Excellence in Nuclear Safety in
Joe F. Colvin
President and CEO
Nuclear Energy Institute
Institute of Nuclear Power Operations CEO Conference
November 2, 2000
Thank you for the opportunity to speak at this CEO Conference and to offer some of my perspectives on the dramatic change occurring in our industry.
The theme of this conference—Excellence in Nuclear Safety—is so appropriate. Safety and excellence are at the very core of our industry and have laid the foundation for all of our achievements. Through discipline, resolve and commitment we have created a safety culture and a safety record of which we should be very proud.
Safety has enabled the growth of the nuclear industry—and safety is essential to our continued success in the competitive electricity market. This annual INPO meeting reminds us that safety must be foremost in our thoughts and actions, because we recognize that without it—there cannot be a prosperous nuclear industry.
Clearly we are in a period of great change—a period that demands great leadership. And, to effectively manage that change, we must keep our eyes on the past—on the present—and on the future all at once.
I think it’s truly remarkable to reflect on the way our industry has changed over the past few years:
For example, three short years ago as part of NEI’s annual Executive Committee meeting with Wall Street, analysts—as well as some in our own industry—were discussing which nuclear plant might be next to shut down prematurely.
Two years ago the discussions were about which plant would be the next to be bought, and who the possible buyers would be.
Last year, people wanted to know if we would actually see a plant receive its renewed license and when plant sale prices would start to reflect their true financial value.
Now, here we are, this year, in what can only be described as a sellers’ market, with plant sale prices exceeding $1 billion. And, the conversation now taking place around the tables is: "What about new nuclear plants?"
As Chris Poindexter said, there is a "recognition of value" occurring in our industry. The many ways in which nuclear power plants create value are coming together—and there is a momentum building that our industry has not experienced in a long time—or perhaps ever.
Nuclear energy companies are being recognized by Wall Street today as vibrant, thriving businesses with great shareholder value. The consolidation taking place in our industry is being watched with great interest. Analysts and fund managers see this activity as evidence of a serious focus by the industry on the strategic value of nuclear energy.
Clearly, Wall Street values an industry whose business fundamentals are strong and whose companies are well positioned for competition.
We also recognize the value of our own assets. It is clear to us that nuclear plants have significant value in a competitive market. The plant sale prices we have seen and the consolidations are obvious evidence of this value.
As is license renewal. If we think back, in a regulated business there was little incentive to pursue license renewal. But, in a competitive market, the ability to gain 20 additional years of generation at $5-10 per kilowatt of installed capacity is an obvious business choice. We’ve already seen five license renewals granted—five more units have formally filed—and 28 others have notified the NRC that they intend to pursue renewal in the next five years. The remaining units will most certainly follow.
The NRC is managing the regulatory part of this process well—by completing the safety and environmental reviews necessary for approving renewed licenses in less than 24 months—while also incorporating the lessons learned to further improve the process. We haven’t yet achieved the six months Corbin McNeill wants—but we’re making real progress.
In fact—it’s ironic—relicensing a nuclear power plant today is a more straightforward and shorter process than relicensing a hydroelectric station.
More and more—nuclear energy is being recognized by policymakers and the public as a valuable component in the U.S. energy mix. Energy availability, reliability, and price are very much on the minds of Americans. There’s no question that energy issues will be on the agenda of the new Administration. Energy has become a political issue that has great value, and policymakers and politicians know this. This recognition creates tremendous opportunities for our business.
In addition, our industry is increasingly being recognized for its environmental benefits. Improved nuclear plant performance now accounts for virtually half of all emissions avoided under the DOE’s voluntary Carbon Reduction Program. There is a trend towards enhanced recognition of nuclear’s significant environmental benefits—and this offers tremendous opportunity for the future.
So, how did we get here? We have built upon the foundation of safety performance to achieve strong operational performance—and from that—solid political support.
Improvements in safety, reliability and economic performance have been truly outstanding. We’ve seen capacity factors increase by almost a third in the last decade—the equivalent of building 19 new nuclear power plants. At 87 percent, our 1999 capacity factor was the best in the world.
Nuclear generation last year was 728 billion kilowatt-hours—up eight percent over the year before—and your plants are producing six percent more electricity this year. Nuclear plants are competitive—and safe—in deregulated markets. Three quarters of our plants can produce electricity at under 2.5 cents per kilowatt-hour, all-in costs.
In the last decade, outage lengths have been reduced by nearly half. Dresden 3 just completed an outage of less than 18 days—17 days, 23 hours, and 55 minutes to be exact—and I could say "who’s counting?" but those of you who know Oliver Kingsley, know that Oliver is counting.
And, Beaver Valley last week cut 12 days off its best outage time ever—a tribute to the improvements made by FirstEnergy.
As an industry, we’ve realized that sharing knowledge is the key to safety and excellence in operations—and we have developed a culture that recognizes the importance of sharing.
For instance, we’ve made great strides in adapting modern business tools like benchmarking to enhance our competitive position. Over 85 percent of your companies have participated in one or more of the 15 NEI-led benchmarking projects to date. There are three studies currently in progress and eight already planned for next year. These are cooperative projects with INPO, EPRI—and your companies participating to make the best use of overall industry resources.
Many of these projects go beyond plant processes and into core business practices such as human resources and information technology. And, NEI’s Standard Nuclear Performance Model is being adopted by many of your companies to facilitate industry comparisons and also to assist with consolidation.
The immediate benefits of implementing best practices at the plant or company level are clear in real dollars. Payback rates on this kind of investment can range from ten to a hundred times—but the value is clearly more than monetary.
This learning is leveraged across the industry to improve all aspects of our operations. Through activities like bench-marking, we help ensure that the industry is always improving, always advancing, and therefore always increasing its competitive edge.
We also need to ensure that we continue to manage the business risks that affect our overall operations. This means working towards policies in political and regulatory spheres that promote the best possible business and operating conditions. And we have been making great strides in these areas.
On the regulatory side we’ve made real progress. Because the industry has been doing its job and doing it well—we have enhanced the overall working relationship with the NRC and enabled fundamental change to take place. The industry has been proactive in its efforts and—working with the NRC and other stakeholders—we have greatly enhanced our focus on safety.
The new regulatory oversight process shows objectively that there is a significant margin of safety for plants that operate well. The risk assessment tools jointly developed by the industry and the NRC have allowed for a real focus on what is safety-significant. This—in turn—has enhanced the industry’s performance by allowing us to focus precious resources on those things that are most important to safety.
In addition, the oversight process has increased confidence in our companies on Wall Street.
It is opening up the lines of communication to Congress, the public and other stakeholders. Tremendous strides have been made towards the NRC goals of transparency and inclusion. There is open dialogue between the NRC, the media, the public, and the industry. These dialogues are important to our efforts to improve public understanding and confidence. We congratulate the NRC for the foresight and leadership to undertake these important initiatives.
And, there is more change on the way. Some of the opportunities ahead include working with the NRC to take these policy initiatives and actually codify them so the regulations themselves become risk-informed and performance-based. NEI is also working with the NRC to define the parameters for plant physical security to make them transparent and consistent. Chairman Meserve discussed these and other important initiatives underway at NRC.
On the political side, we’ve seen growing support for nuclear energy. We’ve built strong relationships on the Hill, and they are paying off. The dramatic improvements in operational performance—the recognition that nuclear plants are competitive in deregulated markets—combined with the positive environmental benefits of nuclear energy—give all of our supporters a platform from which to support us.
Nuclear issues have been before the Congress actively for the past six years. Some of these issues, like used fuel management legislation, have been very controversial and politically charged. But, our interactions on the Hill have resulted in better-informed members who are more willing to take positive positions on nuclear energy.
This year, for example, after 10 years of concerted effort, the Congress has finally remedied the unfairness in the NRC user fee structure. The Energy and Water Development Appropriations Bill—signed by the President last Friday—results in a phased 10 percent reduction in user fee assessments over the next five years. This will result in savings of about $150 million to licensees over the five-year period. Chairman Meserve and the other Commissioners were instrumental in working to achieve this important result.
We’ve seen expanded Congressional support for nuclear research and development. In fiscal year 1998 there was no money in the federal budget for nuclear R&D. This year marks the third year in a row that Congress has approved a new nuclear R&D program. And, total funding of $47.5 million for the fiscal year 2001 is an important start and gives us the ability to continue to expand it in the future.
We’ve also seen the formation of the Senate Nuclear Caucus and the House Nuclear Issues Working Group—over 70 key members of the House and Senate that meet regularly to discuss nuclear-related issues.
This renewed interest in nuclear energy and technology led NEI to form a new organization, The Foundation for Nuclear Studies, a non-advocacy group to advance the use of sound science in policy formation in ways that NEI cannot—by virtue of our advocacy role. You’ll be receiving more information on the important work of the Foundation in the near future as we plan activities for the new Congress.
Next Tuesday evening we’ll know more about the opportunities and challenges before us in Washington. There will be a new Administration, a new Congress, probably 50 or more new Congressmen and Women—and perhaps new leadership and committee chairmen on the Hill.
There are numerous Congressional and legislative initiatives we’re already working on in anticipation of those changes, but clearly, there is much important work to do. We are fortunate to have a strong base of Congressional support—a base on which we need to continue to build.
The progress we have made has allowed us to do what every successful business must do to continue to prosper, and that is: effectively minimize and manage business risk and take full advantage of the positive business climate.
One of the ways we’ve managed our business risk is by setting a strategic direction for the future of our industry. In 1997, NEI, working with many of your companies, developed Nuclear Energy—2000 and Beyond—A Strategic Direction for the 21st Century.
This blueprint for the future outlines key elements—or compass points—that we must manage to secure our future. These range from issues related to energy security and diversity of supply—to excellence in safety—to the regulatory framework—to competition—and so on. We have updated this plan annually to reflect refinements and progress as we move forward. In many ways this plan is all about the process of managing risk.
For instance, we all recognize that waste management issues pose a potential long-term business risk to our industry, and we are actively working to manage that risk.
This means closely monitoring scientific progress and overcoming political roadblocks on Yucca Mountain and working to ensure that the government ultimately meets its contractual obligations in regard to used fuel.
The industry is actively involved with DOE’s Nevada project management team to add the industry’s expertise in licensing and quality assurance and to advance the decision on suitability of the repository.
DOE is scheduled to release its draft site recommendation report this December. The formal site recommendation is scheduled to be sent to the new President in July 2001 with a Presidential decision expected by the end of next year. It is in all of our interests to work together to ensure that this decision is made—and made on schedule.
Managing risk also means ensuring that adequate on-site storage options exist to ensure that no plant is shutdown due to lack of storage. We must also support private fuel storage options, including creating the critical regulatory and legislative support for private options—such as those that are being planned in Utah and Wyoming.
The recent federal court ruling on the government’s legal obligation to take responsibility for used fuel—including how we can seek proper financial relief—is putting increased political pressure on the government to move fuel. The prospect of the federal government paying billions of dollars in settlements may ultimately help move us more quickly towards a permanent solution.
We have entered an era of increased public awareness of the need to protect the environment and ensure a better quality of life for the future. It is incumbent upon us to continue to get the message out about nuclear energy’s significant environmental benefits. We know from our research that if people are informed about the environmental benefits of nuclear energy their support increases significantly—from 65 to 75 percent favorability.
If we continue to work together and capitalize on our strengths—then together we will develop a tremendous competitive edge. We are thriving today because our focus on safety has allowed us to improve operational performance and build political and regulatory support, and we are leveraging those strengths to manage business risk.
But where do we go from here? Perhaps one of the most exciting areas for the industry is exploring the conditions for new nuclear plant construction—also one of our Strategic Direction compass points. A key driver of this effort is electricity demand growth—and a need for new generation—far beyond what anyone thought it would be a few short years ago. Actual demand growth in the first six months of 2000 is almost double what was projected last year. Overall energy prices and the doubling of natural gas prices have also had a major effect.
Other factors driving the new plant discussions include the emergence of large nuclear generation companies and groups capable of making large capital investments—plus increasing clean air requirements—and what is becoming a very sharp political focus on energy security.
The challenges are many! There are business and technical challenges in terms of capital costs and project schedules. And, there are political challenges in terms of public acceptance and in reaching certainty on used fuel and other difficult issues
Most importantly, we need to minimize the risks of new plant development by having a business plan that clearly identifies both the risks and opportunities. NEI’s new plant task force—in which a number of your people are involved—is analyzing the key steps that will be required for us to bring new nuclear capacity on-line in this country.
This includes considerations such as assessment of electricity demand projections and developing relevant financial models to support high-capital-cost, long-lead time projects. It includes examining time-to-market and licensing issues—and the cultivation of industry, policymaker, regulatory and opinion leader support.
Our goal in creating this task force is to establish the business case for new nuclear capacity—one that makes sense—and one that helps us manage the risks involved in such an ambitious undertaking. We want to identify key objectives and actions that must take place in advance of new plant orders. And, we want to be a source of integration and strategic coordination for industry actions on new plants over the next several years as this process unfolds.
In summary, we believe that there is tremendous potential for the industry to further capitalize on the gains made to date. A new Congress and a new Administration next year will present both challenges and significant opportunities. To be successful as an industry, we must be prepared to advance policy and make our collective voices heard in a setting where energy issues will continue to figure prominently on the nation’s agenda.
Every day we can shape our future by telling people:
that our industry has an exceptional record of safety and reliability
that our industry is thriving
that we are an industry with profound environmental benefits
that we are a reliable and competitive source of electricity
and that we are an essential part of the diversified energy program for our nation.
It is also important that we in the industry think about ourselves differently. If we really believe the points we’ve been discussing, then we must stop apologizing for the past and approach the future with confidence and pride.
So many of you are already doing this. By building on our foundation of safety—by seizing market opportunities—and by moving aggressively—you have successfully managed risk and laid the foundations for what will be a very bright future.
In doing this, you have been following a simple rule—one used most often by former Secretary of State James Baker—and one that we try to follow at NEI: "Never let the other guy set the agenda."