclear
plant capacity, and the willingness of some companies to pursue a
supply strategy that specializes in nuclear generation.
Further, the march toward renewing the licenses of U.S. plants
continues. Just five years ago, some analysts were predicting the mass
closure of U.S. nuclear plants in the face of relatively low natural
gas prices and electric utility competition. Even our own Energy
Information Agency predicts a significant downturn in the electricity
coming from nuclear power in the next few decades. Reality is
overtaking these projections. In March, the Nuclear Regulatory
Commission (NRC) granted permission for Calvert Cliffs to extend
reactor operations another twenty years. Just last week, Duke Power's
Oconee plant followed in Calvert Cliff's footsteps to become the second
plant to receive a license extension. These license renewals have come
at a fraction of projected costs and years earlier than many predicted.
Our consultations with utility executives confirm that the overwhelming
majority of the Nation's 103 operating plants can be expected to apply
for and receive license renewals and continue operating safely,
reliably and economically well past 2030.
Finally, the operation of the Nation's existing nuclear power
plants have helped States meet the Clean Air Act while increasing
electricity supply to meet demand. In 1999, operation of the Nation's
existing nuclear power plants provided the greatest share of clean
energy in the United States--70 percent of America's emission-free
electricity generation (with most of the rest coming from hydroelectric
resources). Between 1973 and 1998, the use of nuclear energy avoided
87.2 million tons of sulfur dioxide and 40 million tons of nitrogen
oxides (pollutants under the Clean Air Act). Without nuclear power
plants, the states covered by Title IV of the Clean Air Act, located in
the Eastern and Midwest United States, would be hard-pressed to meet
the targets required by the law.
U.S. nuclear plants also avoid the release of 165 million metric
tons of carbon annually which plants. Cumulatively, more than two
billion metric tons of carbon has been avoided in the years since 1973.
In the future, without the avoided carbon from nuclear energy, the
United States would have to reduce greenhouse gas emissions by over 325
million tons annually--double the current, already ambitious target--in
order to reach the 1990 baseline under the United Nations Framework
Convention on Climate Change. In the decades ahead, nuclear power will
remain an essential part of the Nation's diverse energy resource
portfolio, fueling our economy with a secure, domestic source of
electricity. The safe, long term operation of these plants serves our
national interest by providing for energy security and diversity and
providing for reliable and affordable energy--a fundamental
underpinning of our economic prosperity.
The Energy Information Agency projects 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
generating capacity. As a result, if the U.S. is to maintain its
current proportion of roughly 30 percent non-emitting electricity
supply, about 108,000 megawatts of this new capacity must be renewable,
hydroelectric, and/or nuclear power capacity.
Clearly, the recognized benefits of nuclear energy are prompting
new discussions about the future of nuclear power in the United States
as attention focuses on the nexus between reliable competitive
electricity, clean air and preserving the earth's climate. Market
decisions on whether to deploy new nuclear capacity, will be decided in
large part based on the economics. We believe that nuclear power can
play an important role in meeting future U.S. energy needs. We have
seen the success industry has had in reducing operating costs. While
work continues to be needed to reduce construction costs, we have great
cause to be optimistic.
First, the Nuclear Regulatory Commission has done an outstanding
job in becoming an efficient regulatory agency under whose safety
oversight, utilities can successfully plan for the future. The negative
experiences of the past have not been replayed in NRC's successful
implementation of license renewal. Many in industry now believe that
NRC could also be a good partner in the construction of new nuclear
plants under the new but untested ``one-step licensing'' rules possible
for the three certified advanced light water reactor designs. The
Department looks forward to working with NRC to bring advanced,
performance-based, risk-informed regulation into reality, with promises
of additional improvements in oversight.
Second, much of the new advanced light water reactor technology has
been implemented and proven overseas. The successful construction and
operation of Advanced Boiling Water Reactors in Japan is the salient
example. This experience demonstrates that these technologies can be
built in a timely, cost-effective manner and result in power plants of
high quality, reliability, and economic competitiveness.
In order for nuclear energy to be competitive in the U.S. in the
twenty-first century, however, challenges to its expanded use much be
satisfactorily resolved. The high construction costs seen in the late
1970s and early 1980s must be avoided, concerns about generation and
disposal of nuclear waste must be finally resolved, remaining public
concern about safety must be addressed, and issues associated with
proliferation must be dealt with. In great part, focusing on the
technical aspects of these issues has become a primary mission of my
office.
nuclear energy research--50 years of innovation
Beginning in the 1950's, DOE's predecessor agency, the Atomic
Energy Commission (AEC), with its scientific infrastructure, sponsored
development of prototypes for reactor technologies that are in
commercial use today. This activity continued through the 1960's as the
AEC assisted in the design and construction of several more civilian
nuclear power plants. However, as less and less startup support was
required from the Federal government, the AEC began to focus more
sharply on other potential applications for nuclear technology,
including space reactors, radioisotope production, nuclear medicine and
different types of advanced power reactors that offered theoretical
advantages over established light water reactor technology.
Today, as a result of this early partnership between government and
industry, 103 light water reactors are operating in this country--a
technology which operates safely, and predictably, providing almost 23
percent of the Nation's electricity. This is an impressive success
story. With a Government R&D investment of about $2 billion (roughly
$7.6 billion in FY 2000 dollars) over the last forty years, utilities
have put in place a $200 billion nuclear plant infrastructure which is
economic, reliable, and safe. More recent investments the Government
has made in this technology, after the commercial nuclear plant
business was launched (75% of the U.S. Government investment in
commercial light water reactor technology was made prior to 1980), have
successfully increased efficiency of nuclear fuel by 50 percent,
reduced generation of spent fuel by a third, reduced plant worker
exposure by 67 percent, and made a whole new generation of certified,
advance light water reactors available to the world. These follow-up
investments not only improve the environmental performance of nuclear
plants and enhance worker safety, but will save billions of dollars for
the U.S. economy over the life of our operating plants.
Despite, or perhaps because of this success, the Government's
investment in nuclear technology declined substantially in the 1980's
and 1990's. With completion of the Advanced Light Water Reactor (ALWR)
program in 1997, the funding for nuclear energy R&D declined to zero in
1998 and the Department took this time to reshape our approach to
fission research to realign research with the key challenges to the use
of nuclear energy and to goal of preserving the Nation's nuclear
science and engineering education and facility infrastructure. This
shift was based on the Administration's Comprehensive National Energy
Strategy (1998), the DOE Research and Development Portfolio (February
2000), and by the recommendations of the President's Committee of
Advisors on Science and Technology (PCAST).
External Advice in DOE's Nuclear Power Program
PCAST identified nuclear energy as among the technologies that
could address a number of energy challenges, including reducing
dependence on foreign oil, diversifying the U.S. domestic electricity
supply system, expanding exports of U.S. energy technologies, and
reducing air and water pollution, including greenhouse gas emissions.
PCAST recommended that the Department reinvigorate its nuclear energy
R&D program; this was followed by a second report last summer, in which
PCAST recommended additional investments in the Department's nuclear
R&D program to enable the program to expand its cooperation with the
international community.
Using the PCAST recommendations as a roadmap, we have begun the
recovery of the Federal nuclear technology program. In 1998, Secretary
Richardson, took additional steps to guide the future direction of the
Department's nuclear energy research, to ensure successful
implementation of the PCAST recommendations, including identifying
promising research that warrants additional investment. He did this
primarily by establishing the Nuclear Energy Research Advisory
Committee, or NERAC.
NERAC, chaired by Dr. James Duderstadt, former President of the
University of Michigan, is comprised of independent policy, science and
technology experts from universities, national laboratories and
industry, with expertise ranging from reactor operations and nuclear
engineering to biological sciences, nuclear medicine, environmental
sciences, economics and strategic planning. I am pleased to note that
one of NERAC's most active members, Dr. Dale Klein, is seated here with
us today.
PCAST and NERAC have helped us reinvent the Federal role in nuclear
energy research and development. Recognizing the realities of today's
constrained budgetary environment, we have reorganized how we conduct
research, how best to accelerate innovation and how to assure the best
return on the investment for the Nation. We have returned to a more
focused Federal role in conducting R&D--that is, investing most of our
research portfolio on long term, higher risk basic research aimed at
reducing or eliminating significant barriers to future use of nuclear
energy. This is research that typically is not within the shorter-term
planning horizon of industry.
Current Nuclear Energy R&D Activities
NE's largest research activity, the Nuclear Energy Research
Initiative (NERI), reflects this fundamental shift in the way in which
research projects are selected, funded, conducted, and evaluated.
Focused on obstacles to long-term use of nuclear energy, NERI promotes
investigator-initiated, peer reviewed research, enabling us to consider
a broad range of innovative ideas brought forth from universities,
industry, and our national laboratories to address issues such as plant
economics, waste, and proliferation. Last year, 46 research projects
were launched under NERI, involving 21 universities, eight national
laboratories, 16 private sector organizations, and one federal agency.
This year, 10 new projects will begin, involving seven universities,
five national laboratories, and one government agency. Many of these
projects also include significant collaboration by international
research organizations.
Another major area of focus for the NERI program this year, and an
area of growing interest in the U.S. and with the international
research community, are Generation IV nuclear power systems. Generation
IV systems are next generation advanced technologies that will be
economically competitive with combined cycle gas fired systems and
deployed over the next 20 years. In January, the Department 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 attributes of Generation IV reactor
systems. The workshop included observers from the International Atomic
Energy Agency, the OECD Nuclear Energy Agency, the U.S. Department of
State, American Nuclear Society, and DOE's Nuclear Energy Research
Advisory Committee. Following the conclusion of the workshop the
participants issued a joint statement agreeing to pursue Generation IV
nuclear power systems as a potential next generation energy option.
There have been other meetings since January, refining concepts for
effecting multilateral cooperation and setting general technology
targets for next-generation nuclear power systems.
In fiscal year (FY) 2000, another major shift in our research
priorities occurred with the initiation of the Nuclear Energy Plant
Optimization (NEPO) program. Recognizing the important role that the
nation's existing nuclear power plants continue to serve over the next
several decades in meeting demand for electricity in an environmentally
sound manner, $5 million was provided in FY 2000 for NEPO research
conducted in cost-shared cooperation with the Electric Power Research
Institute, the research arm of the electric power industry, for the
purpose of improving existing plant operations, safety, and
reliability.
This $5 million represents a Federal investment in intermediate
term, higher risk research that is needed to increase the pace of
innovation for developing new technologies for today's nuclear power
plants. While industry's $85 million annual investment is focused on a
short term horizon, funding ``just-in-time'' solutions to problems for
existing plants, our investment serves to leverage Federal research
dollars with industry's matching funds in order to expedite and conduct
intermediate term generic research needed by all of the nuclear utility
industry to continue safe, economic, and reliable operation of the
Nation's nuclear plants.
All of the work conducted in this program is reviewed by
independent experts, including the NERAC, the Nuclear Regulatory
Commission, and U.S. universities and is guided by a detailed DOE/EPRI
Joint Strategic R&D Plan for Operating Nuclear Power Plants. Further,
this program is cost-shared with the private sector; about 60% of the
work planned for this year will be funded by industry.
University Programs--Preparing for the Future
Government, industry, and academia alike face similar challenges in
sustaining our critical nuclear science and technology
infrastructures--our research facilities and human resources. Like much
of the industrial base that emerged during and after World War II, the
nuclear industry is a mature industry that is challenged by an aging
workforce and research facility infrastructure. This is echoed by the
Nation's universities, which are challenged by declining enrollments
and aging facilities.
Nuclear engineering programs and departments with an initial
emphasis on fission were formed in the late 1950's and 1960's from
interdisciplinary efforts in many of the top research universities,
providing the manpower for this technical discipline. In the same time
period, for many programs, university research reactors were
constructed and began their operation, providing facilities for
research and training of students. Over the last decade, U.S. nuclear
science and educational infrastructure has stagnated, and started to
decline. The number of independent nuclear engineering programs and
number of operating research reactors have fallen by about half since
the mid 1980's. In contrast, demand for nuclear-trained personnel is
increasing to meet the needs of operating nuclear power plants and new
initiatives in radiation science in collaboration with industrial and
medical researchers as well as new bio-technologists. Finally, nuclear
science and engineering continues to be needed in national security as
well as providing the U.S. Navy with effective, safe nuclear
propulsion.
In order to meet the increasing demand for nuclear scientists and
engineers in this century to support advancements in all of these
areas--medicine, management of nuclear waste, nuclear technologies--in
1997, the Department re-instituted a university and reactor assistance
program, and now provides about $12 million of direct support each year
to 47 educational institutions in 28 states. With scholarships and
fellowships to outstanding students, research and infrastructure
grants, and other programs, the Department has become the sole Federal
agency to address the challenges in this vital sector of our education
system.
We have seen some success. With the modest federal investment, we
have been able to help reverse the precipitous decline in the number of
students earning nuclear science and engineering degrees at the
Nation's universities. However, we recognize that more needs to be done
if we are to preserve this irreplaceable, world-leading education
infrastructure for the future needs of the United States.
Future Directions
NERAC has several very active subcommittees examining various
aspects of nuclear technology. Relevant to this discussion, the
Committee has recently issued two reports that address the future of
nuclear energy, the Long-Term Nuclear Technology Research and
Development Plan, to guide nuclear energy research out to the year 2020
and a report from a Blue Ribbon Panel on The Future Direction of
University Nuclear Engineering Programs.
The Long-Term R&D Plan, developed by NERAC with significant
interaction from the wider research community, recommends that R&D
budget levels be increased in order to enable the Nation to gain
further advantages and value from our currently operating nuclear
plants; provide for economic technologies and approaches to build
enhanced advanced light water reactors in the U.S.; complete a
prototype design for a Generation IV nuclear power system, and support
a range of enduring missions within the Department. Although motivated
in part by the need for new nuclear reactor system designs, clearly,
such an investment would have a far-reaching impact elsewhere in
engineering and technology. NERAC sets a goal of conducting $240
million in nuclear energy research by 2005.
Both the Long Term R&D Plan and the Blue Ribbon Panel report
recognize that the ability to advance nuclear innovation in the future
is not only tied to research but to the health of the education and
scientific research infrastructure in the U.S. Without a continued
supply of new graduates in nuclear energy-related areas, we will not be
able to provide society with the benefits associated with the many
applications of nuclear technology and U.S. leadership in this
essential area of science and technology will slip away. Recognizing
the vital nature of this issue, and the fact that the U.S. nuclear
education infrastructure is in serious trouble, the NERAC recommends
the Federal investment in nuclear science and technology programs at
U.S. universities be increased to approximately $45 million, including
a new program to fund improvements in university research reactors
through peer-reviewed awards for research, training and other
educational activities. With this increase, the Committee believes, the
United States will be able to maintain a strong and vibrant nuclear
science and engineering infrastructure well into the twenty-first
century, providing the Nation with a realistic nuclear power option and
well-trained engineers and scientists who can address important
technical challenges in areas such as nuclear medicine, nuclear waste
treatment and cleanup, and enhancing international nonproliferation.
conclusions
Deployment of nuclear technology which occurred largely in the
1970's, paved the way for expanded use of nuclear power in lieu of oil-
fired electricity supply, thus enabling oil to be concentrated in the
transportation sector. Nuclear power was also deployed at a time of
considerable debate about deteriorating air quality in the Nation's
cities leading to enactment of the Clean Air Act. This strategy,
increasing energy security and diversity, while supporting
environmental objectives, prevails today and demonstrates the important
role that nuclear energy can serve in meeting our Nation's need for
electricity in a manner that is consistent with our environmental
values and objectives--that energy use, economic growth and
environmental protection need not be mutually exclusive.
Today, we are at a time of tremendous opportunity where the
research and policies we engage in now will define the technologies
that are deployed over the next 20 years when demand for energy is
expected to increase substantially. The decisions we collectively make
today can significantly influence energy supply options and
environmental control outcomes over the next fifty years. It is my hope
that support for advancing nuclear energy technologies will grow as the
Nation recognizes the important role that nuclear energy can serve in
safely, reliably, and cost-effectively meeting demand for electricity
in the future in a manner that is consistent with the nation's
environmental values and objectives.
I look forward to discussing the benefits on nuclear energy and the
important role that nuclear energy continues to serve in providing for
energy diversity, security, and reliability and in securing our
Nation's environmental future. I would be happy to answer any questions
you have.
Mr. Barton. Thank you, Mr. Magwood.
We now want to hear from Mr. Corbin McNeill, Jr., who is
the Chairman, President, and Chief Executive Officer of PECO
Energy Generation in Philadelphia, Pennsylvania. He is 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 generating power
by nuclear means.
Welcome to the committee.
STATEMENT OF CORBIN A. MCNEILL, JR.
Mr. McNeill. Thank you very much, Mr. Chairman. As you
said, I am Corbin A. McNeill, Jr., the Chairman, President, and
Chief Executive Officer of PECO Energy Company of Philadelphia.
PECO Energy currently 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.
I am 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,
and 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 policymakers 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 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 that nuclear energy is our
largest source of emission-free electricity, and the second
largest generator of electricity, overall.
Despite a cumbersome approach to a national energy policy,
there 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
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.
While the continued operation of these plants and the
development of advanced reactor designs rely on nuclear powers'
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 market
place; to uphold its contractual commitment to manage used
nuclear fuel, and to help 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
otherwise economical plant consolidations are not necessarily
burdened. For instance, revision of Section 468A 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 the
statutory requirement that the Nuclear Regulatory Commission
conduct an anti-trust review, when conducting a license
transfer proceeding, 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 468A 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.
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 468A 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 in 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 in
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 to the disclosure of
benefits and adverse 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 is a source of electric
generation that emits no air or water pollution, and should
benefit from any Federal incentives awarded to other generation
sources, because of their clean air and clean water
characteristics.
Third, the Federal Government, as you had mentioned, Mr.
Chairman, must meet its statutory commitment to develop a
repository for permanent disposal of used nuclear fuel.
Finally, the Federal Government should strive in its public
education programs to emphasize the reality that the risk for
nuclear energy is small, compared to other risks in society.
In that regard, I would 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 is unacceptable.
Therefore, as the Chief Executive Officer, 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 costs are not mutually
exclusive. Over the last decade, we have demonstrated that the
lowest cost plants in terms of operation, in fact, have the
best safety records. 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, I 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. In fact, we see the promise
of potential new reactors in the next 5 years, whether they be
the currently licensed new generation or whether they be small
modular designs.
In closing, as you prepare, in the next several years, to
address the 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 reactors, and
that, in fact, we might look for ways to fund Price-Anderson
liabilities in a different manner than we do today on a pro-
reactor basis; but maybe on a capacity basis.
That concludes my remarks, and I thank you very much, Mr.
Chairman.
[The prepared statement of Corbin A. McNeill, Jr. follows:]
Prepared Statement of Corbin A. McNeill, Jr., Chairman, President and
Chief Executive Officer, PECO Energy Company
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
Policy.
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
electricity.
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 power.
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 for
themselves:
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 electric marketplace.
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 competitive economically.
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.
This new 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 generation markets.
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.
Legislation has 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.
Nevertheless, there 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
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 planning.
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 conflicting
regulation.
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 power.
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 characteristics.
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.
Developing an 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 Asia.
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.
In 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.
Mr. Barton. Thank you, Mr. McNeill.
We now want to hear from Dr. Dale Klein, who is Vice
Chancellor for Special Engineering Programs at the University
of Texas. He is on the Department of Energy's Nuclear Research
Advisory Committee, and is the Subcommittee Chair. He is very
active with the Pantex facility up in Amerillo, and is an
expert in nuclear in nuclear issues.
You are recognized for 7 minutes, and your entire statement
is in the record in its entirety.
STATEMENT OF DALE E. KLEIN
Mr. Klein. Thank you, Chairman Barton, and thank you,
members of the subcommittee.
I would like to acknowledge and thank you also for holding
these hearings. I appreciate the opportunity to comment on a
national energy policy that has to do with both coal and
nuclear power.
As Chairman Barton indicated, I am a professor of
mechanical engineering, and have been at the University of
Texas since 1977. Even though I have tenure, I should make
comments that while I am 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 or nuclear and hydroelectric.
As Chairman Barton indicated in his opening comments,
nuclear accounts for about 20 percent; coal, about 52 percent.
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 we 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 is 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. I have seen firsthand 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 is certainly a lot of
mis-information on this involving radiation. There is a House
bill before you during this time, House Bill 4566, that deals
with issues of radiation, in terms of the metals industry. 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,
certainly in the nuclear arena, is with initiatives undertaken
by Bill Magwood, at the Office of Nuclear Energy, Science and
Technology.
The Generation IV concept that he is proposing has
certainly captured the interest of a lot our students. It is 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 toward a safety-based form of
regulation environment. We do not want to spend all of our time
counting paperclips. 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 put the
burden on all the licensees.
There is a significant fraction of the NRC's budget that is
not directly attributable to the licensees' activities, that
involve international programs and others. 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 will 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 central storage review committee
in 1988/1989.
Our commission recommended that a centralized storage
facility be constructed, and that the importance of a
centralized facility enhanced as the repository was delayed,
and as reactors shut down prematurely, both of which have
occurred. 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 is a very complicated issue, from the standpoint
of citing. But unless we make some positive decision 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.
I would now like to comment on one of the most important
issues. That is, maintaining a strong nuclear infrastructure
within the United States. There is 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.
It is very important that the facilities at the
universities and at 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 that I would 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 at NE, so that we
are funding research and development on the order of $200
million to $300 million per year.
We need to increase our engineering educational 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. We
need to enhance graduate student support, so that our best and
brightest continue to pursue these exciting fields, rather than
just go into area where they get stock options.
In summary, I would 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
that is used, and maintain a strong nuclear environment.
I would like to thank you for these comments. I look
forward to your questions. Thank you.
[The prepared statement of Dale E. Klein follows:]
Prepared Statement of Dale E. Klein, Vice Chancellor of Special
Engineering Programs, The University of Texas System
Chairman Barton and members of the subcommittee. I thank you for
the opportunity to present comments on National Energy Policy: The
Future of Nuclear and Coal Power in the United States. My name is Dale
Klein. I am currently a Professor of Mechanical Engineering (Nuclear
Program) at The University of Texas at Austin and Vice Chancellor of
Special Engineering Programs at The University of Texas System. I have
been a faculty member at The University of Texas at Austin since 1977.
While my comments are from an academic perspective, they do not
represent any official position by either The University of Texas at
Austin or The University of Texas System. I have been involved in
energy issues for over 25 years and welcome the opportunity to comment
on how we can continue to maintain one of the best electrical
generation systems in the world.
As you know, our current base load electrical generation system
consists of three (3) fossil fuel sources (coal, natural gas, and oil)
and two (2) non-fossil sources (hydroelectric and nuclear). Renewable
sources, primarily photovoltaics, geothermal, and wind, are not
currently major sources of electrical generation and are not likely to
be major sources for several decades unless there are some major
technological advances.
During 1999, the electrical generation for the U.S. consisted of
the following:
------------------------------------------------------------------------
%
------------------------------------------------------------------------
Coal................................................................ 52
Nuclear............................................................. 20
Natural gas......................................................... 15
Oil................................................................. 3
Hydro electric...................................................... 8
Renewable........................................................... 2
------------------------------------------------------------------------
These numbers will not significantly change for the next several
years because of the time it takes to add incremental supplies.
There are 5 (five) areas that I would like to address today:
importance of nuclear and coal electrical generation, regulatory
reform, spent nuclear fuel disposal, low level waste disposal, and the
need to maintain a nuclear power infrastructure.
Importance of Nuclear and Coal Generation
Nuclear and coal provide over 70% of our electrical generation.
Both of these sources are extremely important for our national security
and economic stability. It is not a question of which of the sources
are needed for future power plants--both are needed.
It does not take long for each of us to realize the importance of
electricity in our daily lives. I grew up on a farm in Central Missouri
and observed first hand the positive aspects that electricity makes on
the lives of farmers. We can all look at our use of electricity and see
that our dependence on electricity grows each year. Today it is
difficult to imagine life without electric lights, television,
stereo's, washing machines, dishwashers, microwaves, robotics and
computers. The mere mention of--high tech--implies the expanded
utilization of electricity--from manufacturing, to the use by
individuals. Therefore, it is extremely important to our national
security and economic competitiveness that we have a safe, reliable,
and economic electrical generation and distribution system. It would be
helpful if the U.S. Department of Energy would develop a public
education program, to explain our current electrical generation methods
and what the major sources will be for the next decade. Others
testifying today, will address the issues related to electrical
generation and the use of coal. My comments are primarily directed
towards actions we should take to enhance the safe, reliable electrical
generation by nuclear power.
Regulatory Reform
The U.S. Nuclear Regulatory Commission (NRC) has made significant
progress in moving to a ``risk informed'' regulatory process. I was
part of a study, conducted by the Center for Strategic and
International Studies, entitled ``Nuclear Regulatory Processes.'' The
study provided several specific recommendations where enhancements to
the regulatory process can be made, with no compromise on safety, so
that the consumer can benefit from these positive changes. The
electrical generation by nuclear power has several decades of
experience and it is appropriate to re-examine the regulatory process
that was developed when the industry was just beginning.
One specific action that Congress should address is the current
100% cost recovery for the NRC. Currently, the nuclear licensees pay
for part of the NRC budget that is the responsibility of the federal
government
Spent Nuclear Fuel Disposal
When I speak to various groups on nuclear power, the dominant
question is ``What is the solution to the disposal of the spent nuclear
fuel?'' Many members of the general public are not familiar with the
spent nuclear fuel program in the U.S. Most of these individuals are
not concerned about the technical details of spent nuclear fuel
disposal, they simply want to know that there is a plan and that it is
safe. In 1988-1989, I served on a Congressional Commission to examine
the central storage for spent nuclear fuel. This commission concluded
that there was no single discriminator for a central facility, but when
considering all the factors, a central storage facility was
recommended. The advantages of a central storage facility increased if
the permanent repository was delayed and if some nuclear plants were
shut down early--both of which have occurred. The alternative to a
central storage facility was for each reactor site to develop
additional ``at reactor dry storage.'' This results in the consumers of
nuclear generated electricity paying twice--once for the permanent
disposal site and again for additional facilities at the power plants.
There is a need for continued, timely progress the permanent site and
for the development of a central storage facility. Regardless of where
the permanent disposal site is located, there will need to be a central
storage and processing facility. In addition, there is a need to ensure
that the funds paid by the consumers of nuclear generated electricity
be allocated to the disposal of spent nuclear fuel.
A specific activity for this committee is to exercise oversight
responsibility and hold DOE accountable for the schedule to make a
decision on Yucca Mountain.
Low Level Waste
The 1980 Low Level Radioactive Waste Disposal Act has not been
successful in achieving the goal of adding new sites for low level
radioactive waste (LLW) disposal. Most states have been successful in
joining a compact with other states or have established procedures for
licensing a LLW facility in their own state. However, no compact or
individual state has been successful in obtaining a license for a new
LLW facility. To further complicate this issue, the Barnwell, LLW
facility in South Carolina will likely reduce the ability for non-
compact members disposal states to use this facility. The uncertainty
regarding availability and the high cost of LLW disposal has had a
negative impact on university researchers and medical isotope users.
Nuclear Infrastructure
There is an overwhelming majority among individuals in the
scientific community, government officials, and elected officials that
believe the U.S. should maintain a nuclear power option. In addition,
there is a strong belief that the U.S. needs to have a significant
nuclear program in order to influence global nuclear policy. It is
difficult for the U.S. to promote nuclear policy issues globally, if
the U. S. is not a world leader in nuclear technology.
A major area of concern for the national laboratories, government
agencies and industry in the supply of nuclear trained individuals.
Many highly skilled nuclear workers are reaching retirement age and
there is not a coordinated plan to replace these individuals. It is
important that the United States retain core scientific, engineering,
and technical skills to maintain a viable nuclear power option. Several
nuclear programs at the university level have been closed as well as
shutting down many university nuclear research reactors. Since the
early 1970's, about half the nuclear programs have been terminated and
half the university research reactors have shut down. Students today
are focusing on careers in computer science/engineering and micro-
electronics. A major program needs to be developed to attract students
to pursue careers in the nuclear services and nuclear engineering.
The following are specific recommendations for maintaining a viable
nuclear power infrastructure. This includes consideration for a new
research reactor and an accelerator designed to meet the expected long-
term research needs. These two facilities should be designed to include
the production of research isotopes and medical isotopes.
1. Maintain the existing nuclear research infrastructure at the
national laboratories and universities
2. Increase nuclear R&D to a yearly level of over $200-300 million by
2005
3. Increase the nuclear engineering educational research to $20 million
per year and university research reactor support to $20 million
per year
4. Increase the R&D program in research for both fundamental research
and isotope production using accelerators and nuclear research
reactors
5. Enhance graduate student support for advanced degrees in nuclear
science and engineering
Summary
The generation of electricity using nuclear power is an option the
United States should vigorously maintain and expand. There are many
specific actions can be taken by Congress to help maintain the nuclear
option without compromising safety. These include regulatory
improvements, positive action for the safe disposal of both HLW and
LLW, and maintaining a robust nuclear power infrastructure at the
national laboratories and at universities.
With these positive actions by Congress, future generations will
have a better life similar to the improvement we are seeing today from
past investments in nuclear technology.
Thank you for the opportunity to present these comments.
Mr. Barton. Thank you, Doctor.
We now want to hear from Mr. James Graham, who is President
of ConverDyn. Is that how you say it?
Mr. Graham. Yes, sir.
Mr. Barton. That 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. We would ask you to
summarize your written statement in 7 minutes.
STATEMENT OF JAMES J. GRAHAM
Mr. Graham. Thank you, Mr. Chairman and members of the
subcommittee.
As stated, my name is Jim Graham. I am, indeed, the
President and CEO of ConverDyn, the Nation's sole remaining
uranium converter. I would like to thank you for the
opportunity today to speak on behalf of the U.S. domestic
nuclear fuel supply industry. 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.
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 in U.S, capabilities in the entire fuel cycle are
presently under extremely 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,
and USEC's aggressive sales of large volumes of uranium and
conversion, transferred at privatization by DOE, at zero cost,
which 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 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 is declined by hundreds of millions of dollars
annually. The value of USEC 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 issue of maintaining 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, we should 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. Absent any viable alternative, the
enrichment industry should be re-Federalized.
Third, to ensure continuation, and I stress continuation,
of the HEU agreement, the government should consider purchasing
all of the HEU fee 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.
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 a secure energy supply 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.
[The prepared statement of James J. Graham follows:]
Prepared Statement of James J. Graham, President and CEO of ConverDyn
Mr. Chairman and Members of the Subcommittee, my name is Jim Graham
and I am the President and CEO of ConverDyn--the nation's sole
remaining uranium converter. For the record, I am also the President
and CEO of Nuclear Fuels Corporation, a US uranium marketing company. I
would like to thank you for the opportunity to speak before you today
on behalf of the U.S. domestic nuclear fuel supply industry.
The people and businesses at the front end of the nation's nuclear
fuel cycle very much appreciate the Subcommittee's holding a hearing on
the future of nuclear energy at this time. The conditions and outlook
for our business have never been worse in the U.S. In fact, market
conditions are so serious that uranium mining, uranium conversion and
perhaps even enrichment are on the brink of disappearing in this
country.
If this situation were merely the normal course of business cycles,
I would not be here today giving the testimony that I am about to give.
But sadly, it is beyond any reasonable doubt that several decisions and
actions by the federal government over the past few years have created
this precarious situation. My testimony will focus on these actions and
I will also make some suggestions as to how the federal government
could begin to reverse this situation.
The facts about the importance of nuclear power are probably quite
familiar to most Members of the Subcommittee: it represents 23% of the
nation's electrical production; it has become extremely economically
competitive with other sources of power; and it produces no atmospheric
emissions. Further, given the staggering projections for energy demand
world wide, nuclear energy's superior environmental characteristics
almost by necessity make it the source of choice for the future.
But there is another important fact about nuclear energy: at the
present time, we in this nation are not subject to foreign cartels on
nuclear energy or price fixing because we have the ability to mine and
process the fuel within our borders. It is this element of national and
energy security that is endangered today.
At this time, I would like to describe three main actions by the
U.S. federal government that have had a devastating impact on U.S.
suppliers:
1. The privatization of the U.S. Enrichment Corporation;
2. The Russian HEU agreement; and
3. The lifting of the Kazak Suspension Agreement.
1. usec privatization
The Energy Policy Act of October 1992 created the United States
Enrichment Corporation (USEC), which took over all uranium enrichment
activities of the government. On April 26, 1996 the USEC Privatization
Act was passed which resulted in the privatization of USEC on July 28,
1998 by an initial public offering (IPO). The IPO is a misnomer here
since USEC had to borrow $500 million to match the higher industry
bidder. Therefore, the privatization should be called an LBO. I believe
this committee has copies of the various testimonies, including mine,
given on April 13, 2000 during the hearing conducted by the
Subcommittee on Oversight and Investigations of the Committee on
Commerce. The evidence presented at that hearing documents in full
measure the concerns with, among other things, how USEC was privatized.
However, this committee should consider the continuing problems
stemming from the privatization of USEC which are:
Aggressive sales of natural uranium inventories owned by USEC. Upon
privatization, USEC was granted control of 28,609 metric tons of
natural uranium in the form of uranium hexaflouride (UF6),
an intermediate product in the production of nuclear fuel.
UF6, as a commercial product, has two components: natural
uranium concentrates (U3O8) produced from the
mining and milling of uranium ore and the conversion services necessary
to chemically transform those concentrates into UF6. All of
this material was transferred to USEC from the U.S. Department of
Energy (DOE) at no cost. DOE had accumulated most of this material as a
result of purchases by its forerunner, the U.S. Atomic Energy
Commission, during the ``Cold War'' era.
Transfers to USEC were made for several purposes, but mainly to
capitalize the to-be-privatized company without having to commit
hundreds of millions of scarce budget dollars. At the time of
privatization, USEC's uranium endowment was valued by USEC at $745.5
million. Many industry observers and analysts were somewhat surprised
at the magnitude of the endowment since they had focused on transfers
of 12,000 metric tons of uranium as UF6 made pursuant to the
privatization agreement and publicized in that agreement. What was less
visible to the industry prior to privatization, was an existing
inventory of 12,145 metric tons of UF6 which was carried over from
USEC's predecessor, the Uranium Enrichment Enterprise of the U.S. DOE.
USEC released details of its uranium inventory and its plans to
sell most of that inventory by 2005 in its June 29, 1998 S-1 filing
with the U. S. Securities and Exchange Commission. Information
appearing in the industry press at the time indicated that USEC planned
to sell a total of 33,562 metric tons of UF6 by 2005 with
maximum sales of 8,100 metric tons of UF6 in 2002. The
difference between its original endowment of 28,609 metric tons of
UF6 and its ultimate sales of 33,562 metric tons of
UF6 was to have been created by a process of
``underfeeding'' its enrichment plants.
In July 1998, USEC assured the U.S. government that it would ``sell
its uranium gradually in a flexible manner that first and foremost
supports a healthy, stable market, and with a view towards fulfilling
its commitment to the HEU agreement.'' USEC's President & CEO further
stated several months later that its inventories would be disposed of
``in a gradual market-sensitive manner.'' USEC's scheduled sales of
uranium dwarf current and projected U.S. uranium production as
illustrated in Figure 1. USEC's scheduled sales cut the market in half
for ConverDyn, the sole private provider of conversion services in the
U.S. as set forth in Figure 2. Figures 3 and 4 provide a perspective on
uranium and conversion prices. Each of these figures show clearly the
devastation wreaked upon the U.S. industry by sales of USEC's
inventories. USEC's inventories were accumulated without cost to USEC.
On this basis it's quite easy to undercut bids made by legitimate
producers with real costs for labor, materials, and electricity.
Lack of a new enrichment technology. Prior to privatization USEC
management touted the fact that a government-backed laser enrichment
program, called AVLIS, would be the future of enrichment technology
since it would drastically reduce the power required and therefore the
cost of enrichment services. This was essential for the future to
compete with European and Russian competitors who had more cost
effective centrifuge technology compared to USEC's gaseous diffusion
plants. However, within one year after privatization, the same
management at USEC said that AVLIS technology would not be commercially
viable and killed the program after almost two billion dollars had been
spent on it. It is interesting to note that the two private consortia,
who also made bids to take over USEC during the dual-track
privatization process via the M&A route, stated that they did not feel
AVLIS was ready for commercialization in the time frame projected by
USEC's management. At the present time USEC does not have any viable
alternative to the aging and high cost gaseous diffusion plants for
enrichment. This is a serious setback to U.S. interests in keeping a
viable and reliable domestic enrichment capability.
2. russian heu agreement
In February 1993 the United States and the Russian Federation
signed a government-to-government agreement concerning the disposition
of and purchase of 500 metric tons of highly enriched uranium (HEU)
extracted from Russian nuclear weapons. First shipment of low enriched
uranium (LEU) obtained from the blending down of HEU was received in
June 1995. Through March 1, 2000 a total of 2,385 metric tons of LEU,
blended down from 81 metric tons of HEU have been delivered to the U.S.
This is equivalent of 24,000 metric tons of natural UF6 or
62 million pounds of U3O8 and over 14 million
SWU.
The domestic nuclear fuel cycle industry has consistently supported
the foreign policy and non-proliferation initiatives of the U.S.
government. However, the time has now come for us to jointly and
cooperatively ensure that the cost of such laudable objectives, which
benefit all Americans, are not disproportionately borne by the handful
of U.S. companies still active in providing a domestic source of goods
and services to the U.S. nuclear fuel cycle.
The sale of the U3O8 in the natural feed
component from the delivery of LEU under the HEU agreement is
constrained by the USEC Privatization Act, as shown in Table 1.
However, this material is primarily meant for sales to U.S. utilities
and as such the physical stockpile of Russian-owned UF6 that
is building up in the U.S. is having a severe impact on the market for
U3O8 and conversion. Further, it is important for
this committee to note that at the current rate of yearly deliveries,
Russian HEU feed material is equal to ConverDyn's current and projected
annual production of 9 million kgs. Also, there are no restrictions on
the sale of the conversion component. Nevertheless, it is worth noting
that in 2000 the quota for sales of Russian HEU-derived
U3O8 into the U.S. market at 6 million pounds is
already 30% higher than U.S. production of 4.6 million pounds in 1999.
3. kazak suspension agreement lifted
In July 1999 the Department of Commerce's International Trade
Commission voted to end the antidumping investigation against
Kazakstan, with the result that Kazak uranium is free to be imported
directly into the U.S. market without duties or other obstacles. While
Kazak uranium production is considered to be small, at about 2.4
million pounds annually, it does represent another source of material
that can add to the oversupplied U.S. market, since our market is the
largest for spot sales by determined sellers. Furthermore, an
unresolved question is the fate of Kazak enriched uranium product
containing about 2 million SWU and 9.3 million pounds
U3O8 equivalent. This material was enriched in
the former Soviet Union, but now resides in Kazakstan and should it be
determined to be of Kazak origin, then it can enter the U.S. freely and
thus further depress prices for all components, that is
U3O8, conversion and SWU.
Mr. Chairman, having now described the causes of the industries'
troubles, I will now describe in more detail the actual state of the
mining, conversion and enrichment industries themselves.
reduction in u.s. uranium mining
The Energy Information Administration (EIA) publishes an annual
report on the status of the U.S. uranium industry. Last month the EIA's
``Uranium Industry Annual 1999" became available. It presents a
depressing picture of the current state of uranium mining and milling
in the U.S. Since the privatization of USEC in July 1998, all aspects
of the domestic uranium industry have suffered tremendous declines, as
evidenced by the following facts:
expenditures for uranium exploration and development decreased
by 59% from the 1998 level to $9.0 million;
mine production of uranium declined by 5% from the 1998 level
to 4.5 million pounds;
three uranium processing facilities closed during 1999, 2 in
Texas and 1 in Louisiana;
employment in the U.S. uranium raw materials industry overall
decreased by 24%, but in the key sectors of exploration,
mining, milling and processing the decrease was almost 30%;
see also Table 2 for salient statistics;
While uranium production from foreign sources will meet a large
share of the U.S. nuclear utilities needs, the existence of a viable
domestic source of supply is invaluable in keeping the price of fuel
competitive. If the few remaining domestic producers are forced to
close and reclaim their mines, and the industry continues to
consolidate, uranium will become a seller's market with market
conditions unfavorable to U.S. utilities that would then be fully
dependent on imported uranium. It is imperative that a domestic supply
be maintained to keep the price of uranium competitive with operational
costs.
This subcommittee is very familiar with the problems the American
people have faced due to over reliance on foreign oil imports. The loss
of the front end of the nuclear fuel cycle would likewise be injurious
to electrical consumers. The domestic uranium industry has established
a considerable resource that will be lost if nothing is done to
resurrect this industry. An investment of approximately $6 billion
dollars has been made to create our current uranium resource base. As
producers close their operations, records, land positions, skilled
human resources and permits will be irretrievably lost. At this point
only significant price escalation, such as those that resulted from the
Westinghouse/cartel debacle, will fire interest in restarting the
domestic industry. However, given that it can take in excess of ten
years to permit a new mine and resource development may be forced to be
created from ground zero, the ability of U.S. producers to create
competitive uranium production when needed is questionable at best.
Permitting is an extremely time consuming process and the investment
needed would require assurance that a reasonable price would be in the
offing for a significant period of time.
reduction in u.s. conversion
ConverDyn is the sole manufacturer in the U.S. uranium conversion
industry. Conversion represents less than 4% of the fuel cycle cost,
but it is a critical step in the production of nuclear fuel for
electric power production. Our facility in Metropolis, Illinois is the
only remaining production facility in the U.S. and represents
approximately 60% of the conversion capacity that exists in North
America. Until 1992 there were two such facilities, but due to the
depressed state of the uranium industry, the other facility was closed
and all production was transferred to the Metropolis unit. During the
next several years a considerable sum of money was invested to expand
output at Metropolis to the current capacity of 12.7 million kgs per
year. This rate of production was achieved in 1998, but shortly
thereafter the market collapsed due to aggressive sales by the
privatized USEC of zero-cost government inventories and the HEU feed
material stockpile build-up. The available new business reached a peak
of 53 million kgs in 1997 and has steadily decreased since then to
under 20 million kgs in 1999 and even less in 2000. Thus, we were
forced to cutback production last year at Metropolis by 25% to 9.3
million kgs per year and employment was reduced by 50 to 350. Sales are
expected to decline a further 10% in 2000, while the prices for new
contracts in 2000 are averaging 30% below 1999 levels, which itself was
20% below 1998. Furthermore, the published prices for spot and long
term conversion are now at near historic lows of $2.45-3.25 per kg, and
it is doubtful that the sole U.S. converter can survive much longer at
these kinds of operating rates and revenues. See Figure 5 for a time-
line of major events associated with the deterioration of conversion
prices.
reduction in u.s. enrichment
The hearing by the Subcommittee on Oversight and Investigations
last April closely examined the dire state of the sole U.S. provider of
enrichment services, USEC. For the record I will summarize here the
following key points:
employment at the two enrichment facilities at Portsmouth and
Paducah have already been reduced by 500 immediately after
privatization, and there are now plans to lay off an additional
625 this July, bringing the total cuts to almost 30% of the
pre-privatization level;
USEC profitability is projected to decline to $35-45 million
in fiscal 2001 compared to an estimated $110-115 million in
fiscal 2000;
USEC stock has lost about $1 billion dollars in value since
privatization just two years ago;
USEC has no viable alternative new technology to replace its
high-cost, outdated production technology;
USEC lacks the capital for upgrades at its existing facilities
or obtain new technologies without selling out its contract
backlog;
USEC is rumored to be close to shutting down one if not both
of the enrichment facilities still operating in the U.S;
the recent attempts by USEC to increase its purchases of SWU,
this time on commercial terms, and its efforts to partner with
another enricher in Europe or Russia, suggest that it will more
and more just be a broker of international supplies.
These facts and statements do not bode well for the continuation of
a strong and viable domestic enrichment supply in its current form.
The result of these U.S. government actions are two key impacts:
First, national security is at risk because of the decrease in U.S.-
based and U.S.-owned capability to provide, maintain and further
develop the requisite skills in each step of the nuclear fuel cycle, be
it uranium mining, conversion or enrichment; secondly, energy security
is jeopardized since over 20% of U.S. electric generation from a clean,
non-polluting source like nuclear is now dependent on foreign supply
for most, if not all, of its fuel needs. At a time when there is rising
concern about the import levels for other energy sources, notably oil,
and nuclear is called upon to increase its output to cope with
environmental commitments, it is imperative that this Subcommittee take
a hard, close look at the future viability of the domestic nuclear fuel
cycle supply situation. Clearly the nation's electrical needs and the
utility industry would be better served to maintain the current fuel
cycle infrastructure, than hoping to start it from scratch a few years
in the future. The expenditure of funds today to preserve this industry
from the misadventures caused by misuse of surplus government uranium
stockpiles seems prudent if not essential.
conclusion
The various actions of the U.S. government that I have discussed
today, were all taken to accomplish different political goals. Each
action by itself, and taken solely in its own context, was probably the
best one to further U.S. interests. Unfortunately, when the results of
these individual actions are viewed in totality, and with the benefit
of time and hindsight, then it is clear that the domestic nuclear fuel
cycle providers and their employees have indeed suffered enormous
hardships to further the broadest definition of U.S. strategic
interests, whether it is free trade or non-proliferation or helping
totalitarian command societies to become free market democracies.
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. Embedded in the Enrichment Privatization Act
is the concept that domestic mining, conversion and enrichment
capabilities are important and should not be impacted. However, to
date, no mitigating actions have been taken by either Congress or the
President.
Mr. Chairman, just in the past decade our nation has gone to war in
the Middle East over energy. We invest billions of dollars annually
essentially to ensure a secure oil supply from the Middle East and
elsewhere. Among others, a recent report of the Hart-Rudman Commission
has made it clear that energy looms even larger in our future national
security. Meanwhile it is ironic that at home, the federal government
has unwittingly been taking actions that have seriously undercut the
ability of a key domestic industry to do its part in support of our
energy security.
Given the importance of ample and secure energy supplies to our
economy, to national security and to our well being, it is very
important that the federal government take timely steps to reverse the
damage that has been done and to ensure a viable domestic uranium
industry.
recommendations
Mr. Chairman, I would propose that this Subcommittee consider the
following measures to alleviate the serious damage to the domestic
nuclear fuel cycle players.
First, the playing field should be leveled for the domestic
suppliers by enforcing the provisions of the USEC Privatization Act,
which calls for the maintenance of a viable domestic industry. Also, a
level playing field can be supported by continuing restrictions on
foreign dumping, specifically by extending the lives of the Russian and
Uzbek suspension agreements, and ensuring that Kazak EUP is determined
to be of Russian origin.
Second, it is clear that privatization of USEC has been a massive
failure in almost every respect and in the absence of any viable
alternative mechanism, the enrichment industry should be re-federalized
so that a long-term solution to outdated enrichment technology can be
found, and the U.S. can once again be the world leader in this field.
Third, to ensure the continuation of the government-to-government
HEU agreement between the U.S. and Russia, the HEU material should be
taken into long-term government inventory, as was done for the
deliveries in 1997 and 1998. The commercial agreement which the current
administration facilitated is clearly not working, not least because of
USEC's own actions. To prevent further deterioration of the market, I
strongly suggest that the U.S. should take back all unsold uranium
inventory at USEC.
Finally, Congress must create a program to get the producers and
converter through the next three to five year period when the market
can work off the artificial components now experienced and fuel costs
will once again reflect reasonable production costs. We would very much
welcome the opportunity to work with Congress to accomplish this
important task.
Mr. Chairman, thank you for giving me the opportunity to address
this subcommittee today.
Table 1
Russian HEU Agreement: Deliveries and Sales
----------------------------------------------------------------------------------------------------------------
U3O8 UF6 U3O8 Quota (M
equiv equiv SWU lbs, per USEC
Year HEU (mt) LEU (mt) (Million (Million (Million) Privatization
lbs) kgU) Act)
----------------------------------------------------------------------------------------------------------------
1995 to 3/1/2000............................. 81+ 2,385 63 24.5 14+ 6
2000......................................... 30 915 23.7 9.1 5.5 6
2001......................................... 30 915 23.7 9.1 5.5 8
2002......................................... 30 915 23.7 9.1 5.5 10
2003......................................... 30 915 23.7 9.1 5.5 12
2004......................................... 30 915 23.7 9.1 5.5 14
2005......................................... 30 915 23.7 9.1 5.5 16
2006 through 2014............................ 270 8,235 213.3 81.1 49.5 174
----------------------------------------------------------------------------------------------------------------
Note:
1. Sale of the conversion component of the HEU feed material is NOT restricted, whereas the U3O8 component is
restricted as per the quota established under the USEC Privatization Act.
2. USEC is free to sell the SWU component as it pleases.
Source: USEC and USEC Privatization Act
Table 2
U.S. Uranium Statistics
----------------------------------------------------------------------------------------------------------------
Employment Production
Year (Person- (1,000 lbs Canadian U.S. Prices Events of Note
Years) U3O8) Imports
----------------------------------------------------------------------------------------------------------------
1999................................ 649 4,611 12,489 $10.17
1998................................ 911 4,705 14,366 $10.56 USEC Privatized
1997................................ 794 5,643 16,713 $11.98
1996................................ 689 6,321 19,093 $15.40
1995................................ 534 6,043 16,799 $11.45
1994................................ 452 3,352 14,613 $9.82
1993................................ 380 3,063 na $10.61
1992................................ 682 5,645 na $9.19
1991................................ 1,016 7,952 na $9.45 Dissolution of the
Soviet Union
1990................................ 1,335 8,886 na $10.66
1989................................ 1,583 13,837 na $11.34 NAFTA in effect as of
1/1/89
1988................................ 2,141 13,130 na $17.54
1987................................ 2,002 12,991 na $22.38
1986................................ 2,120 13,506 na $21.66
1985................................ 2,446 11,314 na $19.03
----------------------------------------------------------------------------------------------------------------
Source: U.S. D.O.E. Energy Information Administration ``Uranium Industry Annual''; 1995, 1996, 1997, 1998, 1999
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The Nuclear Fuel Cycle
What are the steps in the nuclear fuel cycle?
There are four major steps in the production of nuclear
fuel. These steps are components of the nuclear fuel cycle and
are illustrated herewith.
1. Uranium Production--Uranium is a naturally occurring
element in the earth's crust. When sufficiently concentrated by
natural physical and chemical forces, it may be economic to
mine the ore by open-pit or underground methods. Uranium is
typically recovered from the ores by alkaline or acid leaching.
Uranium is also produced by in-situ leaching and as a by-
product of phosphate fertilizer, gold, and copper. The final
product of uranium mining and processing is usually a mixture
of uranium oxides referred to as either natural uranium
concentrates, U3O8, or ``yellowcake.''
Natural uranium concentrates contain 0.711 percent G5235U, the
active isotope in the nuclear process. The remaining 99.3
percent is the inactive isotope 238U.
2. Uranium Conversion--Natural uranium concentrates in the
form of U3O8 are converted to natural
uranium hexaflouride (UF6) in order to provide an
appropriate feed material for the next step in the nuclear fuel
cycle: enrichment. The conversion process includes feed
preparation, reduction with hydrogen to UO2,
hydrofluorination to UF4, fluorination to
UF6 (which is a gas at moderate temperatures), and
purification. Uranium in this form retains the natural isotopic
concentration of 235U of 0.711 percent. Importantly,
there is only one uranium converter left in the U.S.
3. Uranium Enrichment--Enrichment is a process of
concentrating the 235U isotope to higher levels of 3
to 5 percent in order to increase the efficiency of the fuel
for nuclear reactors. Concentration of the 235U
isotope occurs by molecular weight in the gaseous diffusion
process used in the U.S. and Europe, as well as in the
centrifuge process used in Russia and Europe.
4. Fuel Fabrication--Enriched uranium hexaflouride is
converted by fabricating companies to UO2,
pelletized, and inserted into zirconium alloy tubes which are
then combined into bundles of nuclear fuel.
Each of these steps must be completed in order to produce a
final product. Each step in the production process has a
different character, different participants, different regional
distribution, and a different value. These characteristics are
referred to as the ``Industry Value Chain.'' It is notable that
most of the world's nuclear fuel cycle participants are
foreign-owned, yet the U.S. is the world's largest user of
nuclear fuel with over one hundred operating nuclear units.
[GRAPHIC] [TIFF OMITTED] T6466.004
[GRAPHIC] [TIFF OMITTED] T6466.005
Mr. Barton. Thank you, Mr. Graham.
We now want to welcome Dr. David Lochbaum, 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 is in the record in its entirety. We welcome
you to summarize it in 7 minutes.
STATEMENT OF DAVID LOCHBAUM
Mr. 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, 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 owners 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. Costly 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 2 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 were they not 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 1997.
Among the items being fixed at Cook are things that have
been wrong since it first started up in the early 1970's. Thus,
this plant has always operated below the NRC's minimum
standards. How far below; the plant's owner spent nearly 3
years and over $500 million to get up to the minimum standards.
Fire protection is another example. Following the 1975 fire
in the Browns Ferry plant in Alabama, the 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 exemption 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 6 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 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 its 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 the 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 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.
[The prepared statement of David Lochbaum follows:]
Prepared Statement of David Lochbaum, Nuclear Safety Engineer, Union of
Concerned Scientists
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 many existing plants retired prematurely, or see
many licenses extended, and even perhaps see new nuclear plants. To
succeed in the future, however, nuclear power must contain something
that has been absent from its past--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 owners' 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 standards is exposed.
Costly repairs are required. But the damage to the industry and the
NRC's credibility--still in need of repair--is likely to be the
greatest long-run 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.1 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 items before Salem shut down. If each item had to be fixed
before Salem could safely restart, why weren't they addressed before
the plant shut down?
---------------------------------------------------------------------------
\1\ United States General Accounting Office, ``Nuclear Regulation:
Preventing Problem Plants Requires More Effective NRC Action,'' GAO/
RCED-97-145, May 1997.
---------------------------------------------------------------------------
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 1984.2 The Donald C Cook plant in Michigan, for
example, has been closed since September 1997. Among the items being
fixed at Cook are things that have been wrong since it first started up
in the early 1970s. Thus, the plant had always operated below the NRC's
minimum standards. How far below? The plant's owner spent nearly three
years and over $500 million to reach the minimum standards.
---------------------------------------------------------------------------
\2\ David Lochbaum, Union of Concerned Scientists, ``The NRC's New
Oversight Process: On the Road to Effective Regulation?'' October 1999.
---------------------------------------------------------------------------
Fire protection is another example. Following the 1975 fire at
Browns Ferry in Alabama, the NRC implemented more rigorous fire safety
regulations. But the NRC failed to enforce those regulations. Instead,
the agency granted more than a thousand exemptions and waivers. In
1992, the NRC testified to Congress about temporary measures that would
be used by plant owners for about six months until their fire safety
problems could be fixed. Eight years later, those ``temporary''
measures are still being used at US nuclear plants instead of meeting
the minimum standards.
Nuclear power's past is dismal, but its future could be worse. As
Americans get older, we see medical professionals more often and spend
more money on health care. As America's 103 operating nuclear power
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 equipment performance data compiled over the past two decades.
Unfortunately, the NRC is neglecting a well-known fact that applies to
light bulbs, computers, and nuclear plant components. Equipment fails
most often during the break-in and 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
increase as components enter the wear-out phase. It could be a recipe
for disaster.
Nuclear power can only have a future if it also 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 the 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 independence to lead a
broad-based transformation. 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. 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. Congress
must also ensure that the NRC's transformation is achieved, to restore
its credibility and any hope for a nuclear future.
Mr. Barton. Thank you.
Next we will go to Mr. Robert Ebel, Director of Energy and
National Security, Center for Strategic and International
Studies.
Welcome, and your full testimony is inserted in the record.
If you would summarize, you have 7 minutes.
STATEMENT OF ROBERT E. EBEL
Mr. Ebel. Thank you very much, Mr. Chairman.
Mr. Chairman, at CSIS, we are nearing the completion of the
detailed examination of the geopolitics of energy out to the
year 2020. This is a study which is co-chaired by former
Senator Sam Nunn and by James Schlesinger. We have four
Congressional co-chairs: Senators Murkowski and Lieberman, and
Representatives Taucher and Gilman.
I would like to share with you this afternoon our
preliminary findings and policy considerations, inasmuch 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 hydropower, 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. 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 the 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 planned, 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
nuclear option through government support, and it is our
judgment that that alone will not do it, or accept that
pollution will worsen.
I noted earlier that the relative share of nuclear electric
power in 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 remissions-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 look at our assessments as a whole through the year
2020. We find that the stress prospects for instability and
interference in energy supplies, but we do this only to alert
policymakers as to just how fragile timely supplies of energy
really are.
What lies beyond the year 2020? I can not say with any
particular degree of certainly, other than anticipating
mounting pressures on adequate supplies of energy, and
particularly energy with minimal pollutant levels. That means
nuclear, hydro, and other renewables.
Unfortunately, the future for hydroelectric generation is
rather dim. 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. 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
now 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.
[The prepared statement of Robert E. Ebel follows:]
Prepared Statement of Robert E. Ebel, Director, Energy and National
Security, Center for Strategic and International Studies
Thank you, Mr. Chairman.
Mr. Chairman, we at CSIS are nearing completion of a detailed
examination of the geopolitics of energy out to the year 2020, a study
cochaired by former Senator Sam Nunn and by James Schlesinger, former
Secretary of Energy and of Defense. There are four Congressional
cochairs: Senators Murkowski and Lieberman, and Representatives Taucher
and Gilman.
I would like to share with you our preliminary findings and policy
considerations, inasmuch 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 hydropower, will be unchanged. 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.
A growing influence of non-governmental organizations (NGOs)
on energy supply and demand will come at the expense of host
governments.
Terrorism as threat to physical infrastructure and
cyberterrorism as a threat to operating infrastructure will be
of increasing concern.
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 want to isolate a particular finding. Our estimates indicate that
electricity will be the most rapidly growing form of energy use during
the years 2000 to 2020. This growth, not surprisingly, will be
concentrated in the developing countries, where electricity use will
more than double. As the developing 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 choices available to them?
Clearly, all will benefit if developing countries have access to
adequate, clean, and secure sources of energy. At the same time, they
will not 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, while keeping nuclear power
as a viable option in the developed world.
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 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.
I can visualize our leadership slipping away.
The nuclear option faces a difficult choice: Exercise the nuclear
option, through government support (it is 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
in 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.
Our assessments through the year 2020 stress prospects for
instability and interference in energy supplies, but only to alert
policy makers as to just how fragile timely supplies of energy really
are.
What lies beyond the year 2020? I cannot 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.
The future for hydroelectric generation is rather dim. Little
unexploited potential remains. Indeed, there are pressures even today
to remove hydropower dams in place because of various environmental
concerns. And whenever an oil supply crisis emerges, a call for 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.
Mr. Shimkus [presiding]. Thank you, Mr. Ebel. I appreciate
your testimony. I will start with my 5 minute round of
questions and discourse.
I am just going to add to part of your opening statement,
Mr. Ebel. Not only do we not have a nuclear national policy for
the foreseeable future, we really do not have a fossil fuel
strategy. We do not have hydroelectric, we do not have really a
biofuels strategy.
This is our second hearing. This is the fourth year on the
committee, for myself. And the national energy policy that is
aforecited is lacking. I think that came out in our hearing. So
I appreciate your testimony.
I would first like to turn to Mr. Graham. Since I am a
southern Illinois Representative, I do not represent
Metropolis, but my good friend, David Phelps does, and has
great concerns over the facility there.
Would you explain how the closure of the Converdyn facility
would impact the enrichment facilities at Paducah and
Portsmouth?
Mr. 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 8 million SWU a year, which they are
currently producing, or at least they did in 1999, that
represented approximately 75 percent of their fee component.
Should our facility in Metropolis close, then for the long-
term prospects, the 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. As I have stated before in prior
testimony, we would be the first domino default in a nuclear
fuel cycle in the states.
Mr. Shimkus. You testified that your present contracts are
below the cost of production. Is that correct?
Mr. Graham. That is correct, sir.
Mr. Shimkus. If this is correct, how are you going to stay
in business?
Mr. Graham. What we have is going forward. The market is
such that any new contracts we sign today are below our costs.
I will not say that for the record, but it is 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 are
forecasting by the end of this fiscal year, that the economics
will be so detrimental that unless we can see something on the
horizon, we can not afford to incur these substantial losses,
and are facing closure.
Mr. Shimkus. Thank you.
I would like to turn to Mr. McNeill, and first say, ``Beat
Navy.''
Second, Admiral Nimitz was the father of the nuclear Navy--
is that correct?
Mr. McNeill. Admiral Rickover.
Mr. Shimkus. Rickover, that is right.
I am sure you listened to the opening statements, as most
of us here did. 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. I would
like to give you an opportunity respond to those accusations.
Mr. 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.
Some of the examples that he has given, at least in his
oral testimony, and I have not read the written testimony, but
in the written testimony, they are factually correct. I think
there are some interpretations of those, though, that bear at
least some counter interpretations.
First of all, let us say, where his general comment is, it
is that a large number safety deficiencies had been identified
prior to a shutdown, and then the plant was not allowed to
startup 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 minor to modest in
nature, and may not individually, but to some extent
collectively, have warranted the shutdown of the plant.
What they really should have done is focused management
attention upon correction of those deficiencies. I think his
observation was that when plants do run into trouble, you
frequently see changes in management, as within most business
organizations that have difficulty.
I think that is the clear message here, that each
individual nuclear organization needs an internal renewal
structure, so that it does not get complacent, and so that
safety issues are addressed before they are collectively too
large.
But we, in fact, have a 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. Clearly, there are even more than that, that would
prevent endangering the general public.
Mr. Shimkus. Thank you. I would move on, but with respect
to my colleagues, I think I will now move to my colleague from
Ohio, for his 5 minutes.
Mr. 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 is the case, coming from a sound
operator.
I do not know how widespread Dr. Lochbaum's corner cutters
are, but I suspect that that is 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?
Mr. McNeill. Yes, the concept is that it is risk based and
it is predictable. That is the fundamental essence of what we
need.
In its early years, when we had the Three Mile Island
accident, and 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.
After they did occur, this was about the time I entered the
civilian industry, which was shortly after TMI.
Mr. Sawyer. Was that 1979?
Mr. McNeill. Well, 1979 was Three Mile Island, and actually
I retired from the Navy in 1980, so it was shortly thereafter.
I entered the industry at a time that there was near
pandemonium in responding to just series after series of
requirement changes that were placed upon the industry, in
response to the accident at Three Mile Island, and had come
into place as a result of the fire at Browns Ferry.
We could not manage that, very candidly. That is why costs
went up in operations. The temporary staffing levels of
consultants at plants just grew by orders of magnitude and
things of that nature. You could not manage it correctly.
Fortunately, as we have implemented those changes, and most
of them were done by the end of the 1980's, the technical
issues 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 or not.
In fact, the examples that Mr. Lochbaum has outlined here,
to some degree, were regulatory failures, where things were
allowed to get out of hand. Millstone is clearly one of those
particular instances, which there was not a proper regulatory
response. But there was a lot of activity at the NRC at that
point in time.
Mr. Sawyer. Can I assume that at least from a historical
perspective that Dr. Lochbaum's assertion that the NRC has not
been an effective safety regulator in that regard has some
merit?
Mr. McNeill. It has some merit. I would not go as far as he
has, and I think the NRC has recognized some of those
deficiencies along the way.
But we have moved to understanding more of what is
important with respect to safety of the general public, how to
measure that, and how 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 operation.
Mr. Sawyer. Dr. Lochbaum, could you comment on Mr.
McNeill's observation?
Mr. Lochbaum. Well, first, I need to point out that prior
to joining UCS, I was a consultant at one of Mr. McNeill's
facilities, the Limerick plant in Pennsylvania. PECO had at
that time, and still has, a very fine organization.
Your question was, what is the gap between fine line
organizations and others. It is quite large, because I also was
a consultant at some facilities that Mr. McNeill did not run,
and there is a distinct difference.
There has been a problem at the NRC. They recognized the
regulatory failure. They made the cover of Time in 1996, and
not for good things, and they have made a lot of changes. So
they are now facing the right direction, but they need some
help in ensuring they have reached the right goal.
That was the theme of my comments, that they can not just
have a plan to get to the right destination. They need some
help in making sure that plan is successful.
I think they need some help from the outside, because the
people they have are very good technically, but they have never
overseen or led such a dramatic change that they are going to
have to go through to downsize and still perform efficiency.
Mr. Sawyer. Would that mesh well with Mr. McNeill's
observation, if I could paraphrase what you are saying, that
there was not a sense of perspective in differentiating among
large needs and small?
Mr. Lochbaum. I think that needs to happen. You have to
focus on the right areas. I am concerned that the NRC's process
for focusing on the right areas is still flawed, and it is
still reactive, rather than proactive.
They need to get a better balance. They have to react to
problems. I am not saying that. But they need to do a better
job of preventing problems from occurring, like the Millstones
and any other problems plants that we have had.
Mr. Sawyer. Thank you for your patience, Mr. Chairman.
Mr. Shimkus. The gentleman yields back. I now turn to my
colleague from Kentucky, Mr. Whitfield, for 5 minutes.
Mr. Whitfield. Thank you, Mr. Chairman.
Mr. McNeill, could you tell me what percent of your
enriched uranium or SWU comes from domestic sources?
Mr. McNeill. I do not have a specific number, but it is a
large percentage. I would think it is in the neighborhood of
above 75 and probably closer to 85 percent.
Mr. Whitfield. 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?
Mr. McNeill. To some extent, yes. I am torn on this issue,
because the more turmoil there is in the marketplace in the
short term, the lower cost I get, and 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, or at least a North American energy supply. Let us put
it that way. I do not know specifically that it has to be
purely U.S., but let us say a North American, I think, supply
would be viable.
Mr. Whitfield. Now how would you feel if the Commerce
Department grants an exemption to the suspension agreement and
allows USEC to purchase commercial SWU from Russia?
Mr. McNeill. I think, while it is not on the record, I
think in the press you have seen at least excerpts of a letter
that I wrote to both the Secretary of Energy and Secretary of
Commerce, objecting to that particular thing. It is mostly
around making USEC the monopoly controller of a low cost
supply.
Mr. Whitfield. So basically, your position is that if the
Commerce Department does that, they should not make USEC the
sole source?
Mr. McNeill. Right, that source ought to be available to
all users.
Mr. Whitfield. Mr. Magwood, I know you have been very much
involved on issues relating to USEC. What is your position on
whether or not the U.S. should have a policy that guarantees a
domestic source of enriched uranium?
Mr. McNeill. That is a very difficult subject, Mr.
Whitfield. I think that one of the things that we certainly try
to do, in creating USEC and in privatizing USEC, is 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 to
form USEC, there was a great deal of concern in Congress and,
in fact, on this panel, about the future of the Enrichment
Enterprise, and the need to do something.
The fact that we are now seeing reasons for concern, I do
not think all that original policy was made jointly by the
Administration at the time, and also by the Congress. I think
what it does, 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 these have led to significant problems, such as
Mr. Graham had outlined.
I think that there are very, very real reasons to want to
have, from a government perspective, a domestic enrichment
capability. How we actually go about doing that and 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 are familiar with that, and we are
continuing to study that. The Secretary has asked us to look at
a lot of options about that.
So it is something that is being looked at actively in the
government right now, and I do not think we have a clear path
forward, at this point. It is a very complicated issue.
Mr. 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?
Mr. McNeill. Well, I think that Mr. Graham's assertion was
really focused on the future on ConverDyn. I have met with Mr.
Graham, or at least his employees at ConverDyn, to talk about
this issue. I take them at their word that if action is not
taken, that ConverDyn could well shut down before the end of
the year, and I think that is a very serious matter.
The uranium issues are a little more complicated. But
ConverDyn is the only domestic converter. I think that really
crystallized the issue, when the CEO of the only domestic
converter tells you that he is going to shut his plant down,
unless action is taken. So it is something that we take
extremely seriously.
That said, it is not clear what the government role here
is. It is clear that we are concerned about it. It is not clear
that the Department should ask Congress for money to sustain
ConverDyn. It is not clear that the Congress would do that if
we ask for it. But it is something that I think the Congress
and the Administration have to work on together. We have to do
so very quickly, obviously, from Mr. Graham's comments.
Mr. Whitfield. You know, for the third time in less than 2
years, the shipments under the Russian HEU agreement have been
interrupted, and most recently by the lawsuit by the Swiss
trading company, which I think they won in their courts, and
now they have filed suits in New York and Kentucky. If they win
those lawsuits, what will the impact of that be?
Mr. McNeill. Well, I guess I should not speculate on the
lawsuits at this point.
Mr. Whitfield. I am not asking you to speculate. But do you
have any idea, if they win, what would the impact be?
Mr. McNeill. If they win, I am not sure I know all the
impacts, quite frankly. I think there are lots of ways that
enrichment could flow.
There are lots of questions about moneys that come into
question with those lawsuits. It does not 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? I think that is something that all of us
have to wrestle with over time.
I think that if you look at the history of the HEU
agreement, it has actually been rather successful. While there
have been problems, we have converted 80 metric tons of
hydrogen enriched weapons taken out of Russia.
From a national security and non-proliferation perspective,
I think you have to say that, in many ways, the HEU agreement
has been very successful.
That said, it is also clear that there continue to be needs
for the government 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.
That is what we are doing right now. The government is very
involved in the negotiations. We are working very closely to
understand what is happening, what the proposals are, and
evaluate the proposals, and we are staying engaged.
Mr. Whitfield. Mr. Chairman, thank you.
Mr. Shimkus. The gentleman yields back his time. I will now
turn to my colleague, Heather Wilson.
Mr. Whitfield. I did not yield back time. My time had
expired, Mr. Chairman.
Mr. Shimkus. Well, the gentleman's time has expired. With
that, I will move to Congressman Heather Wilson for your 5
minutes.
Ms. Wilson. Thank you, Mr. Chairman; beat Army.
I have a couple of questions.
Mr. Shimkus. The gentlewoman's time has expired.
Your time has expired.
Ms. Wilson. Thank you, Mr. Chairman.
Mr. Graham, last week, some folks from the USEC agreed to
members of Commerce Committee staff on the SWU plan, on the
purchase of commercial SWU from Russia. Their general view was
that the plan would get a better price on the SWU that USEC
purchased under the U.S./Russian HEU agreement.
What I would like you to do, if you can, to the extent you
are aware of this proposal, is tell us about this proposal and
how it would affect the domestic uranium and conversion
industries.
Mr. Graham. I will do my best, Congresswoman Wilson.
It is our understanding that the agreement with USEC and
the Russian counterpart is one to fix the price going forward,
such that the current agreement and the current pricing for
USEC does not place USEC under such duress. The current price
is almost equal to their operating cost.
What it does, when we bring additional material into the
market place, be it any form through government action, it 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. Of course, EUP has all
three components, the uranium, conversion, and enrichment.
So, in summary, what it does, it just enters into the
market, with no 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.
Ms. Wilson. Mr. Magwood, I wonder if you would comment on
that and on the SWU agreement, and what you think this
agreement does, in terms of U.S. energy security. I recognize
there is a balance here with national security and non-
proliferation.
Mr. Magwood. Let me say, in response to that, when we
learned of the proposal, it certainly was something we were
very concerned with, because of the issues that you raised.
This is an issue that is really an open item in the
government right now. It is something that is being looked at
very closely. The Secretary is looking at it, personally.
My understanding is that USEC was instructed not to
finalize the agreement until there was further review by the
government, because of these issues. For that reason, it is
still under investigation. At this stage, we are trying to
understand what the impacts are, and what path forward to
choose.
Ms. 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 some of the charts and 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
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?
Mr. Magwood. One the things that we have always found very
interesting is to try to look at projections to the future. I
think that one of the practices that I have always enjoyed is
simply going back in history and seeing how accurate
projections, 20 years out, have been. In general, they are not
very good.
I am aware that there are projections that show that
nuclear disappearing in 20 or 30 years. While we understand how
those projections were arrived at, we do not agree with them.
We think that their projections underestimate exactly how
many nuclear power plants will be relicensed. We think they
overestimate the cost of relicensing a nuclear power plant.
It is my understanding, as I stated in my testimony, that
the vast majority of nuclear power plants will seek new
licenses, and with those 20 years extensions, U.S. plants can
be expected to operate well into the middle of the century.
For our part, 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 are finding ways to make them more efficient than they
are now. We are finding ways to incorporate advanced control
technologies, and we are working very closely with EPRI, the
Electric Power Research Institute, to do that.
Beyond that, we are 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. We
would like to see some of them built here, but right now, they
are being built in places like Japan and Korea.
We think that there will first be opportunities for next
generation nuclear power and for advanced light water reactors
to be built in this country, some time over the next 10 years.
It is up to people like Mr. McNeill to see if the economic case
is there. I think that there are certainly reasons to look at
nuclear power as an option.
Beyond 10 years, we want to try to find these new
technologies, and explore these new approaches to nuclear power
that can be much more efficient to what is available, and
certainly safer and more reliable. These are things the
Department is currently actively working on.
Let me say, just in response to an early comment that I
think Mr. Ebel made, that simply because the U.S. does not set
out a target for how many nuclear power plants we want to see
built, and the government does not issue targets, it does not
mean we are not interested in nuclear power. It simply reflects
the fact that our role as government is to promote research and
development technology, and provide options for industry to
make the choices.
So it really is not up to the government to build nuclear
power plants. It is up to the government to make sure the
technology is available, if industry wants to build nuclear
power plants.
Mr. Wilson. I would ask unanimous consent for one
additional question.
Mr. Shimkus. Without objection, the gentlewoman may
proceed.
Mr. Wilson. Thank you.
I find your answer to be startling. You talk about this
investment in research and development, and the appropriate
Federal role. Yet, in your testimony on page 9, 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?
Mr. Magwood. ``Collapse'' is really good word for it. Yes,
our R&D investment in nuclear energy fell completely down to
zero in 1998, I was with the office which it happened. It was a
very disconcerting event.
Since that time, and since the time I have been the
Director of the office, we have been working very hard with the
Congress and within the Administration to reverse that.
We have brought nuclear R&D back, somewhat. While we do not
have the high levels of the past, we are 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 to $300 million,
out about 5 years from now.
We certainly would like to work toward 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.
Mr. Chairman, I would like to note that Mr. McNeill was
trying to get attention.
Mr. Wilson. My time has expired. Thank you, Mr. Chairman.
Mr. Shimkus. I will ask unanimous consent for 1 additional
minute for you, so Mr. McNeill can give his response to the
question.
Mr. McNeill. In this response, I speak for myself,
personally, and not representing the industry.
Right now, the competitive prices of electricity do not
really support the projected cost of a new light water reactor.
They are too large. They are 1,200 to 1,400 megawatts in size.
That kind of plant, in my opinion, only fits in a controlled
economy like China, Taiwan, Japan.
In light water reactors, you have to have significant
safety systems and containment. They take too long to build.
Historically, they have taken up 10 or 12 years. But even if
you were to build one today, it would probably take you 6
years, and you are building new gas-fired plants in 2 or 2\1/2\
years.
I think the promise looks at smaller, let us 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 we are several years away from having a confidence in
that design with which we could undertake an investment of it
right now. I am not so sure that extensive research is required
for that specific purpose today. It is an engineering effort,
more than anything else.
Mr. Shimkus. The gentlewoman yields back her time. We are
going to a second round of questions, for those who want to
stay. Then we will move to the second panel.
I would like to first just make some observations, and talk
about, one, part of the initial nuclear growth was based upon
energy productions, or energy demand, that really did not
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 this debate, they do not always fulfill.
But I am concerned, and consistently discuss energy
security. So I would like to ask Mr. Ebel, if the sealanes were
closed today, and I know this is mostly the nuclear table, but
let us just assume that that is true for the importation of the
fuel that we are receiving from Russia, and the fact that we
have one facility, what would that do to demand and cost,
simplistically?
Mr. Ebel. Well, I know you have had hearings on oil and
gas. I am sure, during those hearings, you have touched upon
the rising dependence of this Nation on oil. Our dependence on
oil reaches, let us say, 56 percent, and is growing, and it is
unlikely to ever come down.
Now I have 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. We should not miss that
opportunity to do so.
We did not have that opportunity, when it comes to oil. Our
supply of oil simply is declining physically at a time when
demand is growing.
So 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 the shipments were to stop today, I would
presume that the domestic industry could respond. But 10 years
from now, it probably could not.
Mr. Shimkus. Thank you. I am also intrigued by the
discussion of the smaller units and the modular design. 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.
With regulatory changes as the industry grew, who has any
assurance that a modular design, even of a small plant, would
be accepted and not pose the same risk as previous nuclear
plants, Mr. McNeill?
Mr. McNeill. Well, I think this is one of the lessons that
the industry has learned. In fact, it had learned that toward
the tail end of the last construction cycle when, in fact, the
SNUPSS plants, or the Standard Nuclear Unit Power Supply
System, had been designed. In fact, we built two of them, and
there were a whole bunch of them on the drawing boards, when
the Three Mile Island happened.
So I think we understand now that the essence of
standardization and, in fact, licensing activities that
occurred in the 1980's, of licensing a design, is an
appropriate mechanism to ensure that we were able to use that,
without extensive changes during the construction process.
So you have got a pre-approved design by the NRC. You then
go license a site, and you build the plant. We have not tested
all that licensing process yet, but that is what is in the
regulation, to date.
Mr. Shimkus. 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? I hope I am still
remembering that correctly, and that is not from any notes.
Mr. Klein. You are correct.
Mr. Shimkus. I would reiterate the importance of that, and
the failure of us, as a body, and the importance of that,
really, the costs and the safety issues involved in probably
over 60 sites across the Nation, because we do not have a
centralized site.
Mr. Klein. There were about 72 sites. What happens is, as
each facility becomes full with nuclear fuel, they will have to
build additional storage facilities at their sites. So what you
end up is having 72 additional dry cask storage facilities, or
one centralized storage facility.
In our commission's view, and in subsequent analysis, it
shows that it is 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 is both an operational
and an economic advantage, to have one centralized facility.
Once we get to a repository, we will have to have a
centralized storage and processing facility, anyway. It would
be beneficial if we could do that, as soon as possible, so that
additional reactors do not have to build at reactor. So it is
both operational and economic.
Mr. Whitfield [peresiding]. Mr. Sawyer?
Mr. Sawyer. Everybody is bailing out here. 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 your portrayal of the effect of the
privatization of USEC.
Is it your sense that it ought to be re-Federalized and, if
so, what form should that take? Would it be a stock buy-back?
Would it involve full price? If that is the problem, what is
the solution? That got your attention, did it not?
Mr. Graham. Yes, Congressman Sawyer, that is a difficult
question. You know, 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
of the 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 re-Federalizing it, I know for a fact that in our
industry, we are 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 market place. That is really all we are asking for,
to level the playing field.
The mechanism to get it, we have thought about. We have
looked at it ourselves. 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, and come up with
a solution. Without it, I think the long term, as Mr. McNeill
has indicated, is in jeopardy.
Mr. Sawyer. Are you suggesting it might be easier and more
efficient to start from the ground up, and rebuild that
capacity?
Mr. Graham. If you are referring to the technology, I think
not. It is there. It is what it is. I think it is outdated. It
is not the best. It is 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. There
would 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.
Mr. Sawyer. Thank you.
Mr. Ebel, you spoke in terms of government support to
expand the nuclear industry.
Mr. Ebel. Yes.
Mr. Sawyer. Can you expand upon what you were talking
about; what forms that might take if, in fact, the market is
not sufficient?
Mr. Ebel. Well, yes, it is our judgment that the market, by
itself, will not do it. It will require government support.
We would recommend in our study that a joint government
private sector partnership in the development of a kind of
reactor that would meet the needs of today, which is reduced
proliferation, to try to be proliferation-resistent, low cost,
modular.
That is modular, in part, because it needs to respond to
the needs of developing countries, where you could build, as
their demand for electricity grow. That would be moral support,
yes; but financial support, also.
Mr. Sawyer. Do I hear you correctly, that you are talking
largely about research and development, in terms of that, or
are you talking about capitalization?
Mr. 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.
Mr. Sawyer. Are there other comments?
[No response.]
Mr. Sawyer. Thank you, Mr. Chairman.
Mr. Whitfield. Yes, Mr. Ebel, I was pleased to hear your
comment that we are quite dependent upon foreign oil. Many of
us are concerned about becoming dependent upon enriched uranium
from foreign sources.
I think, Mr. McNeill, you also said you would be concerned
about that, but not so much, as long it was a North American
source. How many sources are there in Canada, for example?
Mr. McNeill. Well, there are mines in Canada. They process
unenriched uranium. There are no enrichment facilities there. I
do not know the extent to which there are conversion
facilities.
My issue was around, we have a fairly stable political
climate in North America. I do not think we are subject to the
risks that we are by going to Europe or Asia for supplies.
Mr. Whitfield. But if you did have to rely exclusively on
Europe or Asia, you would be more concerned?
Mr. McNeill. I would be more concerned, yes. I think from a
national security perspective, I would be concerned.
Mr. Whitfield. Mr. Magwood, if the 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?
Mr. Magwood. I would probably refer him to Secretary
Richardson.
Mr. Whitfield. Do you have any idea what he might say?
Mr. Magwood. I said earlier that this is really under
active analysis. I think Congress and DOE are working together,
to some degree on this. I expect that we will be able to have
some position on that, fairly soon.
Mr. Whitfield. What is the status of the RFP for the
construction of the two uranium hexoflouride conversion
facilities in Paducah and Portsmouth?
Mr. Magwood. We have made a commitment, and we are on track
to meet that commitment, to have that RFP in final form, on the
streets, in October. We are still on track to do that.
Mr. Whitfield. Okay, thank you. I have no further
questions. Mr. Burr?
Mr. Burr. Thank you, Mr. Chairman. I have just a few
general comments. I apologize, because I can not see names, so
I am going to try to ask you questions that are open to all of
you.
Mr. Chairman, as I sat here and heard the questions about
the possible re-Federalization of USEC, the one thing that went
through my mind was, I wondered whether we could afford the
buy-out of Mr. Timber's contract, based upon his parachute that
is there. But I am sure that is something we will tackle. I
would not want him to think, because he was not here, that I
had forgotten about him.
If I understand the participation of nuclear to our overall
market, it is about 16 percent. Am I accurate? Is it not?
Mr. McNeill. I think it is closer to 20 percent.
Mr. Burr. It is closer to 20 percent. That is 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 would open that to anybody that would like to
respond. Yes, sir?
Mr. McNeill. I am 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 alternative mechanisms of
storage, rather than moving it directly to the permanent
storage.
This is probably the risk. In Minnesota, for instance,
there is a State law which limits the amount of temporary
storage there is. If that is not resolved, it could force the
shut down of plants in that state.
Also, you are exposing the Federal Government to
significant legal liabilities, because it is under contract to
take this material, and it is going to fail to do that. It is a
contract law resolution issue that that could be.
There are several other impacts here that are, to some
extent, more psychological, such as the failure to resolve that
issue provides a forum for idea logs that do not like nuclear
power, to argue that we ought to shut the plants down, or we
should not develop new plants, and things of that nature.
Mr. Burr. But if I understand what you have said, if plants
who meet capacity in their pool file for an expansion of their
pool, and that expansion is not granted, whether it is 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.
Mr. McNeill. If there is no other alternative, yes.
Mr. 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?
Mr. McNeill. Well, the other option is temporary cask
storage onsite.
Mr. Burr. And we have sort of talked about that up here,
and it was received about like some of the President's budget.
Mr. McNeill. Well, I just got done building one. I am
moving my first fuel there, next month.
Mr. Burr. Is there anybody that would agree that this
stands a chance of accelerating closure of facilities?
Mr. Klein. I think it certainly does. I think the plant
that Mr. McNeill referred to, Prairie Island, is a classic
example. I think there are other States that could implement
similar situations that could cause a difficulty.
I think the bottom line on not moving forward with the
centralized storage facility and a permanent repository, and we
will need them both at some point in time, is that the
ratepayers are paying twice. They are paying for a permanent
facility, and then they have to pay additional costs for
additional reactor storage.
Mr. 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?
It really concerns me when you do not believe that the
Department of Energy will take spent fuel by 2010. Did you just
not hear my question?
Mr. Magwood. I think Mr. McNeill was trying to distract me,
so I would not hear the question.
I think that we are on track to do that. I think that the
Department has a plan to go forward to 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, to begin to accelerate pretty
dramatically. If the funds to move this along are not
available, we are going to be in trouble.
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 are on now, we are not going to make it.
I think it is going to really take more resources to make this
happen, but I do think it is possible.
Mr. Burr. You have 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 have got some accountability that is tied to the release
of funds, that says there has to be an expectation that there
is 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 we do this. It will never be taken,
would probably be better situation than what we are in right
now.
But we understand the statement you are 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 is a will at the Department of
Energy to live up to the date, and I guess you are telling me
that there is.
Mr. Magwood. My understanding is that the Director of the
Office of Civilian Reactor Waste Management, Mr. Ritkin, will
be up here in 2 weeks to talk about this in great detail.
He and I did confer before this hearing. He is very
confident that they are on a track to take spent fuel, on the
schedule that they have projected. He is, however, concerned
about the funding.
Let me just add one last thought. That is that I believe
that while there are a few plants that could become endangered,
because of the delay in taking spent fuel in the original
schedule, I think that the forward motion of the program
provides some confidence to people that are operating plants
right now that there is a plan to take care of it.
I think that that is as important as the actual taking of
spent fuel, when you look at the longer term. Hopefully, those
who did not rise to the occasion and support the Department, in
saying that they are sure that the Department will meet the
schedule, at least believe that we are moving in the right
direction, and doing the best we can if they do not believe we
are doing the best we can, we certainly hope they will come
back and tell us how we can do better.
Mr. Burr. Well, I can assure you, I think that as the time
goes on and as the money gets to be more, I think that the
Congress will weigh in, even more boisterous than we have. I
have given up the belief that I 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.
This is my last question. This is to the whole group, Mr.
Chairman. A 20 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?
[No response.]
Mr. Burr. Okay, then I would assume that your answer to
that replacement is new not nuclear. For the other four, what
replaces that lost nuclear generation?
Mr. Klein. 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 is quick, and those costs
will be passed on to the consumer.
I think the difficulty that we have in planning is that we
do not look as far, long term. When you talk about building
baseload coal and nuclear plants, you end up taking time. It
takes time to build them and get them licensed.
We are making decisions now on the short term for things
that we can accomplish fairly quickly. 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
interuptable supply.
For example, if there is an interruption of oil, as we had
seen previously, that will impact the cost of natural gas. 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.
Mr. Barton. I am told that the gentleman's time had expired
about 5 minutes ago.
Mr. Burr. The gentleman's time had expired about 5 minutes
ago. The gentleman from Kentucky was very generous to me.
Mr. Barton. He told me he liked North Carolina.
Mr. Burr. I would just say to the chairman, 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
have not heard that out of the Department of Energy before
today.
Mr. Barton. Did they say what century we will build new
nuclear?
Mr. Burr. Clearly, I was not quite that crafty.
Mr. Barton. Okay.
Mr. Burr. Thank you, Mr. Chairman.
Mr. Barton. Does the gentleman from Virginia wish to ask
questions?
[No response.]
Mr. Barton. Has the gentleman from Ohio been given a chance
to ask questions? He has been given two chances?
Well, I have some questions, but I am going to submit them
for the record. We still have a coal panel, and we really want
to give them an equal opportunity.
I want to thank you gentleman for coming. It is obvious
there is a lot of interest in the nuclear industry. We look
forward to working with you in the coming years to revitalize
our industry. This panel is released.
If we could have our next panel come forward, as soon as
the first panel has vacated the witness table.
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. We want to
thank you for having your testimony in on time. We appreciate
that.
So we are going to recognize you, Mr. Kripowicz, for 7
minutes. Your statement is in the record. Then we are going to
go to General Lawson, Mr. Bailey, Mr. Gehl, and Dr. Schobert.
So welcome to the committee.
STATEMENTS OF ROBERT S. KRIPOWICZ, PRINCIPAL DEPUTY ASSISTANT
SECRETARY, OFFICE OF FOSSIL ENERGY, U.S. DEPARTMENT OF ENERGY;
RICHARD L. LAWSON, PRESIDENT AND CEO, NATIONAL MINING
ASSOCIATION; PAUL C. BAILEY, VICE PRESIDENT, ENVIRONMENT,
EDISON ELECTRIC INSTITUTE; STEPHEN M. GEHL, DIRECTOR OF
STRATEGIC TECHNOLOGY ALLIANCES, ELECTRIC POWER RESEARCH
INSTITUTE; AND HAROLD SCHOBERT, DIRECTOR, THE ENERGY INSTITUTE,
PENNSYLVANIA STATE UNIVERSITY
Mr. Kripowicz. Thank you, Mr. Chairman and 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 would like to focus on one key
aspect of the future of coal, and that is technology.
Coal is our most abundant fossil fuel resource. 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 future in the
use of coal.
I am 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. 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 1970's, and
reliability is no longer a serious concern. That investment
alone has saved American ratepayers more than $40 billion since
1975 in reduced compliance costs.
Nitrogen oxides are another example. When acid rain and
urban smog became major environmental issues in the 1980's, 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
1980's. Nearly 75 percent of today's coal-fired generating
capacity use 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 sulphur
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. At the
Energy Department, we are developing new technology for coal
that could produce a virtually pollution-free energy plant by
the year 2015.
I have displayed on the easel an artist's concept of such a
plant. We call it our ``Vision 21'' concept. I have 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 forward 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 team 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, ``Okay, you have 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 is 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 gases to prevent their buildup in the atmosphere.
There are a variety of ways to do this, but virtually all
will require more research before they are proven reliable,
affordable, and environmentally safe. That research is recently
underway, 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 sector cost-sharing averaging
around 40 percent. Within the next few weeks, we will announce
the first set of winning projects. In almost all of them, the
industry contribution will be above the 40 percent mark. This
is a very positive development, and beyond our original
expectations.
So, Mr. Chairman, we do not see coal as a fuel that has
seen its better days. Coal has faced challenges before, and it
faces them today. But we have called on technology before to
meet those challenges, and we believe we can call on
technology, again.
That concludes my opening statement.
[The prepared statement of Robert S. Kripowicz follows:]
Prepared Statement of Robert S. Kripowicz, Principal Deputy Assistant
Secretary for Fossil Energy, U.S. Department of Energy
Mr. Chairman and Members of the Subcommittee. I appreciate the
opportunity to discuss the important role that coal--and especially
cleaner coal technology--can play in continuing to strengthen our
nation's economic future while at the same time, improving our
environment.
Today, coal is an indispensable part of our nation's energy mix.
Because of its abundance and low cost, coal now accounts for more than
half of the electricity generated in this country.
Coal is our nation's most abundant domestic energy resource. One
quarter of all the world's known coal supplies are found within the
United States. In terms of energy value (Btus), coal constitutes
approximately 95 percent of U.S. fossil energy reserves. Our nation's
recoverable coal has the energy equivalent of about one trillion
barrels of crude oil--comparable in energy content to all the world's
known oil reserves. At present consumption rates, U.S. coal reserves
are expected to last at least 275 years.
Coal has also been an energy bargain for the U.S. Historically it
has been the least expensive fossil fuel available to the country, and
in contrast to other primary fuels, its costs are likely to continue to
decline as mine productivity continues to increase. Between 1988 and
1997, minemouth coal prices (in real 1992 dollars) declined by $9.40
per ton, or 37 percent; between 1998 and 2020, prices could decline by
another $5.00 per ton (1998 $), or about 1.5 percent a year. The low
cost of coal is a major reason why the United States enjoys some of the
lowest electricity rates of any free market economy.
coal consumption for electricity projected to continue rising
America's coal industry--81,000 miners working in 25 states--
produces approximately 1.1 billion tons of coal per year. Just under
950 million tons goes to U.S. power plants (the rest is used for
industrial purposes, such as steelmaking, or is exported). According to
the Department's Energy Information Administration (EIA), domestic coal
demand could increase by 20 percent by 2020, growing to 1,316 million
tons, primarily because of increasing coal use for electricity
generation.
As this chart shows, although coal's overall contribution to the
nation's electric power supply is projected to decline somewhat--from
52 percent in 1998 to 49 percent in 2020--the substantial growth in
U.S. power consumption means that the U.S. will mine and use more coal
in the foreseeable future.
[GRAPHIC] [TIFF OMITTED] T6466.006
A key element in EIA's projection is that very little new
capacity is planned during that time period, about 7% of
existing capacity (or around 21 gigawatts). Most of the
increased generation from coal-fired units will come from
existing plants increasing their hours of operation. The
primary barrier to construction of new coal-fired power plants
will be intense competition from natural gas combined cycle
powerplants. These natural gas-fired plants have much lower
capital costs than coal plants and are very low pollutant
emitters.
Electricity restructuring is another important development
in the industry. Using authorities provided by Congress in the
Energy Policy Act of 1992 and other statutes, the Federal
Energy Regulatory Commission has taken action to make wholesale
electricity markets more competitive. To date, 25 states have
taken action to introduce competition into retail electricity
markets and many others are considering this option. The
Administration sent its own comprehensive legislative proposal
to Congress more than two years ago. Both the House Commerce
Committee and the Senate Energy and Natural Resources Committee
have announced plans to mark up legislation this month to
update the federal statutory framework for the electricity
industry. A comprehensive restructuring bill will both protect
the reliability of our electric system and facilitate the
smooth functioning of restructured electricity markets.
Properly implemented, restructuring will be good for consumers.
the economy, and the environment. Restructuring can also be
good for coal--the Administration's analysis of its
comprehensive restructuring proposal projects that coal-fired
generation would continue to increase through 2015 under
competition, and that competition modestly increases coal-fired
generation above reference-case levels in the near-term.
Coal and the Environment
Largely because of improving pollution control technology,
the nation has been able to use more coal while improving the
quality of its air. Coal use has more than doubled since 1970
while emissions of sulfur and nitrogen Pollutants have declined
by 70 percent and 45 percent respectively.
EIA's coal Projections reflect existing environmental
regulations only. Whether expectations for future growth in
coal demand actually materialize will depend largely on the
nation's coal users' ability to comply with increasingly
stringent environmental regulations. Increased compliance costs
can lead to early retirement of a unit, or to less use of the
coal-fired generating unit as it becomes more costly to
operate. The most critical regulations and policy initiatives
are air pollution related and include:
Rules to address the Regional Transport of Ozone (the ozone
``SIP Call'' and related rules promulgated by EPA). The SIP
Call rule required 22 Eastern states and the District of
Columbia to reduce nitrogen oxide (NOX) emissions by
specified amounts by May 2003. Although the rules are being
revised to comply with judicial direction, the primary
mechanism to achieve the required reductions is expected to be
additional NOX reduction requirements at coal-fired
power plants.
Revised National Ambient Air Quality Standards for Particulate
Matter and for Ozone. These revised standards were promulgated
in 1997, with anticipated annual compliance costs for full
attaimnent of $37 billion per year and $10 billion per year,
respectively. The Supreme Court will be reviewing the EPA
rules. Both are significant for power plants because they will
lead to additional reductions in emissions of NOX
and sulfur dioxide (SO2) which are precursors to
fine airborne particles.
Mercury regulations. Under a court sanctioned agreement, EPA
is scheduled to decide by December 15 whether or not it is
necessary to control mercury from coal-fired power plants. If
EPA deems it necessary, the agency must promulgate regulations
by December 2003.
Enforcement initiative. On November 3, 1999, EPA filed
lawsuits against seven utility companies, and issued an
administrative order against an eighth, charging violation of
new source review requirements. The civil actions, now in the
discovery stage, all seek retrofit of state-of-the-art control
technology. A total of 33 gigawatts of capacity is involved in
EPA's initiative--over 10% of total U.S. coal-fired capacity.
The basic allegation is that activities at these plants were
modifications requiring new source permits. In the only
settlement to date, the Tampa Electric Company (TECO) agreed to
85% reductions in NOX and SO2 by 2010,
retirement of significant coal capacity, and payment of a $3.5
million civil penalty.
The 305 gigawatts of existing coal-fired powerplants can be
categorized into three groups: (1) very large and relatively new
plants, (2) very small and relatively old plants, and (3) those in
between. The first category will probably be able to continue to
operate economically, even with the new regulations. Many of the
smaller plants in the middle category will not, and in fact several
utilities have recently announced plans to replace some older coal
units with new natural gas-fired units.
The pivotal group is the third group--moderate size coal plants
with significant remaining operational lifetimes. It is this group
which will benefit most from development and deployment of advanced
emission control technologies. The greater the success of DOE and its
private sector partners in developing more effective, and lower cost
mitigation technologies, the more of these plants which will continue
to operate, and the lower the overall cost of electric power will be to
the consumer.
A major caveat is that none of the projections assumes the
implementation of new regulation to address climate change concerns.
DOE is also pursuing technologies to reduce greenhouse gas emissions
from coal (and natural gas) power plants--both by increasing efficiency
of the power generating process and by capturing and sequestering
carbon gases. Although these technologies are longer term and unlikely
to be available prior to 2015, they could allow for the use of coal as
a fuel for new generating plants while substantially reducing or even
eliminating emissions of greenhouse gases to the atmosphere.
Measures to reduce greenhouse gas emissions before 2015 could lead
to significant reductions in domestic coal use. Impacts on domestic
coal use would likely be directly related to the amount of reduction in
greenhouse gas emissions that takes place within U.S. borders. For a
given level of greenhouse gas emissions commitment, provisions that
allow the U.S. to meet the commitment by (1) relying on purchased
emissions reductions from sources in other countries, (2) sequestration
of carbon dioxide through forestry activities, and (3) additional
reductions of non-carbon dioxide greenhouse gases would reduce the
impact of any such obligation on the level of domestic coal use.
clean coal technology--the investment is paying off
With coal expected to remain one of the nation's lowest cost energy
sources, its future will be determined largely by the availability of
affordable technology that can reduce the impact of its use on the
environment.
In the mid-1980s, the United States began an unprecedented joint
public-private investment in a new generation of cleaner coal
technologies. The Clean Coal Technology Program led to 40 projects in
18 states, over half successfully completed.
More than $5.6 billion has been committed to this program, with private
industry and states investing two dollars for every one from the
federal government. Today, because of the Clean Coal Technology Program
and the research efforts that undergird it:
Pollution control costs are significantly lower.
In the mid-1980s, the only options to reduce smog-causing nitrogen
oxide (NOX) pollutants from coal-fired power plants cost
$3,000 per ton of NOX. Today, technologies such as low-
NOX burners demonstrated in the Clean Coal Technology
Program have reduced NOX control costs to less than $200 per
ton. Nearly 75 percent of the nation's coal-fired generating capacity
now uses low-NOX burners. The cost of selective catalytic
reduction, which removes NOX from coal flue gases, has been
cut in half because of technology advances.
Similarly, in the 1970s, scrubbers--the flue gas treatment devices
that remove sulfur pollutants from the exhausts of coal-fired boilers--
were expensive, unreliable, and posed waste handling problems. The
Federal Govemment's R&D program (both at DOE and EPA) and DOE's Clean
Coal Technology Program helped improve scrubber technologies. Today,
flue gas scrubbers are one-fourth as expensive as the vintage-1970s
units and operate much more reliably. The reduced costs, alone, have
saved American ratepayers more than $40 billion since 1975. Today,
advanced scrubbers produce a waste product that can be recycled into
wallboard or easily disposed of in a safe, powder form, rather than the
sludge of older systems.
Coal combustion is cleaner.
In the 1970s and 80s, DOE's R&D program helped develop the
fluidized bed coal combustor--an advanced coal-burning technology that
removed sulfur pollutants and limited the formation of NOX
Pollutants inside the boiler, eliminating the need for scrubbers or
other post-combustion controls. The new technology found widespread
acceptance in the industrial boiler market.
The Clean Coal Technology Program helped move this clean-buming
technology into the larger-size, utility market. Using this technology,
coal-fired Power plants can reduce sulfur emissions by more than 95
percent and NOX emissions by more than 90 percent, even when
burning high-sulfur coal.
Utilities have a new option for coal-based power.
The Clean Coal Technology Program also pioneered a fundamentally
new way to use coal to generate electricity. Rather than burning it in
a boiler, gasification-combined cycle technology first converts coal
into a combustible gas, cleans the gas of virtually all of its
pollutants, then burns the gas in a turbine, much like natural gas.
More than 99 percent of sulfur, nitrogen, and particulate pollutants
can be removed in the process.
[GRAPHIC] [TIFF OMITTED] T6466.007
Moreover, heat from the turbine can be used in a
conventional steam cycle to generate a second source of
electricity, increasing overall power plant efficiencies.
Because of the Clean Coal Technology Program, the nation
now has three full-scale, pioneering coal gasification combined
cycle power plants located in Florida,
Indiana, and Nevada. These are among the cleanest fossil fuel
power generating facilities in the world.
Steel mills have an environmentally attractive alternative to coke
ovens.
Much of the nation's coal not used by power plants is
shipped to steel mills for use in making the coke needed for
the steelmaking process. Coke production, however, is a
significant source of air pollutants, including air toxics. The
Clean Coal Technology Program demonstrated a way to use coal
directly in the blast furnace, displacing coke virtually on a
pound-for-pound basis. Direct coal injection offers the steel
industry a clearly superior economical and envirom-nental
alternative to traditional coke-making.
the future
When the Department of Energy issued the Comprehensive National
Energy Strategy in April 1998, the first of its five overarching goals
was to:
Improve the efficiency of the energy system--making more
productive use of energy resources to enhance overall economic
performance while protecting the environment . . .
One of the major strategies to achieve this goal is to demonstrate
cost-effective power systems that can achieve electrical generating
efficiencies greater than 60 percent.
Today's coal-fired power plants convert only about a third (between
33-35 percent) of the energy value of coal into electricity. The rest
is typically discarded as waste heat. The Clean Coal Technology Program
has demonstrated new technologies that can boost efficiencies to nearly
45 percent. Advances now in the DOE research and development program--
for example, more energy-efficient gas separation technologies,
improved turbines, and coal-capable fuel cells could push coal power
plant efficiencies into the 60-percent range.
What are the benefits of a more efficient coal-fired power plant?
Cleaner operation is one, since a coal plant that uses less fuel to
generate the same amount of power will emit fewer emissions. Reduced
greenhouse gas emissions is another benefit; a 60 percent efficient
coal power plant can cut carbon dioxide emissions by more than 40
percent. A third is cost to consumers. Improving the efficiency of a
power plant can lower costs of the electricity generated, perhaps by up
to 20 percent.
The Vision 21 Concept. It may be possible in the future to
eliminate virtually all of the environmental concerns at a coal-based
power plant.
DOE is developing a concept for a new fleet of energy facilities
that would incorporate breakthrough technologies in advanced power
generation and pollution controls. With a target date of 2015, this new
energy concept, called Vision 21, would incorporate technologies that
would reduce SO2 (sulfur dioxide) and NOX
emissions to near zero, and cut in half the amount of carbon dioxide
emitted from the plant.
Moreover, the Vision 21 concept could incorporate various
coproduction options--producing not only electricity but other high-
value products such as hydrogen, clean transportation fuels, chemicals
and other commercial commodities. By developing a multi-product energy
facility rather than just a single-product electrical generating
plant--it may be possible to boost overall coal use efficiencies to
more than 80 percent. Improving the efficiency of tomorrow's coalfueled
energy facilities can be beneficial companion to improving end-use
energy conservation efforts. For example, by raising the efficiency of
U.S. coal-fired power plants to 50 percent, the nation could achieve
fuel savings equivalent to weatherizing 400 million homes--more than 5
times the number of homes in the United States.
Carbon sequestration. Even with improved efficiencies, a future
coal-fired power plant still may not be able to achieve the substantial
greenhouse gas reductions that may be necessary to counter concerns
about global climate change. Therefore, one of the keys to coal's long-
term future (and to the future of other fossil fuels) may be the
emerging technology of carbon sequestration.
Only a few years ago, concepts for capturing greenhouse gases at
their point of emission, or even from the ambient air, and either
storing them for centuries or recycling them into useful products were
considered laboratory curiosities. Today, the opinion is much
different.
DOE has set a goal of developing technologies that can capture and
sequester carbon dioxide at costs as low as $10 per ton of carbon. This
is equivalent to adding only \2/10\ths of a cent per kilowatt-hour to
electricity rates that today range from 4 to 12 cents per kilowatt
hour.
Carbon sequestration--if the technology can be successfully
developed--could be the only option that doesn't require large-scale
turnover of the world's energy infrastructure. Along with low-carbon
and carbon-free energy supply technologies, such
as natural gas and renewable energy systems, and more energy-efficient
end-uses, carbon sequestration could become an important 3rd option in
reducing the buildup of greenhouse gases.
conclusion
The United States needs a variety of energy sources to continue the
unprecedented economic expansion that has made us the envy of the
world. At the same time, Americans have consistently ranked
environmental quality as one of their highest priorities for both
current and future generations.
While the U.S. will continue to expand the role of renewable and
other alternative energy resources in its energy portfolio, coal will
continue to provide a large share of the overall energy--and the
dominant share of electricity--that can keep our economy growing. New
technologies can make it possible to use all of our domestic energy
resources--including our largest resource, coal--in ways that are
compatible with our goals to protect the environment.
Over the past 20-year history of the Department of Energy, we have
made substantial progress in improving the environmental acceptability
of coal use while, at the same time, keeping the costs of coal-derived
energy low. Through the continued public and private investment into
advanced, more efficient, and cleaner coal technologies, coal can
remain a beneficial contributor to America's energy future.
Mr. Barton. Thank you, Secretary Kripowicz. We appreciate
that.
We now want to hear from General Richard Lawson, who is
President and CEO of the National Mining Association. He
assumed that position after a career in the United States Air
Force, where he was a 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 is in the record in its
entirety. We would ask you to summarize it in 7 minutes.
STATEMENT OF RICHARD L. LAWSON
Mr. Lawson. Thank you, Mr. Chairman, and members of the
committee.
I am Richard Lawson, the President of the National Mining
Association. 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. As a result, our energy future is
vulnerable on several fronts.
We are now dependent on imports for 54 percent of our oil
supplies; 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 plant outage or heat wave. 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, and even hydropower.
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. It is the fuel that generates over
half of our electricity. Your home State of Texas, Mr.
Chairman, is the No. 1 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. 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 is 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 have discussed these issues
in my written statement, and I will not repeat them here.
Taken individually or collectively, these actions have the
same effect. Existing coal capacity will be shut down. New coal
capacity will not be brought on line.
Research on new technologies is ongoing, and will continue
using and building upon the results of the DOE Clean Coal
Technology Program. Efficiency and emission reduction goals,
and the technologies needed to achieve these goals, are
described in the technology road map, contained in my written
statement.
Incidently, Mr. Chairman, your action in sponsoring the
Energy and Climate Policy Act of 1999 in the House has helped
move these technologies along.
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.
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 is a financial incentives program, designed to
cushion the financial burden of applying technologies to
existing coal utilities, to improve emissions control and
increase efficiency. Second is 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 can
not 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.
[The prepared statement of Richard L. Lawson follows:]
Prepared Statement of Richard L. Lawson, President, National Mining
Association
Mr. Chairman, members of the committee, I am Richard L. Lawson,
President and CEO of the National Mining Association. National Mining
Association (NMA) represents the producers of most of the nation's
coal, metals, industrial and agricultural minerals; the manufacturers
of mining and mineral processing machinery, equipment and supplies; and
the engineering and consulting firms, financial institutions and other
firms serving the mining industry. Our members operate in all regions
of the country; produce all qualities of coal and all types of minerals
for both the domestic and the overseas markets. I appreciate the
opportunity to present the industry's views on national energy policy,
energy security and most specifically, the role that coal has to play
in both.
Mr. Chairman, I would like to commend you for holding this series
of hearings on the Nation's Energy Policy and the security of our
energy supply. The availability of reliable and reasonably priced
energy has made our country the economic powerhouse that it is today.
Our nation should have an energy policy that balances economic,
security, social and environmental considerations and at the same time
supports the availability of reliable and reasonably priced energy. We
do not have such a policy in place today. These hearings can provide
the impetus needed to put our nation's energy policy back on track, and
we are pleased to be asked to be a part of the effort.
Nearly nine years ago to this day, June 25, 1991, I appeared before
this same committee to give our views on exactly this subject. The Gulf
War had just concluded, and this committee was considering legislation
that ultimately became the National Energy Policy Act of 1992 (EPACT).
In 1991, our economy was just recovering from the last real
economic downturn experienced. Energy consumption was lower than in the
late 1980's and in 1990. As the Gulf War ended, we were importing
approximately 46 percent or our petroleum requirements. United States'
energy policy was under review in an effort to find a way to reduce our
import requirements while expanding our use of domestic energy
resources such as coal. EPACT was passed to address this problem but,
because it was never fully implemented, our energy supplies remain
vulnerable.
In 2000, our economy is stronger than it has ever been, but our
energy supplies are again vulnerable. We are importing 54 percent of
our petroleum requirements. But, our vulnerability to supply
disruptions extends beyond imported oil. Reserve margins in our
electric generating system have never been lower. Our nation has moved
from promoting the use of domestic resources, such as coal and the
nuclear power that we have in place, to a policy that is totally
imbalanced toward the environmental extreme and a policy that all but
ignores the strides made in technologies to burn fuels more cleanly and
efficiently. Most importantly, energy policies have not produced the
energy security envisioned in EPACT.
Fortunately we do have the elements to put a sound energy policy
back on a more balanced footing. This can only happen however, if we as
a nation have the will to do so.
My statement today will focus on two points:
Use of all types of energy will increase in the United States,
and globally, to sustain economic growth, improve standards of
living and support an expanding population. It is necessary
that both energy and environmental policies take this reality
into account and be carefully balanced to support, not hinder,
long-term economic growth while supporting national energy
security.
Coal, a mainstay of both US and global energy supply through
its use to generate electricity, will continue to be used
because it is widely available, it is reliable, and coal is low
cost. As electricity use increases, so too will coal use. 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 undesirable 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.
i. energy is required to support economic growth
A. Energy in the United States--an asset that is vulnerable to supply
disruptions.
There is no such thing as a ``bad'' domestic energy source. Energy,
whether it is from coal, oil, natural gas, uranium or renewable
sources, is the common denominator that is imperative to sustain
economic growth, improve standards of living and simultaneously support
an expanding population. This relationship is clearly illustrated in
Figure One that shows that as GDP has increased in the United States,
energy use has grown in near tandem. Although technological advances
and greater energy efficiency means that we are using less energy today
for each unit of economic output than in the past, growth and
prosperity cannot occur without the basic energy building block. The
United States is fortunate to have a large domestic energy resource and
an established energy infrastructure that supplies reliable and low
cost energy to consumers from industry to households. Sound, balanced
energy and environmental policies are required keep this energy
infrastructure is in place.
Economic expansion is expected to continue with an accompanying
increase in energy use. According to the U.S. Energy Information
Administration (EIA) 1, economic growth, expressed in terms
of real GDP, is expected to increase on average 2.2% per year through
2020. Reflecting greater efficiency trends, energy consumption is
expected to increase by just over 1% per year over the same time. In
absolute terms, energy consumption will increase from 95 quadrillion
BTUs (quads) to 121 quads by 2020. This is of course, provided that we
do not implement policies that would prevent this growth.
---------------------------------------------------------------------------
\1\ All U.S. forecasts in the section are from the Annual Energy
Outlook 2000. Energy Information Administration, DOE, December 1999
---------------------------------------------------------------------------
The EIA forecast shows that consumption of all energy sources
except nuclear power will grow over the next 20 years. This is
illustrated in Figure 2. Natural gas consumption is forecast to
increase from 22 quads to 32 quads by 2020. Petroleum use will increase
from 37 to 49 quads. Coal, which comprises more than 90% of our
domestic fossil energy resource, will increase from 22 to 27 quads.
Coal will supply the current 22+% of total energy demand as it does at
present. Coal consumption will increase from the current 1 billion tons
to nearly 1.3 billion tons.
Much of the energy that is used today in the United States is in
the form of electricity. The future will not be different. In 2020
electricity is forecast to supply 52% of non-transportation end use
energy and coal is expected to generate over 50% of that electricity.
Meeting new demands for electricity while maintaining the highest
environmental standards in the world is an achievable goal. But, this
goal will require both new electric generation capacity and an upgrade
of our existing fleet for both efficiency and environmental reasons.
Unfortunately, the failure to balance energy and economic security
with sensible, effective environmental policies is affecting the
availability, reliability and cost of energy and will ultimately affect
our economic future. The current trend to make energy policy totally
dependent upon restrictive environmental policies means that our
nation's energy supply is becoming increasingly vulnerable. Three
examples illustrate this point.
Petroleum: The recent decline in petroleum availability and
increase in petroleum prices clearly illustrates our
vulnerability to outside forces. As the President of the
American Petroleum Institute pointed out to this committee on
May 24, the US petroleum industry is precluded from developing
the vast majority of our domestic reserve. This increases
dependence on imported sources and the United States now
imports over 54% of our petroleum requirements. That
dependency, according to the draft Department of Energy
Strategic Plan, is expected to be over 60% by 2020. This is as
much a matter of national security as economic security.
Electricity: The late May report from the National Electric
Reliability Council (NERC) points out the sensitivity of our
nation's electricity supplies to extended heat wave conditions
or higher than anticipated generating unit forced outages. For
a number of reasons, including a series of initiatives by the
Environmental Protection Agency to ratchet emission standards
below Clean Air Act requirements, new generating capacity is
not being built as needed. Reserve margins are very thin and
electric power outages, or spikes in the costs of electricity
could occur. This is an example of environmental policy taking
total priority over energy and economic considerations with the
result--a vulnerable electric system.
Coal: The long term use of our greatest domestic energy
resource, coal, is being put at risk on two fronts: through the
Administration's actions to deny access to public lands for
resource exploration and development which removes low cost
reserves from the US energy base; and through the continuing
barrage of actions by the Environmental Protection Agency which
are making the use of coal in electricity generation ever more
difficult and expensive.
Our nation's energy supplies do not have to be vulnerable to
outside events and they certainly should not have to be vulnerable due
to our own unbalanced policies. Meeting new demands for energy while
increasing use of ALL domestic energy and supporting economic growth
can and should be complimentary with maintaining the highest
environmental standards in the world.
B. Global Energy Requirements:
Energy use will increase at an even faster pace in many countries
throughout the world according to the ``International Energy Outlook
2000'' published by the U.S. EIA. As illustrated in Figure Three, the
rate of growth in energy consumption in the developing world, excluding
Africa but including China, India and the countries in South America
exceeds 3.5% per year through 2020. Conversely, United States and other
industrialized countries will see an increase of approximately 1.0% or
less per year on average. This rapid increase in energy use in the
developing world will occur no matter what policies are in force in the
developed world. Energy is required to support the economic growth that
is both expected, and needed in these countries to raise the standard
of living while supporting increases in population which, according to
recent estimates of the World Energy Council will be as much as 10.1
billion by 2050 (as compared with 5.3 billion in 1990).
Just as in the United States, energy demands worldwide will be met
with an increase in the use of electricity. Again to cite the
International Energy Outlook, demand for electricity in developing
countries will outstrip the rate of growth in energy use. Electricity
generation is expected to increase by an average 4.3 percent per year
between now and 2020. In other words, while energy use doubles, the use
of electricity in these countries will nearly triple in this time
period.
All fuels will be required to meet these new energy demands and
coal use will dominate in these countries. By 2020, some 3.6 billion
tons of coal will be consumed in the regions comprising the
``developing countries'' (that figure is about 1.8 billion today). Over
44 percent of the electricity used in these countries will be generated
from coal. Coal will be used because it is indigenous to many countries
and is relatively low in cost. At this point, a future without coal use
is unthinkable.
Coal use in the future will not be limited to the developing world.
Coal is now, and will continue to be, used in all regions of the world.
Coal use in the industrialized world will remain at approximately 1.6
billion tons, increasing in the US, Canada, Australia and Japan and
decreasing only in Western Europe and in the countries of the former
Soviet Union. Coal is now, and will remain, an important and major part
of the global energy mix.
ii. coal in the united states
In 2000, the United States will mine and use over 1 billion tons of
coal. Economically recoverable coal reserves comprise over 85 percent
of the US fossil reserve base. Coal reserves are geographically
distributed throughout the US and coal is mined in 26 states and coal,
or electricity generated from coal, is used in all 50 states. The coal
industry contributes some $161 billion annually to the economy and
directly or indirectly employs nearly 1 million people.
In 1999, over one half of U.S. electricity is generated from
abundant, low cost, domestic coal. The 950 million tons of coal used by
electric utilities is more than triple that used in 1970, but emissions
have declined as illustrated in Figure Four.
The economy of the 21st century will require increased amounts of
reliable, clean and affordable electricity. According to EIA forecasts,
electricity use will increase by 1.1 trillion Kwh or 34 percent over
today's levels by 2020. Other forecasts, including that done for the
American Gas Association 2 and for the Gas Research
Institute 3 show an even greater increase in electric
generation growth. Coal, the nation's most abundant energy resource, is
expected to play a major role in electricity's future. In 2000,
generators are expected to use 986 million tons to produce over one
half the electricity required. By 2020, and under a business as usual
forecast, generators are expected to use 1.177 billion tons of coal,
again to produce approximately one-half of the electricity to be
generated.
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\2\ Fueling the Future, February 2000, Washington Policy and
Analysis, Inc.
\3\ Coal Outlook and Price Projections, April 2000, Hill and
Associates, Inc.
[GRAPHIC] [TIFF OMITTED] T6466.008
Coal could do even more than these ``business as usual''
scenarios would suggest, and could do so more efficiently and
with lower emissions than even today with the use of new
combustion technologies now being developed. However, there are
many obstacles that could prevent coal from playing even its
expected role in meeting future energy demands.
III. Constraints on a Greater Role for Coal
A. Coal Supply:
On the supply side, recent initiatives by the
Administration to remove public lands from access for any
purpose including exploration for and development of coal and
mineral resources, will over time, reduce the amount of coal
reserve.
In 1996, the Administration used the little-used Antiquities
Act to create the Grand Staircase-Escalante National Monument.
This action removed 23 billion tons of mineable coal reserves
in Utah's Kaparowits coal field.
Last fall, the Environmental Protection Agency (EPA) failed to
support the policies adhered to by every administration since
1977 regarding the application of the Clean Water Act to valley
fills at Appalachian coal -mines. The state of West Virginia
has indicated this action will affect two-thirds of the states'
surface mines and one-fourth of the state's underground mines.
The same policies may negatively impact Kentucky coal
production and production in other Appalachian states.
Development of coal reserves is as affected as current
production.
Over the past 6 months the U.S. Forest Service has issued
three major regulatory proposal dealing with resource planning
and construction and maintenance roads policy that may
negatively impact the coal industry's ability to acquire and
access leased Federal coal on or near Forest Service lands. The
latest initiative, the Roadless Area land withdrawal proposed
by the Forest Service will have even broader implications as
this affects lands throughout the United States, not just in
the western part of the country.
A more than adequate coal reserve base is quickly being depleted,
not by mining, but by government fiat.
B. Coal Use
Proposed changes in regulations could have an even greater effect
on the use of coal in existing electric generators. These include:
The EPA's announced intention to change New Source Review
requirements so that even routine maintenance will invoke
requirements to obtain new permits that could necessitate
installation of stringent emission control equipment even on
existing plants now meeting Clean Air Act Requirements;
The EPA proposed state implementation plan (SIP) call rule
under Section 110 of the Clean Air Act which would require an
85% reduction in NOX emissions from utilities in 22
eastern states by May 2003;
The EPA proposal to declare coal waste a ``hazardous by-
product'' which would make coal ash disposal much more
difficult and in effect would preclude today's commercial use
of coal ash; and,
The EPA rule on Regional haze that imposes a comprehensive new
program utilizing significant control technologies and other
requirements on states to control particulate matter beyond
levels already required under state and federal law.
All these proposals would make the use of coal in existing
generating facilities more expensive and extremely problematic.
And, in the long term, there is the possibility that terms of the
Kyoto Protocol on climate change or other international agreements to
reduce greenhouse gas emissions would result in a sharp reduction of
coal used.
Actions and policies which are designed to eliminate coal use will
have serious implications for the reliability of our electric
generating capability. Over one-half of the nation's electricity (and a
greater percentage of base load generation) is generated by coal. Over
41 percent of the existing electric generating fleet is coal fired.
This cannot be quickly replaced for a number of reasons, including the
time and money that is required to develop the infrastructure necessary
to switch to alternative sources. Natural gas use will increase, but it
cannot replace over half the nation's electricity supply on either a
timely or a cost effective basis.
iii. technology development is important for the future
Solving our nation's energy supply problems will require that the
Administration and the Congress work to implement more balance energy
and environmental policies that encourage the development and use of
all fuels rather than work to prohibit the use of any one energy
source.
There are retrofit and repowering technologies available today that
enhance environmental performance and efficiency of existing coal-based
generation plants. And, there are new technologies being developed that
are now, or will soon be, ready for deployment that will effectively
eliminate health-based emissions and substantially improve efficiency.
It is important that any national energy policy includes provisions
to encourage the development and deployment of these new coal based
technologies. Without these new technologies our electric generators
will become much more dependent upon natural gas, already more costly
than coal and likely to become even more expensive if as estimated by
the National Petroleum Council 4 over $1.2 trillion will be
needed for exploration, development and infrastructure improvements if
gas supplies are to be adequate in 2010.
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\4\ ``Natural Gas, Meeting the Challenges of the Nation's Growing
Natural Gas Demand'' February 2000, the National Petroleum Council.
---------------------------------------------------------------------------
A. Research is Ongoing
Efforts to develop and deploy new coal based technologies have been
underway for some time, efforts designed to expand upon and use the
results of the joint industry-DOE Clean Coal Technology program. For
example:
National Mining Association, the Edison Electric Institute,
the Association of American Railroads and the Center for Energy
and Economic Development have adopted a technology road map
that sets research and performance goals for advanced coal
technologies, which if reached, would result in coal-fired
power generation at far greater efficiencies than today with
lower emissions of pollutants as defined by the Clean Air Act
of 1990 and with sharply lower CO2 emissions of today. A number
of companies are involved in co-funding with the Department of
Energy the Power Systems Development Facility in Wilsonville,
Alabama. This near-commercial plant demonstrates advanced
gasification, pressurized fluidized bed combustion, high
temperature/high pressure gas filtration and advanced turbine
systems.
The Department of Energy's Vision 21 program has a goal to
design a power plant that will have generating efficiencies of
more that 60% using coal, with near zero emissions of
traditional pollutants and a reduction of CO2 emissions by 40%
plus.
The Mining Industry of the Future program, a joint mining
industry-DOE research venture is involved in finding ways to
explore for resources, and then mine, process and transport
more efficiently at lower cost and with less environmental
impact. Results of this program will enhance coal as a fuel for
electric generators from a cost and quality standpoint.
Beyond control of the traditional emissions, the industry also
recognizes that carbon sequestration will be vitally important if it is
found that reduction of CO2 emissions is necessary. The Department of
Energy recently awarded over $7 million dollars to several of our
national laboratories for research proposals designed to test several
ways to sequester carbon. Two projects that are outside of that DOE
effort hold particular promise for coal:
The Zero Emission Coal Alliance (ZECA), a consortium of
researchers from Los Alamos along with US and Canadian coal
interests, is researching a technology that would create
hydrogen from a coal-water slurry and produce a pure
CO2 stream. A fuel cell would convert the hydrogen
to electricity and the CO2 stream would react with
magnesium oxide to be permanently sequestered. ZECA hopes to
pilot this new technology within five years.
Los Alamos National Laboratory is testing a new method of
sequestration of carbon in semi-arid lands, a method that if
successful, will add to the agricultural capability of vast
areas of the globe while sequestering significant amounts of
carbon.
B. A Technology Strategy is Required to Take Technology from
Demonstration to Commercialization.
To ensure that coal based generation can contribute to the future
electricity requirements of the country, any national energy policy
must include a strategy to move these new technologies from development
and deployment to commercial use. In addition to continuing R&D
programs that address long term technology needs to improve efficiency
and reduce emissions from coal based generation (such as that described
above), two additional elements are needed:
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
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 risks inherent in
using ``first of a kind'' technologies, a risk the utilities
cannot take in this new era of deregulation.
The elements of such a proposal are being developed.
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 enrgy security. A sound national
energy policy should be one that balances energy with environmental
protection, these are not mutually exclusive objectives and both can be
achieved with benefits to our economy and society at large. Of
necessity, our greatest and lowest cost domestic energy source coal--
can and should be the major source of energy for the electric
generating industry of the future. We look forward to working with the
committee to make our energy future, and coal's future, a reality.
Mr. Barton. Thank you, General. Thank you for those kind
words, also, about some of the legislation that I have
sponsored.
We would now like to hear from Mr. Paul Bailey, who is Vice
President of the Environment at 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 is in the record. We ask you to
summarize it in 7 minutes.
STATEMENT OF PAUL C. BAILEY
Mr. 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.
EEI is the association of the U.S. investor-owned 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 electric
utility 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 dramatically reduced air
emissions, while electricity generation from coal-fired power
plants has doubled.
While an air emissions policies will have a significant
impact on our future energy choices, other policies will also
play a role. These include clean water, waste disposal, the re-
licensing 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
hydroplants 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 in
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 led
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 opposed closing
offshore 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 will not 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, EEI, along with its members, has been
seeking such new approaches. We have 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 have initiated today of the long-term
prospects for energy supply options and the cumulative impact
of our environmental regulatory agenda on future energy policy.
Thank you, Mr. Chairman.
[The prepared statement of Paul C. Bailey follows:]
Prepared Statement of Paul C. Bailey, Vice President, Environmental
Affairs, Edison Electric Institute
Good morning, Mr. Chairman and Members of the Committee. I
appreciate the opportunity to appear today on behalf of the Edison
Electric Institute (EEI) and the electric utility industry to address
the U.S. energy policy with respect to nuclear and coal power.
My name is Paul Bailey, and I am the Vice President for
Environmental Affairs for EEI. EEI is the association of the U.S.
investor-owned electric utilities and industry affiliates worldwide. We
have 200 member companies in the U.S. and 50 affiliate members in 18
countries.
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. Twenty-four states have
already acted to deregulate and we are witnessing the transformation of
the electric utility industry, which will entail substantial changes in
fuel mix for power generation over the next two decades.
As you are aware, policy-making is difficult without knowing the
future consequences of decisions made today. This is certainly the case
with respect to the electric utility industry. There are a number of
major challenges on the horizon with respect to the future of
electricity supply that have been raised by recent regulatory
initiatives in the area of environmental policy.
Most in this room are probably too young to remember the ``energy
crises'' of the 1970s and the 1980s, the consequence of which was an
intense focus by Congress, the public and the media on energy policy.
Today, despite recent spikes in gasoline, heating oil, and electricity
prices, energy policy is not a topic of concern. This doesn't mean that
energy policy is not an issue. It's just as important as it was in the
last two decades, but it's being made today with little or no public
discussion.
When the nation was grappling with the energy crises in the 1970s
and 80s, it was in the context of a vigorous and evolving body of
environmental policy with public support. Energy policy had to be made
in the context of environmental policy goals and one of the debates was
over the appropriate balance between two sets of legitimate policy
goals.
Today we have a strong environmental regulatory framework, the
operation of which has the effect of making energy policy by default.
The implications of environmental policy-making for future energy
supply are no longer subject to public scrutiny. In essence, energy
policy is now being driven by environmental policy. Energy security and
environmental protection are worthy national goals that must be
balanced and harmonized. In that regard, the United States has
dramatically reduced air emissions while electricity has fueled
economic growth. At the same time that the nation has doubled
generation from coal-fired power plants, we have reduced electric
utility emissions of sulfur dioxide (SO22) and nitrogen
oxide (NOX) emissions. SO22 emissions fell by 30%
from 1970 to 1997 and under Phase II of Title IV of the Clean Air Act
Amendments of 1990 will be capped at 60% below 1980 levels.
NOX emissions have also declined and will continue their
downward trend with the implementation of the second phase of Title IV
this year. (See Figure 1).
There are other regulatory policies dealing with other air
emissions and greenhouse gases that have an impact on future fuel
choices for the generation of electricity. In addition, there are other
regulatory policies addressing areas such as cooling water intake,
waste disposal, the re-licensing of nuclear and hydro plants, and
energy siting and drilling constraints.
Environmental and policy actions have the effect of removing
certain fuel options today from consideration for tomorrow's energy
supply. However, there is no serious public consideration of whether
the consequences of those policies are acceptable. This is especially
true of electricity where the generation of power is based on a number
of fuel sources. Our economy is becoming increasingly electricity
intensive as we move into the 21st century. We will need all fuel
options for the generation of electricity to support the continued
growth of the American economy. But the long-term prospects for the
current inventory of available options are highly uncertain.
Let me highlight just a few examples. Today our electricity is
generated by coal (56%) nuclear power (20%), natural gas (11%),
hydropower (10%), some oil, and some renewables.
Nuclear energy accounts for 20% of our generating capacity, but
over the next ten years 10% of the plants must be re-licensed (2010),
and by 2015, 40% must be re-licensed. The availability of nuclear power
will depend on the decisions made during the re-licensing process. In
addition, there is further uncertainty raised by the still-unresolved
issue of the permanent disposal of nuclear waste.
Hydroelectricity accounts for 10% of our generating capacity, but
between now and the year 2020, the operating licenses of 239 hydro
plants will expire, representing more than 25% of total hydro
generating capacity. The re-licensing process is long and arduous and
it is an open question whether the renewed licenses will include
further operational constraints on the power generating functions of
these dams in order to achieve environmental policy objectives, which
could render even licensed facilities uneconomic. In addition,
consideration is being given to breaching dams in various regions of
the nation as a means of restoring fish migration routes.
The situation for coal-fired generation is quite different. Here it
is not a matter of getting a new license to operate. There are a number
of environmental regulations recently initiated, or soon to be
initiated, that focus on coal-fired electricity. These regulatory
policies are wide-ranging and include the recent NOX SIP
Call Rule, the pending 126 Petition Rule, impending rules on New Source
Review, the recent EPA enforcement actions, regional haze rules, and
the possibility of a new regulatory program focusing on mercury
emissions. (See Figures 2 & 3). The cumulative effect of all these
rules for the generation of coal-fired electricity have not been
considered, but it may not be inaccurate to suggest that there is an
issue of whether a number of coal-fired generating plants are going to
operate at all. In fact the reliability of the power supply could be in
question, as it relates to the implementation of the NOX SIP
Call Rule and 126 Petition Rule. EPA has set an unrealistic, arbitrary
compliance deadline of May 2003. The agency has been deaf regarding
cautions as to the potential for near-term power supply interruptions
resulting from the complexity of equipment retrofits and the short
implementation schedule. For instance, a recent study suggests that
already capacity short areas of the Midwest could see a ``sizeable
reliability risk'' as utilities attempt to retrofit a large portion of
their baseload power plants to comply with these rules--a risk that
could be lessened or removed, simply with a more appropriate
implementation scheme.
In terms of the future of generation, including coal, the
combination of environmental policies on the fuel choices that I've
mentioned today and electricity deregulation, have led utility and non-
utility power suppliers to opt for natural gas. Clearly, natural gas
will be an extremely important component of the future generation mix.
It's role is expected to increase and replace some coal and nuclear
baseload capacity. 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.
Finally, the siting and building of gas pipelines raises environmental
issues that can delay or impede construction and thus increase costs.
As the case of natural gas suggests, there is no fuel choice
panacea, thus underscoring the importance of the interplay between
environmental and energy policies for this country's long-term energy
future.
This is not, Mr. Chairman, to say that the lights are going out.
Viewing the uncertainties in each of the fuel options for generating
electricity helps us define the electricity supply issues that are now
looming large on the horizon. In short, I'm trying to illustrate the
point that we are making decisions today that may remove or severely
restrict tomorrow's fuel options for the generation of electricity.
Until today, Mr. Chairman, there has been no one even raising the
question, and I thank you for your leadership in that regard.
In closing, let me suggest a few guidelines that I hope the
committee will find helpful:
First, there is a tendency to consider the implications of
individual environmental regulatory initiatives separately, without
considering the cumulative impacts of those initiatives on energy
supply. For example, the timing and lack of harmonization of the
NOX SIP Call Rule and 126 Petition Rule have the potential
to cause short-term power supply interruptions. Taking the broader
perspective suggested in my testimony will be helpful in defining key
energy policy issues for public scrutiny and decision.
Secondly, we should celebrate the successes of our nation's
environmental policies, but also recognize that we may be approaching
the point of diminishing returns. We are now trying to regulate at the
margin, where the cost of each additional ton or pound of emission
reduction may be very high. In order to preserve future fuel options,
including coal, a consideration of alternative regulatory approaches is
in order, in the context of the energy supply issues raised here today.
We should compare the traditional command-and-control approach with
policies that encourage greater regulatory flexibility, market-based
incentives rather than prescriptions, and performance rather than pre-
ordained standards.
As an example, EEI has been in the forefront of developing new
approaches. We have been engaged in discussions that would integrate
the various air regulatory initiatives faced by coal-fired electric
utilities in exchange for flexibility in achieving emissions goals and
regulatory certainty. We believe this approach has the potential to
help us to meet air quality goals at a lower cost.
However, we should not make the same mistake we've made in the
past. The energy policy issues raised here today should be considered
along with environmental policy issues. I urge the committee to
continue the examination you have initiated today of the long-term
prospects for energy supply options and the cumulative implications of
our current environmental regulatory programs for the future.
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Mr. Barton. Thank you, Mr. Bailey.
We would now like to hear from Mr. Steve Gehl, who is the
Director of Strategic Technology Alliances for Electric Power
Research Institute, which we call EPRI.
Your statement is in the record in its entirety. We would
ask that you summarize it in 7 minutes, sir.
STATEMENT OF STEPHEN M. GEHL
Mr. Gehl. Thank you, Mr. Chairman, and good afternoon,
members of the committee. Thank you for the opportunity to
comment on the role of coal power and the national strategy and
policy. I would 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 or 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 of 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 Roadmap, in DOE's Vision 21,
and 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 have 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 Roadmap 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 a 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 the
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 one-half of 1
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 scare 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 would like to conclude with the following
recommendations. First, we must 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 policymakers,
scientists, and technologists to assure the cost effective
approaches for long-term reduction of greenhouse gas emissions.
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.
[The prepared statement of Stephen M. Gehl follows:]
Prepared Statement of Stephen M. Gehl, Director, Strategic Technology
and Alliances, EPRI
Mr. Chairman and Members of the Committee: Thank you for this
opportunity to address the Subcommittee on Energy and Power. I would
respectfully request that the Subcommittee enter the following written
remarks into the record as well as my oral testimony.
EPRI commends the leadership of the Subcommittee in addressing the
critical issues surrounding the continuing roles of nuclear and coal
power in our national energy strategy.
EPRI, the Electric Power Research Institute, was established 27
years ago as a non-profit, collaborative R&D organization to carry out
electricity-related supply, delivery, end-use, and environmental R&D in
the public interest. EPRI has been supported voluntarily since our
founding in 1973, and we have from the outset enjoyed the strong
support of the state public utility regulatory commissions. Our
members, public and private, account for more than 90% of the kilowatt-
hours sold in the U.S., and we now serve more than 1,000 energy
companies and related institutions in more than 40 countries. EPRI
operates as an independent technical organization maintaining access to
and engaging the best technical talent in the world. Over nearly three
decades, EPRI has established a global network of technical and
business expertise that can be brought to bear to solve the toughest
energy and environmental problems.
I would like to emphasize four points in this testimony:
i. achieving the goals of global universal electrification and enhanced
environmental quality will require a robust portfolio of power
generation technologies.
EPRI has developed an Electricity Technology Roadmap to identify
societal goals and aspirations over the next few decades, and the
electricity-based technologies needed to meet these goals. (The
Executive Summary of the Roadmap is attached to this written
testimony.). Based on this work, it is clear that an important driving
force for the world's energy future will be the environment including
climate change risks. It is equally clear, however, that environmental
issues cannot be resolved without simultaneously addressing economic
development issues. In fact, it is the current unavailability of
commercial energy to nearly half the world's population that is the
greatest threat to the environment and to global security in the new
century. Our first priority should be to achieve efficient, universal
electrification on a global basis. This will provide the essential
infrastructure needed for sustainable productivity growth, efficient
use of all resources, decarbonization, plus significantly reduced
competition for politically unstable sources of petroleum.
Consistent with this goal, the U.S. needs an integrated
environmental and energy policy that allows us to meet our
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. While projections out to 2050 and beyond are
speculative, we can draw some general conclusions. First, the needed
energy portfolio must include fossil fuels (coal and natural gas with
sequestration of CO2), nuclear energy and renewables, plus
end use efficiency improvements, and the growing use of hydrogen as an
energy carrier. Second, electricity will be fundamental to the
marketability of this broad energy portfolio in its cleanest form for
both stationary and mobile energy needs. Thus EPRI's electricity
technology roadmapping analyses indicate that a robust mix of energy
technologies will be needed to confidently meet rapidly growing
domestic and global needs for electricity. Unfortunately, these
technologies are not yet commercially available and the current levels
of investment in developing them are insufficient to assure timely,
broad-scale deployment.
ii. coal can play a continued important role in the electricity
generation portfolio if we develop a suite of advanced technologies for
coal utilization.
Coal now provides about 55% of U.S. electricity generation, and
about one third of electricity generation worldwide. Moreover, despite
growing contributions from natural gas and renewables, we anticipate
that coal will continue to be the backbone of global electricity
generation well into the 21st century. It is a vast resource in key
markets as diverse as the U.S., Canada, China, and India, all with
strong economic and security incentives to use their indigenous
resources.
However, the continued use of coal will be predicated on improving
its energy conversion efficiency and environmental performance while
retaining coal's cost advantage. Several advanced technologies for coal
utilization are under development. Clean-coal technologies, such as
integrated gasification combined cycles (IGCC) and pressurized
fluidized-bed combustion (PFBC), have the potential to achieve >50%
electricity conversion efficiency at the same cost of electricity as
equivalent natural gas combined-cycle systems. Compared with natural
gas, coal has a significant fuel cost advantage that offsets the higher
capital cost of coal-based options. Current forecasts indicate that
these technology advances have the potential to make new clean-coal
generation competitive with gas on a cost-of-electricity basis in the
2010 to 2020 timeframe.
As another example, DOE's Vision 21 program includes a coal
refinery or ``powerplex'' concept with hydrogen separation, chemical
production, and carbon dioxide sequestration in addition to electricity
generation. The result would be a far more efficient and complete
utilization of coal's total resource value. But this technology will
require major infusions of R&D funding beyond currently planned
expenditures to achieve commercial viability before 2020.
Ultimately, the factors that will limit the long-term future use of
coal, as well as other fossil fuels, are the carbon dioxide
(CO2) emissions and the resulting effects on climate.
Economic carbon capture and safe, long-term storage technologies can
extend the environmental lifetime of fossil fuels within a global
carbon emissions budget. Sequestration reduces the ``net CO2
venting'' of fossil fuel use, either by capturing the CO2 at
the point of generation and storing it over the long term in sinks, or
by transferring CO2 from the atmosphere. Potential sinks
include geological formations and terrestrial ecosystems, as well as
the ocean. The worldwide terrestrial carbon reservoir is larger than
the atmosphere, and the ocean reservoir is larger still. Many
environmental, chemical, and physical challenges remain to be resolved,
however, as part of the larger R&D agenda in this area.
Sequestration is valuable for both the carbon reduction it achieves
and its role in moderating the risk of investing in future fossil-fuel-
based generation. That risk hinges on the uncertainty regarding future
limitations on greenhouse gas emissions. However, the availability of
low-cost sequestration has the potential for removing or at least
weakening the linkage between fossil fuel usage and carbon emissions.
This would give the potential investor greater confidence in deploying
and operating fossil (and in particular, coal) plants.
iii. 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 Roadmap documents the funding shortfall in
several key technology areas and concludes that incremental additional
funding of approximately two billion dollars per year ($700M per year
for coal technology) over the next 10 years is needed to resolve the
energy/carbon conflict with the urgency anticipated in public policy
proposals. This reinforces the recent reports by the President's
Council of Advisors on Science and Technology (PCAST) concerning the
need for increased clean energy development funding, and a forthcoming
report of the National Coal Council addressing the need for carbon
sequestration research and development, and development of advanced
clean coal generation options. Increasing the funding for development
of the coal option will create the needed leadership focus and
incentives to stimulate formation of the public/private consortia that
must conduct the range of needed R&D, and commercially deploy the
resulting clean energy technologies.
Failure to maintain coal as a key element of national and global
energy strategy can have disastrous consequences. Recently, EPRI
conducted a study to evaluate the combined economic and market impacts
of current policy direction, as defined by a series of reductions in
emission limits of sulfur dioxide, nitrogen oxides, and CO2,
planned to occur over the next decade. The overarching conclusion of
the study is that the current policy direction fails to coordinate and
reconcile these proposed emission reductions with realistic timelines
for the development and deployment of the technologies required to make
the reductions efficiently. This is particularly the case for
CO2 emissions. Moreover, the relatively short horizon of the
proposed regulations does not allow sufficient time to make a
transition to a sustainable U.S. energy system without excessive
disruptions and risks. As The Energy Daily commented last week in an
article on the EPRI study, ``In layman's terms: It would waste a lot of
money, and it might not even be possible.''
Avoiding the trap posed by near-term emissions regulations will
require:
an accelerated effort to improve the efficiency of fossil
generation and develop advanced technologies for carbon
management; and
close coordination of the efforts of policy makers,
scientists, and technologists so that emissions regulations
reflect both a scientific rationale for reducing emissions and
the availability of cost-effective technologies to meet the
regulations.
Finally, although these comments focus on coal-based electricity
generation, there are clearly many parallels between the likely future
of the coal option and that of nuclear power. Like advanced coal
technologies, nuclear power can play an important role in fostering
domestic energy security and protecting the environment. And like coal,
the future of nuclear power can be jeopardized by failure to
aggressively develop advanced technologies for the economical power
plants of the future. DOE/industry initiatives such as the Nuclear
Energy Plant Operations (NEPO) and Nuclear Energy Research Initiative
(NERI) are important steps in providing the needed leadership and
research funding. However, as in the case of coal research, additional
funding is needed to assure the timely availability of nuclear energy
solutions to U.S. and global energy needs.
iv. public/private collaborative efforts are critical to developing a
portfolio of commercially viable generation technologies
Fourth, I want to emphasize the importance of a public/private
collaborative approach to the comprehensive energy R&D initiative
needed to develop advanced coal utilization technologies. Collaboration
is the most effective way in EPRI's experience to ensure that the
necessary resources are committed and properly focused on results that
make a difference. Importantly, this means that industry should be a
partner in financing, defining, and managing the R&D efforts. This
means also that the current trends in both private and public sector
energy-related R&D investment must be reversed.
The lack of realistic incentives for R&D investment by the energy
industry and its suppliers--given the need that exists--is alarming.
The U.S. energy industry today invests about 0.5% of its revenues in
R&D, and the trend is downward. In comparison, the overall U.S.
industry average is around 7%. Energy has been, and remains, at the
bottom of the R&D investment ladder, a prescription leading to a
precarious and threatening future, especially given the increasingly
central role that energy will play in global economic and environmental
issues in the 21st century.
U.S. federal energy R&D funding is also at its lowest level in 30
years relative to GDP. We believe the reasons for the broad decline in
federal energy R&D support include the current availability of cheap
energy and competing energy constituencies whose advocacy arguments
tend to cancel each other out. At the same time, state and local R&D
funding programs naturally tend to address needs specific to their
constituencies in preference to broader collaboration on issues of
strategic national and international importance.
With private-sector budgets cut and refocused on near-term results,
collaborative efforts enable companies to explore R&D options that
otherwise would be screened out, and to pursue opportunities for a
longer time horizon. At the same time, it permits federal dollars to be
stretched. Thus, the alignment of public and private support permits
the leveraging of increasingly scarce R&D dollars on issues of joint
importance.
conclusion
I would like to conclude with the following recommendations:
1. Recognize that policies to reduce greenhouse gas emissions must
encourage universal global electrification, particularly in the
developing world, as the foundation for economic growth and
environmental protection.
2. Develop a broad portfolio of advanced technologies--including coal-
based options--to meet U. S. and global needs for generation,
energy security, and greenhouse gas reduction in an
increasingly diverse world.
3. Coordinate the efforts of policy makers, scientists, and
technologists to assure cost-effective approaches for the long-
term reduction of greenhouse gas emissions.
4. Increase R&D support for the coal option, and create the initial
leadership and incentives for the formation of public/private
consortia to fund and conduct the needed research, and to
deploy the resulting technologies.
Thank you for your time and attention, and I welcome your questions
and comments.
Mr. Barton. Thank you, Mr. Gehl.
We would now like to hear from, last but not least, Dr.
Harold, is it Schobert?
Mr. Schobert. Yes, sir.
Mr. Barton. He 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. We ask you to summarize it in 7
minutes.
STATEMENT OF HAROLD SCHOBERT
Mr. Schobert. Thank you, Mr. Chairman. Never in my life had
I had an introduction like that.
I would like to point out, sir, that the usual resemblance
that has been mentioned is Jerry Garcia.
Mr. Barton. Well, that is what my Democrat friend, Mr.
Boucher, says.
Mr. Schobert. 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. 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 of coal in that area for quite some
years to come.
In preparing 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 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. Some of
these, at least, derived 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 mostly by the national laboratories in various
universities, with support from the Federal Government.
I would like to give you just two examples of what I mean
by that. The first is an example that bears directly, not only
on our energy economy, but our national security. 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 underway. 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 is in use now is used
also as a coolant on the aircraft, it will decompose to form
carbon in the fuel line or burn a nozzle. 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. 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, okay,
carbon material, that is not really burning the coal, so it is
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, and therefore
require substantially less gasoline. We have heard both from
this panel and the previous panel on the concern for imported
oil, and the effect 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, and I do not
know whether I stole it from Mr. Kripowicz, or vice versa, but
I have been paraphrasing the Oldsmobile ad that said, and you
may have seen it on television, ``It is not your father's
Oldsmobile.''
Well, what we are looking at in the 21st century is not
your father's coal industry, either. It is going to be a great
one, but it is going to be very different.
So, Mr. Chairman, I thank you.
[The prepared statement of harold Schobert follows:]
Prepared Statement of Harold Schobert, Director, The Energy Institute,
and Professor of Fuel Science, C211 Coal Utilization Laboratory, The
Pennsylvania State University
Mr. Chairman and members of the Subcommittee, I am pleased to be
here today to discuss aspects of the role of coal in a national energy
policy. My perspective is two-fold. First, as Director of The Energy
Institute at Penn State University, I have some appreciation for what
is possible to be achieved with coal, and how research and development
on coal can help us achieve national energy goals. Second, in my role
as Professor of Fuel Science, I regularly teach an introductory,
general course on energy to our future taxpayers and voters. In that
course we discuss the pros and cons of a variety of energy sources--
coal, nuclear, petroleum, gas, and renewables.
Introductory comments
The ways that we use coal are undergoing a major change as we move
into the 21st century. These changes are happening. They provide both
opportunities and challenges for the coal industry. The changes result
from environmental considerations and from technological innovation.
One of the changes is driven by regulation and legislation on
environmental issues. These include the 1990 Clean Air Act Amendments
and possible future limitations on greenhouse gas emissions. The second
major change is in growing markets for clean liquid fuels, specialty
chemicals, and advanced, ``high-tech'' carbon materials.
Certainly there are those who, once again, are sounding the death
knell of the coal industry. I contend there's a lot of life in the old
corpse yet. The Energy Information Agency (EIA) predicts that coal will
continue to dominate electric power production well into the first
quarter of this century. New technologies are being designed to burn
coal more efficiently and to eliminate emissions. Furthermore, the 21st
century will be the ``carbon century'', with carbon materials
proliferating into new markets in industries and consumer products.
These changes are coming. They are starting to happen now. Coal is
transitioning for a new role in a new century. The nay-sayers are
wrong. Coal will have a vibrant and exciting future. But, to paraphrase
the car ads that claimed ``It's not your father's Oldsmobile,'' it's
not going to be your father's coal industry, either.
Listening to the barrage of problems, criticism, even invective,
facing the coal industry, it is easy to forget that coal is the
backbone of America's energy economy. The majority share of electric
power production, as well as much process and space heating, belongs to
coal. Most of us have heard some of the proposals that would adversely
affect the coal industry: a carbon tax, reliance on natural-gas-fired
turbines for electric power generation, carbon dioxide reductions,
mandates for using ``renewables'', and of course the tired old epithet
that ``coal is a dirty fuel.'' Global warming--real or imaginary,
friend or foe . . . carbon dioxide emissions--a threat to the planet,
benign, or good for agriculture . . . while the debate rages on, the
debaters occasionally pause long enough to agree on one point: coal is
the ``bad guy.''
According a 1995 EIA estimate, coal reserves are about a trillion
tons worldwide, more than 235 times the world's annual consumption.
Unquestionably, coal has great potential as a future source of energy.
There is little doubt that coal combustion must continue as a major
contributor to the energy economy for the near- to mid-term future.
However, environmental pressures may militate against expanded markets
for coal as an energy source, and the problem is likely to be carbon
dioxide emissions. The National Research Council (NRC) pointed out in
1995 that, ``Of all the environmental issues facing the future use of
coal, none is as potentially far reaching as the worldwide concern over
global climate change''. The heat generated in arguments about the
Kyoto Accord sometimes seems to be about as large as the heat generated
by burning the world's annual coal production. It is likely that
environmental pressures on present-day, conventional coal utilization
will only intensify. This factor, taken by itself, would cause us to
question the long-term future of the coal industry. Environmental
issues also severely impact the metallurgical coke industry, the
present source of most chemicals from coal. The traditional coal
industry and coal markets in the dawning of the 21st century are under
increasingly intense assault.
The immense reserve base of coal shows that it can be a significant
contributor to the world's energy markets for decades, likely
centuries. But why waste coal by burning it? Steady progress in
understanding the molecular structures of coals places us on the verge
of being able to do rational chemistry with coals--that is,
deliberately to select specific coals as starting materials to produce
specific, selected high-value chemical products. This opens a route to
chemicals from coal that does not rely on by-product coal tars--or on
the metallurgical coke oven--as the feedstock. The molecular structures
in coals could be ideal ``monomers'' for the aromatic polymers and
engineering plastics that have burgeoning applications and markets. At
the same time, tremendous opportunities also exist for coals as
precursors to high-value carbon materials. Taking coal in these
directions--high-value chemicals and premium carbon products--
represents profitable opportunities for innovation, leadership, and new
directions for the coal industry in the 21st century.
Electric power generation
In preparing this testimony, I have assumed that others testifying
to this Subcommittee today will discuss applications of coal in the
electric industry in some detail; so, my own remarks on this topic will
be limited. By far the largest market for coal in the United States is
electric power generation. Between half and two-thirds of our
electricity comes from coal-fired plants. As I face a new crop of
students each semester, I never cease to be amazed by the number of
people who have no idea that coal is the fundamental basis of our
energy economy.
New and forthcoming regulations under the New Source Performance
Standards will force utilities to become much more efficient. In the
past, emission regulations were based on the firing rate; that is, they
were expressed in ``pounds per million Btu.'' New regulations will be
based on the generating capacity of the plant, in ``pounds per
megawatt.'' As a result, the more efficient plants--those able to
generate a greater number of megawatts per ton of coal consumed--will
enjoy a tremendous advantage.
This leads to a new vision for energy generation in the 21st
century. Appropriately, it's called ``Vision 21.'' A Vision 21 plant is
more than a facility for generating electricity. The new plants,
sometimes called ``energy-plexes,'' will be highly efficient and very
clean plants that produce not only electricity with near-zero
emissions, but also steam, clean liquid fuels, chemicals, and possibly
hydrogen, all from a single facility. The Department of Energy (DOE)
expects that Vision 21 plants will be commercialized around 2015.
Vision 21 plants will be the largest single user of coal, and will
eventually replace existing power plants. The Vision 21 concept has
been endorsed by the President's Committee of Advisors on Science and
Technology. The plants fit the strategic goals of the National Mining
Association's Technology Roadmap for the Mining Industry and the
President's climate change initiative.
Coals vary widely in their compositions and properties. Vision 21
energy-plexes need to be designed from the ground up for a particular
kind of coal. To build the foundation for commercialization of Vision
21, research and development are underway today.
Liquid aviation fuels
Oil production is expected to peak some time between 2010 and 2020.
That assumes that there will be no disruptions to the current oil
supply as a result of military conflicts or more effective control of
the supply by oil-exporting countries. Regardless, the question of how
liquid aviation fuels will be made after 2020 is timely, given the
large lead time to develop an alternative fuel source for our very
large liquid fuel market. Here in the United States our cars, trucks,
and buses burn more than 140 billion gallons of gasoline and diesel
fuel annually. The Air Force alone uses about three billion gallons of
jet fuel each year, about 10% of the U.S. market for aviation fuel.
Complicating this situation is the fact that the United States has a
significant, and growing, dependence on imported petroleum. American
Petroleum Institute statistics for the week of April 14 show that our
imports of crude oil and petroleum products were 11,135,000 barrels/
day, which represented 69% of the total refinery input of 16,111,000
barrels/day. We are ``hooked on oil.'' Clearly, the dependence of
military readiness and response capability on a vital material such as
fuel, which is less and less a domestic resource, represents a grave
security threat.
Projected trends in future energy utilization do not provide much
cause for optimism. Global primary energy demand is expected to climb
by 40% by 2010, and fossil fuels, which today provide at least 90% of
the energy in most industrialized countries, will still account for
about 90% of that greatly increased total. Approximately 80% of the oil
currently being produced comes from fields discovered before 1973.
Production from many of those fields is now declining; within the next
decade the supply of readily accessible crude oil will not be able to
keep up with demand. If China, India, and the Third World nations were
to industrialize by 2020 to the level enjoyed now by the United States,
their energy demand would require a three-fold increase in oil
production. Of course, with the demise of the former Soviet Union,
additional petroleum reserves may become available in the west. Already
there is considerable interest in the Caspian Sea deposits controlled
by the Central Asian republics of Kyrgyzstan, Uzbekistan and Tajikstan.
However, this oil source may not have a significant impact in the 2010
time frame.
Reliance on foreign oil sources also imposes substantial ancillary
costs. In 1996, the Persian Gulf OPEC nations controlled 70% of the
world's crude oil reserves; all OPEC nations together totaled 84% of
crude reserves. A study published by analysts at RAND has shown that
the Pentagon spends up to $60 billion per year to protect the $30
billion of Persian Gulf oil imported into the United States. In other
words, every dollar's worth of oil coming into the U.S. from the Gulf
costs two dollars to protect. Given this perspective, it's important
for us to remember that coal constitutes over 94% of proven American
fossil fuel reserves, and coal utilization in the United States will
not be resource-limited at any time at least through 2040. Furthermore,
we possess 24% of the world's coal reserves. Clearly, coal represents a
potential source of aviation fuels and other clean liquid fuels that is
domestic-based and thus provides a secure source well into this new
century. The situation has been expressed eloquently by Richard L.
Lawson, president and CEO of the National Mining Association, who has
stated that, ``There is no such thing as a bad domestic energy
resource.''
Though current jet fuels (JP-8 for the Air Force and Jet A/Jet A-1
for commercial aviation) are made from petroleum, there is a vital need
to assess the capability of coal to augment the supply of aviation fuel
in the future. In addition to meeting concerns about supplies, new
aviation fuels will need to meet increased thermal stability
requirements, caused by the higher temperatures and higher heat loads
in future aircraft. Two target fuels have been identified with
increased temperature capability above JP-8 (whose maximum useable
temperature is 325 deg.F): JP-8+225 (550 deg.F maximum) and JP-900
(900 deg.F maximum). The goal of present research and development on
the use of coal for aviation fuels is to determine the suitability of
coal-based aviation fuels as candidate JP-900 fuels. Of course, this
must be done economically and must result in fuel that meets the
thermal stability and combustion requirements of current aviation
fuels. Given current economic constraints, coal-based fuels will not be
produced in stand-alone coal-conversion plants, but will be
incrementally incorporated into existing refinery operations.
The NRC has forecast that, ``by the second decade of the twenty-
first century . . . the cost of synthetic fuels [will be] reduced by
process and systems advances and . . . concerns over the supply and
price of competing fuels [will] increase''. Indeed, all of us have seen
the recent increase in petroleum prices, especially at the gas pump. As
indicated above, our dependence on imported oil has increased
significantly. DOE statistics show that, between 1985 and 1997, the
importation of petroleum more than doubled, from 4.3 to 8.9 million
barrels per day. Three years later, it's up to 11 million barrels per
day. Therefore, it is prudent--in fact, vital--for the United States to
have a research and development program on coal-based alternative
liquid transportation fuels, because coal is our most abundant energy
source. We've seen gasoline prices double--or worse. We've seen
truckers and farmers protest the soaring price of diesel fuel.
Significant price changes in imported oil can have major impacts
throughout our economy. How many times do we have to repeat the lesson
before we've finally learned it? For the everyday consumer, the obvious
concern is gasoline prices; for industry and farmers, it's diesel fuel
prices. For our national security, a research and development program
must address the need for aviation fuels capable of meeting military
operational requirements to allow coal-based fuels to enter the
operational arena by around 2020.
Non-fuel uses--Carbon materials
The Energy Policy Act of 1992 calls attention (in Title XIII,
Section 1304) to the need for ``a program of research, development,
demonstration, and commercial application with respect to technologies
for the non-fuel use of coal, including--
``(1) production of coke and other carbon products derived from coal;
``(2) production of coal-derived, carbon-based chemical intermediates
that are precursors of value-added chemicals and polymers;''
To the best of my knowledge, the Energy Policy Act of 1992 was our last
serious attempt to have something resembling a national energy policy.
Here, I address some issues on carbon products from coal; I will later
touch on chemical intermediates.
What can we do with carbon? Everything. Already, we rely every day
on various forms of carbon, mostly in ways we seldom pay attention to.
Carbon purifies air and water. Carbon lubricates. Carbon helps make
steel and aluminum. Carbon is in our tires. Carbon rods are in
batteries; carbon ``brushes'' help electric motors work. Carbon is the
invisible workhorse of our daily lives. But with our new century comes
new and exciting roles for carbon.
Carbon fibers are stronger than steel, lighter than aluminum, and
corrosion-proof. Developing the technology to make carbon fibers at low
cost will kick off the next revolution in industry, even more
impressive than the way silicon technology revolutionized electronics.
Carbon foams are a third the weight of aluminum and ten times as good
at dissipating heat. ``Pyrolytic'' carbon has a role as heart valves
and other replacement body parts. The new world of carbon nanotubes has
wide horizons, with promising applications from wires only one molecule
thick to light-weight, high-capacity storage of hydrogen. Carbon is
emerging from its behind-the-scenes role as the invisible workhorse to
take center stage as the star of 21st century technology.
Where can we get these new carbon materials? By turning to the
oldest and richest source of carbon of all--coal. Coal is a carbon
material; most coals contain 80 to 95% carbon (neglecting the ash
residue). Most high-tech carbon materials are essentially 100% carbon.
The challenge is to develop the technologies for making these new
materials from our coals. The potential economic payoff is huge. A
valuable coal might sell for $50, and a high-tech carbon material also
for $50--but the coal is $50 per ton, and the carbon is $50 per pound.
Developing premium carbon products from coal is an initiative that
is in the direct national interest. Potential advantages for our nation
include (but are certainly not limited to) decreasing national reliance
on imported petroleum and petroleum products, improving fuel efficiency
and reducing vehicle exhaust emissions, and reducing total carbon
dioxide emissions. Since all coals are carbon-rich solids, they are
potential starting materials for other, higher value materials via
conversion to new carbon-based solids.
Activated carbons are used mainly as adsorbents for liquid- and
gas-phase applications. The amount of coals used worldwide for
producing activated carbons is about 200,000 tons per year. This
represents nearly half of the world's annual production of activated
carbons from all sources. Significant growth potential exists for this
product, primarily for water and air purification. The liquid-phase
applications of activated carbons from bituminous coals include water
purification, decolorizing, food processing, and gold recovery; the
gas-phase applications cover air purification, gas treatment, and
solvent recovery.
Molded graphite articles have a wide range of applications, from
high-tonnage uses as electrodes in electric arc furnaces, to specialty
graphites for high-technology needs in chemical vapor deposition and
epitaxial deposition devices. Manufacture of electrodes for steel
making was a $2.2 billion business ten years ago, and has now grown to
$3-3.5 billion worldwide. (In the United States, the market is $1-1.5
billion.) Currently, petroleum coke is used to make these graphite
articles. Consumption of petroleum coke by the graphite industry
amounts currently to 350,000 tons per year. About 7.5 million barrels
of ``coker feed'' are needed to provide coke only for the graphite
industry (not taking into account all the other applications and uses
of petroleum coke outside the graphite industry). The potential exists
to replace petroleum coke with coal. Displacing this coke with coal
would allow refiners to divert the coker feed into making lighter,
potentially more valuable products. Anthracites tried in commercial
graphitization processing have shown some potential for producing these
graphite articles. Meta-anthracite, of very limited value as a fuel
(selling for less than $25/ton) because of its poor combustion
performance, may be even better than the more conventional anthracites.
The value of meta-anthracite in graphite production would exceed its
value as a fuel by at least ten times.
Carbon/carbon composites have an array of applications: turbine
blades, clutches, and brakes in the aerospace industry; exhaust
nozzles, rocket nozzles, and afterburner components; connecting rods
and pistons in automobile engines; and sporting goods. When continued
research and development on carbon composites gets the price under $5
per pound (it's currently $8-10 per pound) an enormous potential exists
for their use in the automotive industry. There is a long-established
relationship between vehicle weight and fuel efficiency. Any saving in
vehicle weight translates directly into reduced gasoline consumption.
Since gasoline is the dominant petroleum product, this saving is
further compounded into a reduced demand for petroleum and reduced
reliance on imports. (For the week ending April 14, motor gasoline
production was exactly 50% of total refinery output.) Carbon-carbon
composites are about 40% lighter than aluminum and 80% lighter than
steel. Every 5% reduction of fuel consumption in the nation's vehicle
fleet represents a saving of a hundred million gallons of fuel. It is
not accurate to claim that every barrel of gasoline saved saves two
barrels of crude oil, since the other refinery products (jet fuel,
diesel, and so on) are valuable too. But, assuming that the only saving
would be in the crude equivalent to the gasoline itself, the potential
saving from a 5% reduction of fuel consumption is 2.4 million barrels
of crude. For the week of April 14, the OPEC ``basket'' crude price was
$23.77 per barrel. At these prices, the savings to the nation in cost
of imported petroleum would be nearly sixty million dollars for each 5%
reduction of gasoline used. It's important to note that this projected
saving is not a result of some government-enforced reduction in
driving, but simply through lighter vehicle weight achieved using
premium carbon products. The saving in gasoline also relates to a
saving in carbon dioxide emissions. Fuel economy also directly affects
other vehicle exhaust emissions, notably the unburned hydrocarbons and
carbon monoxide that contribute to smog formation. Replacing vehicle
components by lightweight premium carbon products will improve the fuel
efficiency; reduce emissions; and will impact our dependence on
imported petroleum.
The specialty carbon market is a $2.5-3 billion industry around the
world, and about $500-750 million in the United States. I touch on only
a few examples here. Molecular sieving carbons (MSC) are used
commercially for separation of gases, such as taking oxygen or nitrogen
from air. In the United States, MSC is used for air separation by Air
Products and Chemicals Inc. Likely, more companies will be engaged in
producing MSC as we move forward into the new century. Activated
anthracites are microporous with a significant fraction of the pores
having molecular dimensions; this suggests that molecular sieve
materials could be produced from anthracites. Coal tar pitches are raw
materials for carbon fibers, used in many applications including
carbon/carbon composites, and for mesocarbon microbeads (MCMB), used in
rechargeable batteries. A single, tantalizing trial of an anthracite,
selected with no particular care for its chemical or physical
properties, showed 75-80% of the reversible capacity that MCMB has when
used in lithium batteries. This suggests that, with appropriate
selection and perhaps some modest pretreatment, anthracite could be
used as an electrode material in these batteries. The cost differential
is enormous: about $18/lb for MCMB vs. 6 cents/lb for anthracite.
Liquids from coal extraction and liquefaction can be used for making
carbon fibers and graphitic materials. There are also potential
advantages in using coal-based coke for making carbon electrodes.
Non-fuel uses--Chemicals
Coals, as well as the other fossil fuels--petroleum, natural gas,
bitumens, and oil shales'' are hydrocarbon resources. In principle,
there are many ways of using valuable hydrocarbons. Burning them is
only one choice. Other utilization strategies, the so-called non-fuel
uses, also deserve attention. When combustion is the primary
application of a resource, as with coal today, it is easy to lose sight
of the fact that other alternatives even exist. Today, the major non-
fuel use of coal is production of metallurgical coke. About 500 million
tons of coke are produced annually in the world. Coal tars, a by-
product of this industry, remain an important source of certain types
of chemicals, called aromatic hydrocarbons. (Currently, the non-fuel
uses of fossil hydrocarbons in the chemical industry are dominated by
petroleum products.)
Evaluation of the potential for coal in future chemical production,
as with energy generation, presents a ``good news/bad news'' story. As
I've indicated, the good news is that the immense reserve base of coal
can be a significant contributor to the world's chemical, and energy,
markets for decades, and likely for centuries. The aromatic molecular
structures present in coals could be ideal feedstocks for the high-tech
polymers and engineering plastics that have burgeoning applications and
markets. The bad news is that the traditional source of coal chemicals,
liquids from by-product metallurgical coke ovens, is steadily
decreasing. So, as opportunities increase for applications and markets
for coal chemicals, the traditional source of those chemicals is in a
steep, and likely irreversible, decline.
It's easy to forget that, until about 1950, the world's organic
chemical industry was based on coal. Most of those chemicals derived
from coal tar, and, in turn, much of the coal tar was a by-product of
the metallurgical coke industry. The development of the coal tar
chemical industry, and its impact on the scientific development of
organic chemistry, represents heroic endeavors in industrial chemistry
and organic chemistry. This story has been told often, and well, in
various sources on the history of chemistry.
Despite the success that the coal tar industry once enjoyed as
provider for the organic chemical industry, and despite a growing
demand for aromatic chemicals for specialty polymers and other high-
value-added products, the future of the coal tar industry seems dim at
best. There seems to be a consensus that there will never be another
by-product coke oven battery built in the United States, in part
because of environmental constraints. This fact alone would cause the
coal tar chemicals industry to move out of the United States. Not only
that, it also appears that the coke industry may go ``back to the
future,'' in that future coke ovens may revert to a variant of the
earlier beehive oven. While beehive ovens certainly produce coke,
ironically much of the heat is generated by burning the by-product tar
right in the oven. In essence, the beehive oven works by burning up the
very materials one would want to save (at least for the organic
chemical business). The situation is made even worse because total coke
demand is decreasing, due both to improvements in blast furnace
technology that reduce the coke burden and, more importantly, to a
steady shift to electric furnace technology. Even if no other
constraints existed, coal tar production is tied directly to
metallurgical coke demand, and would likely be dropping in any case.
In the past half-century the organic chemical industry has been
taken over largely by petroleum- and natural-gas-derived feedstocks.
However, coal tar still reigns supreme in the market for complex
aromatic compounds. This is a market with great growth potential,
thanks to a steadily increasing demand for advanced aromatic
engineering polymers, high-temperature heat-resistant polymers,
thermoplastic polyesters, and related materials that will be made from
these specialty aromatic compounds. As I've mentioned, an interesting
situation confronts us: a market for a class of chemicals is increasing
steadily while the principal source of those chemicals is declining.
So, while we know that coal can supply the steadily growing demand
for these aromatic chemicals as precursors to the market for aromatic
engineering polymers and related advanced materials, we must also
recognize that the potential market demand cannot be supplied by coal
tar from coke ovens. The increasing demand for monomers based on
aromatic and phenolic compounds results from the significant growth of
markets for existing aromatic polymer materials, and from the rapid
development of advanced aromatic polymers--engineering plastics,
polyester fibers, polyimides, and liquid crystalline polymers (LCPs).
Using LCPs as an example, most, such as Celanese's ``Vectra'' and BP-
Amoco's ``Xydar'' are made from chemicals that could be produced from
coal. About 50% of the global market for LCPs is in the Asia-Pacific
region. Despite their cost, LCPs are enjoying 25% annual growth
worldwide and are fully expected to maintain that growth rate. There is
a clear need for developing alternative sources of aromatic chemicals
in the near future.
Concluding remarks
A new coal industry is dawning. The incentive comes from the
combination of the unique molecular nature of coals with the expanding
opportunities for aromatic specialty chemicals and monomers and ever-
increasing demand for carbon-based materials. At the same time,
environmental concerns about carbon dioxide emissions from combustion
may provide a disincentive for future construction of large coal-
burning power stations based on today's conventional technology.
Expansion of the non-fuel uses of all hydrocarbon resources, but
particularly coals, is desirable, because coal has the potential to
become more important as source not only of energy but also chemical
feedstocks and premium carbon materials in the next century.
This situation represents a subtle, but significant, shift in
thinking. Coal utilization in today's world is dominated by combustion
(not only direct combustion of the coal itself, then combustion of coal
products such as coke and synthetic fuels). Nowadays, the attitude
seems to be that if some amount of useful byproducts can be made along
the way, doing so represents just a small, added bonus. Instead, we
should view coal as a hydrocarbon source having multiple prospective
uses, all of which deserve equally serious consideration as prospective
uses for this valuable material. That is, coal is a resource that can
be converted to chemicals and polymers, to carbon materials, or to
energy. Combustion applications of coal will dominate in the near-term
and likely will remain important for decades, but to ignore now the
potential for alternative uses is only to short-change ourselves in the
future.
Mr. Barton. Thank you, Doctor.
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, so the Chair is going to recognize himself for the first
5 minutes of questions. I think we are going to be here until
at least 10, unfortunately. It is a recess until 3:45 on the
floor.
Mr. Kripowicz, when we passed the Clean Air Act amendments,
back in the early 1990's 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?
Mr. Kripowicz. To my knowledge, we have exceeded that goal.
I do not have the exact numbers; but, yes, we have met that
goal.
Mr. Barton. Coal was reputed to be the big culprit in
SO2 emissions. So if we have 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.
Mr. Kripowicz. And the use of low sulphur coal; the
combination of those two things has led to the reduction in
SO22.
Mr. Barton. Okay, I would like to ask General Lawson, since
you are here on behalf of the mining industry, when we have
some of our environmental group witnesses, they talk about,
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 and how much it costs,
the environmental damage mining it, getting it out of the
ground, and transporting it, we still should not be using coal.
Could you comment on that a little bit?
Mr. Lawson. Well, here is 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. In our records across the coal industry,
in terms of efficiency, we are twice as efficient as the No. 2
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 by accountants and financial advisors only,
last year.
Mr. Barton. Well, they do damage in other ways.
Mr. Lawson. And 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 not solve it with
technology, we will stop doing it.
Our record, I think, speaks for itself, across the country.
We doubled the use of coal in this country since 1976, and we
have reduced all emissions, despite doubling the use of coal.
We have reduced all emissions by more than 30 percent.
So our record here in this country will stand on its own.
As far as any other country on the face of this earth, we have
far out distanced them. We are now the standards that everybody
holds themselves up to.
Mr. Barton. Thank you, sir.
This would be for Mr. Kripowicz and also Dr. Schobert.
You talked about gasifying coal and 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 just as efficient and you get as much of the heat,
per ton of coal, by going through that process, as if you just
burn the coal directly? Dr. Schobert, you may want to comment
on that, also.
Mr. Kripowicz. Yes, you do, Mr. Chairman. Existing coal
plants operated at 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 is a third more efficient.
If we add new technologies that we are developing to make
those plants even more efficient, plus add the possibility of
using fuel cells and 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
existing coal plants.
Mr. Barton. Dr. Schobert, do you want to comment on that?
Mr. Schobert. Yes, sir, in terms of the net overall
efficiency of a plant that is starting with the chemical energy
and the coal, and electricity going into the bus bar at the
other side, I would agree with Mr. Kripowicz's statements. I do
not have the exact numbers, but certainly substantively, I
agree with him.
Mr. Barton. So environmentally, is there a downside to
doing it that way? And if there is no downside in terms of
efficiency, converting the coal to a gaseous state before you
burn it, what kind of an emission effect is there? Does it
enhance the emission effect, in terms of it being less
environmentally negative, or is it worse, or about the same?
Mr. Schobert. There are two concerns. First of all, during
the process of gasification and subsequent use in the plant, it
is 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 is one way to look at it. That has an immediate
and direct effect on carbon dioxide emissions.
Mr. Barton. Okay, thank you. My time has expired.
The gentleman from Virginia, Mr. Boucher?
Mr. 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 Marks.
Mr. Schobert. I would like to think that, sir.
Mr. Boucher. I will not compare your performance to Jerry
Garcia. He made a lot of money performing, but you did quite
well.
I am intrigued by your discussion of coal as 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 is 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.
Mr. Schobert. Okay, 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.
Mr. Boucher. Thank you. I will put it in my airplane, and
we will see what happens.
Mr. Schobert. Well, not necessarily; that might get me back
into the Karl Marks business, or Groucho, perhaps.
But let us put it this way, sir. Let us 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, and 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, in turn, requires
that coal be converted into those materials. I am running out
of my ability to do arithmetic in my head, but the market for
coal there is modest.
If that fuel then is to be transitioned into the entire
commercial fleet, the market for coal in that application would
be substantial.
Mr. 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?
Mr. Schobert. There are no accurate economic estimates on
this fuel, at the present time.
I will say two things, however. First of all, the Air Force
target is that it cost no more than five cents per gallon more
than the conventional JP8 fuel.
One of the processes that is being studied at present would
produce, at a bi-product material, some of these high tech
carbon substances that I mentioned in my testimony. If that
pays off, the profit from the high tech carbon material would
virtually pay for the jet fuel.
In that case, it would be perhaps even less expensive than
conventional petroleum derived fuel. However, there is much
work that has to be done to make sure that comes to fruition.
Mr. Boucher. That is really fascinating.
Are you getting any support in developing this fuel from
Mr. Kripowicz and other entities in the government, or perhaps
the Department of Defense?
Mr. Schobert. Presently, sir, our work is funded by the Air
Force Office of Scientific Research.
Mr. Boucher. And Exxon.
Well, thank you very much. I appreciate your bringing that
information to us today. I actually read an article in, I think
it was, ``Business Week'' about this, about 3 months ago. I was
hoping we would have some mention of this development here
today.
Mr. Schobert. Thank you.
Mr. 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 extent is that trend occurring, and if you have
information about it, what is the trend in terms of the
comparison between volumes of deep mined coal and surface mined
coal, that are being derived at the present time?
Mr. Lawson. I will provide the specifics on 1999 for you by
note. But just roughly speaking, we are at about 55 percent/45
percent, surface to underground, across the country.
Mr. Boucher. With surface being the higher number?
Mr. Lawson. Surface is the higher number.
The discussion earlier with regard to SO2 talked
about sulphur, and the amount of sulphur in coal. I think the
industry has made giant strides in the blending of coal, which
has permitted the Eastern coal, and 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 sulphur coal.
Also, its expense in producing that coal is significantly below
that. So it is on the increase, the Eastern coal, and Illinois
Basin coal.
Mr. Boucher. You are not talking in terms of numbers of
tons produced.
Mr. Lawson. Yes, sir.
Mr. Boucher. But in terms of a percent of the overall coal
market declining.
Mr. Lawson. Yes, sir.
Mr. Boucher. Can you tell me what the rate of that decline
is, as measured against the entire coal market?
Mr. Lawson. It has been about 2 percent, on an annual
basis. Again, I will give you the last decade, so that you can
get an idea of what that looks like.
Mr. Boucher. Okay, Mr. Kripowicz, I have one question for
you. Mr. Chairman, if you would indulge me just for a moment.
Mr. Barton. This will have to be the last question in this
round for you.
Mr. Boucher. It will be. Thank you.
Mr. Kripowicz, I understand that over the last couple of
years, there have been two basic sources of the funding that
you administer through 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 in funding for that latter
component; the basic coal budget within the larger fossil
energy research budget at DOE?
Mr. Kripowicz. The actual coal numbers have gone up
slightly in the past few years. They were on a decline until
fiscal year 1999. Then they have increased slightly in both our
2000 and our 2001 request, up to a figure of about $125 million
to $126 million.
Mr. 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; Mr. Gehl?
Mr. Gehl. Thank you. The analysis that I described earlier
suggests that we need, 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.
Mr. Boucher. Dr. Schobert?
Mr. 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.
Mr. Boucher. Okay, well thank you very much. Mr. Chairman,
thank you for your indulgence.
Mr. Barton. It is refreshing to know the Department of
energy is spending some money on real energy research, though.
I think, given all the other things they spend money on, it is
good they are spending it on this.
Mr. Whitfield, for 5 minutes.
Mr. 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, charged with violating the new
source requirements.
You said that Tampa Electric is the only company that had
entered into a settlement. As a result of that, they are going
to pay a $3.5 million fine, and retire significant coal
capacity. I was curious, that particular facility, it is
different than the Tampa Electric Polk Power station is it not?
Mr. Kripowicz. Yes, sir, that emits essentially no sulphur
oxide or no nitrogen oxide.
Mr. Whitfield. Because that is the new gasification.
Mr. Kripowicz. That is correct.
Mr. Whitfield. And that is quite clean, I understand.
Mr. Kripowicz. That is very clean.
Mr. Whitfield. There are, what, three of those around the
country?
Mr. Kripowicz. There are two in operation, and one that is
in start-out; that is right. There is one in Kentucky that is
doing an environmental impact statement now.
Mr. Whitfield. Is that the one that General Electric is
involved in?
Mr. Kripowicz. I am not aware of who is doing the turbines.
It is Global Energy that has the gasification technology. It
could be that General Electric is doing the turbines, but I am
not sure.
Mr. Whitfield. Does your office have a working group or
task force with the EPA, that you all meet on a regular basis
on coal issues?
Mr. Kripowicz. We do not have such an organization. But we
do have quite a bit of interaction with EPA, particularly when
we are trying to develop technology, prior to the formation of
regulations.
We have done that several times, particularly with low
NOX burners. We provided the information that
allowed them to provide a reasonable rule for low
NOX combustion.
We have done work that we have shared with EPA on air
toxics, which basically allowed them to not regulate toxics,
although we are working now on the possible regulation of
mercury.
All of those things we do in conjunction with EPA, and EPRI
has also been involved in some of those studies. We are looking
at strategies for PM2.5 and particulate monitoring, also.
Mr. Whitfield. Mr. Lawson, in responding to a question
asked by the chairman, he was talking about how coal use had
doubled over the last number of years, while emissions had been
reduced by 30 percent. 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 bias
against coal. Now do you agree with that statement or not?
Mr. Kripowicz. I know that they look at existing coal
plants very, very strongly. But also, their regulations are
regulations that can be met with existing technology. They also
look at health effects.
Mr. Whitfield. I would just like to ask the rest of the
members of the panel, do you think EPA has a bias against coal?
Mr. Lawson. Well, let me give you one example, sir. We, the
National Mining Association, own the three most sensitive air
measurement devices in existence.
EPA, about 6 months ago, endeavored to put out a regulation
that would have required a sensitivity that we did not have the
capability to measure with the most sensitive devices existing
in the world.
The people who made those devices for us said it would take
another 3 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.
Mr. Bailey. If I can add, I have been asked that question
before. I am always reluctant to impart motives to people that
I do not know that well.
Coal has been politically incorrect for probably a decade
or two. That is the way I feel about it. Whether there is 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 the regulatory programs that coal-fired power plants
face, just in the next decade. Forget what has gone on in the
past.
You can count probably a dozen programs that are going to
regulate the same two pollutants: SO2 and
NOX. At some point in time, those coal-fired power
plants do become uneconomic, because of that.
Mr. Whitfield. Do you two remaining gentlemen have any
comments on that subject?
Mr. Gehl. Yes, I would say that what we have tried to do is
to take a look at the consequences of the various regulations.
I think, along with Mr. Bailey, I am reluctant to assign
motives. But the net effect of current and planned regulations
would be to really make coal-fired generation an awful lot less
economical than it is now.
There is a thought that we would do a lot better if the
industry and the EPA collaborated more at the initial stages of
developing recommendations, rather than have this analysis come
in somehow in the middle of the process.
Mr. Whitfield. Mr. Schobert?
Mr. Schobert. Well, like my previous colleagues here, I am
not able to impart motives. But certainly, some of the
activities undertaken by EPA have seemed wrong handed 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 effect to America is, the lights will go out.
Mr. Whitfield. Right, well, I agree. Last Fall, the EPA
failed to support the policies adhered to by every
Administration since 1977, regarding the application of the
Clean Water Act valley fills. You could go on and on and on.
I mean, all of us are interested in cleaning up the
environment. The industry has made great progress. They are
reducing emission, using more coal, but EPA continues to push
for standards even more strict than even the Clean Air Act
calls for.
I think that they do have a bias. I hope that we can
maintain a dialog with them to understand that this industry
does provide about 51 percent of the electricity in the
country. We are not going to get away from it. We need to work
together in solving these problems, instead of adversely with
each other.
Mr. Barton. Does that conclude the gentleman's questions?
Mr. Whitfield. Yes, Mr. Chairman.
Mr. Barton. Okay, the first gentleman from Ohio, Mr.
Sawyer; and then we will go to the other gentleman from Ohio,
Mr. Strickland.
Mr. Sawyer. Thank you, Mr. Chairman.
Secretary Kripowicz, you and others have talked a good deal
about 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.
Mr. Kripowicz. Right.
Mr. Sawyer. Can you foresee for us the pathway from that
level of application to widespread commercial application?
Mr. Kripowicz. Yes, sir, fluidized beds are commercial, in
small scale industrial plants, as well as in large scale
utility boilers. So fluidized bed technology is commercial.
Mr. Sawyer. At the level of efficiency that you were
talking about?
Mr. Kripowicz. No, the efficiency of the fluidized bed
combusters is roughly equivalent to that of pulverized coal
plants.
Mr. Sawyer. I see.
Mr. Kripowicz. But it does remove the vast amount of the
sulphur and nitrogen oxides without scrubbers, so you have some
advantage there.
For gasification, we have commercial scale demonstration
plants. But what they need to do in today's market is compete
with natural gas. At this point, the technology has 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 is going to happen
immediately. That is one of the focuses of our R&D program, to
develop the technology that will produce that high efficiency
and also reduce the capital costs.
Mr. Sawyer. General Lawson, Secretary Kripowicz mentioned
that next week or so we are likely to be looking at a mark-up
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?
Mr. Lawson. We have done a good 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 are pretty proud of. We think
there is no such thing as a bad domestic energy. In an
environment where you have to import 54 percent of your oil, it
is quite clear that we are talking about rationalization, for
the good of the country.
So we have put together a package that looks at tax
incentives for certain kinds of technology introduction. We are
in the process now of beginning the work on that, with the
appropriate staffs. This staff will be one of the first stops
in our effort.
Mr. Sawyer. If you could share materials on that with us, I
would certainly appreciate it.
Mr. Lawson. We surely will.
Mr. Sawyer. Thank you.
Dr. Schobert, you touched a subject close to my heart. I
come from Akron, Ohio, where for 65 years, we have been
learning how to build tires out of oil, because we knew we
could not get latex during the war.
It is at the heart of what you are talking about. We use
petroleum-derived feedstocks for hydrocarbon, and there are a
wide range of synthetic materials that have come from this.
The kinds of materials that have been developed have just
been amazing; just when you look at what things like Kevlar and
Nomax have done.
Mr. Schobert. Yes.
Mr. Sawyer. Those, actually, are first, earlier generation
synthetic hydrocarbon materials. How would you compare the
state-of-the-art with regard to the use of coal in developing
similarly high performance materials, to those earlier
generations of polymer-derived synthetics?
Mr. Schobert. There is a tremendous opportunity to use coal
in that application. It is in the early days of research and
development. Basically, some of the molecular structures that
can be derived from coal are in very high demand and very high
price, as the building blocks to make the next generation of
material.
If I could cite just one example, sir, a video tape made
from this next generation would be half as thick, but twice as
strong, as the existing plastic video tape. That would allow
you to get 12 hours of Jerry Garcia on a cassette, instead of 6
hours.
But, again, I have to emphasize, it is in the early days.
The potential is fantastic. Some figures are cited in my
testimony. I could supply others, if you would like.
Mr. Sawyer. Could you have off-the-shelf materials that you
could share, that I could make use of in a lay environment?
Mr. Schobert. I believe so, sir.
Mr. Sawyer. I would appreciate that if you could pass them
on. Thank you.
Mr. Schobert. Yes, thank you, sir.
Mr. Barton. Does that complete your questions?
Mr. Sawyer. Thank you, Mr. Chairman.
Mr. Barton. The other gentleman from Ohio, Mr. Strickland,
for 5 minutes.
Mr. Strickland. Thank you, Mr. Chairman.
Mr. Bailey, one of the areas of regulatory uncertainty that
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. That deadline was May 2003.
Legal challenges have ensured, and the situation is a
little confusing and perhaps uncertain. For example, in March
of this year, the DC 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 2003.
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. Could you
please expand upon that concern.
Mr. Bailey. I would be delighted to. The deadline currently
is May 2003. So a number of coal-fired power plants around the
country face a prospect of deciding what kind of technology to
install, doing the engineering work on that, getting it
constructed, and having it operating, by May 2003. Some of them
have already begun that, and some of them have not.
Legally, and 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. Then they will talk about
whether that 2003 deadline still makes sense. But that is
essentially what we are facing, right now.
Do we consider that a rational deadline; no, in light of
what needs to happen between that stay being lifted and in
reducing NOX emissions.
There have been a number of studies, as to whether that
creates any concerns about reliability or electricity supply.
Of course, several 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 and Maine, in which they saw
the potential for outages.
Without getting into the all the technicalities of it,
basically what they plan for is about one outage, every 10
years. That is what utilities plan for, and that is what these
reliability regions plan for.
They were looking at the possibility of outages of up to
one every 3\1/2\ months, in some regions of the country. So
that is going from one every 10 years to one every 3\1/2\
months, depending on what kind of assumptions you make about
the availability capacity.
So we are very, very concerned about that, right now. I do
not know, quite frankly, how we are going to resolve it.
Mr. Strickland. Thank you for that very candid answer.
The committee is going to be considering deregulation of
the electric utility industry. Now we are 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 the electricity prices. Are we perhaps
working at cross purposes?
Mr. Bailey. We may be, if we are 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 are very concerned about the increase in cost.
They are particularly considering what may be lack of
commensurate benefits.
The studies that we have done show capital cost increases
of something in the range of $22 billion. Now is without
everything imposed on us. That is with most of what is in EPA's
agenda, right now.
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 are going to be wasting
a lot of money here; that is right.
Mr. Strickland. Mr. Chairman, I have one additional
question.
Most of the fuel sources, Mr. Bailey, that you mentioned
for electricity generation, and we are talking about nuclear
and coal and hydro, are posed 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? I think I see you smiling.
Mr. Bailey. I am only smiling in response to other people
on the subcommittee here.
I think nobody has the answer to that question. I have
heard people from the other side try to address that. If I can
say this, they seem rather uncomfortable responding to that
question.
I do not know how we would provide the electricity, if we
do not have all the sources. That is one of the points I am
trying to make here.
We need to have a number of options in the market place. To
some extent, the environmental policies will help us sort out
those options. But we need to have a number of options. It is
not good energy policy not to have a lot of options.
Mr. Strickland. You know, that seems to be terribly
important.
Mr. Lawson. Excuse me, I was going say, on that same
question, I have pressed the community very hard on that very
issue. I come away with the very distinct impression that they
are most willing to accept constraints on economic activity, as
required in force by that kind of reduction. I am not sure the
American people are willing to accept those kind of
constraints, but I think they are.
Mr. Strickland. Well, sir, I guess if you are living
comfortably, and you have 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
unemployment. We are the facing the loss of over 800 deep coal
mining jobs, in the next 1\1/2\ years.
So I think these are terribly relevant questions. It seems
to me that they are important enough that we ought to be trying
to find answers to them.
Thank you for your comments and your opinions.
Thank you, Mr. Chairman.
Mr. Barton. Thank you, Congressman Strickland.
We are going to have additional written questions for this
panel, and we are going to conclude. I want to make just one
concluding remark.
We really have not had an energy policy in the last 10
years, but we have had an environmental policy. The
environmental policy has driven the energy policy.
Congressman Strickland's question kind of hit it right on
the head. If we continue to allow the environmental policy to
constrain the energy policy, there will be an economic
consequence of that, as General Lawson pointed out, and it will
not 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.
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 allusion to
you as Mr. Marks.
Mr. Schobert. None, whatsoever.
Mr. Barton. I certainly did not mean any personal offense.
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.
[Whereupon, at 4:08 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of The Uranium Producers of America
The Uranium Producers of America is a trade organization
representing the domestic uranium mining and milling industry. We
respectfully submit this statement on behalf of the domestic uranium
industry.
introduction
Mr. Chairman, this hearing is extremely timely, as the domestic
uranium and conversion industries face near devastation due to the
introduction of overwhelming amounts of government uranium inventories
into the commercial marketplace. Despite the fact that in 1999, nuclear
power generated a record 23% of the electricity output for the United
States, government actions have created a situation that could spell
the end of the domestic nuclear fuel cycle industry. This turn of
events is particularly troubling because Congress has directed the
Department of Energy to assure its uranium inventory policies would be
carried out in such a way as to not adversely impact the domestic
uranium, conversion, and enrichment industries. As government
inventories are dumped into the commercial marketplace, no producer,
foreign or domestic, can produce uranium or conversion services at the
current market price.
The worldwide need for energy is growing at a tremendous rate.
According to a recent Wall Street Journal article, ``[A]merica is
running short of electricity.'' \1\ The International Energy Agency of
the Organization for Economic Cooperation and Development projects 65%
growth in world energy demand by 2020. To meet this immense global
demand for energy without damaging the environment, nuclear power must
play a major role.
---------------------------------------------------------------------------
\1\ Rebecca Smith, ``New Rules, Demands Put Dangerous Strains on
Electricity Supply.'' Wall Street Journal, May 11, 2000.
---------------------------------------------------------------------------
In the United States, nuclear safety and efficiency have improved
significantly since 1990. Domestic nuclear utilities unit capacity
factors have reached record levels in recent years. Despite a reduction
in the number of nuclear power plants, the U.S. nuclear industry
generated 9% more nuclear energy in 1999 than 1998. Average production
costs for nuclear energy are now less than 2 cents per kilowatt hour,
while electricity produced from gas costs over 3 cents per kilowatt
hour. Nuclear power and natural gas are the clean, secure fuels of the
future.\2\
---------------------------------------------------------------------------
\2\ An extensive article highlighting the virtues of nuclear power
can be found in the January/February 2000 Foreign Affair entitled ``The
Need for Nuclear Power.''
---------------------------------------------------------------------------
While it is evident that nuclear power should play an increasing
role in meeting our nation's growing electricity requirements, the
availability of a secure domestic source of fuel for the power reactors
is very much at issue. I urge Congress and the Administration take an
active role in crafting a solution to a predicament that threatens our
national security and energy independence.
the introduction of government inventories has materially impacted the
domestic fuel industry
Two government initiatives have placed the future of the domestic
uranium and conversion industries in peril.\3\ The first was the U.S./
Russian HEU Agreement (HEU Agreement) which provided for the blending
down of nuclear weapons from the former Soviet Union into fuel for
commercial reactors.\4\ Our government has attempted to conduct this
important non-proliferation policy concerning former Soviet nuclear
weaponry by requiring the commercial marketplace to absorb this
material. Thus, the domestic fuel industry has been required to bear
the lion's share of the cost of the implementation of this program.
Second, in an effort to maximize the value of the Enrichment
Corporation's privatization, vast U.S. government inventories were
transferred to USEC before the Corporation went public. These transfers
were legitimized by a Department of Energy Secretarial Determination
required to forecast the action would not adversely impact the domestic
uranium and conversion industries. The Determination failed to consider
numerous factors that have come to bear on the market.
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\3\ A comprehensive discussion of this point can be found in the
testimony of Mark Stout on behalf of the Uranium Producers of America
and James J. Graham on behalf of the domestic uranium conversion
industry, presented to the Subcommittee on Oversight and Investigations
of the Committee on Commerce, April 13, 2000.
\4\ The HEU Agreement provided that the blending down of weapons
grade material should be accomplished in a manner that would not
adversely affect the domestic fuel industry.
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Together these two initiatives have severely depressed the price of
natural uranium and conversion services. The domestic industry was set
to handle the market disruption caused by the HEU Agreement. However,
the USEC transfers added to this program have reeked havoc on the
commercial market price for uranium and conversion services. The
depressed price threatens not only the viability of the domestic
uranium and conversion industry, but ironically it also has negative
implications on the U.S./Russian HEU Agreement because of the
artificially low price for uranium feed material.
Primed with the material transferred by DOE, USEC's aggressive sale
of government windfall uranium has overwhelmed the U.S. commercial fuel
market. USEC is able to package this material with SWU, with little, if
any, cost associated to the uranium and conversion component. This has
resulted in uranium prices falling from approximately $16.50 per pound
to at the time of USEC's privatization, approximately $8.00 on the spot
market today. Conversion prices have plummeted in a similar fashion.
DOE's determination of no adverse impact was certainly erroneous and
incorrect.\5\
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\5\ Exhibit 1 reflects the status of domestic uranium producers.
Every U.S. producer that was in business at the date of the USEC
privatization has either curtailed production or simply quit doing
business.
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the case for a secure domestic fuel supply
Clearly, Congress must craft a comprehensive energy policy to
respond to our nation's electricity needs crisis. We believe one
component in such policy must be the assurance of a secure source of
fuel for the nation's nuclear power reactors. The nuclear power
industry has invested billions of dollars in capital costs. The
reactors must have a secure source of fuel. While competitive priced
fuel is an important factor for the nuclear utility industry, complete
reliance on artificial supply, rather than competitive newly produced
feed material is a recipe for disaster which will be experienced in the
next three to five years when uncovered demand begins to occur in
significant numbers.\6\
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\6\ See Exhibit 2 (Estimated Uncovered Uranium Requirements (2000-
2078)).
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The question that Congress must answer is whether our nation needs
secure domestic uranium and conversion industries. Our producers can
compete in a realistic marketplace. However, if the Administration
continues to burden the fuel industry with government inventories and
non-proliferation programs that favor one part of the fuel cycle over
another, the demise of the entire industry will be a foregone
conclusion.
In making this decision concerning the future of the domestic
uranium and conversion industries, we believe Congress has already
issued strong direction to the Department of Energy of a policy to
maintain a viable domestic uranium industry.\7\ The domestic industry
negotiated in good faith to allow the HEU Agreement material and some
U.S. government stockpiled material to enter the commercial market in a
non-disruptive manner. Because DOE ignored this mandate by transferring
in excess of 28,000 metric tons of uranium hexaflouride to USEC the
domestic uranium producers and convertors face extinction.\8\
Unfettered transfers of government inventories have effectively taken
our market away. For this reason, DOE should replace the stockpiled
material ill advisedly transferred to USEC, with newly mined uranium
converted to UF6. A reasonable domestic purchase program
would provide sufficient material to support the nation's tritium and
nuclear submarine programs. This program would allow the domestic
production and conversion industries to survive until the market
absorbs the artificial supply that has ruined the normal commercial
marketplace.
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\7\ See 42 U.S.C. Sec. 2297h-10(d).
\8\ This equates to approximately 75 million pounds of uranium. EIA
stated that USEC's inventories are sufficient to supply six-eight
million pounds per year to the market over the next decade. As shown by
Exhibit 2, utility uncommitted demand cannot absorb these supplies,
especially when Russian HEU uranium and conventional production are
interjected into the mix.
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We believe Congress and the nuclear utilities also recognize the
benefit of a domestic source of production and conversion for our
nation's reactors. While uranium production from foreign sources will
meet a large share of the U.S. nuclear utilities needs, the existence
of a viable domestic source of supply is invaluable in keeping the
price of fuel competitive. Converdyn, the sole U.S. supplier of
conversion services, represents approximately 60% of the conversion
capacity in North America. The domestic uranium producers, given a
level playing field, are capable of supplying 25% of annual reactor
uranium needs. These figures are premised on competitive prices of
uranium and conversion established by competitive costs of production.
If the few remaining domestic producers are forced to close and reclaim
their mines and the industry continues to consolidate, uranium could
become a seller's market with market conditions unfavorable to U.S.
utilities that would then be fully dependent on imported uranium.
This subcommittee is very familiar with the problems the American
people have faced due to over reliance on foreign oil imports. The loss
of the front end of the nuclear fuel cycle would likewise be injurious
to electrical consumers. The domestic uranium industry has established
a considerable resource that will be lost if nothing is done to
resurrect this industry. An investment of approximately $6 billion
dollars has been made to create our current uranium resource base. As
producers close their operations, records, land positions, skilled
human resources and permits will be irretrievably lost. At that point
only significant price escalation would fire interest in restarting the
domestic industry. Given that it can take in excess of ten years to
permit a new mine and resource development may be forced to be created
from ground zero, the ability of U.S. producers to create competitive
uranium production when needed in the future is questionable at best
regardless of a rising market price. The same would be true for the
rebuilding of a new conversion facility. Permitting is an extremely
time consuming process and the investment needed would require
assurance that a reasonable price would be in the offing for a
significant period of time. Clearly the nation's electrical needs and
the utility industry would be better served to maintain the current
fuel cycle infrastructure, than hoping to start it from scratch a few
years in the future. The expenditure of funds today to preserve this
industry from the misadventures caused by misuse of surplus government
uranium stockpiles seems prudent if not essential.
We urge Congress and this subcommittee to take a strong leadership
position in halting continuing programs that are exacerbating the
demise of the uranium and conversion industries. Recently USEC, with at
least some administrative agencies blessings, has proposed a purchase
of Russian commercial SWU as a part of a larger market-based pricing
arrangement under the HEU Agreement. This proposal may assist USEC, but
has tremendous potential to further harm the domestic uranium and
conversion industries.\9\ The better course would be to bring this
proposal into the light of day and determine whether it could benefit
all of the front end cycle producers. For example, allowing domestic
producers and the conversion supplier to match newly produced feed
material with Russian SWU could be a very inexpensive way to support
the domestic industries while still achieving USEC's goal to reduce the
price of HEU Agreement SWU.
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\9\ Most of USEC's recent activity suggests it doesn't agree that a
continuing domestic uranium and conversion industry is necessary. From
the earliest date of enrichment privatization discussions, USEC has
expressed interest in dominating all areas of the front end of the
nuclear fuel cycle. This in itself should give rise to concerns of an
anti-competitive future fuel market.
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To summarize, the domestic uranium industry can play an important
role in fueling the clean, efficient electric power our nation demands.
Given a level playing field, the domestic industry can compete
economically with non-subsidized producers and assist in maintaining a
competitive, secure source of fuel for our nation's nuclear power
plants. Congress must do four things to assure our survival to
accomplish this role. First, Congress must determine that the domestic
uranium and conversion industries are worth saving. Second, Congress
must insist that the Administration cease advancing programs, that
while well-intended, subsidize one aspect of the front end of the
nuclear fuel cycle to the detriment of the other critical players.
Third, Congress and the Administration must set aside past ill-advised
actions and recognize that reasonable fuel prices will benefit the
domestic industries and the HEU Agreement. Finally, the domestic
industry agreed to the introduction of Russian HEU material and a
limited amount of U.S. stockpile inventories into the commercial
market. However, because of USEC's aggressive sales of additional
government transfers not anticipated in the 1996 Privatization Act, the
domestic uranium and conversion markets have been devastated. Congress
must redress this situation and create a program to get the producers
and converter through the next three to five year period. At this time
the market can work off the artificial components now experienced and
fuel costs will once again reflect reasonable production costs. We
would very much welcome the opportunity to work with Congress to
accomplish this important task.
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