Remarks: Thomas F. Farrell II
Chairman, President & CEO
Platts Nuclear Energy Conference
Washington, D. C.
February 20, 2013
“Nuclear Energy at the Crossroads: A U.S. Perspective”
Thank you, Don. Good morning, ladies and gentlemen.
I am pleased to be here and want to commend Platts, Excel and the other sponsors for organizing this conference. It is a good opportunity to share ideas, survey the nuclear landscape and assess some of the potholes and potential growth opportunities that lie before the industry – here and abroad.
As Don indicated, I am here representing the company that keeps the lights on south of the Potomac River. Because Virginia is our home state, we have a close-in perspective on the nation’s capital – for better or worse.
Personally, this region is never far from my thinking. I mostly grew up just a few miles from here in Northern Virginia. Inside the Beltway, politics is the name of the game, of course. But Washington is also a crossroads of interesting neighborhoods, fabulous museums, good restaurants – and even a few respectable professional sports franchises… at long last.
Dominion’s core business is utility and merchant power production and natural gas gathering, transportation and storage. We serve about six million utility and retail energy customers in 15 states, mostly in the mid-Atlantic, Midwest and Northeast regions of the country.
Our nuclear portfolio consists of four stations – North Anna and Surry, our two regulated stations in Virginia; and two merchant stations, Kewaunee in Wisconsin and Millstone in Connecticut. Their combined generating capacity is about 6,200 megawatts, or about 22 percent of our total fleet capacity and about 44 percent of our total electric output. The rest of our fleet is fossil-fired and renewable generation.
About a decade ago, we began laying the groundwork for building a third unit at the North Anna station in central Virginia. In 2007, we received an Early Site Permit for a new unit, and we expect to obtain a combined operating license from the NRC sometime in 2015. Only then will we determine our next step toward the construction of a third unit there.
America’s commercial nuclear fleet includes 104 operating reactors. Together, they produce about 20 percent of the nation’s electricity. They are a vital part of a complex energy network that powers the American – and global – economy.
Over the course of the past century, in fact, we have developed an incredibly successful economic system based on safe, affordable and reliable electricity – for housing, appliances, manufacturing – everything that constitutes modern life.
Human beings have shown, time and again, a remarkable ease in their ability to create and embrace technology – and at the same time, ignore or even forget what it took to acquire it.
Not long ago, I came across an article in National Geographic magazine. It was published in 1931 following Thomas Edison’s death. The article said that as a tribute to the great inventor, it was suggested that every power station in the nation be turned off for 60 seconds – until it became clear that such a tribute would amount to a “continental disaster.”
In the 1930s, the origins of electric power remained within the reach of living memory. As the National Geographic article points out, even as the people of that time acknowledged that electricity “has probably changed our mode of life more than any single invention, its use has come to be taken for granted, much like that of water.”
Now fast forward into the 21st century. Add to society layer upon layer of countless home conveniences, industrial advances, medical miracles and technological wonders – and an even greater expectation that when we throw the switch, the lights will come on – and stay on – every time, no excuses.
If you watched the Super Bowl, you know that the lights did not stay on in the Superdome. What officials referred to initially as a mysterious “abnormality in the system” turned out to be a faulty relay in the switching gear. The malfunction caused a 34-minute delay in the game and lots of irritation – on and off the field.
Blogs, tweets and Facebook postings flooded cyberspace with conspiracy theories about who was to blame – from Beyonce’s half-time show to 49er fans to New Orleans style voodoo magic. Several days later, officials from Entergy, the local utility, took responsibility for the equipment failure after investigating the cause of the outage.
The blackout illustrates an important point: The electric utility industry has done its job so well that the average consumer can pay little or no attention to what it takes to produce and transmit power – whenever and wherever it is needed. This “take it for granted” mindset is the result of the American public being shielded for too long from the true costs of energy production and delivery.
Consumers have been conditioned by politicians, the media and the farther edges of the environmental community to look for easy answers to complex questions about energy… and to believe that our present energy system, built over generations at extraordinary cost and effort … can be radically and quickly transformed, with little fuss or expense.
Sort of like replacing your iPhone every couple of years.
That is unrealistic, magical thinking, as you and I know.
But wait a minute. We need to turn the mirror on ourselves. My industry has helped to cultivate that attitude. We have done so whenever we have failed to speak out as energy realists – and provide perspective and facts about what it will take to meet America’s vast and growing energy needs – and do so cleanly, reliably and affordably.
Please understand another thing: We cannot advocate energy realism without being political realists. To work successfully within a democracy, we have to understand and accept that public opinion matters – and also that people can be quite creative about what constitutes the truth. In other words, we tend to believe what we want to believe.
So when President Obama gives his inaugural address and signals a growing national priority on curbing greenhouse gases – going so far as to link the issue to Founding principles and religious imperatives – we have to pay attention to that.
And when he establishes this priority as part of the national agenda – but with no mention of the role of nuclear power or hydrocarbons in addressing our energy and environmental challenges – we must pay attention to that, too.
As an industry, we have an obligation – to our nation and to future generations – to speak out and present the facts as we understand them. As the public conversation over future energy choices moves forward, we have an obligation to improve the quality, substance and realism of that conversation – and make sure it includes nuclear power. Uranium is indisputably our most efficient source of clean power and the one with the smallest environmental footprint. In fact, it accounts for more than 70 percent of the nation’s carbon-free electricity.
That fact alone has led many of the leading lights in the environmental community to embrace nuclear power, including James Hansen, NASA’s top climate scientist, Jeffrey Sachs, director of the Earth Institute at Columbia University, and Patrick Moore, a co-founder of Greenpeace.
The fact is, anyone concerned about global warming should acknowledge that if society seriously aspires to be anti-carbon, it also needs to be seriously pro-nuclear – especially if we want to keep the lights on.
Nuclear is the only major power source that is virtually emissions-free, and at present, it is the only viable large-scale alternative to hydrocarbon generation.
Those who claim that wind, water and solar power can provide 100 percent of our energy needs by 2030 are engaging in fantastic thinking. According to NASA’s Dr. Hansen, those kinds of assertions are the equivalent of “believing in the Easter Bunny and the Tooth Fairy.”
We also cannot overlook the industry’s outstanding track record for safety, improved productivity and operational excellence reaching back more than four decades.
Smart investments in power uprates and other operating efficiencies achieved over the past 20 years have added the equivalent of 24 new 1,000-megawatt nuclear units to the nation’s power grid.
Low operating costs, small land use requirements and the highest capacity factor of all fuel sources are important nuclear advantages.
And study after study shows that nuclear stations generate substantial economic value for the communities in which they operate. That includes state and local taxes averaging about $16 million per station – funds that benefit local schools, roads and other important infrastructure – not to mention high-wage jobs for station employees whose spending also supports the local economy.
New reactor technologies incorporating passive designs promise to deliver even better safety performance, reliability, economy and flexibility than those in operation today.
Small modular reactor designs ranging in size from 50-200 megawatts could – in a decade or so – help utilities replace retired coal units; or meet the specialized needs of military bases and other government installations. These smaller-scale units can be pre-assembled and delivered by rail or ship – with a competitive cost per unit of output once they begin operating.
These and other technical advances could provide significant opportunities to rejuvenate our long-dormant domestic nuclear manufacturing sector.
For the first time in 30 years, for example, an American steelmaker in Pennsylvania, LeHigh Heavy Forge, will supply vessels for small modular reactors now under development by Babcock & Wilcox.
In addition, the global expansion of nuclear construction should provide meaningful new export opportunities for U.S. manufacturers and their employees. Studies conducted by the U.S. Department of Commerce indicate that every $1 billion worth of exports by American companies represents between 5,000 and 10,000 jobs.
All of these factors – scale, power density, reliability, environmental footprint, technical innovation and economic value – lead to one conclusion: nuclear power must figure prominently in our energy future – especially if we are committed to de-carbonizing our economy.
Not surprisingly, as we look to the future, we see a relentless and growing hunger for power.
Here in the U.S., demand is projected to increase about 25 percent over the next two decades. That is slightly less than 1 percent each year – low by historical standards.
But what is notable beyond the absolute numbers is the changing nature of demand. It is increasingly information and data-centric, driven by the Internet and all the equipment associated with the digital economy.
Allow me to illustrate with an example from just across the Potomac in Northern Virginia. The region is home to some 40 operating data centers, with another two dozen in various stages of development. These Wal-Mart size warehouses manage about half of all the Internet traffic that flows throughout the United States.
They are among Dominion’s largest customers in terms of power demand. In that regard, data centers are similar to large manufacturing plants – the main difference being, they run day and night, 365 days a year at full capacity.
Each one of them consumes roughly the same amount of power as 9,000 typical homes. And we expect the electricity demand from these data centers to more than double by the end of the year.
That is just one example of why we need an “all hands on deck” approach to meet the nation’s – and the world’s – future energy needs; why overdependence on natural gas can, with shifts in the market, quickly become problematic; and why we should be having policy discussions now about how we intend to replace 100 gigawatts of nuclear capacity that will be retired by about 2040, according to NRC estimates.
One hundred gigawatts can power 25 million typical households. Absent new coal-fired capacity, can we realistically expect natural gas and renewables to fill that void?
As a practical matter, the answer is no. And the generation of electricity is about as practical as it gets.
Looking beyond our borders, global electricity consumption is expected to outstrip U.S. consumption by a wide margin, growing more than 70 percent by 2035, according to government forecasts. To no one’s surprise, this growth will be led by China and India, which are committed to promoting economic development above all else.
By 2035, in fact, countries in the developing world are expected to account for about 40 percent of total global nuclear generation, up from 17 percent in 2010.
Three countries – China, India and Russia – are home to about 70 percent of the 62 nuclear reactors currently under construction. The United Arab Emirates has broken ground on its first reactors, and Turkey, Jordan and Vietnam are well along with their plans to build their first civilian reactors.
In the developed world, the outlook for nuclear is more mixed, especially in the wake of the Fukushima accident.
The most extreme example is Germany, which has announced plans to close all of its 17 reactors by 2022 – despite grave concerns about where its replacement power will come from – and at what cost to the German people.
In Japan, all but two of the nation’s 50 reactors remain off-line, with public opinion about evenly split over restarting them – a decision that must be approved by the newly formed Nuclear Regulation Authority.
And here within our borders, there are five units currently under construction, with 10 combined operating license applications for 16 new units pending before the NRC. One of those is Dominion’s application for a new unit at the North Anna Power Station in Virginia, which I mentioned earlier.
Tomorrow morning, your keynote speaker, Buzz Miller of Southern Company, will provide a progress report on Vogtle 3 and Vogtle 4, currently under construction in Georgia.
That very cursory tour of the nuclear landscape gives reason to be cautiously bullish about the long-term prospects for nuclear power. But there are also some real and challenging near-term obstacles to growth.
I will start with the repercussions from Fukushima.
Clearly, the accident has slowed the worldwide growth of nuclear. But I do not believe it will reverse the overall global trend toward expansion.
There will be, however, an increase in expenditures mandated by the NRC. For example, I have seen estimates ranging from $15 million to $60 million per unit for containment vent filters. And NRC staff recently proposed a new rule requiring utilities to upgrade key emergency response capabilities.
If there is a silver lining to Fukushima, it lies in the intensified focus the industry is now placing on risk management, safety and overall operational excellence – things that were good before but promise to be even better moving forward.
High capital costs and license delays have long plagued new nuclear construction. As we all know, nuclear units are capital-intensive, long-lived assets that take a long time to build. I know we all look forward to hearing Mr. Miller’s perspective on this issue when he discusses Southern’s experience tomorrow morning.
Our nation continues to search for a solution to the waste problem. DOE’s Blue Ribbon Commission has offered a comprehensive roadmap and a possible resolution to the current impasse, which has been mired in partisan politics and “NIMBYism” for far too long. Much work remains to be done in this area, but I believe the commission’s recommendations offer fresh momentum toward a sound waste management strategy.
Perhaps the greatest obstacle to growth, at least in the near term, is low natural gas prices, resulting principally from the explosion of shale gas development. Frankly, at $3 gas, it is pretty hard to build anything – including natural gas plants.
But for nuclear operators – especially those in the merchant sector – tight margins, coupled with weak demand and a slow economy, have created a challenging operating environment, to say the least.
At Dominion, we know this for a fact. Last fall we announced plans to close and decommission our single-unit, 556-megawatt Kewaunee station in Wisconsin. I can address this in more detail during the Question & Answer session. But in a nutshell, a combination of factors has simply made it uneconomic to continue operating the station beyond the second quarter of this year.
A key point here bears repeating: Although current market conditions favor natural gas as a fuel source, maintaining a diverse supply of fuels in your generating portfolio safeguards customers from price volatility – a longstanding concern in natural gas markets. So, going all in on gas defies everything we know and preach about diversification and prudent risk management.
Besides, anyone who is serious about developing a nuclear project – and this is no business for beginners, as my colleague Tom Fanning at Southern likes to say – needs to adopt a long-term outlook.
After all, we are talking about an asset with a 60-year lifespan. Those who invest in or buy from a nuclear station are strategically focused on the long haul. They are certainly not operating with a near-term trading mentality – or should not be if they want to stay in business.
By way of conclusion, I would like to offer a few comments about national energy policy.
This is something that has been on my wish list for a long time. I have pushed for it for years and am getting impatient for it to happen. I also have no illusions about the difficulty of creating such a plan, especially in the polarized – and often paralyzed – policy climate that pervades Congress.
The fact is, we have never had a national plan; what we have are multiple layers and jurisdictions of overlapping regulatory structures, federal agencies and contradictory policies that have conveniently – but inaccurately – been labeled as an “energy policy.” Former Senator Byron Dorgan of North Dakota has compared this to having “an orchestra without a conductor.”
It will take a great amount of effort, time and leadership. But we must make this a national priority. We must begin treating energy, and electricity in particular, for what it is – the world’s most important commodity and the source of global prosperity.
Does that mean we should elevate energy to the level of foreign affairs and national defense? I absolutely believe so. As Senator Jeanne Shaheen of New Hampshire said recently, “Energy security is national security.”
The turnover occurring in President Obama’s top energy and environmental team might provide the opportunity we need to revive discussions about a national energy strategy.
Other serious and responsible voices have said as much. Former Senators Dorgan and Trent Lott, former EPA Administrator William Reilly and General James Jones, the President’s former National Security Adviser, have called for the creation of a cross-agency, national energy council modeled on the National Security Council.
This energy council would coordinate with Congress, industry and other stakeholders to come up with a long-term game plan for meeting the nation’s energy challenges.
I made a similar proposal in remarks delivered last year at Dan Yergin’s CERA Week program in Houston. Instead of an energy council, I suggested creating the position of National Energy Advisor to the President – someone in the White House who would coordinate with the National Security Advisor and the Chief Economic Advisor on important energy issues.
Whether an energy council or an advisor to the President, we need to find a means of breaking the gridlock that has kept us spinning our wheels for far too long.
Look at the global realities: There are profound changes taking place – in the world of energy and in society – changes fueled by technological innovation, shifting supply and demand dynamics, global demographics and costly new regulations, to name a few.
We need a workable, understandable energy roadmap that contains concrete, measureable objectives, metrics against which to evaluate progress, supportive regulation and a coordinated framework for developing new technologies.
We cannot forget that the lifeblood of democracy is persuasion. That puts the challenge squarely before us. We must respect public opinion, but we also must find the language and the arguments that illuminate the task before us.
The nation’s fiscal woes continue to dominate the public debate, and that is to be expected. But the continued failure to address our nation’s energy concerns will only worsen long-term constraints on economic growth and our standard of living; limit our leverage to conduct foreign policy; and increase our vulnerability to other economic and political threats.
So the question I leave you with is this: Can we as a nation find the will to engage in straight talk about our energy options and goals – guided by the light of reason and not the fires of emotion?
The answer is elusive, and the stakes are high – and getting higher by the day. We simply cannot afford to turn our backs on this challenge.
Best wishes for a successful conference and a pleasant stay in the nation’s capital. If there is time, I will be glad to entertain your questions.