NEI's Flint, FERC's Wellinghoff debate role of nuclear power in U.S. energy policy

As the Senate debates a climate and energy package, how should the construction of new coal and nuclear plants be handled in the legislation? During today's E&ETV Event Coverage of an Environmental Law Institute panel, experts discuss the role coal and nuclear should play in the United States' future energy policy. Panelists include Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission; Alex Flint, senior vice president of governmental affairs at the Nuclear Energy Institute; Peter Bradford, vice chairman of the Union of Concerned Scientists; Garry Brown, chairman of the New York State Public Service Commission; and Mike Morris, president and CEO of American Electric Power.


Matthew Wald: For an event that was scheduled many months in advance, it's truly astounding that we're hitting right on target. This it is just turning to energy.

Who would have thought that health care would take longer to build than a nuclear plant? So, here we are on the threshold of November and just getting to energy.

Our panel is going to consider this statement pro and con, the best path to stabilizing global climate and meeting the world's energy needs includes building new reactors and using coal in an environmentally-friendly manner.

Our panelists will get five minutes each and then we'll go for a round of three-minute rebuttals. We may go for a second round of three-minute rebuttals or we may go straight from there to your questions.

My job will be to ask the panelists to translate if I think they're getting too obscure and to make sure everybody here leaves with all the neutrons and other body parts they came in with.

So, I'll now play the human Google and I will introduce our panelists. Garry Brown is the chairman of the New York State Public Service Commission.

He also sits on the board of the Regional Greenhouse Gas Initiative, which you're probably familiar with, a voluntary group trying to cut carbon dioxide from the power sector of northeastern utilities.

He is also on the board of the New York State Energy Research and Development Administration. Mike Morris is the chairman, president, and CEO of American Electric Power, which is, I think, the nation's largest coal user. The company also runs the D.C. Cook Nuclear Plant.

He's the past chairman of the Institute of Nuclear Power, operations, and last month I visited the AEP Plant in New Haven, West Virginia, Mountaineer, which has just begun injecting some of its carbon dioxide 1800 feet down.

Peter Bradford, on my left, was named to the Nuclear Regulatory Commission by Jimmy Carter. He later served as chair of the Public Service Commissions, both of Maine and New York. He's currently the vice chair of the Union of Concerned Scientists.

Alex Flint spent eight years on the Hill as staff director of the Senate Energy Committee and before that he was on the personal staff of Senator Pete Domenici.

He is now senior vice president of Governmental Affairs at the Nuclear Energy Institute, the industry's trade association. And Jon Wellinghoff is the chairman of the Federal that.

He's an energy loss specialist with more than 30 years of experience in the field. He's also a strong advocate renewables and especially geothermal energy, which is strong in his home state of Nevada.

And I am a champion and feedback. Is there something I should do with this microphone or are we OK?

Garry Brown: It's when I turn my microphone on, you see.

Matthew Wald: Ah, very good, OK. So, Garry, you have five minutes to lead us off on this question.

Garry Brown: Thank you, I'll start out by being completely and totally off-topic, but I think it will revolve around. On August 14, 2003 there was a huge blackout in the northeast United States, took out New York City.

Obviously, a cause that we at the New York Public Service Commission are very concerned about. And since I've been on the commission for the last two years I have had advocates come in and say, "If you'd just upgraded your bulk power system. If you're just spent money on transmission you could have avoided that blackout."

And then I had people come in and say, "If you just had distributed generation and photovoltaics out there you would have avoided that blackout of August 2003."

And I had people that came in and said, "If you just had this remote sensing equipment you could have avoided the blackout of August 2003."

And I started to realize it wasn't really about the blackout, it was about their causes. And, frankly, if people had trimmed to their trees we could have avoided the August 2003 blackout.

Now, in the carbon debate we're starting to see, I think, some of the same thing. People are not, I'm sure, as concerned about really the reduction of the carbon as to moving their own causes.

And so I've taken a look at a lot of analysis and I just heard a gentleman from Great Britain at a conference I was at that basically did the math.

If you really want to achieve an 80 percent reduction worldwide in carbon by 2050, and you assume that Third World nations have growth and want to eat more beef and we're already seeing that, and all the CO2 that comes from cattle in the world, and if you assume there's going to remain industrial processes.

And when he did all the math he basically found out there's no carbon left for the electricity sector. And if that's true, then we really need to think about what we' is re going to do.

The debate in Washington has simply moved from the science of to the cost of, but I don't think people are really starting to take the fundamental change in our system that it would take to get to 80 percent reduction by 2050.

It's going to take, and I'm a huge believer, I'm a big advocate of the clean energy, green energy technologies, it's going to take all the energy efficiency and demand response we can muster. It's going to take all the renewable resources we're going to need.

But doing that alone will not get us there. It's going to take, in my mind, some sort of renaissance of nuclear power. I'm not going to opine on what speed or how many, but I don't think it can be rejected.

It's going to take carbon sequestration technologies. Coal remains an abundant resource in the United States. We're going to have to figure out a way to use it in a more carbon-friendly way.

I don't think we're at the point right now where we can reject anything. I think we've got to take a look at every technology we have, every smart grid, what that can bring to us.

We've got to make the investments and these investments are not small. They're huge. In New York we're collecting about a half $1 billion a year to do energy efficiency and renewable technologies.

We're just skimming the surface. That's really not going to change. It's going to cost several billion more for us to get to our goal of 30% renewables and energy efficiency by 2015.

But to do that next 70 percent, to make that carbon friendly, is tens of billions in New York. It's hundreds of billions. It may be trillions nationwide. We're not there yet.

We're not ready to make the commitment, but I guess my plea today is let's not reject anything off the bat.

Let's look at the humongous effort that it's going to be taking over the next period of time if we're really serious about this carbon debate and I believe we do need to be serious about the carbon debate. So I'll stop there.

Matthew Wald: Garry, thank you. You mean people in this business have financial interest?

Garry Brown: Yeah, every once in while.

Matthew Wald: OK, Mike?

Mike Morris: Matt, let me start by just rereading part of your question to us. Stabilizing global climate and meeting the world's energy needs is going to need additional nuclear and a better approach to coal utilization.

I presume Alex will touch on the nuclear issue since he's here in that role and let me then focus in on the issue of something that Secretary Chu said a week or two ago in London at a World Energy Council meeting, that coal will be consumed throughout the world.

I think it's safe to say, as the chair of the New York commission said, that countries like India and China and other parts of the world intend to continue to advance their economy and in that process they're going to use the energy resources that they have.

If you look at the resource base of Russia, you look at China and India, they are coal blessed and they intend to use that. As you know, we too are coal blessed and we will continue to use that coal.

The challenge is exactly as you point out, how can we do that in a more carbon controlled environment? And the answer is technology. There is no question about the ability of moving technology forward.

As Matt said, he's had an opportunity to visit our station in New Haven, West Virginia where we have been capturing and storing carbon now from our Mountaineer coal-based power plant for about a month. It's working very well.

The capture technology, we're all comfortable, can be in the 90 percent range. The issue of storing underground is something that's common to the energy industry throughout the world. We, as a nation, have been storing natural gas.

As you know, the Strategic Petroleum Reserve is nothing more than an underground storage application for what we think is a very important petroleum strategy of reason. It is to your point, Mr. Chairman, not an inexpensive proposition.

We're doing a 20 megawatt slipstream off of a 1300 megawatt power production facility. So far, our piece of that is $70 million and we're paying for about half of it.

When we scale that up it appears as though based on an application that we have in front of the DOE with partners from India, partners from Canada, partners from Germany, partners from France, and we would hope a partner from China, it's going to cost about $400 million to go to a 250 megawatt scale up.

Mountaineer is 1300 megawatts, to Matt's point, American Electric Power is a 40,000 megawatt generating company, 70 percent of which is coal-fired. Much of it has been retrofitted in compliance with the Clean Air Act.

Those who ran this company many, many years before me continue to push the technological envelope and most of our large units, which are 1300 megawatt and/or 800 megawatts have already been retrofitted for the Clean Air Act.

It makes great sense to retrofit them for carbon. We really do want to get to the answer. We are strong advocates for supporting one of the few utilities inside of Edison Electric that actually supports Waxman-Markey.

I'd like to see it improved in the Senate. I think it's been weakened in the Senate from our vantage point for our customers' protection, but nonetheless, we believe strongly in getting that done.

And retrofitting the fleet, if we're going to mean the energy needs of the world and of our country, is essential.

You cannot simply take coal off of the horizon in any short-term timeline and replace it with anything that can match what coal-based electricity does for the U.S. economy today.

So I look forward to the additional panelists and their comments. I look forward to your rebuttal rounds and clearly looked forward to questions from the audience.

Matthew Wald: I should say, Mike, that was a lovely plant. It's based on an ammonia technology. What I remember most about it is the whole place was spanking clean and smelled slightly of Windex.

Mike Morris: Well, we have the world press coming there tomorrow. We have people from all over the world that will be at the plant tomorrow, so we did spiff it up a little bit.

Matthew Wald: Good.

Mike Morris: And most of it was for you Matt.

Matthew Wald: Thank you. Peter?

Peter Bradford: So, I started with the assumption that the person next to me at a dinner said something along the lines of the best path to stabilizing the global climate and meeting the world's energy needs include building new reactors and using coal in an environmentally-friendly manner.

I didn't turn away, but my reaction is, well, maybe, but it starts somewhere else. It starts with cap and trade. It starts with aggressive pursuit of energy efficiency.

Maybe there's a place for what the MIT report six or seven years ago called a program of support for a few first-mover plants to demonstrate several new or advanced reactor technologies.

But it certainly does not start with a massive attempt to scale up nuclear energy in current legislation.

Whether other countries, especially those with much higher rates of demand growth and centralized, nontransparent, and noncompetitive power procurement processes will reach different conclusions is, of course, for them to decide.

However, studies such as Pacala-Socolow Wedge Analysis established that we need not rely heavily on an expansion of new nuclear reactors to meet climate goals, at least not an immediate expansion.

Male Speaker: Could you turn your mic on please?

Matthew Wald: First the person next to you at dinner picks your pocket. OK, there you go.

Peter Bradford: I'm just too used to system in which one gets dispatched. For the U.S. though, there are reputable studies, they include UCS Energy Blueprint and Marc Cooper's report for Vermont Law School that make the point emphatically that a strong emphasis on nuclear power in the short run is a very cost ineffective approach to climate change.

Indeed, these studies go further, indicating that major near-term reliance on new reactors here will retard climate progress by diverting huge sums of money that could provide relatively inexpensive climate relief relatively quickly into a very expensive and controversial resource that provides the same relief slowly.

A cap-and-trade regime will support many low carbon energy sources equally. Once that's in place the case for special subsidy for new nuclear is particularly weak, in part, because this is the most supported energy source in U.S. history. It can't justify a new Manhattan Project because it had the first one.

Today, again, efforts to rush a false nuclear renaissance have already done considerable harm, undermining the NRC's revised licensing process, sparking customer backlashes in Florida, Missouri, and Texas, and creating a situation in which half of the 28 so-called Renaissance plants have already, in 2009, experienced either a major delay, a major cost overrun, or outright cancellation.

So, real harm accompanies a rushed renaissance on the order of a hundred new reactors over the next two decades, as the Republicans in the Senate have been paradoxically advocating.

Combating climate change requires substantial greenhouse gas reductions to start immediately. New U.S. reactors can't come online quickly. The original nuclear power 2010 became 2014 then 2016.

If Finland's recent experience with an advanced reactor is any guide, 2020 is more likely for the first unit or two.

Nothing short of ridiculous assumptions about subsidy, infrastructure and licensing produces a hundred new U.S. reactors in 20 years, a path that in any case Mark Cooper calculates would increase the cost of climate mitigation by between 1.9 and $4.4 trillion.

Other technologies promise substantial benefits. I'll stop there and save the rest for next time.

Matthew Wald: The renaissance is over, right? Alex, I can hear your teeth grinding from here.

Alex Flint: Well, no, not actually. I'm not surprised by what I've heard so far. I'll tell you, I was very impressed by the way this panel started off with a global perspective and I do think that's the way this problem needs to be approached.

After all, it's global climate change and so let me share a global perspective. There are 6.2 billion people living on the earth today, by 2050 there will be over 9 billion people.

Of the 6.2 billion people on the planet today, 2 billion of them have no access to electricity and they strive every day, not just to have access to electricity, but to have the standard of access to electricity and the standard of living you see in the developed world.

That creates an insatiable demand for increased energy and it's an understandable one. There's a direct correlation to the amount of energy that they have and life expectancy, the health of their children, productivity, individual productivity.

There is an insatiable global demand, not just for the amount of energy that we use today, but increased energy. And frankly, I think it's a moral obligation that we find ways to be able to satisfy that demand in a way that protects our planet.

There are other challenges by this population phenomenon that we'll see between now and 2050. Today 50 percent of the global population lives in rural areas and 50 percent live in urban areas.

By 2050, 70 percent of that over 9 billion people will live in cities and only 30 percent will live in rural areas. Those cities are going to be larger than the cities you see today.

So, in 1952, two cities on Earth, Tokyo and New York, had populations in excess of 10 million people. There will be 28 cities in excess of 10 million people just by the year 2025, with Tokyo at almost 40 million people living in it.

What we have to do as a global community is we have to find ways to power the planet in 2030 and 2050, recognizing that the demands of the people who live on that planet are going to be. And one of the most important things is we have to find some way of powering megacities.

We need dense sources of electricity that can provide the standards of living we have become accustomed to and the world demands.

Now, when you look at credible analyses, International Energy Administration did their analysis in advance of the upcoming Copenhagen meeting, when you look at the EPRI analysis just of the United States it is clear that we have to deploy all environmentally friendly technologies.

We have to deploy CCS as quickly as possible. We have to deploy as much wind, as much renewables, as much efficiency as we possibly can. And the EPRI analysis puts a very fine point on it.

Just for the United States, so not talking about the global problem anymore, but just for the United States, if we deploy all available technologies as rapidly as we can, their full portfolio scenario by 2030, we see electricity prices go up 80 percent.

It takes an incredible investment in the electricity generation and distribution system in order to meet that demand in the U.S., to transition to a cleaner electricity system, but we can do it with an 80 percent increase in electricity prices.

If you limit the technologies that are available, if you say we're not going to deploy nuclear at the rate that we can, if you say we're not going to assume that CCS for coal is available, that increase in price goes to 210 percent.

The most economically feasible, the most politically feasible way of doing it, because I think there will be a backlash against increases in electricity prices in that 210 percent range, is to deploy all of the technologies, the full portfolio, as EPRI refers to it, as quickly as possible.

Now, the nuclear fleet in the United States of 104 plants has been operating very well in recent years. The capacity factor is up; the price of electricity is down.

For the last seven years electricity off of a nuclear plant has been the lowest cost of baseload electricity in this country, even cheaper than natural gas and coal for the last seven years. It's a tremendous track record.

I would postulate that that's exactly the sort of electricity we need to have as we try to grow our electricity production. Now, there are people who argue that future plants are going to be too expensive and you've heard some reference to some of those studies.

I understand there are advocates who will use economic models to prove their case, but when you look at the detailed analysis that have been done on new plants by the public utilities commissions in Florida, in Georgia, in Texas and Virginia and Maryland, they come to the conclusion that building new nuclear plants is the cost-effective way of producing electricity they need in their service territories in the years 2016 and beyond.

You need to look at the economics of individual plants and those economics are very attractive. That's why we're going forward with the plants. I think there's a moral imperative that the world do it.

I think there's a very strong economic imperative that we do it for specific plants here in the United States and time will tell. We've got plants under construction now and by about 2016 or 2017 we'll have real-world examples of what the United States can do in that regard.

Meanwhile, I'm a little worried about the United States falling behind. There are 54 plants under construction worldwide, so there's a lot of experience. It makes sense in a lot of countries around the world and it makes sense here as well.

Matthew Wald: I was afraid we wouldn't have any differing opinions on the panel here.

Alex Flint: I think it's been arranged so that there was.

Male Speaker: I actually was.

Matthew Wald: Jon, we will leave it for you to bat last, clean up.

Jon Wellinghoff: Thank you, Matt. I appreciate it very much. We just recently completed a strategic plan at FERC which I'm very proud of actually.

That strategic plan was really informed in large part with not only my 30 years of experience in the energy field, but my experience with our past chairman, Chairman Kelliher.

Chairman Kelliher I think really helped me understand the power of electric markets and the power of those markets to really shape our electric policy future.

Based upon that, our strategic plan takes our primary congressional responsibility to ensure that rates are just and reasonable and puts that in the context of efficient and effective markets.

And I think that fair, transparent, open and efficient competitive markets are what we really need to emphasize in this country. I think if we did that in a comprehensive way a lot that these problems would take care of themselves.

So in doing that, in emphasizing markets, how we've looked at that and focused that in our strategic plan, we've done that in three different ways. First, number one is efficiency.

We're doing everything we can to improve efficiency and when you talk about raising costs of doing everything you can by 80 percent or whatever it may be, that certainly will raise rates.

However, to the extent that we can put efficiency in place it may lower bills, because people's bills would be dependent on levels of consumption. So if you could make people more efficient, ultimately, it can stabilize their bills.

So we really need to put in as much as we can and Garry talked about it a little bit, what they're doing in New York and they're doing similar amounts in California and a number of other states, but really it pales in comparison to some of these other investments we make.

And so we need to equalize these investments and really improve the levels of efficiency, both on the consumer side, but also on the side that FERC has jurisdiction over and that is the wholesale electric markets in the interstate transmission system.

There's tremendous amounts of efficiency gains to be made there, so we're trying to emphasize efficiency. Number two, with respect to markets we want to make sure that those markets are as competitive as possible and that all supplies compete equally in those markets and they have equal access.

So we've done what we can to ensure that renewables have access to that market and ensure that those renewables are part of the market mix, because to the extent that we can bring those into the system, they can, in fact, lower costs.

A study was done by the JCSP, the Joint Coordinated System Plan out of the Midwest ISO, looking at taking, delivering large amounts of wind from the Midwest to the East Coast.

And that study concluded that they could reduce rates by 20 percent if that was done by providing market mechanisms ultimately to deliver into those markets large amounts of renewable resources that would, in fact, provide for competitive supplies.

So, what we want to do is provide for deliverability, reduce congestion, and make sure that the supply side of the market is fair and open and operates. So, what are we seeing in the supply side of the market right now?

Well, in the last 10 years we've seen 30,000 megawatts of wind come into that market, so it's very important that that market have access to these renewables.

In addition, we have right now 300 gigawatts, 300,000 megawatts of wind in the queue waiting to get on transmission lines just in the independent system operator's areas in the country, the RTOs and ISOs.

So, that's what's really in the forefront of FERC's thinking of how we can make these markets competitive on the supply side. The other side is the demand side.

In addition to efficiency you have something called demand response, where consumers can respond to those markets by modifying their loads.

You have in industrial customers, commercial customers, commercial customers like Wal-Mart and Safeway that I was on a panel with just the other day up on Capitol Hill that are very interested in bidding into those wholesale markets their demand response.

They change their load levels at the signal of the transmission system operator, by doing that they can make that system operate more efficiently.

They can reduce the need for putting in very expensive, polluting, peaking units and ultimately make the whole system work much more efficiently. And they get paid to do it, so they enjoy doing it because it stabilizes their bills.

So, if we can provide for additional demand response into that market in a very robust way we can make those markets operate more efficiently and, again, looking at what are the markets demanding?

The PJM, which is one of the system operators, the mid-Atlantic one that operators all the way from New Jersey to Chicago, the largest independent operator in this country as a matter of fact, about 133,000 megawatts under their control.

They had an auction last March, a forward capacity option for bids in for capacity and that auction brought in 10,000 megawatts of bids from demand response. Seven thousand megawatts of that cleared the auction.

So we have tremendous demand that wants to come into these wholesale markets and provide those markets with efficient, effective ways to control them. And it's only the tip of the iceberg.

FERC just did a study looking at the possibility of further demand reductions in demand response across the entire country.

And we estimated through our study that there's as much as 188 gigawatts of demand response that could be put into these markets and ultimately control demand, reduce costs, stabilize costs for consumers.

So we have tremendous opportunities here, but the bottom line that I want to leave you with is the markets will decide which one of these resources that are going to win out.

It should be the markets that decide. We need to get prices right. We need to put a price on carbon.

We need to ensure that other environmental externalities are incorporated in, they're internalized into the cost of these products that were put in the market and then we need to make the markets open for all products as possible. And if we can do that, I think we're all going to be better off.

Matthew Wald: I am looking forward to a lively discussion here because, having followed this for years, one of the ideas I come away with is a new round of nuclear plants faces a fundamentally different challenge because we are now in a market environment and that a market may or may not be the best approach to what is essentially a policy-directed field.

If we're going to have a policy, we're going to cut emissions, carbon dioxide, by 80 percent by 2050, but we've got a market that allocates risks and benefits differently than the old regulated system did.

And the old regulated system chose reactors. What will the system choose? So, Gary, that may be what you want to address. You may want to address something different, but you're first up in a three-minute bubble.

Garry Brown: I'll start there and I agreed with 99.7 of percent of the chairman's comments, right until the end.

And it's incredibly ironic, because when I met the chairman I was working for an independent system operator and he was a cynical guy about markets and we've reversed roles little here, which is OK.

I think the markets do work and I think they had positive aspects, but I think there's going to be a public policy overlay to the markets. And what we have to make sure is that we make the public policies and the markets work together.

And seeing my predecessor, Mr. Bradford here, he introduced, in the 80s, a very vibrant demand response, demand-side programs. Energy efficiency, he had all of the utilities tuned up and ready to go and we were really making progress in New York.

And at that point natural gas prices became low and we kind of dropped all those programs, moved on, used up our natural gas bubble and we're right where we were almost 30 years ago in terms of fuel mix and energy efficiency programs and so we're trying to start them up again.

Even the question didn't mention it and I just want to raise this natural gas issue. An amazing thing may have happened over the last few years.

We may have a new natural gas bubble that may last, and I don't know the engineering of it yet, but there's at least the potential there for 20, 30 years of new gas supplies that we never saw with the shale development.

Now, what are we going to do with this gas in terms of the carbon debate, in terms of the coal debate? Are we just going to use it up and be in the same place as we were 20 years ago?

Do we just let the markets decide? And that's where I was going to go with I'm not sure we just want to let the markets decide. I think we need a public policy at the national level. What do we want to do?

What do we want to do with this gas? Do we want to use it as a transportation transitional fuel? Do we want to use it to cut that whole usage? What do we want to do with the natural gas?

And I'm just a little leery and, as I said, I agreed with almost everything he said, especially to the point that our priority number 1, 2, and 3 needs to be energy efficiency, energy efficiency, and demand response energy efficiency.

That's where our monies need to go. It's the cleanest, safest supply that we have right now and we need to be exploring the other options as I said before. But efficiency is what's cost effective.

We can do it today. So I kind of went all over the place, but a lot of different issues.

Matthew Wald: Mike, your company is 70 percent coal; a good chunk of the rest is gas.

Mike Morris: Right.

Matthew Wald: You operate in places that do not reward efficiency as much as some other states do, certainly not as much as California, probably not as much as New York.

What is your perspective on the role of the market, the role of efficiency in choosing where our next megawatt is either coming from or being saved from?

Mike Morris: Well, I think there's no question that energy efficiency is the easiest and most appropriate place to start. But to your point, our average customer's bill is about $55 to $65 a month and it's very difficult to get them excited about going out and buying a $15 light bulb to save 2 kilowatt hours a month.

It's a very difficult equation. You know, the top tier of energy consumption in California is $0.40 a kilowatt hour. I would be conserving like mad if I lived in California.

And, of course, in New York, at least in the city, there's some numbers that are very high when you get to that top end. But I really believe that if we allow the United States people to answer this question they'll find an answer for it.

You know, when gasoline got to four or five dollars we actually started driving less. Now that it's back down, if you look month-to-month and compare the miles driven and the gallons consumed, we're right back to where we were.

At three and four dollars a gallon we stopped buying big cars. At two dollars we all started going back in and looking at SUVs. They are more energy efficient, that's a good thing. America knows how to react in a conservation, energy efficiency way, but typically it's at a price point.

So in jurisdictions like ours it's very difficult to go to the West Virginia commission and say, look, we'd like to spend $300 million on energy efficiency throughout our service territory.

They don't see any logic behind that, but the American consumer will do that. I'm a big believer in what Chairman Wellinghoff had to say about the markets. The markets will find an answer for this.

Demand response is an excellent way to go about it, as are the renewables as we address some of these issues.

But there, and I know Jon you've heard me say this far too many times, we have to have plenary FERC authority to build out the transmission grid that is more energy efficient than the existing grid, that would allow renewables to come and progress across the country, that really would allow demand response.

What good does it do to me if one of my huge metal melting facilities in the upper Midwest decides to do a demand response and I can't move that power to Chicago, where the market demand could be?

We will have not accomplished what we wanted to do. I would argue another very important economic issue in demand response and I go through this all the time, particularly with my big customers.

So you buy generation from American Electric Power at five cents a kilowatt hour on the generation rate and when prices in the marketplace get above that, they want to sell it in the marketplace as a demand response.

Nice idea, a very fair idea, totally understood, but why don't they do what we do? If we sell it in the marketplace for seven cents we share a penny and a half or a penny of that delta with our customers.

So I think if a big industrial customer said, look, I'll cut back by X megawatts to put X megawatt hours in the marketplace and I'm going to make $500,000 by doing that, they ought to give $250,000 back to the state regulator to spread across the rest of the company base.

That makes a lot of sense to me. That has some fairness to it because I think it's just wrong to allow a customer to buy energy on the tariff rate at four cents, five cents, and then turn around and sell it in the market and sometimes the market price is $0.30, $0.40, $0.50 a kilowatt hour.

Heck, if I were running those companies I do that too. There's a lot of logic in that, but I don't know where the fairness is to the grid because the grid and the customers are the beneficiaries of all that.

Matthew Wald: That's an interesting idea. Peter, what about this idea that it is our moral imperative and we're going to need lots of reactors for the rest of the world?

Peter Bradford: First of all, I want to answer your other question.

Matthew Wald: Please.

Peter Bradford: Namely, what will the system choose? Because I think I indicated at the beginning, China and India choose their power supplies through nontransparent, central government driven methods, especially as to nuclear. And they are fast-growing machines.

They may, in fact, choose to build more nuclear and it may make sense for them to do so, but that's not the decision that we're facing here in the climate bill in the next few months.

You did ask though, and you made the important point that we've gone to a competitive market since the last go-round and you said what will that system choose?

And there I think we know the answer because we went to competitive power procurement largely as a result of the Public Utility Regulatory Policies Act, which passed in 1978.

And that, much more than Three Mile Island, that was the event that put an end to ordering new nuclear units in this country, because you could not raise private capital for a new nuclear plant once you are in a world in which you had to sell the power against the competitive private studies.

You had to be sure that the plant would come online at a cost that you forecast and then that cost would allow you to make money. In the 30 years since PURPA, no one has ordered a new nuclear unit, so we know what the system will choose.

We don't know what it will choose if we get a carbon price into that mixture because it will change the relative position of nuclear and other generating sources.

But it will also make nuclear compete with all the other ways of lowering our carbon emissions, efficiency, renewables, but also efficiency in all sectors, forestry practices, agriculture practices.

And it's an odd world, but it's the Democratic appointees on this panel that were sounding like the right wing Republican market advocates, while the Republicans in the Senate are sounding, for all the world, like the corporate socialists, the ones who are saying carbon can pick the winner and the winner happens to be 100 reactors in 2030.

I mean the Central Committee of the Chinese Communist Party can do better than that. But I want also to say a word about a proposition I think I've heard on both sides here and that is that it's so easy to slide into that.

The climate change problem is so urgent we have to do everything at once and, indeed, the problem is alarming and yet that's a fundamentally fallacious way of approaching the solution to it. We can't afford to do everything at once.

Some solutions foreclose others. If you had a house with a leaky roof one approach to that would be fix the roof. Another, the more nuclear approach would be put in a second furnace.

The one thing no sensible person would try is doing both of those things at the same time. You prioritize and we're going to have to prioritize if we're going to reach an economically acceptable and sensible resolution to climate issues as well.

The problem that these plants are running into, the future plants, is that the cost estimates keep going up. The cost estimates for new units today are four times what they were when the industry was putting them forth in 2002, 2003.

South Texas just announced another one yesterday and the result has been political backlash. In South Texas the city of San Antonio's governing body wants to cut its share of the plant in half. In Florida the commission that Alex mentioned, there is…

Alex Flint: They wanted to do that before the press went out.

Peter Bradford: It's true and now they're even more determined.

Matthew Wald: Well, let's ask Alex, are you in competition with these light bulbs that look like custard cones? Are you in competition with wind? Is the market set up in a way that helps society choose appropriately among these things?

Alex Flint: I think there is no case in which nuclear plants have been competing with efficient light bulbs, to continue your question.

Nor do I think there is a case in policy space where there are trade-offs being proposed between building nuclear plants and doing efficiency and renewable and other programs like that.

To the contrary, what I'm finding is that increasingly the advocates of nuclear energy are working comfortably with the advocates of other environmentally friendly technologies.

We look at that in the Title 17 loan guarantee program, which is for all innovative technologies that avoid, reduce, or sequester greenhouse gas emissions. So it's, I think, to the contrary.

I think this notion that there's a competition where nuclear generation will preclude other efficiency renewal programs is simply false.

I also think that the demand to reduce carbon is so large that it exceeds all possible ability for technologies or approaches to supersede one another.

I mean to reduce carbon emissions by 80 percent by 2050 doesn't leave a lot of room for people to argue about which path is best.

That requires the deployment of all possible solutions to the problem and I'm not aware of any place where there's a competition under way right now.

Matthew Wald: Well, let me go back to this point that Peter brought up. The reason you have an auction is some things are better than others; some things clear the market first.

Doesn't that, by definition, pit what Amory Lovins called the negawatt, although with an N, although he says that was based on a public service commission of Colorado typographical error. Doesn't that pit the negawatt against the megawatt?

Peter Bradford: You know, if that's how Amory came up with that term, it actually answers a great question in my mind in that I've never quite been able to understand Amory Lovins. It's a fascinating intellectual incompatibility there.

I think absolutely, the principal question should be how do we generate electricity at the lowest price possible given the considerations, the social considerations that we have?

So, the fact that nuclear plants today generate electricity at the lowest cost of any baseload generation indicates that there is potential to do that in the future. And what I'm interested in trying to do is replicate that.

If we could add a reactor today to the U.S. generation capacity, the 105th reactor, and produce electricity at the average price of the electricity produced by the other 104 reactors, we would have avoided carbon emissions and we'd produce more electricity at a low price.

Matthew Wald: It would also depend on how much it cost you to build it, right?

Alex Flint: Oh, I'm saying, because you're absolutely right, so the challenge becomes is there a way to build reactors at that low price? We need to look at the cost associated with each reactor. There are challenges to building reactors.

The costs for building a reactor up front are very large capital costs that have to be amortized over a long period of time. They're particularly susceptible to high interest rates, to prolonged regulatory reviews, to extended construction.

All of these things that I think plagued the nuclear plants in 1978 through the 1980s, much more than your diagnosis, can drive up plant costs vary significantly. Now, fortunately, we've taken steps to address some of those, right?

We've changed the licensing process so that the critical issues the NRC has to review get done before we go into construction of these plants. Interest rates are lower.

Loan guarantee programs help us reduce the interest rates on these plants. Also, the industry has had now two decades of experience in ensuring efficient operations of those plants.

We've seen capacity factor go up. We've seen outages be reduced significantly from six months now down to less than 30 days.

We have recognized that these issues have to be addressed so the practices that drove the costs up cannot be replicated and are confident that we can do it effectively. Certainly, we've seen that in the overseas markets in the Japanese construction.

Matthew Wald: OK, Jon, let me ask you if you want to chime in on what we've had so far and then I think we'll turn to the audience for questions.

Jon Wellinghoff: I do, I want to make a quick comment on Gary's point, policy overlay, Gary, I agree with you completely and we're working on a federal policy that I was up testifying on Tuesday before Senator Boxer's committee.

The states have already weighed in very heavily on policy. There's 31 states now that have renewable portfolio standards, so that's why we have 30,000 megawatts of wind that's come into the system in the last decade and 300 gigawatts waiting to be interconnected into the system.

So absolutely there should be a policy overlay. States have the right to put in policies for their states. The federal government should step into that sector as well and we're certainly working on that very heavily in the Senate and House as we speak.

And with respect to Peter's point, absolutely, we need to prioritize, but I'd say the markets should prioritize.

Once we set the policy and we ensure we get the prices right, and we ensure that consumers see the prices, all those things need to be done, if we can do that then I think that will prioritize for us what gets into the market. Let's let things bid in and see what happens.

Matthew Wald: I'll turn to the audience now. We have strayed slightly off the point to a related point, which is how our existing commercial and regulatory structures dictate our answer to the question as opposed to the hand of God coming down and saying picked this one not that one, etc.

And I'd be happy if questions from the audience went to either one of those, the gentleman in the back there please.

Bill Butler: Hi, Bill Butler from --

Matthew Wald: Bill, there's a microphone coming.

Bill Butler: OK great.

Matthew Wald: This is Bill Butler from Georgetown.

Bill Butler: Yeah, Bill Butler from Georgetown. There's been a good deal of discussion of let the market decide and competition, but I can think of few areas in which there is greater subsidy, tax benefits, and a range of things that the government has done as a policy at one time or other in our history to benefit one or another way of generating electricity.

Is there any possibility that subsidies will be reduced or is the answer just to increase everybody's subsidy? And if that's the case, how can we possibly pay for it?

Garry Brown: Well, I would like to start out with the pay for it, because that's our job at the state regulatory commissions. We have to approve the rates and get the nasty letters from the local assemblymen and mayors about the rates. And I just want to make one point.

We're talking about all these expenditures, whether it's in efficiency, renewables, nuclear, or wherever you're talking about, if we collect the money from the ratepayers their rates go up.

Currently in New York bills over 60 days in arrears were over $600 million over 60 days in arrears. That means people simply can't pay the bills that they have now.

So it becomes fair it difficult for us at the public service commission to say let's collect hundreds of millions more whether it's a nuclear plant that needs some money up front or whether it's an efficiency program.

I can justify the efficiency program a little quicker. To the second part of your question on subsidies, you know, that's what the renewable portfolio standards basically are doing, is trying to level that playing field a little bit.

Renewables, by themselves, are not making it in the market except in some very small niches where the resource is so good and the market price works. Most of the time it requires some sort of subsidy for it to happen.

And I think you're absolutely right, if you take a look, and there are a variety of studies out there that take a look at really all the subsidies that go into the more traditional fossil fuels.

I think a lot of what we're doing on renewables at the state level, and hopefully soon at the federal level, is trying to level that subsidy playing field a little.

Mike Morris: I think it would be ideal if you remove the subsidies and allow the market to really dictate where the answers would be. We are required by state legislation in two or three of our jurisdictions to add a certain amount of solar.

In the upper Midwest, any of you who have been around there very much, you know the sun is supposed to be out about a half a day on average for the year.

And it's out like that according to the planetarium moves, but usually it's cloud covered for 40, 50 percent of that time. Solar power, in our marketplace is $0.20 a kilowatt hour, subsidized solar power.

It would never make it in the marketplace today, but will in the future. The intermittency of wind and sun will be handled by technology and augmented facilities.

Some of the things that the FERC is encouraging all of us to do to make sure that we better manage the flow of energy on the grid, those things will in fact work.

But subsidies are what's causing -- and the thing that really is aggravating for us and probably a mistake that we have made is we typically go out in a power purchase agreement to buy wind or sun and the subsidy goes to the developer, not to my customers.

And that's probably a mistake that we've made and I've had that conversation with the 11 state regulators that we do business with. In the future, our plan would be to develop the renewable portfolio standard as an equity investment at the utility.

We're different from maybe Peter's view of the world. In the 11 states where we do business we're still your grandfather's utility. We're regulated in each of those jurisdictions.

But I would rather build the wind and the sun and rather than take the subsidy to my shareholders, I'd take the subsidy to my customers, maybe share with my shareholders if I could make that arrangement with the regulator.

But I'd love to see it really all equalized and we'd see what happens. I'm a big proponent of nuclear and Alex knows that and I agree with Alex's point that today's nuclear fleet is the most dispatchable of all of the energy sources that we have.

Tomorrow's nuclear fleet will not be, will not be, it won't be two cents a kilowatt hour. When you start digesting the billions of dollars of money that goes into the raw asset base itself, it's going to be a nine, ten, eleven cent per kilowatt hour point to production.

Matthew Wald: Mike, how should I think about carbon markets or carbon charges? Do those functionally become a subsidy for low carbon sources?

Mike Morris: No, I don't think so. I think it's the externalities that do get equaled out in the process. So take a kilowatt hour of coal based and put a retrofit carbon technology on the back of it and you may double the price of it.

So our Mountaineer station makes energy for 3 1/2 cents, it might go to seven cents. That should be the rate that you pay for that in the marketplace.

That will make new nuclear more competitive. That will make your shale gas…the shale gas numbers are overwhelming. It's not 20 or 30 years, it's about a hundred years.

Garry Brown: Yeah, it's a hundred years.

Mike Morris: We go from 200 trillion feet to 2200 trillion feet, but we don't know the price point for shale. We really don't and there's some environmental externalities there that we don't know a lot about on the chemically treated hydrofracking that you use to do that.

But if you put it all on an equal basis, energy efficiency will have a cost, demand response will have a cost, renewables will have a cost, traditionals will have a cost, but the market will be better served.

Matthew Wald: Excuse me, is the market too distorted by subsidy?

Peter Bradford: And the biggest single subsidy that's distorting it, I'd say it is the flip side of the proposition you just articulated. It's the fact that there is no price on carbon.

That far from being a subsidy to other technologies, a cap-and-trade system that puts a price on carbon, since we know now that there are very high costs associated with carbon emission, eliminates the need for a lot of the subsidies.

A lot of the governmental picking and choosing that is, in fact woven into the existing system, there'll be some need for some still in the areas where people can justifiably argue market failure or assisting the R&D aspect of really innovative technology startups or some other particular benefit.

But the need for sort of wholesale picking and choosing by regulators, by congressmen, by state legislators will be hugely diminished if we can just get rid of the subsidy conveyed on the fossil fuel industry by the fact that carbon discharge is free.

Matthew Wald: Well, what about the subsidy? We have a production tax credit or an investment tax credit on wind and solar.

Peter Bradford: And nuclear.

Matthew Wald: And nuclear, isn't this a sort of muddied environment in which to claim we've got a market to make these choices?

Peter Bradford: Yes, that's good reason for enacting a cap-and-trade system and then beginning to review those subsidies in a world in which they're no longer justified by the fact that there's an even more massive subsidy to the fossil fuel industry in the form of not having to pay for their CO2 discharge.

Matthew Wald: Alex, would you settle for a carbon market and in exchange we'd have like arms reduction talks, we'd have subsidy reduction talks?

Alex Flint: I was thinking, when Bill asked his question, back to my previous job at the Senate Energy Committee, I see no political trends that could get to the end state Bill has suggested.

I think, instead, what we're seeing is increased attention by lawmakers to energy issues and a great deal of comfort intervening in the markets one way or another through imposition of costs on some technologies, from the stimulus associated with other technologies.

I think this notion of a complete removal of subsidies or costs, because they really are one hand to the other hand, I don't think is where we're going to go as a country.

I think the question is how do we adjust the current system to better optimize it for climate considerations, since that seems to be the driving issue for this year and for decades to come?

And I think, in that regard, that the discussions between cap and trade and a direct carbon tax are going to play out over sometime. I think right now it's very interesting to wonder if the political will exists to impose those sorts of costs on the energy sector.

We watch the votes very carefully. Right now it appears there are not the votes necessary to pass cap-and-trade legislation in the Senate, but it's a fascinating and dynamic time and maybe those votes can be cobbled together.

But it may also be that we need to contemplate scenarios where that doesn't happen. It takes a lot of political will to impose those sorts of concepts on the economy and I think, back to Bill's question, I just don't see us headed in that direction.

Matthew Wald: Jon, this doesn't sound like a market solution.

Jon Wellinghoff: Well, certainly we do have subsidies. Everybody has to admit to that and they've gone back for a long, long way. I mean we wouldn't have, for example, as many coal plants as we have now if we didn't give the railroads every other square of land in the West.

Matthew Wald: Boy, that's true and they've used that to their advantage.

Jon Wellinghoff: Yeah, many, many, many, many years ago and we wouldn't have the gas combustion turbines that we have now that GE puts out if the Defense Department hadn't put billions of dollars into jet engines.

So, you know, there's subsidies, everybody has subsidies and to the extent that we can reduce those I think it's good.

But I think what we have to do is try to make the current markets work as well as they can under the current circumstances and then hopefully not escalate the subsidy war, not make the subsidy situation worse.

Hopefully, let's at least keep the status quo, if not try to reduce the subsidies we have and make the markets work better, but we do have to internalize the costs. I mean those aren't subsidies.

Things like carbon is an external cost that needs to be internalize because there are costs to our climate.

We're seeing it by aspens and pines in the western United States and all kind of things happening that are really real costs to this country that need to be internalized in the costs of carbon emitting electricity.

So we need to internalize those to make those markets work, but let's, if we can, at least hold the line on the subsidies. At the very least, I think that would be a start.

Gary Brown: Matt, am I allowed to make one more point?

Matthew Wald: Please.

Gary Brown: Just this debate, because we talk about carbon, but already SOX and NOX has been internalized in some parts of the nation and not others. In the Northeast we have a carbon cap-and-trade system that exists already.

We've really ratcheted down air emissions on our power plants and, frankly, it's a little frustrating to hear about the Midwest not wanting to do energy efficiency because their prices are so cheap because one of the reasons are prices are so expensive is we've done the environmental policies that, frankly, raised our rates. And we've done those things that raised our rates.

Matthew Wald: And you were down wind.

Gary Brown: Well, I won't even mention that, but we are indeed down wind.

Matthew Wald: I'll say something immoderate.

Mike Morris: But I agree with the chairman's comment that we should put a price on carbon and it ought to be part of the overall equation of what coal generation costs.

And if that causes coal generation to be shuttered because it can't clear the market, so be it. And then we'll move to some other source of supplies. As I said, we're regulated in every state.

Before I retrofit any of my facilities I'll go to the state commission, I'll ask that commission, does this make sense to you? Here's our price profile. Here's what we think it will be.

Here's a 20 year look at what the cost of this retrofitted plant looks like. Is that a good decision?

We tried to get authority from the Oklahoma commission to build an ultra super-critical plant and Chesapeake Energy, a very large gas play came in, took out full-page ads in the Tulsa World and said, "They're going to build a seven cent coal plant. We can do a four cent gas plant. Why don't they do a gas plant?"

We didn't get the authority to do it. We ended up buying 500 megawatts of natural gas from John Row's Exelon Company and a gas plant that he already had in Oklahoma where he was losing a ton of money.

Customers are better off, my shareholders are better off, everybody's better off, that's the process in a regulated environment I still think works reasonably well.

Garry Brown: But what happens is and I've got good friends at the West Virginia Commission and they say my rates are going to go up 20 percent and then I realize their rates are going up from five cents to six cents. And in New York City where I've got $0.18 rates it's just hard to feel real sympathetic to them.

Jon Wellinghoff: And I understand that Commissioner, but the average West Virginian makes $22,000 a year. The average New Yorker does a little better than that, at least they used to.

Garry Brown: I was going to say.

[End of Audio]



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