American Nuclear Energy in a Globalized Economy Session I Thursday June 14, 2007 Introductions by Charles: -Matt Wald: what’s current

in nuclear energy, at NY Times. Matt Wald We’re here at a rather odd moment in the history of nuclear power. We’re in our 4th year of the “renaissance” without any actual orders. The TVA (sp) recently put $1.9 billion into a 25-year old reactor. You should be able to build a new one for not much more than that but if you spent the $1.9 billion on the old one, you don’t need a new license, which does not say wonderful things about people’s confidence in going forward and getting licenses. On the other hand, for reasons we all understand, we’re worried about carbon. We have panelists today who are going to help up parse this out. -Christian Nadal, Tom Cochran, Al Carr. Al Carr I do have a little bit of experience in the nuclear business. I started with the Atomic Energy Commission NRC, was in private practice in DC and was with Duke for a number of years. I worked in most of the electric areas but had a heavy concentration on nuclear. I’d like to do a brief overview of what happened to put us where we are, what processes are in place now, and what are the issues moving forward. What happened basically was a result of the licensing process that we had back in the late ‘60s, mid ‘70s, that led to the current generation of plants. Most of you know it was a 2-stage licensing process in which you received a construction permit based on a design-concept and then the plant was designed as you moved through the construction phase and once you finished construction and had enormous amounts of capital invested you then went to a hearing to decide whether you would be allowed to operate the plant. Then you went to your state regulator to see if you could collect (?) the costs associated with building the plant. Now that process in itself was awkward enough, but it was exacerbated by 2 events that took place in the ‘70s, one being the Arab oil embargo, and the second being the Three Mile Island incident. What that did was have the effect of stretching out construction at the time when the utility was the most vulnerable because it was working with borrowed money and the 1970s was a period of rampant inflation. Coupled with that was the requirement to go back and redesign a number of systems because of Three Mile Island and the result was we had a generation of plants which in large measure were orders of magnitude in final costs above what had been projected. When the utilities finally got the plants finished and permission to operate, and they went to the state regulators, customers were looking sometimes at rates twice their current level. Consequently there were substantial numbers of what were referred to as

disallowances where utilities were not allowed to recover on various grounds, the full costs of the plants that they had constructed. That was looked on as the breach of the “Regulatory Compact” which basically says, your franchising body says you have an exclusive right to serve, you must serve all modes (?), you have a public utility obligation to do so, in exchange for that you will be able to recover your costs of return. There weren’t many utilities, after they went through that process interested in sitting back down on that stove. Utilities may not be the smartest people in the world, but like a cat they understand when they get burnt. It didn’t anyone very well, it didn’t serve the public well and it didn’t serve the industry well. So what do we have now? As a result of a number of years of work that many of you in this room are more familiar with than I am, we now have a process that the Congress and the NRC have put in place that provides finality (?), certainty, and it consists of three parts. The first is a pre-approved plant design, the second is a pre-approved site, the reactor design is married to the site, and then they combined the construction permit and operating licenses issued. There are various avenues for public participation in each of those steps, and perhaps most important your site issues are already determined and the process sets out the test and acceptance criteria by which the plant must be built. Following construction then there will be the regulatory process to see to what extent it would be permitted to recover the entire amount. That is, I would submit, a vastly preferable process to the one that brought us to where we are. But I would point out that even though essentially all of the 104 reactors that are operating now were almost custom built. The industry has learned to run those plants, and run them very well. We’re looking at capacity factors now in the range of 90%, in excess of 90%. When we move forward there are two other issues that have to be addressed and considered. One is decommissioning, which I believe is in fair shape. The second is the storage of spent fuel, and that breaks down into two areas: on-site and the federal repository. There is a process in place and frankly if we can ever get the thing to Hearing, a lot of issues that are currently floating around will get resolved one way or the other. So let’s look now, very briefly, at two other issues. We do have the revived (?) licensing process in place. Let’s look first a financial and divide that into two areas. One if the financial impact on the industry as a whole, not just from nuclear but from the panoply of measures that are going to be needed. The second is the individual utility needs. If the figures that I’ve seen are correct, we’re looking at a 50% increase in demand for electricity over the next 25 years. That means we need to grow new capacity by about 245GW. The cost of that is estimated to be, just the generation portion, in the $275 to $300 billion. And again that’s the panoply of generation, that’s not just nuclear. The point is that when we add the coat of generation into the other costs associated with providing the service that utilities are obligated by law to provide, we’re looking at a net capitalization in the order of $600 billion. That doubles roughly the net capitalization of

the U.S. electric utility industry. That money is going to have to be raised in competition with every other industry in the country. The second, if we look at individual plants, that’s where the hard decisions are made. A senior executive was quoted as saying: “nuclear power is a business, it’s not a religion.” the people in the boardrooms have to decide if the cost of the nuclear reactors currently planned are in the $300 to $500 billion range, that is a significant amount of money for any industry to raise under any circumstances. The disparity now (nuclear is primarily in competition with coal) between nuclear and coal’s capital costs is $22 to $25/kw for nuclear and $15 to $18/kw for coal. (he rectified his numbers saying he dropped some zeros but I don’t know how many). The point is I don’t think anybody’s really sure what the next generation of coal plants is going to wind up costing. I saw a story in the Wash Post a month ago that said that Seminole Electric Cooperative is planning a 750 mgw coal plant in the state of Florida and Seminole, which gets extremely inexpensive money, is projecting the cost of that plant to be $1.8 billion. So it looks like over the timeframe in which we’re going to have to increase capacity, it looks like we’re going to see a narrowing of the gap in capitol costs between nuclear and coal. Finally, it’s been discussed here, there is what’s called the infrastructure problem. It’s a problem, not just of personnel, but also of manufacturing capability. A lot of people in the nuclear business are getting old and they’re retiring and there’s not a strong subset coming behind. We’re talking about designers, constructors, operators, Q8 (?) people. And then, if we look at the fabrication, as I understand it, when we’re looking at the large (inaudible) of the type it takes to build reactor pressure vessels and some other parts of the nuclear steam supply system, there’s only one place in the world that can do it and that’s Japan, and there’s at least a two-year backlog. And then we finally get to the point of how does the utility, if it moves forward, cover its costs? And that’s a matter of state law, state regulation, and under the current system, you essentially advance to your customers your investment. Well $2 to $4 billion is a lot of money to put out over a 4 or 5 year period of time before you start recovering. Let me just close by saying, there have been some remarks made about people, maybe not bellying up to the bar or getting excited. Right now, as I understand it, there are four advanced plant designs that have received design-certification from the NRC. There’s one under review, one in the final stages before submittal, and the NRC anticipates several more. Not just Duke, but 16 utilities have announced, and so informed the NRC, that they’re pursuing nuclear plants. Roughly 30 units at 25 potential sites, nine applications for early site permits have already been filed, 2 have been approved, and it’s projected that there will be 14 applications for combined licensing filed in ’08, three in ’09, and 4 undetermined. So the process is in place, decisions are being made. My own view, for whatever it’s worth, is that nuclear is only one part of the panoply. Everything is going to be needed. We’re going to have to replace a lot of capacity in the next 25 years. Most of the nuclear plants have received, or are in the process of receiving, life extensions. Their original 40year licenses either have been or will be extended for a 20-year period. But nevertheless,

they’re going to start being taken out of service between now and, say, 2050. So none of us know if the process is going to work, if it’s going to come to fruition. But as I said at the outset, I was just hoping to provide an overview of where things stand from a highlevel perspective. Matt Wald I would note that Al Carr assumes that is will be regulated utilities that build these things and not independent venture capital finance. He is also assuming that the Chinese will finance these things. Tom Cochran I come from the environmental community and the main focus right now is on global warming. So to put this into perspective, the 441 nuclear plants operating worldwide are operable producing about 370 gigawatts per hour. There were a couple of analysts at Princeton, working on understanding the global warming issue, said to think of it in terms of the requirements for reducing as seven wedges that we can provide from a variety of energy technologies. Essentially one wedge, in their model, was a reduction of one gigaton of carbon per year or, so over the next 50 year a total of 25 gigatons of carbon. The existing fleet globally of nuclear power plants, is about equivalent to one wedge. Over the 50 years, one would assume most of the plants would have to be replaced but they wouldn’t all be replaced in the first year so if you don’t replace the existing fleet, you have to make that up with half a wedge. You can do this wedge analogue in terms of the U.S. capacity. The U.S. has 104 reactors, they are roughly 1 gigawatt each, on average (the world average is more like 800 megawatts or 0.8 gigawatts). So as we move forward in terms of displacing carbon using nuclear, a number of things are going to happen. Old plants are going to be retired globally. The average capacity of the newer plants is going to be larger than the capacity of the older plants. Even if you don’t change the total number of plants worldwide, there’s going to be some increase in the amount of power coming from the nuclear fleet. There will also be upgrading existing plants, as we’ve done in the U.S., to higher power levels. In the U.S. that’s been typically a 5% increase or so. The U.S. plants are now running at 90% capacity, the world average is less. We have to get an increase in capacity from nuclear without changing the net number of nuclear plants. Since 1988, the average net increase, new plants minus the ones that have been retired, we’ve increased the number of plants at the rate of about one plant per year. So if that trend continues, we will see additional capacity. I think you’re not going to see over the next 30 years a huge additional increase of carbon displacement from the nuclear side. Plants are expensive, they take a long time to build, and there are a lot of problems. There is going to be some net increase but probably less than half a wedge. (inaudible) That would be my guestimate on how things are going to play out. From my own point of view I think it makes no sense to talk about being for nuclear power or against nuclear power. I think we should look realistically at what nuclear is going to do over the next 30 to 50 years, and when you do that, you see that you really

have to find your global warming solutions from combinations of other technologies and improvements. I will focus on three problems associated with use of nuclear energy: safety, proliferation, and waste disposal. I will briefly touch on each of those. On the safety issue, the safety of U.S. plants has improved since Three Mile Island, I don’t think there’s any question about that. There’s been consolidation, fewer nuclear power plant operators. The most important factor affecting the safety of plants is the safety culture of the plant and consolidation has improved the safety culture of most plants. The concern is whether there are outliers like the Davis-Bessie event a few years ago. The safety culture is sort of not all there at a few plants. But globally the problem is that the new plants are in China and India and Asian countries, and that’s going to be a big unknown, at least for me, as to what the safety culture is going to be in those sectors. Take China: if their nuclear plant safety culture is like the U.S., then it’s not going to be a problem (inaudible). China is talking about a number of plants opening over the next 50 comparable to what’s in the U.S. today. But if their safety culture is like their safety culture in everything else they do, for example their coal mining industry, you’ve got serious problems. We kill 20 to 30 coal miners a year, they kill 1500 coal miners a year. On the proliferation issue, the problem is not with the power plants. The problem is with fuel cycles and the problem is with a very limited number of countries in the future. I would think about the countries after this round of concerns about Iran, you’re hearing a lot of talk among Gulf states, in the Gulf region, about getting into the nuclear business. That should certainly be of great concern to a country like Israel. The concern is going to be over enrichment, reprocessing plants in non-weapon states (inaudible). On the waste issue, we’re 50 years into this business. We’re relicensing plants that have gone through their 40-year license and we don’t have a solution in the U.S. to the waste disposal problem. Everyone agrees that the real solution is deep geologic disposal of the spent fuel or high-level waste. In the U.S., we sort of tripped over this issue three times: first in Lyons, Kansas, second with the retrievable surface storage facility that Schlesinger recommended at DOE, and then Yucca Mountain. No other country has a waste disposal facility. The ones that are doing the best are probably Finland, Sweden, countries that don’t have a lot of nuclear plants and it’s a lot easier. You can store this safely in interim storage as long as you’re willing to get out there and (inaudible). But that’s not a viable really long-term solution. So what’s going to happen in the U.S., I think the 104 reactors, there are the B52s, they’ve got a shell layer. Once you own it, it’s the cheapest way to make electricity and you’re going to try and keep that sucker running as long as you can, and they’ll replace everything in it except everything I guess (laughs). I think about 2030 is going to come crunch time because if we’re relicensing all of these plants for 40 to 60 years, at about 2030 to 2050, in that period, well the 60-year licenses

all go out, and so around 2025 or so, people are going to look at these suckers and they’re going to say: “this is going to be a problem for global warming and everything else, we probably ought to relicense them one more time and take the risk.” That’s kind of what I think the future holds for us. Matt Wald So I draw two conclusions here. One is that we’ve show leadership in nuclear waste because we’ve failed three times while others have not even failed once. (laughs). And that if the Pennsylvanians can’t get it straight, what can we hope for from the rest of the world? And Christian Nadal, from a country that actually operates a smaller nuclear program than we do but a larger share of its electricity. Christian Nadal I agree with all the things that have already been said. I want to emphasize some points, I will change my presentation because you said it very well. First, the need for revision in (inaudible) comes not only from climate change, but also from the lack of resources because today you have nearly two billion people without electricity around the world. The World Bank doesn’t have a solution near for this problem. There is a huge lack of energy and the other aspect is also the energy independence because the U.S. is not improving its independence. The European Union is in a worse place because we are depending more and more on Russian gas, oil, and so on. (inaudible) and the energy policies is very important. The conclusion is now that all resources must be used and the problem is not “if” but “how.” It’s the same for renewables, which are part of the solution, a very small part but very useful, as nuclear is. And then the problem is how to deal with and you mention the point (inaudible), it was going to be my conclusion but I will say it before, we made 80% of our program within ten years. It is really a problem of energy policy from governments and (inaudible). If the will is there, it is possible. The French program was not subsidized. I know it is very (inaudible) opinion but EDF was helped by the government for law enforcement, for other practices, but not, even from the scientific point of view that the program has been prepared by the government with the CEA and other the scientific parties, preparing, selecting technologies, preparing designs, at the end was that we bought the Westinghouse license, and not the French one, but there was a political preparation. I would like to add something about the (inaudible) nuclear, the existing nuclear power plants, you mentioned the contributions they give, 16% for electricity worldwide and 8% of energy. It is a very important element. But what is important is not only the contribution that it provides, it is also the learning curve that the industry, led by the U.S. and in some cases by France, because the increase of existing capacities, and other elements, are very very important. The industry is now very strong (inaudible), after Three Mile Island and other incidents, and this is a very important phase now, generally not well considered by many people, but I wanted to insist on that point. You mentioned developments in the U.S. with regulating countries. I would say that in the world the current situation is that the programs under development are in what we

may call regulated countries: Japan, Korea (the strongest program in the world now), and a couple of other countries are, we could say regulated (inaudible). (laughs) And this is very important because, Japan is a democracy, the (inaudible) is very active and (inaudible) and they have a very strong program. It is managed by the (inaudible). The companies are very strong, but the government is really looking closely to this process. I want to speak a little bit of the situation in Europe. Sometimes Europe is regarded, if you at France, as a very strong continent for nuclear energy. In other aspects it’s not because after Three Mile Island, Europe went on with the nuclear program. But after Chernobyl, Europe stopped in many places. Not really in France because in France the program slowed because the needs were lower, but in fact we had over-capacity. But you had Italy (?), which started immediately after each project, it had no facilities. (inaudible) set a limit by 2010 and other countries like the Netherlands, Austria, and so on, and even more recently, more significant, Belgium which is a 50% nuclear and Germany with 30% generation with nuclear. And you have only France and Finland currently building reactors. We have some hopes about Europe because we know that Sweden will not stop, (inaudible) all its capacities by 2010. On the contrary they are trying to reverse this decision because nearly 50% of their generation and the whole region had experienced some problems in its electricity supply in recent years (inaudible). We still have hope about Germany. The government was (inaudible), at the CDU, at the majority, they would have reversed the decision. But as they had to make an alliance, they did not change the decision, but if the needs of our climate change, Germany is relying on a very important coal capacity and they have already made a lot of investments, but still the Kyoto Protocol and other requirements need further improvements. And it’s very difficult because their (inaudible) are already very clean and it’s difficult too make more and they have tried renewables but they have exhausted the capacity of the renewables because they have developed very strong wing energy but it is the limit, they have experienced the limit, of generation you can produce into the grid. (inaudible), they have to build additional capacities, additional lines, power lines and so on. Then the situation in Europe, the main potential project would be in the UK. UK was a net exporter of energy till 2004 but the North Sea oil and gas fields are progressively exhausting and they are now a growing net importer. They have also to replace existing capacities and they have already developed gas and they need nuclear capacities. Another point is that their existing nuclear power plants are not running as well as the U.S. ones or the French ones, and they would have to close them fairly soon. They have a need even for replacement now. This is more or less the next important developments in Europe from the UK. When you have looked at all the difficulties the industry has to face, I would not be so pessimistic about these countries because again the existing nuclear power plants have run very well and this is very important for new capacities. Obviously you have the

problem of public acceptance. We have seen in Germany, the problem of renewables. EDF has recently made its own IPO and the main development in EDF will be in renewable energies. We are not against renewable energy. We have also gathered all our capacities in this field in a holding (?) and it has also been successfully listed last year. But we think that these resources have strong limitations. When it is very hot or very cold, you have no wind. At night you have no solar energy. And it is really difficult to manage the grid. You had some incidents managing the grid in the U.S. We had several incidents managing the grid in Europe with a total blackout in Italy, a very large blackout recently in part of France, Germany, and Belgium. (inaudible) need available energies with a quick reaction. (inaudible) renewable energies are generally a nightmare. In Germany they really believe that they could replace energies with renewables and (inaudible) and the costs will be high. This is why they are now considering changing. But after the infrastructure problem, I’m not being pessimistic about human resources because even it is fair to say that the (inaudible) providing very skilled people, the problem has been well-managed and you have even (inaudible) resources that are not available in other countries. I think the program of hiring (inaudible) right now will deal with this at least at the same place as other industries because for oil industry and gas industry, the replacement of the baby boom generation and the lack of interest of young people for engineering is the same and it will be the same for other energies. It’s not (inaudible) for nuclear. At the end we may consider that what is needed is stronger support. I don’t know whether it is a financial support because capital costs are important. We know that it is difficult for fairly small companies because the American utilities are fairly small and its difficult for them to make a commitment on a decision for investment that represents sometimes 10% or 30% of their market value. The support could be from local regulators allowing mergers and larger companies more likely to invest. About the (inaudible) and the infrastructure of the industry, I repeat what I said before. We have built 80% of our 58 reactors within ten years and I know we could make some evaluations. I discussed that with Bernard (inaudible). It’s not so expensive to build the plants for the (inaudible). It’s only confidence in the investors because will the orders be there or not? But it’s not so long and not too expensive, it’s less than $1 billion in investments for these capacities. Yes it’s a lot compared to the figures you gave, for the needs in the industry it’s not a lot. And it was done in France and it worked. And again it was not subsidized either.