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S. HRG. 109–1045

OVERSIGHT ON THE REGULATORY PROCESSES

FOR NEW AND EXISTING NUCLEAR PLANTS

HEARING

BEFORE THE

SUBCOMMITTEE ON CLEAN AIR, CLIMATE CHANGE,

AND NUCLEAR SAFETY

OF THE

COMMITTEE ON

ENVIRONMENT AND PUBLIC WORKS

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JUNE 22, 2006

Printed for the use of the Committee on Environment and Public Works

(

Available via the World Wide Web: http://access.gpo.gov/congress.senate
(II)

COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JAMES M. INHOFE, Oklahoma, Chairman

JOHN W. WARNER, Virginia

CHRISTOPHER S. BOND, Missouri

GEORGE V. VOINOVICH, Ohio

LINCOLN CHAFEE, Rhode Island

LISA MURKOWSKI, Alaska

JOHN THUNE, South Dakota

JIM DEMINT, South Carolina

JOHNNY ISAKSON, Georgia

DAVID VITTER, Louisiana

JAMES M. JEFFORDS, Vermont

MAX BAUCUS, Montana

JOSEPH I. LIEBERMAN, Connecticut

BARBARA BOXER, California

THOMAS R. CARPER, Delaware

HILLARY RODHAM CLINTON, New York

FRANK R. LAUTENBERG, New Jersey

BARACK OBAMA, Illinois

ANDREW WHEELER, Majority Staff Director

KEN CONNOLLY, Minority Staff Director

SUBCOMMITTEE ON CLEAN AIR, CLIMATE CHANGE, AND NUCLEAR SAFETY

GEORGE V. VOINOVICH, Ohio Chairman

CHRISTOPHER S. BOND, Missouri

JIM DEMINT, South Carolina

JOHNNY ISAKSON, Georgia

DAVID VITTER, Louisiana

THOMAS R. CARPER, Delaware

JOSEPH I. LIEBERMAN, Connecticut

FRANK R. LAUTENBERG, New Jersey

BARACK OBAMA, Illinois
(III)

CONTENTS

Page

JUNE 22, 2006

OPENING STATEMENTS

Carper, Hon. Thomas R., U.S. Senator from the State of Delaware ................. 7

Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma ................... 5

Isakson, Hon. Johnny, U.S. Senator from the State of Georgia ......................... 8

Jeffords, Hon. James M., U.S. Senator from the State of Vermont ................... 3

Lautenberg, Hon. Frank, U.S. Senator from the State of New Jersey .............. 9

Voinovich, Hon. George V., U.S. Senator from the State of Ohio ...................... 1

WITNESSES

Beasley, J. Barnie, Jr., president and CEO, Southern Nuclear Company .......... 29

Prepared statement .......................................................................................... 60

Responses to additional questions from:

Senator Inhofe ........................................................................................... 64

Senator Jeffords ......................................................................................... 66

Senator Voinovich ..................................................................................... 64

Book, Kevin, senior analyst and vice president, Friedman Billings Ramsey

& Company, Inc .................................................................................................... 32

Prepared statement .......................................................................................... 73

Responses to additional questions from:

Senator Jeffords ......................................................................................... 77

Senator Voinovich ..................................................................................... 76

Diaz, Nils J., Chairman, U.S. Nuclear Regulatory Commission Accompanied

by: Edward McGaffigan, Jr., Commissioner, U.S. Nuclear Regulatory Commission; Jeffrey S. Merrifield, Commissioner, U.S. Nuclear Regulatory Commission; Gregory B. Jaczko, Commissioner, U.S. Nuclear Regulatory Commission; Peter B. Lyons, Commissioner, U.S. Nuclear Regulatory Commission ........................................................................................................................ 10

Prepared statement .......................................................................................... 38

Responses to additional questions from:

Senator Inhofe ........................................................................................... 44

Senator Jeffords ......................................................................................... 46

Senator Vitter ............................................................................................ 52

Senator Voinovich ..................................................................................... 49

Supplement to the hearing record ................................................................... 27

Lochbaum, David A., nuclear safety engineer, Union of Concerned Scientists .. 30

Prepared statement .......................................................................................... 67

Responses to additional questions from:

Senator Jeffords ......................................................................................... 73

Senator Voinovich ..................................................................................... 72

ADDITIONAL MATERIAL

Charts:

Design-Centered Review Approach ................................................................. 59

New Plant Licensing Applications................................................................... 54–57

Summary Estimate of New Nuclear Power Plants Based on the Design

Centered Approach ....................................................................................... 58

Statements:

Nuclear Energy Institute ................................................................................. 101
Page

IV

—Continued

Wells, Jim, Director, Natural Resources and Environment, Government

Accountability Office ................................................................................... 79–100
(1)

OVERSIGHT ON THE REGULATORY PROCESSES FOR NEW AND EXISTING NUCLEAR

PLANTS

THURSDAY, JUNE 22, 2006

U.S. SENATE,

COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS,

SUBCOMMITTEE ON CLEAN AIR, CLIMATE CHANGE

AND NUCLEAR SAFETY,

Washington, DC.

The subcommittee met, pursuant to notice, at 9:30 a.m. in room

628, Dirksen Senate Office Building, Hon. George Voinovich (chairman of the subcommittee) presiding.

Present: Senators Voinovich, Inhofe, Isakson, Carper, Jeffords,

Clinton, and Lautenberg.

Senator VOINOVICH. The hearing will come to order.

OPENING STATEMENT OF HON. GEORGE V. VOINOVICH,

U.S. SENATOR FROM THE STATE OF OHIO

Good morning, and thank you for coming. Today’s hearing continues the committee’s strong oversight of the Nuclear Regulatory

Commission. It is the second NRC oversight hearing this year, the

sixth that I have chaired, and the ninth in the series that began

in 1998 when Senator Inhofe was chairman of the subcommittee.

These hearings have had a dual effect of improved performance by

the Commission and allowing all of us to get to know the esteemed

chairman, Nils Diaz.

Chairman Diaz, we have met and spoken frequently over the

past few years, and it has been a great pleasure to work with you.

You have been very conscientious in following through in all of the

things that we have talked about.

This is the last time that you will be before us, after serving on

the Commission selflessly since 1996, including the last 3 years as

the Chairman. I sincerely appreciate your years of dedication and

hard work and wish you well in your retirement. I want also to

thank your family for the sacrifice that they have made so that you

could do the job that you have done at the Commission. Your vision

and leadership have had a profound impact, and, as a result, I believe the NRC is better prepared to face the many challenges that

lie ahead.

You are leaving at an exciting time, because we are starting a

whole new stage that we have not been confronted with, a new

challenge, as you know, with all of the new applications we hope

are going to be coming in.
2

While a change in leadership at this time could be problematic,

we have taken steps in this committee and the Senate to ensure

a smooth transition. Too often we leave positions vacant for a

while, but in this case the importance of this matter led us to confirm Dr. Dale Kline to be the next NRC chairman more than a

month early.

Chairman Diaz, you are leaving the NRC in good hands, as I believe you have somebody I think that has the mix of technical policy and management experience that is necessary. I am sure that

you are going to spend as much time as you can with him to try

to make sure that you answer his questions and help him along the

way. We appreciate that.

We also acted to confirm Commissioners Jaczko and Lyons, who

had been appointed, so we took care of all three, so we are ready

to roll. I am very pleased that each of you could be here today and

we have a fully confirmed Commission at this time.

On the second panel, we have Mr. Barnie Beasley of Southern

Nuclear Company, Dr. David Lochbaum of the Union of Concerned

Scientists, and Kevin Book, an energy analyst at the investment

banking firm of Friedman Billings Ramsey. I welcome them and

appreciate their being here today.

As many of you know, I am a strong proponent of nuclear power.

It provides about 6 percent of the electricity consumed in my State

and about 20 percent nationally. It is emission-free power, and by

increasing its use, we can help meet our energy needs, be less reliant on natural gas, and improve the quality of our air.

Last year on this committee, we spent a considerable amount of

time on the legislation providing for the safe and secure grown of

nuclear power. Our provisions and several other key initiatives

were included in the Energy bill, leading the NRC to project that

we will receive applications for 17 or more new plants during the

next 2 to 3 years.

This is a huge challenge, as I mentioned, for an Agency that has

not seen this type of major licensing actions in the last 25 years.

More than ever, NRC must provide regulatory stability in both its

reactor oversight and new reactor licensing processes. Ensuring the

safety and security of our existing nuclear powerplants is absolutely essential if we are to continue and hopefully increase our

Nation’s use of nuclear energy.

At the same time, NRC must move forward in a timely fashion

with updating its regulatory and organizational infrastructures to

make the licensing process for new reactors more efficient. That is

why we are specifically focusing this morning on the regulatory

processes for new and existing plants. The Commission must take

a balanced approach as a regulator that ensures the safe operation

of the existing fleet of nuclear powerplants without stifling the

growth of nuclear power.

I look forward to hearing from the witnesses their thoughts on

the NRC’s oversight of the existing fleet of plants and the infrastructure that is being established to accommodate the expected

applications for new ones.

[The prepared statement of Senator Voinovich follows:]
3

STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR FROM THE

STATE OF OHIO

The hearing will come to order. Good morning and thank you for coming.

Today’s hearing continues this committee’s strong oversight of the Nuclear Regulatory Commission. It is the second NRC oversight hearing this year, the sixth that

I have chaired, and the ninth in a series that began in 1998 when Senator Inhofe

was chairman of this subcommittee.

These hearings have had a dual effect of improved performance by the Commission and allowing all of us to get to know the esteemed Chairman Nils Diaz. Chairman Diaz, we have met and spoken frequently over the past few years, and it has

been a great pleasure to work with you.

This is the last time that you will be before us after serving on the Commission

selflessly since 1996, including the last 3 years as chairman. I sincerely appreciate

your years of dedication and hard work and wish you well in your retirement. Your

vision and leadership have had a profound impact, and as a result, I believe the

NRC is better prepared to face the many challenges that lie ahead.

While a change in leadership at this time could be problematic, we have taken

steps in this committee and the Senate to ensure a smooth transition. Too often,

we leave positions vacant for awhile—but in this case, the importance of this matter

led us to confirm Dr. Dale Klein to be the next NRC chairman more than a month

early. Chairman Diaz, you are leaving the NRC in good hands as I believe he has

the right mix of technical, policy, and management experience.

We also acted to confirm Commissioners Jaczko and Lyons who had been recess

appointed. I am very pleased that each of you could be here today and that we have

a fully confirmed Commission at this critical time. On the second panel, we have

Mr. Barnie Beasley of Southern Nuclear Company, Mr. David Lochbaum of the

Union of Concerned Scientists, and Mr. Kevin Book, an energy analyst at the investment banking firm of Friedman Billings Ramsey. Welcome and I appreciate you all

being here today.

I am a strong proponent of nuclear power. It provides about six percent of the

electricity consumed in my state and about 20 percent nationally. It is emission free

power, and by increasing its use, we can help meet our energy needs, be less reliant

on natural gas, and improve the quality of our air.

Last year in this committee, we spent a considerable amount of time on legislation

to provide for the safe and secure growth of nuclear power. Our provisions and several other key initiatives were included in the energy bill, leading the NRC to

project that they will receive applications for 17 or more new plants in the next 2

to 3 years. This is a huge challenge for an agency that has not seen this type of

major licensing actions in the last 25 years or so.

More than ever, NRC must provide regulatory stability in both its reactor oversight and new reactor licensing processes. Ensuring the safety and security of our

existing nuclear powerplants is absolutely essential if we are to continue and hopefully increase our nation’s use of nuclear energy. At the same time, NRC must move

forward in a timely fashion with updating its regulatory and organizational infrastructures to make the licensing process for new reactors more efficient.

That is why we are specifically focusing this morning on the regulatory processes

for new and existing nuclear plants. The Commission must take a balanced approach as a regulator that ensures the safe operation of the existing fleet of nuclear

plants without stifling the growth of nuclear power.

I look forward to hearing from the witnesses their thoughts on the NRC’s oversight of the existing fleet of plants and the infrastructure that is being established

to accommodate the expected applications for new ones.

Thank you.

Senator VOINOVICH. Senator Carper, do you have a statement

that you’d like to make?

Senator CARPER. Let’s let Senator Jeffords go next.

Senator VOINOVICH. Senator Jeffords.

Senator JEFFORDS. Thank you, Mr. Chairman.

OPENING STATEMENT OF HON. JAMES M. JEFFORDS,

U.S. SENATOR FROM THE STATE OF VERMONT

In today’s hearing this subcommittee will conduct needed oversight. We will examine the NRC’s efforts to regulate and ensure

the safety of existing and proposed nuclear reactors.
4

Chairman Voinovich, this is a timely and important topic. You

and Ranking Member Carper deserve credit for continuing to hold

regular oversight hearings on nuclear issues during this session of

Congress.

We should be focused on the safe operation of existing plants. As

I have said in our last hearing, the Commission and the nuclear

industry are planning a nuclear renaissance with the construction

of new nuclear plants, but we must maintain continued oversight

over existing plants.

Just this month the NRC increased its estimate of the number

of new license requests that the Agency will receive between now

and the year 2012. In just the past 2 weeks, that estimate has gone

from 13 plants to 17 plants. Even if the NRC is able to meet such

an aggressive schedule for new plants, this country is dependent

upon existing aging nuclear plants. We should not cut back on our

efforts to ensure that existing plants operate well and safely.

We are boosting the power output of existing plants in extending

the terms of their licenses. The public needs to be confident that

the current fleet operates well, or they will be unlikely to accept

a new generation of plants.

Over the last few years, we have had several issues at operating

plants. Some have been significant safety issues, others, though not

so significant from a safety perspective, have eroded public confidence in the NRC. One such instance was the loss of spent fuel

rods at Vermont Yankee in 2004. As a result of this and other incidents of lost spent nuclear fuel, I asked the GAO to study how the

NRC controls this intensely radioactive material. In its April 2005

report, the GAO recommended the NRC establish requirements for

the control of loose fuel rods and develop inspection procedures to

verify plants’ compliance.

In a letter sent to me more than a year ago, the NRC stated it

had several actions ongoing to address the shortcomings identified

by the GAO, but I am disappointed to learn recently the NRC has

made little progress in actually implementing these recommendations. I would welcome additional information about the NRC plans

to address this important issue.

The NRC needs to redouble its efforts to work with the public

and to shore up public confidence in its regulatory efforts. This is

a difficult task, but one that is critically important.

I thank the witnesses for coming here today to discuss these

issues, along with other members of the committee, and I acknowledge and thank Chairman Diaz for his 10 years of service with the

NRC. I know you will be as successful in your future endeavors,

and I wish you well.

Thank you, Mr. Chairman.

[The prepared statement of Senator Jeffords follows:]

STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM THE

STATE OF VERMONT

Thank you, Mr. Chairman. In today’s hearing, the subcommittee will conduct

needed oversight. We will examine the NRC’s efforts to regulate and ensure the

safety of existing and proposed new nuclear reactors. Chairman Voinovich, this is

a timely and important topic. You and Ranking Member Carper deserve credit for

continuing to hold regular oversight hearings on nuclear issues during this session

of Congress.
5

We should be focused on the safe operation of existing plants. As I said at our

last hearing, the Commission and the nuclear industry are planning for a ‘‘nuclear

renaissance’’ with the construction of new nuclear plants. But we must maintain

continued oversight over existing plants.

This month, the NRC increased its estimate of the number of new license requests

that the agency will receive between now and the year 2012. In just the past two

weeks, that estimate has gone up from 13 plants to 17 plants. Even if the NRC is

able to meet such an aggressive schedule for new plants, this country is dependent

upon existing, aging nuclear plants.

We should not cut back our efforts to ensure that existing plants operate well and

safely. We are boosting the power output of existing plants and extending the terms

of their licenses. The public needs to be confident that the current fleet operates

well, or they will be unlikely to accept a new generation of plants.

Over the last few years, we’ve had several issues at operating plants. Some have

been significant safety issues. Others, though not as significant from a safety perspective, have eroded public confidence in the NRC. One such instance was the loss

of spent fuel rods at Vermont Yankee in 2004. As a result of this and other incidents

of lost spent nuclear fuel, I asked the GAO to study how the NRC controls this intensely radioactive material.

In its April 2005 report, the GAO recommended that the NRC establish requirements for the control of loose fuel rods and develop inspection procedures to verify

plants’ compliance.

In a letter sent to me more than a year ago, the NRC stated that it had several

actions ongoing to address the shortcomings identified by the GAO. But, I am disappointed to learn recently that the NRC has made little progress in actually implementing these recommendations. I would welcome additional information about how

the NRC plans to address this important issue.

The NRC needs to redouble its efforts to work with the public, and to shore up

public confidence in its regulatory efforts. This is a difficult task, but one that is

critically important.

I thank the witnesses for coming here to discuss these issues. Along with other

members of the committee, I want to acknowledge and thank Chairman Diaz for his

10 years of service at the NRC. I know you will be successful in your future endeavors, and I wish you well.

Senator VOINOVICH. Senator Inhofe, we are anxious to hear your

statement that you were the genesis of real oversight of the NRC,

and I have tried to carry on, follow your example. I am so glad that

you are here today.

OPENING STATEMENT OF HON. JAMES M. INHOFE,

U.S. SENATOR FROM THE STATE OF OKLAHOMA

Senator INHOFE. I appreciate it, Mr. Chairman. Let me just say

this. I guess, not too surprisingly, when I listened to your opening

statement it is exactly my opening statement, so I won’t be redundant and repeat it, but I will say this: as far as Chairman Diaz is

concerned, I expect this will not be his last hearing. I expect he will

be called in as a witness from time to time. He and I have talked

about that. He has too much a greater abundance of knowledge to

just turn loose, so we look forward to that.

Again, I think you stated it well, Mr. Chairman, that in 1997,

when I chaired this subcommittee, we had gone about 12 years

without a hearing. Let me tell you what is unusual about this, Mr.

Chairman. It is unusual for any bureaucracy to be receptive to

oversight. This is what I had seen. I have talked to different members of the NRC in the staff level, and they have been very receptive to putting deadlines down. I think now it is even more important than it was in 1997, Mr. Chairman, when we first started

looking at this, because I think most of us on this panel realize and

accept the fact that we have an energy crisis and that we are not
6

going to resolve the crisis without enhancing our nuclear capability.

I am looking forward to working with you. I have to say, too,

there is no one who is better to chair this subcommittee than Senator Voinovich, who has probably forgotten more about air issues

than I will ever know. So I look forward to working with you as

we monitor the progress of the salvation of our energy crisis.

Thank you, Mr. Chairman.

[The prepared statement of Senator Inhofe follows:]

STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM THE

STATE OF OKLAHOMA

I first want to thank Chairman Voinovich for holding this oversight hearing and

for his continued commitment to strong oversight of the Nuclear Regulatory Commission (NRC). This is the ninth in a series of oversight hearings that began in

1997 when I was chairman of this subcommittee. Prior to that first hearing, there

had not been an NRC oversight hearing in more than a decade.

I want to commend the NRC for making substantial progress over the past year

towards safely advancing the future use of nuclear power. As you all know, the initial groundwork was successfully laid through the passage of the Energy Policy Act

of 2005. This Act provided critical provisions such as—NRC reforms, security, liability insurance, and human capital—combined with the Energy bill’s sections on risk

insurance, production tax credits, and loan guarantees provide the foundation for

the construction of new nuclear plants.

In addition to successfully implementing these new provisions, we must also address other key issues pertinent to building new nuclear facilities.

I am encouraged by the expected increase in combined construction and operation

license applications (COLs) over the next 4 years. Only one year ago, the NRC was

planning to review one Combined License Application (COL) while preparing for

three COLs in FY–07. Today, that number has been revised upwards to two COLs

while preparing for nine COLs in FY–07.

I commend the NRC for being proactive in meeting this new increase in workload

by implementing a design-centered approach which will further help to streamline

the review process of like designs. However Mr. Chairman, I must add that I remain

wary of the challenging task ahead of the NRC in reviewing licensing applications.

I would like to see more proactive initiatives by the Commission in promoting efficient processes such as the design-centered approach instead of requesting additional yearly funding increases to meet increase workloads.

I was pleased to hear the Chairman state from the last hearing in March that

the final rule for 10 CFR 52 is expected by the Commission from the staff in October

2006. I sincerely hope that the Commission will place a very high priority on the

expeditious review of this rule as regulatory certainty is premium to the future of

the nuclear industry.

As per my comments from the last hearing, I would like to continue to caution

the NRC about the soon to be implemented safety culture-related enhancements. I

intend to fully monitor the implementation of the safety culture approach to evaluate licensee actions to address identified performance issues. We must not let this

program turn into a bean counting exercise.

I would especially like to thank Chairman Diaz for his service to the NRC and

our country. Mr. Chairman, without your help, support, and leadership at the NRC,

I don’t think we would be able to even discuss building new nuclear reactors. Thank

you for everything that you have done and I wish you well in your retirement.

In conclusion, I would like to thank everyone for attending this very important

oversight hearing. The NRC and the industry must keep safety as the center of all

that they do, and I will continue to support Chairman Voinovich in making sure

that remains the case.

Thank you.

Senator VOINOVICH. Thank you. Senator Carper.

Senator CARPER. Thank you, Mr. Chairman.
7

OPENING STATEMENT OF HON. THOMAS R. CARPER,

U.S. SENATOR FROM THE STATE OF DELAWARE

I hate to pile on here, Chairman Diaz, but I am going to anyway.

I don’t know that the chairmen of regulatory bodies ever take victory laps, but you are almost entitled to today. I join my colleagues

in expressing our thanks for your leadership.

If you think about it, over the least 10 years or so we have seen,

I think, a growing recognition of the need for nuclear energy, safe

nuclear energy, and I believe not just the perception of the industry

is that it is safer and more reliable, but I think that is the reality,

too. You and those who serve with you deserve a whole lot of the

credit, and so does the industry, itself. So I wish you well. Thank

you. We look forward to crossing paths again many times in the future.

It is no secret that a renaissance is underway in nuclear power

today. I welcome that. Today at least 15 companies I am told or

groups of companies have announced intentions to build new nuclear plants with the intention of filing applications with the NRC

in the next 1 or 2 years. In addition, almost half of the current nuclear plants have renewed their license to continue to operate, and

additional 18, I am told, have applications being reviewed. We can

expect most of the current people will apply for renewals soon.

I don’t know if we pay you guys overtime, but you are probably

going to be eligible for it before long.

Although the Department of Energy continues to push back its

time line, we can assume that in the near future they will apply

for license to operate a nuclear waste repository.

The future of the nuclear industry literally begins and ends, I believe, with the Nuclear Regulatory Commission. That is you. It is

a very big responsibility and one that I believe the Commission,

with its leadership that you have provided, Mr. Chairman, responsibility that the Commission manages well.

As you know, I am a believer in nuclear power, and heartened

by this resurgence. Lately there has been a lot of discussion about

this nuclear renaissance; however, I want to make sure that our

focus on potential new plants has not resulted in our forgetting

about our current plants. The public trust in nuclear power must

be reassured, and that reassurance must start with our current

fleet of plants.

When this fellow and I were Governors together and we’d meet

with our cabinets, I don’t know what he would say to his cabinet

or staff, but I was always reminding them about particular things

we were doing in my little State of Delaware and saying, ‘‘If it isn’t

perfect, make it better.’’ That was our motto. That was our creed.

If it isn’t perfect, make it better. I think that certainly applies to

what you do and what our nuclear industry does. If it isn’t perfect,

let’s make it better. None of us are perfect. We can all do better.

Over the past couple of years, you have been faced with tritium

leaks, with unplanned shutdowns, with lost fuel rods, and a host

of other problems, so there is still work to do. But I would urge you

and those who succeed you, Mr. Chairman, your colleagues, to

work every day to make sure that every nuclear powerplant in the

United States is striving every day toward perfection.
8

We are all aware that the coming years are likely to require a

significant increase on our energy production. I wish that weren’t

true, but if the past is any prologue for the future, it is likely to

be the case. I believe that most of us realize the need to have a

broad portfolio of energy resources, and nuclear must remain a

prominent place in that portfolio.

To make sure that nuclear power fulfills its future potential, the

NRC must fulfill its current oversight missions, and today we

renew our pledge to work with you toward meeting that goal.

Thank you all very much. Thank you, Mr. Chairman.

Senator VOINOVICH. Thank you, Senator Carper.

Senator Isakson.

OPENING STATEMENT OF HON. JOHNNY ISAKSON,

U.S. SENATOR FROM THE STATE OF GEORGIA

Senator ISAKSON. Thank you very much, Mr. Chairman. I appreciate the hearing and I am delighted to be here to pile on and pay

my respects and great tribute to Chairman Diaz and all the work

that you have done. You have done an outstanding job and we are

very appreciative.

I am also very delighted that Barnie Beasley from Southern Nuclear is going to be testifying on the second panel, and I am delighted for a particularly specific reason. Although I don’t personally know him, I was first elected to Georgia Legislature in 1976

when Plant Vogtle was in the process of being licensed and subsequently constructed in Georgia, and I ended up on the Industry

Committee which oversaw electric utility generation and gas utilities. I saw Southern Nuclear build a plant during a time of spiraling interest rates, spiraling construction costs, and double digit

inflation, not to mention the fear at that time of what nuclear energy really would do.

I shudder to think where we would be today in the United States

of America had we not taken that venture and had companies like

Southern Nuclear not taken the tremendous risk to build the

plants that have provided a significant amount of safe, non-polluting energy to the people of the United States and will be, as the

Chairman referred a minute ago, one of the key saviors for all of

us in the future demands that will be put on us to have more energy but be sure we are accountable to our environment.

I am delighted Mr. Beasley will be testifying, because he supervised construction, supervised initial startup and operation, and

managed the nuclear plant that still today in Georgia, some 26

years later, is supplying safe, reliable nuclear energy, electric energy, to our people in an environment that is friendly and a process

that is friendly to our environment. I think that type of testimony

will be invaluable.

I look forward to working with the Commission in the months

and years ahead as we expeditiously but steadfastly oversee the licensing of new reactors and the expansion of nuclear energy in the

United States of America.

Thank you, Mr. Chairman.

Senator VOINOVICH. Thank you, Senator Isakson.

Senator Lautenberg.
9

OPENING STATEMENT OF HON. FRANK R. LAUTENBERG,

U.S. SENATOR FROM THE STATE OF NEW JERSEY

Senator LAUTENBERG. Thank you, Mr. Chairman. Thanks for

holding this oversight hearing on the Nuclear Regulatory Commission and its process for licensing new and existing nuclear plants,

and I, too commend you, Chairman Diaz, for a job well done. How

would you react to days without problems if you are not doing this

job? It keeps you on your edge, right?

New Jersey gets most of its power from nuclear, and so I understand that nuclear power is an important source of energy in our

Nation today and its importance could very well increase as we

seek ways to reduce our dependence on foreign oil and address the

challenge of global warming.

It is so funny because it wasn’t too long ago that nuclear power

was almost an unmentionable in these quarters, and now we see

the volume of interest pick up considerably. So I think that calls

for more from the NRC in some ways because nuclear power is important, but nothing is more important than the health and safety

of our citizens, including those who live near the nuclear powerplants.

The last time the NRC came before this committee in March I

expressed my view that the only way nuclear power will gain greater acceptance in our country is if the NRC acts as a strong watchdog, not an industry advocate. As a first step toward that goal, I

think the NRC should consider whether it sufficiently welcomes

public comment and participation during the licensing process.

I am led toward that view because the Oyster Creek facility in

New Jersey, the oldest operating nuclear plant in the United

States, has applied for a 20-year renewal of its license. Many parties, including the State of New Jersey as well as environmental

and consumer groups, have petitioned the NRC with concerns that

ought to be reviewed. But it appears that the NRC’s current licensing process does not seem to encourage public participation as I

think it should.

The State of New Jersey’s petition for the NRC to consider the

potential vulnerability of Oyster Creek to a terrorist attack was rejected almost summarily by the NRC’s Atomic Safety and Licensing

Board, and that decision is currently on appeal before the full Nuclear Regulatory Commission. I have said it before, if the NRC and

the nuclear power industry are truly interested in expanding the

use of nuclear energy in this country, they have to do more to gain

public acceptance of the idea. That is not going to happen as long

as the concerns of ordinary citizens are not seriously considered.

I look forward to hearing from our witnesses Mr. Chairman, and,

once again, I thank you for calling this hearing.

Senator VOINOVICH. Thank you, Senator Lautenberg.

Chairman Diaz, Commissioners McGaffigan and Merrifield,

Jaczko and Lyons, I am glad that you are all here today. We appreciate your coming here for this oversight hearing.

Mr. Chairman, we are going to provide you with 5 minutes to

give an opening statement, and any Commissioners that want to

provide additional comments will have 2 minutes. You can begin

when you are ready.
10

I want to make it clear that we are just going to be able to have

one round because what I understand is that we are going to have

stacked votes starting at 11 o’clock, so we are going to try to move

through, try and get as many questions as we can answer.

Chairman Diaz.

STATEMENT OF NILS J. DIAZ, CHAIRMAN, U.S. NUCLEAR REGULATORY COMMISSION ACCOMPANIED BY: EDWARD

MCGAFFIGAN, JR., COMMISSIONER, U.S. NUCLEAR REGULATORY COMMISSION; JEFFREY S. MERRIFIELD, COMMISSIONER, U.S. NUCLEAR REGULATORY COMMISSION; GREGORY B. JACZKO, COMMISSIONER, U.S. NUCLEAR REGULATORY COMMISSION; PETER B. LYONS, COMMISSIONER,

U.S. NUCLEAR REGULATORY COMMISSION

Mr. DIAZ. Thank you, Mr. Chairman and members of the committee. Again, it is a pleasure to be here and to appear before you

today on behalf of and with my fellow Commissioners to discuss the

U.S. Nuclear Regulatory Commission’s programs, particularly those

that we are implementing to exercise our statutory responsibility

for comprehensive and timely licensing reviews of new nuclear

powerplants.

The Commission appreciates the support that we have received

from the committee on many issues of key importance, to the discharge of our responsibilities, including legislative, personnel, space

needs, and budgetary support. All these are needed for the Agency

to achieve early and complete enhancements to safety and security

programs and to prepare and structure the Agency for reviewing

many new reactor applications concurrently.

Since we last spoke to you in March, the Commission has successfully completed additional actions to implement provisions of

the Energy Policy Act of 2005, including issues of proposed rules

on the design basis threat and the protection of safeguarding information that is submitted to the Commission, and final rules on the

national resource tracking system, import and export controls, implementation of the revised Price Anderson Act, and the elimination of NRC antitrust reviews.

Turning to reactor licensing, our tendency of our part 52 establishes a framework for new reactor licensing reviews, including applications for permits, design certifications, and combined licenses.

This framework is intended to result in a combined one-step construction and operating license. It is intended to resolve the risk

at the front end prior to major construction and financial commitment by the applicants. The NRC continues to put in place a comprehensive licensing infrastructure to conduct a review of anticipated combined license applications, including, as of yesterday

afternoon, the 18 announced applications for up to 25 units beginning in 2007.

This graph shows our anticipated workload. The staff is planning

to implement a design centered approach to efficiently review multiple combined license applications in parallel. We believe this approach is crucial to completing timely reviews for multiple applications and is founded on the concept of one issue, one review, one

position for multiple applications. It will optimize the review effort

and the resources needed.
11

Standardization remains the key to these efforts, and I mean

standardization across the board, inside and outside the Agency.

Using this approach, we estimate that the first COL reviews for

the four referenced design will require about 30 months. I believe

this timeframe could drop to 24 months after the year 2010 as the

Commission and the industry gain experience with the process. Although a design centered approach will lead to efficiencies in the

safety reviews, each site must also receive a custom environmental

assessment and review.

For example, we can be dealing with four COL applications and

completing one of 18 environmental assessments at the same time.

Each site will be in that sense unique, and the timetable for each

review may vary as a result.

It is desirable that these environmental issues be resolved early

in the process, and the Agency needs to know when, what, and how

they are going to be done.

The number and the schedule for new reactor applications continues to change and they have changed, sometimes daily. The intensity of our efforts will require that the right people are in place

with the right tools in hand and in the right offices by the fall of

2007. We have achieved a net gain of 200 staffers right now. We

expect to increase staff by 550 staffers over the next 2 years. We

are enhancing our office space and infrastructure by working with

the GSA to acquire additional office space. However, there will

come a time when the NRC staff cannot take on more work without

affecting their required schedules. We are now approaching that

level.

I have, therefore, challenged prospective new reactor applicants

with two things. First, the early site permit, design certification, or

the combined license applications must be acceptable for docketing

by the staff. This implies a high quality application.

But that is not sufficient. The industry should ensure that each

application contains the necessary and sufficient documentation for

their review to be finished in a timely manner. With such applications in hand, I am convinced that the Agency has the safety and

environmental decisionmaking capabilities to act in a timely manner and serve the need of the American people.

The NRC understands and is committed to fulfill its role in new

reactor licensing without missing a step in ensuring the safety and

security of the 104 operating reactors.

On a personal note, Mr. Chairman, it has been my privilege to

work with you, Senator Carper, and members of the committee,

and I urge your continued support for the critical tasks that the

Nuclear Regulatory Commission needs to perform well and on a

schedule in a manner that meets the need of our Nation and benefits our people.

Thank you very much.

Senator VOINOVICH. Thank you, Chairman Diaz.

Would any of the other panelists want to take advantage of an

opportunity to share some observations?

Commissioner McGaffigan?

Mr. MCGAFFIGAN. Thank you, Mr. Chairman. I am going to use

my 2 minutes to join you and the other members of the committee

in praising my colleague, Nils Diaz, as he prepares to leave office
12

in the next 8 days. Nils happens to be a Republican, I happen to

be a Democrat. We have served together on the Commission for

over 91⁄2 years and have never faced a partisan issue during that

period.

As he leaves office, he is the second longest serving Commissioner and the fifth longest serving Chairman in NRC’s history.

Nils, both as Chairman and Commissioner, has been a man of action. Upon assuming the chairmanship in April 2003, he told one

interviewer that when in doubt he would act. I have always appreciated that quality in the Chairman. It is an instinct that I share.

Because he has acted, the Commission is a much better organization today than the one to which he was appointed in August 1996.

He has made only a few mistakes—namely, the times he voted opposite me—but the accomplishments are far too many to cite in

this brief time. The heart of these accomplishments is that NRC

today is a much more effective, disciplined, forward-looking, predictable, and transparent organization. I believe that Nils will be

remembered as one of NRC’s greatest Commissioners, and I am

glad to have had the opportunity to serve with him.

I wish him and his wife, Zena, and their children and grandchildren all the best as he decompresses from the stress of the past

decade in his beloved Tampa Bay home.

I will also add this might be the last time we appear before the

committee with Senator Jeffords on the panel. I think he has been

a tenacious and fair overseer of NRC’s performance and a partner

of Senator Voinovich and Senator Inhofe in overseeing us these

past 8 years, and we appreciate his work and wish him all the best

in retirement, as well.

Thank you.

Senator VOINOVICH. Thank you, Mr. McGaffigan.

Mr. Merrifield.

Mr. MERRIFIELD. Mr. Chairman, I would also like to thank you

and the other members of the committee for your kind comments

about Chairman Diaz. Nils and I have worked together for 8 years.

Ed has done an excellent job of listing the accomplishments that

Nils has had, and I couldn’t do anything better than concur.

I also want to concur in the comments made by Commissioner

McGaffigan on Senator Jeffords. I have worked together with your

staff when I was a staff member on this committee and I recognize

the strong accomplishments you have made in moving the EPW

Committee forward and I thank you for that and for the oversight

of us.

Senator JEFFORDS. Thank you.

Mr. MERRIFIELD. One additional comment I would want to make.

In our last hearing in March, Chairman Inhofe, you asked me to

be the point man on issues associated with the hearing process in

our Agency, and I wanted to just briefly comment on that.

Over the years, with the concurrence of Chairman Diaz, I have

taken the lead in the interviewing of potential judges for the panel

we have. I think we have done an excellent job in bringing together

a new group of judges who are talented, effective, efficient, and

fair. I think that will bode well for our hearing processes down the

road.
13

We have revised our hearing procedures in part two of our regulations, and I think that will make for a more disciplined and timely program moving forward.

The Commission has taken the very aggressive role, of which I

have been a strong proponent, to set time lines, effective time lines

for those boards in moving forward, and I think we are doing a better job of that today than we were when we first joined the Commission.

We have also asked for a series of recommendations from our

staff as to how we can enable further efficiencies in our review in

the hearing process associated with the combined operating license

applications that have been outlined previously. We expect to get

those recommendations to us in the next month or so, and that is

something I think the Commission will need to act on.

As you requested, Mr. Chairman, I am attempting to work very

strongly on this issue. It is an important effort to make sure that

we review these applications with a discipline and fairness that

Senator Lautenberg has discussed, and we certainly want to make

sure we are doing our mission to review these in a disciplined way,

in a timely way, and in a full way to make sure the issues are

brought out in review.

Thank you, Mr. Chairman.

Senator VOINOVICH. Mr. Jaczko.

Mr. JACZKO. Mr. Chairman, if I could add to the theme, I guess,

of piling on a little bit today, I would also want to recognize Chairman Diaz for his contributions to this Agency and certainly his contributions to the Nation over the last 10 years. He has been, I

think, a very good example for the Commission of what a commissioner should do, how a commissioner should act and represent this

Agency and this Nation. I certainly have learned quite a bit personally from him.

I also want to similarly congratulate Senator Jeffords on his

work and the things that he has done. I had the opportunity to be

a member of his staff for a brief period of time and I certainly enjoyed that time.

I would like to add a little bit to what has been said on some

of the issues and challenges facing this Agency as we look to dealing with new reactors. I think, as many people have said, one of

the most important issues will continue to be ensuring the safety

of the existing fleet of operating reactors, and I think that is something that is easy for us to say. It is going to be something that

is important for us to actually implement.

I think, as there is a tremendous amount of emphasis and effort

put into the new reactors, we must make sure that we continue to

keep focused on our existing fleet. I think there are a variety of

ways we can do that. I think many of those have been mentioned

by you and other members of the committee.

As we go forward, I think it will be important for us to continue

to keep that focus on the existing fleet and the other regulatory responsibilities that we have as an Agency.

Thank you.

Senator VOINOVICH. Thank you very much.

Mr. Lyons.

Mr. LYONS. Thank you, Mr. Chairman.
14

I would also like to join my colleagues in expressing appreciation

for the leadership of Chairman Nils Diaz. Chairman Diaz certainly

provided a very important role model for me as I began on the NRC

about 17 months ago, and through his guidance and leadership, I

have learned how to help maintain the NRC as the premier nuclear

regulator in the world today.

I would like to comment just briefly on one of Nils’ legacies, and

it ties in with the fact that I returned very late last night from an

overseas trip. Nils provided the vision for the multi-national design

approval program (MDAP), a vision in which the United States,

working with international partners, can try to move toward sharing of information on regulatory processes as they apply to particular reactors. On this trip I was in Finland, together with some

of the senior NRC regulators, at one of the first meetings on the

MDAP, discussing their work on the EPR reactor, in which a number of companies are expressing interest in this country, as well.

By participating in that meeting, it was very evident to me that

Chairman Diaz’ vision for this program and its ability to help the

NRC move forward expeditiously in licensing of that particular

kind of reactor, was indeed very well founded.

Again, it has been an honor and a privilege to work with Chairman Diaz, and I look forward to the hearing today.

Senator VOINOVICH. Thank you very much. I am sure the Chairman would say that you are only as good as your team, and I think

you have had a good team working with you, Chairman Diaz.

Mr. Chairman, a stable and predictable licensing process is an

absolute must if we are to proceed with constructing new nuclear

powerplants in the country, and to meet the ever-growing interest

in constructing these plants the Commission has developed a ‘‘design centered approach’’ so that multiple applications can be handled at once. This depends upon standardization of the applications. However, we found out at the last hearing in March that the

NRC is changing all of the licensing rules while the companies are

in the middle of preparing their applications.

Mr. Beasley’s testimony also indicates that many of the proposed

changes actually conflict with the Commission’s stated intent of devising a stable and predictable licensing process.

Could you respond to these concerns? Additionally, the Commission committed to completing these regs by mid-January, and I

would like to know if you are still on track and if there is any way

that the process can be sped up.

Mr. DIAZ. Yes, Mr. Chairman, it would be my pleasure to address

those concerns.

I believe that, you know, the concerns are not really as large as

Mr. Beasley seems to believe. The changes to Part 52 are made to

make Part 52 more effective, to actually take out things that were

not working out. It was large. I agree, it was a large number of

changes, and many of them are almost, you know, minor corrections. Part 52 has already been, you know, put out for——

Senator VOINOVICH. What is it again?

Mr. DIAZ. Part 52. The rule was put out for comments. We received 19 comments, most of them from industry and three from

stakeholders. We are about ready to resolve those comments. We

are on track to have that rulemaking delivered to the Commission
15

by October, and the Commission will then deliberate on the new

rule. It should be done before the end of the year.

We do not believe it impacts on the licensees’ capabilities to submit these applications. The reason is that the rule is out. Most of

the changes are very obvious. They can go ahead and proceed to

do their COLs. At the end, Part 52 will be better than what we

started with.

Senator VOINOVICH. Mr. McGaffigan.

Mr. MCGAFFIGAN. Mr. Chairman, just so we don’t always agree,

I believe that many of Mr. Beasley’s points are well taken. I think

we are going to have to jettison a fair portion of this rule in order

to finalize it in the time period that is talked about. I do think

many of the provisions in the rule, as I said when I voted on it—

and I voted against it—run counter to the philosophy of the 1992

Energy Policy Act, and I hope—the staff has more or less promised

us that they will jettison large chunks of this rule in order to

present us a rule that is workable going forward. I hope that is the

case.

Mr. MERRIFIELD. Mr. Chairman, very briefly, I did support Part

52. I had a number of discussions with Mr. Beasley, and I think

he has articulated his view quite clearly. I think we have worked

and have engendered an effort on our staff to work in a way that

is open and try to get a dialog with many interested parties to

make sure that there is enough understanding about what we are

intending. I think this effort will result in improvement in our effectiveness and efficiency. Like others, I believe we are going to

have to take a look at the product of our staff and make sure that

some portions may work, some may not.

I believe, given the discussions and the commentary you are

going to hear from Mr. Beasley, we may be well disposed to have

an additional workshop between our staff, industry, and other interested stakeholders to work through some of what I believe are

some differences of understanding, not really differences of philosophy. But I think we do have a package that will go forward in the

way that the Chairman has outlined.

Senator VOINOVICH. That is very important, and in terms of interest by industry and these applications, if this thing isn’t smooth

and there isn’t good dialog going back and forth, you will just snuff

out the great interest that is there right now.

Last issue is the issue of all the other agencies that you have to

touch base with. Senator Inhofe and I have seen it in the Highway

bill and building highways today and trying to get all the other

groups. You have the Fish and Wildlife Service, the Department of

Interior, the EPA, and others. Has any thought been made to a

process where you can get these folks onboard quickly, and, if there

are differences of opinion, how the differences can be reconciled so

that does not end up being the thorn in the side of this process?

Mr. DIAZ. Sir, we have reviewed our processes for the environmental review which requires that local, State, and Federal Agencies participate independently of the NRC in those reviews and actually review the application according to the authority that is

given to them. Some of them is given by EPA to the States. There

is coastal issues. We are now very much in process to be able to

address this potential connection.
16

We have one more Agency that we have to deal with, which is

the Department of Homeland Security, and EPACT actually told us

to make sure we consult with DHS. As I begin cleaning my office

next week before I leave, I would address the issue directly to Secretary Chertoff to make sure that there are no gaps in between the

coordination that needs to take place between DHS and the DNRC

for the security reviews of the new powerplants.

Senator VOINOVICH. I would like to have, and I am sure everyone

else on this committee would like to have, in writing the plan that

you have in place and how we are going to speed up that process

and reconcile any differences that are there and might suggest that

you get a hold of the Federal Highway Administration, because

they have done some real work in terms of coming up with ways

to expedite the process, but there is always the issue that if there

is a real difference of opinion who is going to decide how it should

be taken care of. I am interested in that whole process.

Mr. MCGAFFIGAN. Sir, if I could add just one very brief comment,

the single most important thing that another Agency has to do in

order for these licenses to proceed is for the Department of Energy

to enter into new contracts to take spent fuel from these new licensees. They can’t get a license under our rules until they have

a contract with the Department of Energy to take the spent fuel

generated in the new reactors.

Obviously, the old standard contract won’t do. A new standard

contract is necessary. It is alluded to in Chairman Diaz’ testimony

for the record. This committee is very interested in waste issues.

You don’t have to solve all the waste issues, but they have to, before we can issue a license, have a new standard contract with each

of the 17 or 18 entities that are going to be pursuing licenses with

us.

Senator VOINOVICH. Thank you.

Senator Carper.

Mr. JACZKO. If I could just briefly add, Mr. Chairman, I do think

this is also an area where the Commission, I think, needs to set

some clear policy guidelines. We had a situation with an early site

permit that we are currently reviewing where an applicant had not

completed all the State permitting actions that they needed, and

that caused a significant delay then with the entire process.

I think as we go forward and potentially look at more and more

applications we need to set some clear guidelines that applicants

need to resolve as many of those issues as they can, particularly

the State issues, before they come to the Commission and begin our

process so that we are not utilizing resources that could be better

spent on other applicants.

Senator VOINOVICH. That is why I would like to see something

in writing about how you are going to do that.

Senator Carper.

Senator CARPER. Thank you, Mr. Chairman.

I just want to make a personal note. I am a person who rarely

complains about being too cold, but I just noticed that the water

in my glass is starting to freeze. I have never seen that happen before. Whoever controls the temperature in here, if you want to jack

it up a degree or two I won’t complain.
17

Another observation, it is rare that we actually have all the

members of any particular commission who come and testify before

us, at least on my other committees that I serve on now or in the

House. That is sort of unusual, but I think it is a very good thing,

and I think it is a tribute to you that you are able to come here

and agree where you do and maybe offer different points of view,

but to do so in a respectful, constructive way. That speaks well for

all of you, and especially for the leadership that you provide, Mr.

Chairman.

This may have been raised while I was out of the room by Chairman Voinovich, and if he has I apologize, but I want to raise it

again just for my own interest.

We have talked about all the work that needs to be done, the

folks that need to hire, train, and the question that I have is, at

least to start off, in looking at the workload that is ahead and the

kind of bodies and minds that you need to recruit, what can you

share with us about your ability to find the people you need and

your ability to hire those people?

Mr. DIAZ. Thank you, Senator Carper. We are doing well. We got

ahead of the curve, and before practically everybody got on the

same route as ours we are hiring the right people. We have been

able to hire the numbers that we wanted to. I think we will meet

this year or exceed our goals.

We have, like I said in my testimony, more than 200 net staffers

have been hired this year. We might get close to 225 by the time

we end. We are better prepared to train them. We are moving into

new space. Our professional development center will be moving in

2 months to Bethesda. We have a building within just two blocks

now where our new fuel cycle office will be moving to.

We are having some problems with equipment for our people, but

by October, we will be able to take care of that. But the answer,

sir, is that yes, we have been able to find the right talent. We

might find the competition getting a little bit stiffer as we go forward.

Mr. MERRIFIELD. Senator Carper, I would just say I think we

have done very well, not only at the entry level but also throughout

the levels. We have a lot of people in their mid careers who are

coming into the Agency who are very skilled and talented and that

equal or exceed the people that they are replacing.

In terms of new hires, as the Chairman said, we are ahead of the

curve. We are bringing in a very high level, talented, skilled, energetic workforce that is diverse. We want our workforce to look like

America. I think we have had a lot of success in meeting that goal.

Senator CARPER. Good. Mr. Lyons.

Mr. LYONS. Senator Carper, I would just emphasize one of the

points that the Chairman made. I think this is not only a continuing challenge, but probably a growing challenge. If industry

does move ahead with their construction plans, that competition for

new talent is going to become intense, so we need to keep up.

Senator CARPER. Good. Thank you.

The second point I would like to raise, I think we are going to

hear from our next panel about the need for timely decisions from

the NRC. We have already talked about that. You have already

mentioned this in some of your testimony. Could you just describe
18

to us again what issues are within the control of the NRC to make

timely regulatory decisions and what issues may cause regulatory

delays that are out of the control of the NRC?

Mr. DIAZ. Sir, the Part 52 process tends to be very disciplined,

and this is why we have been insistent that we get the right kind

of application, not only with the beginning in mind but with the

end in mind. The kind of decisions that we have to make are essentially divided into those technical decisions and the legal decisions.

In between those two you can also classify them as environmental

or purely technical.

We see our technical decisionmaking as being very well already

structured. We see the issues of the environmental reviews as requiring a significant amount of effort because each one is going to

be different. They are all going to be coming in at the same time.

The adjudicatory processes that Commissioner Merrifield has

taken a particular interest in also require a particular attention.

The design centered review process intends to solve first the technical issues in parallel. Once an issue has been solved for a reference application—you know, we are going to have four reference

applications—it goes to the rest of the group.

The same thing could happen in some of the issues that are either contested or that are addressed or in the legal processes. They

should be able to get something that is done for the reference and

it applies to the rest of it, except, again, those that are site specific.

The site-specific issues will have to be resolved. That is what I emphasize, the fact that those need to be done early in the process

because if not they could delay the actual finalization.

Mr. MCGAFFIGAN. Senator Carper, I am glad that both you and

Senator Voinovich have focused on the things that are out of our

control, at least to some degree. I mentioned the DOE issue. I

think it is right to focus on the various issues that come under

State government control effectively. The licensee either works it

out with the State government, water rights issues, or Coastal Waterways Act issues, Historic Preservation Act issues, Endangered

Species Act issues, or our hearing process becomes a very, very inefficient way to work those things out between the licensee and the

State.

So the more they can get done before they come in, the better.

If DOE can figure out what its new standard contract looks like,

the better. Then you can blame us if we don’t meet time lines.

Senator CARPER. Thank you. My time has expired, but I will

have a couple more questions for the record, but thank you very

much.

Senator VOINOVICH. Senator Inhofe.

Senator INHOFE. Thank you, Mr. Chairman.

I think Senator Carper brings up something that is worth talking

about a little bit more. Let me share an experience that we had out

in Oklahoma. Our Tar Creek Superfund Site is the most devastating one in the Nation. It was one where nothing happened for

20 years.

When I became chairman of this committee, it occurred to me

that if we don’t get it done while I am chair, it ain’t ever going to

get done. So what we did was we got everybody in one room. We

had DOI, DOJ, EPA, everyone who had anything to do with it,
19

Corps of Engineers and all that, only to find they had never really

all talked in the same room together.

It seems to me, when I listen to some of the problems that you

are having in putting your new procedures together, it might be a

good idea to put a meeting such as that together, because it can’t

happen when you don’t have everyone in the same room. I would

only suggest that.

Now, going back to the hearing, the first hearing that we had 7

or 8 years ago we have referred to several times, at that time the

chairman was Jackson, as I recall, and they had said that new licenses at that time would be something in excess of 5 years. Then

she made the commitment at that time that it could be done in less

than 2 years.

Now, keeping in mind all these things that you don’t have control

over, but still the fact that you know they are out there, what

would you, on your departure, now say Chairman Diaz that you are

going to be able to do in terms of the time? Do you want to reduce

that time line? Then I will ask any of the others who will remain

here after you are gone what their idea is.

Mr. DIAZ. Sir, I think I am going to let my fellow Commissioners

answer that. They are going to have to be dealing with it. But, to

be fair, we have looked at how we can actually provide more consistency in the time schedules, and——

Senator INHOFE. No, we were talking about relicensing at that

time.

Mr. DIAZ. Yes. But right now we are trying to come up with what

we call a ‘‘master schedule.’’ This master schedule would actually

try to incorporate into one single document all of the milestones

that need to take place.

I think one significant idea that we will have to go forward with

is how do we share that with all the cognizant agencies that need

to intervene in the process, just to make sure that people realize

where we are, where we are going to be in time. I am sure that

my fellow Commissioners will be watching that master schedule

very well.

Senator INHOFE. Is that true, fellow Commissioners?

Mr. MCGAFFIGAN. Mr. Chairman, I am personally very uncomfortable with the sort of schedules that we show here with vast

numbers of people getting licenses in 2010 and 2011, because we

didn’t have the chance we had in license renewal. In 1998 when we

were before you we had a Oconee and we had Calvert Cliffs as sort

of lead plants for license renewal. We could learn, we could issue

a lessons learned document after doing them. We could then deal

with the bow wave.

Here we are getting the bow wave before we have learned, and

I personally am dedicated to getting at least someone across the

finish line if they can meet all of our criteria. Then I think once

we get one across we will get the second, we will get the third, we

will get the fourth. But to get 16 across in about a 1-year period,

especially when we are losing so many talented senior staff and replacing them with good staff but people who don’t have 30 years

experience with the Agency, it is going to be very tough.

We will do the absolute best we can. I promise you that. But I

personally am uncomfortable that we are going to get this entire
20

bow wave across the finish line in 24 to 30 months, which are the

times that are sometimes bandied about.

Senator INHOFE. I am sorry to hear that.

How about you, Commissioner Merrifield?

Mr. MERRIFIELD. Mr. Chairman, I am more optimistic than my

fellow Commissioner. I think we demonstrated through the license

renewal process. We told you the first ones would come in in about

36 months. We actually came in at 32. Under Chairman Jackson,

we told him we thought we could regularize it at about 24 months.

Our license renewal process today runs between 16 and 18

months. So I think we have made tremendous progress on our efficiencies. I think we can leverage that in the work that we are

doing for combined operating license applications. I think we are

demonstrating with the review of the enrichment applications, both

with the LES project in New Mexico and the USEC project in Ohio,

that we can do them more efficiently.

We have work ahead of us. It will be a challenge. I think we have

the staff and the capability of meeting the kind of time lines we

talked about, and certainly that will be my dedication during the

time that I am on the Commission.

Mr. JACZKO. If I could?

Senator INHOFE. Yes, Commissioner Jaczko.

Mr. JACZKO. I would probably tend to fall a little bit more on the

pessimistic side for how we can complete some of these reviews

within the 24 to 30 months that have been suggested. I think one

of the components that is often forgotten about is that we do have

a very public hearing process, and I think, as Senator Lautenberg

mentioned, it is important that that process ensure that people

have access to our hearing processes and that they have a fair shot

at raising their concerns. I think that can be a very timely and a

very lengthy process, and it is also one that is very much outside

of the control of the NRC.

So I think making sure that that hearing process has good access

for people will give them good buy-in in the final outcome for any

licensing decision, which has the added benefit of not having NRC

actions challenged in Federal court, which I think ultimately is one

of the areas where we can have significant delays. So we are really

making sure we have good public participation.

Senator INHOFE. I think the statement was made about stability

and predictability, which is very, very important. I think of those

out there who are pursuing licenses, that it is very important that

they know what the rules are going in, that they know what they

are going to have to comply with, that you guys don’t change things

in the middle of the road. This is the most frequent concern that

we hear, not just from this area but from all forms of government.

It is always easier, Mr. Chairman, to say, ‘‘Well, it is going to be

more difficult. We can’t commit to it.’’ I’d rather get a commitment

and stick with it.

Yes, Commissioner Lyons.

Mr. LYONS. Senator Inhofe, please put me down in the cautiously

optimistic line.

Senator INHOFE. I don’t have a column for that. Thank you very

much.

Mr. LYONS. I recognize that it is an immense challenge.
21

Also, I believe that our approach, which we have described as designed centered (trying to come up with a single set of approvals

for one given design) is absolutely essential. We need to stick with

that. Industry needs to stick with that.

Senator INHOFE. Thank you very much. I thank all of you.

Senator VOINOVICH. Senator Lautenberg.

Senator LAUTENBERG. You know, as we look at the renewal license for Oyster Creek, we see community groups for it, community

groups against it, some public officials in New Jersey for it, some

against it. To confirm the fact that the public has to be more ardently considered, we go back and the 9th Circuit Court recently

ruled that the NRC must consider the environmental impacts of a

terrorist attack when conducting an environmental impact statement. The New Jersey Department of Environmental Protection

has petitioned NRC for a public hearing on the threat of terrorist

attack, which is very much on people’s minds in considering the potential renewal of the Oyster Creek license.

Now, after our experience or 9/11, what role should the threat of

terrorism play in considering new licenses or renewals of existing

ones, Mr. Chairman?

Mr. DIAZ. Well, sir, we have actually, under the Atomic Energy

Act, imposed a significant number of new requirements on existing

powerplants. The majority of those requirements and the lessons

learned from almost 5 years of exercising safe and secure oversight

over these facilities are being incorporated for new reactor licensing. So we intend to make sure that every new reactor that is licensed in this country that comes, you know, in this way, or whichever way it comes, actually complies with the security requirements that have been imposed first by order and now by rulemaking.

We believe that this package is very complete, it is comprehensive. The industry has already put most of those things in place,

if not all, and they do provide substantial assurance that public

health and safety will be protected from terrorist attacks.

Senator LAUTENBERG. Well, any examples of changes that were

made? I mean, very frankly, I am not sure that attacks from a terrorist, with the damage that it could wreak, is part of the routine

examination.

Commissioner Merrifield, do you want to say something?

Mr. MERRIFIELD. I just want to clarify a little bit regarding the

9th Circuit. When we made our argument before the 9th Circuit

Court of Appeals what we really were trying to articulate was that

we had a framework for reviewing the threats of terrorism against

the plants that we regulate; that we had the responsibility and the

authority under the Atomic Energy Act and the Energy Reorganization Act to act, to respond to those threats; that we had a process in our review of the design basis threat at the facilities to look

at what we thought was a possible threat and to impose license

conditions and, if need be, in some cases orders to put our licensees

in a position to best defend against on those very same threats.

We have done that. The Chairman has talked about the requirements we have imposed, over $1.2 billion in costs associated with

that for the licensees in the nuclear generating industry.
22

The argument that we made in front of the 9th Circuit was we

have that covered in a different arena. We felt that the National

Environmental Policy Act was not the right arena to wrestle with

those issues. So basically, what we were claiming was basically we

had it covered but we were doing it in a methodology different than

under the auspices of NEPA.

Right now we have under consideration with our partners in the

Federal Government what the right response is. That is under consideration right now.

Senator LAUTENBERG. Let me interrupt. Where does the petition

from New Jersey Department of Environmental Protection stand?

Mr. DIAZ. Sir, that issue is under adjudication right now. The

Commission cannot comment at the present time because the Commission will have to sit as judges on the issue, so we cannot comment at the present time.

Senator LAUTENBERG. But this concerns your internal review.

What prevents you from commenting on where a petition stands?

Mr. MERRIFIELD. Senator Lautenberg, the way our process

works, our staff makes a technical decision based on the regulatory

process. If there is a challenge to that by a member of a stakeholder community, that would go before our internal Atomic Safety

and Licensing Board, which acts like a district court. If there are

challenges to the decision of the Atomic Safety and Licensing

Board, the Commission, in its role as an adjudicatory body, would

site like an appeals court.

So what the Chairman has said is those issues are currently in

front of our Atomic Safety and Licensing Board, which is the initial

court of review. We can’t comment on that right now because we

may have to review that as an appellate body.

Senator LAUTENBERG. I understand what you are saying, but it

seems peculiar that, as part of the review, the licensing review,

that the court had to get involved, that the petition apparently was

not moving along. Do you know when it was filed, the New Jersey

petition?

Mr. DIAZ. It was last year.

Senator LAUTENBERG. Whatever the process is, how long should

the process take to engage the public concerns about terrorism in

the period in which we are now living?

Mr. JACZKO. Senator, we are not wanting to comment specifically

on the Oyster Creek situation because we can’t. But I don’t want

to leave you with the impression that the issues of the terrorism

analysis in the NEPA context and for the environmental impact

statement is there’s a unanimous Commission position on this.

I think in the past there has been quite a bit of discussion among

Commissioners about the right approach, and I think as this issue

moves forward there will continue to be debate. I personally think

there is merit to taking some kind of look at the terrorism issues

in the NEPA process. I think that can be done in a way that is consistent with an efficient and timely analysis.

Many Federal Agencies do that as part of their environmental

impact statements, and I think it is something. We have some additional challenges because we do have this formal hearing process

that has been alluded to, but I think there is a way in that context

to deal with those issues.
23

Mr. MERRIFIELD. Just to make it clear, though, the Commission

has under consideration right now, as part of the dialog that Commissioner Jaczko has spoken, how do we want to respond to that

9th Circuit opinion. There are a variety of avenues for us in that

regard. One of them, as Commissioner Jaczko has mentioned, is to

bring the terrorism component into a NEPA analysis.

Other options obviously would be for us to appeal that decision

to the full 9th Circuit or, alternative, to appeal that decision to the

U.S. Supreme Court. All of those issues are currently under consideration by the Commission, so we are not in a position to comment

on our decision as a whole. That decision is in concert with our

counterparts in the Federal family.

Senator LAUTENBERG. I am not asking for that. What I am asking for is to get some understanding about how serious the terrorism consideration might be, and, thus, why can’t these things be

expedited in the interest of a review for license.

Mr. DIAZ. Well, sir, we will take your concerns seriously. I am

sure that the entire Commission agrees that this issue shall be

dealt with as expeditiously as possible. Sometimes there are difficult issues. We want to make sure that everybody is heard, but

we will take it under consideration.

Senator LAUTENBERG. Thank you.

Senator VOINOVICH. Thank you, Senator.

I want to remind the members of the committee we have three

more witnesses and we have votes that are going to begin at 11

o’clock. In fairness to the witnesses, we have to move along and I

am going to have to really limit the questions to exactly the time

limit.

Senator Isakson.

Senator ISAKSON. Well, I will help you, Mr. Chairman. I will just

make a comment and then I will yield the floor so we can go to

the next panel, but since Commissioner Merrifield was the more

positive in his response a minute ago, I will make this statement

to him.

In my opening remarks, I referred to Plant Vogtle and I referred

to the 1970s and the 1980s. During that period of time the biggest

problem that nuclear energy had was regulatory uncertainty. It is

absolutely essential as we are reopening the development of nuclear power generation that the Commission understand that we

need regulatory certainty, not regulatory uncertainty, as it relates

to timeliness, as it relates to process, and as it relates to consistency.

I am one who remembers the Washington Public Power System

bond default. I remember the difficulties we had at Plant Vogtle

and all the byproducts of regulatory uncertainty in a very difficult

environment in the 1970s and 1980s. I think that is what all of us

here are looking for is a safe, reliable process, but one that is certain, so that people who are risking tremendous capital have the

opportunity to deliver on what they should be able to deliver on because they can count on the regulatory process.

Mr. MERRIFIELD. Senator, we have dedicated our strategic plan

to be an Agency that is effective, efficient, and timely, and I think

all of the members of the Commission take that charge very, very

seriously.
24

In my personal view what we were confronted with in Part 52

is a process that did not meet those criteria. I think what the majority of the Commission has entered into in this process is to up

front fix that process in Part 52 to meet that strategic goal, to

make it so that all of the parties that are entering into the review

process for ordering plants under a combined operating license

process can do so in a manner that will allow a decision on the

safety of those applications in a way that is going to meet the expectations of the Agency, meet the expectations of the licensee, be

fair to the public process and interveners, and make sure we can

do it in a way that is timely and does not repeat what we went

through with Plant Vogtle and other plants. In my home State of

New Hampshire, it was Seabrook that put Public Service of New

Hampshire into bankruptcy.

Mr. DIAZ. I am going to disagree with you, sir, on one issue.

Commissioner Merrifield is not the most optimistic of this group.

In fact, that is how Commissioner McGaffigan and I work together.

He is the pessimist, I am the optimist.

Mr. MCGAFFIGAN. I might challenge the Chairman on that one,

but I will give it to him because it is his day.

Mr. DIAZ. I am very close to the staff, you know, because of my

role. I believe that we are ready to implement what needs to be

done. I think this Agency has conformed itself through the years,

with the support of the Commission and the committee, into an

Agency that realizes what its responsibilities are. I believe our staff

can deliver a product in time if we are given the right product from

our applicants.

Senator ISAKSON. Well, I hope they keep you on as a consultant

in your retirement.

I will yield back the balance of my time, Mr. Chairman.

Senator VOINOVICH. Thank you very much, Senator Isakson.

Senator Clinton.

Senator CLINTON. Thank you very much, Mr. Chairman.

I ask unanimous consent for my full statement to be introduced

into the record.

Senator VOINOVICH. Without objection.

Senator CLINTON. First off, I want to wish Chairman Diaz well

as you leave the NRC. I appreciate the opportunity I have had to

work with you. You certainly have been responsive and very productive in our dealings, and I thank you for that. I want to express

my hope that Dr. Kline will have the same openness and responsiveness.

Mr. Chairman, I think this is such an important issue, and I will

be following it closely, but I want to focus on another matter that

deeply concerns me, and that is the NRC implementation of the

Dirty Bomb Prevention Act. I first introduced this legislation in

June 2002. There was ample testimony before this committee, before the Foreign Relations Committee, before the Armed Services

Committee about the importance of creating a system that can prevent the loss and theft of radioactive material that could be used

to terrorize American communities. Clearly there is a lot of it out

there. The NRC issued more than 150,000 licenses authorizing the

use of radioactive materials for industrial, medical, and other uses,
25

and there are approximately 1.8 million devices containing these

radioactive materials that have been distributed.

We know that since 1998 there have been more than 1,300 incidents where radiation sources were lost, stolen, or abandoned, and

in March of this year, the GAO reported that undercover teams

had carried small amounts of CCM 137 through border checkpoints, so we know this is a problem.

I really appreciate the help that I got from Chairman Voinovich,

Senator Inhofe, and Senator Carper to get the Dirty Bomb Prevention Act through this committee and into the Energy bill last year.

One of the key components of that legislation was the requirement that the NRC set up a cradle-to-grave national tracking system for materials that could be used to make a dirty bomb. So, Mr.

Chairman, I was dismayed when I learned that the NRC recently

issued a rulemaking on the tracking system which changed the

basis for the rulemaking from common defense and security, to

public health and safety. The effect of this provision is to move the

implementation from the NRC to the States, which means that the

NRC will not be in a position to enforce compliance with the system.

The entire motivation for this legislation and for the tracking

system was to establish an ability, a capacity for the Federal Government to take steps to reduce the risks that terrorists could obtain radioactive materials. So I want to be clearly on record in

strong opposition to this change which runs counter both to the

language and to the intent of my legislation. I know that the State

of New York has concerns with this proposal, as does California.

They may file comments in opposition.

When the NRC considered this change, Commissioners Jaczko

and McGaffigan opposed it, and so I would like first to ask Commissioner Jaczko and then Commissioner Merrifield to explain

their respective positions on this change which I find deeply troubling.

Commissioner Jaczko.

Mr. JACZKO. Well, I certainly would agree with many of the comments that you made. I think the intention was to have a national

source tracking system, and having the NRC as the entity that is

responsible for this would ensure that we would be able to implement timely enforcement action if there were situations where we

got information that there were problems with sources or missing

sources.

So making the change as it was made as I think you referred,

from common defense and security to public health and safety

takes away some of that authority and gives that to the States, so

it adds an extra layer of implementation. I don’t think that is the

most efficient and effective way to deal with an issue which is fundamentally an issue, I think, of common defense and security for

the Nation.

Senator CLINTON. Commissioner McGaffigan, do you have anything to add?

Mr. MCGAFFIGAN. Just that I obviously voted the same way as

Commissioner Jaczko. I do think that it is a burden that we are

placing on the States. Many of the States have difficult financial

issues at this time. It is very interesting that two of the biggest
26

States, New York and California, who have a very large proportion

of the devices, disproportionate, 2 out of 50, were among those who

were opposed to it.

We are in a comment period. The comment period ends on

July 3d. It is only a 20-day comment period, and July 3d is a day

many people will take off, but I do hope that we get comments, and

if we get comments then we—in fact, your comments today may be

enough to bring this back to the Commission for another round as

to whether we really want to make this change.

Senator CLINTON. Well, Commissioner Diaz, I will be sending a

letter to you today outlining in more detail my concerns about this

issue and asking a series of questions. The letter also includes a

request to extend the comment period. It was set an extremely

short 20 days.

For those of us who have been working on this now for 31⁄2 years,

it is deeply distressing that what the clear congressional intent was

was to give the NRC, the Agency with the expertise, the authority

to set up this tracking system, and now all of the sudden we are

going to disperse it to the 50 States. We are not even giving an

adequate time for the State of New York to put together and submit its comments because we have an absurdly short comment period, and, you know, for the life of me I don’t know what it takes.

We had bipartisan legislation. We had it passed by both houses of

Congress. The intent was clear that this would fall under the NRC,

and the next thing we know it is going to be sent to the States.

You know, Mr. Chairman, it is hard to understand where the

buck stops in the Federal Government on so many of these issues.

And so, with all due respect, Chairman Diaz, I would really appreciate an answer to my letter but, more than that, an extension of

the time and a reconsideration.

If you need additional personnel or support to do this, for heaven’s sake come and let us know, but to send it to States that do

not have the expertise, that may not have the personnel or, in the

case of New York, are, frankly, you know, stretched pretty thin trying to deal with everything we have, plus having our homeland security funding cut by $40 million, which makes it even more difficult for us to run the 24/7 kind of operation we need to protect

New York. So I wanted to raise this in the strongest possible

terms, and I will look forward to your response.

Mr. DIAZ. Thank you.

Senator VOINOVICH. Thank you, Senator Clinton. I think that the

suggestion about extending the comment period is a very wise one,

and I encourage the Commission to give some consideration to that.

I have to shut it off, Commissioner Merrifield, and get on with

the other witnesses.

I will say this to the members of the Commission: we are going

to leave the record open for a couple of days for members of this

committee to ask more questions. I certainly have a lot more to

ask, and I am going to direct them to the Chairman, and would appreciate comments from members of the Commission in regard to

those questions.

Senator VOINOVICH. Last, Chairman Diaz, one of the things that

I did when I was Governor and mayor is when I had somebody that

was going out of heading up a department, I asked them to share
27

with me the memorandum that they put in place to the person that

is going to succeed them in terms of the things that need to be

done and also the priority of things that need to be done. I would

very much appreciate it. I am sure that is what you intend to do.

Mr. DIAZ. Yes, sir.

Senator VOINOVICH. I would appreciate your sharing that with

me as chairman of the committee. I would be grateful.

Again, I want to thank you so much for the great service that

you have provided, and I would like to thank the other Commissioners for their conscientious service to the Nuclear Regulatory

Commission and to our country. I wish you good luck, Chairman

Diaz, in your retirement. Take the time. Enjoy it.

Mr. DIAZ. I will, sir.

Senator VOINOVICH. Don’t let them get you back working again

for a while.

Mr. DIAZ. OK.

Mr. MERRIFIELD. Mr. Chairman, we had a question from Senator

Clinton that two of the members who were the minority on a decision were able to answer. Obviously, due to the time period, you

want to cut us off, but I would only ask permission to have the opportunity, for those of us who were in the majority on that decision,

to be able to supplement our comments for the record.

Senator VOINOVICH. I appreciate that. The record will be open.

Without objection, any comments that you have will be put in the

record. We will put it in the sequence of this discussion we just

had. Thank you very much.

Mr. MERRIFIELD. Thank you very much, Mr. Chairman.

Mr. DIAZ. Thank you, Mr. Chairman.

Mr. MCGAFFIGAN. Thank you, Senator Voinovich.

Mr. JACZKO. Thank you.

Mr. LYONS. Thank you, Mr. Chairman.

[The information provided follows:]

SUPPLEMENT BY CHAIRMAN DIAZ AND COMMISSIONERS MERRIFIELD AND LYONS

Previously, on July 28, 2005, the Nuclear Regulatory Commission (NRC) published a proposed rule in the Federal Register on national source tracking. The proposed rule was promulgated under the NRC’s authority to promote common defense

and security. The decision to issue the proposed rule under this authority was based

primarily on concerns over effectiveness and timeliness: all licensees will need to

begin reporting to the National Source Tracking System (NSTS) at the same time,

and the NRC was concerned that Agreement States would not have sufficient time

to issue regulations to cover their licensees, potentially making implementation of

the reporting requirements less effective. After reviewing the comments on the proposed rule, and after gaining more experience with Agreement State implementation of increased controls on radioactive sources, the NRC staff recommended that

the basis of the rulemaking be changed from promotion of the common defense and

security to protection of the public health and safety. This change in basis would

enable Agreement States to oversee their licensees’ data reporting to the NSTS. It

is important to note that the system itself will remain a national system developed

and maintained by the NRC, and Agreement States will not develop or maintain

their own databases. The Commission approved the change of basis in an Affirmation Vote dated May 25, 2006, with Chairman Diaz and Commissioners Merrifield

and Lyons voting in favor of the change of basis, and Commissioners McGaffigan

and Jackzo voting against it. This supplement was prepared by the three concurring

Commissioners to document the majority position. Time constraints at the June 22,

2006 hearing only permitted the minority position to be presented.

The Commission majority view is that, in general, the American people are better

served when the NRC works in partnership with the current 34 Agreement States,

rather than when the NRC ‘‘goes it alone.’’ For the NSTS rule, the path the Com-
28

mission has chosen will allow for more prompt verification that the rule’s reporting

requirements are being implemented, and for more effective and efficient inspections

as a result of the Agreement States’ familiarity with their licensees. Further, this

approach will reduce unnecessary regulatory burden on material licensees. At the

same time, the NRC has mechanisms to ensure national consistency. The rule will

be immediately effective upon promulgation, and, because of its direct and significant transboundary implications, Agreement States will be required to adopt program elements that are essentially identical to those of the NRC. In addition, the

NRC will monitor Agreement State oversight of their licensees’ implementation of

the NSTS reporting requirements through the periodic reviews of Agreement State

programs conducted under the Integrated Materials Performance Evaluation Program, or IMPEP. The final NSTS rule complies with the plain language of section

651 of the Energy Policy Act of 2005, which requires that the NRC issue regulations

establishing a mandatory tracking system for radiation sources in the United

States, not later than August 8, 2006. The rule clearly does this. The Commission

majority further believes that giving the Agreement States an enhanced role in

overseeing the rule’s implementation will result in more effective fulfillment of the

purposes of section 651.

The NSTS will be a truly national system. The NSTS is being developed, and will

be maintained, by the NRC. The system will contain information on NRC licensees,

Agreement State licensees, and Department of Energy (DOE) facilities. Licensees

will be required to report transactions to the NSTS involving the manufacture,

transfer, receipt, disassembly, and disposal of radioactive sources. The NRC has

held numerous meetings to engage stakeholders, and to ensure that other government agencies were included in the planning phases for the NSTS. Federal agencies

that will have access to information in the NSTS include the U.S. Customs and Border Patrol Service, the Domestic Nuclear Detection Office, and DOE. The NSTS

Interagency Coordinating Committee is developing policies and procedures governing requests for NSTS data from other agencies. Agreement States will have access to information on licensees located within their respective States. In addition,

Agreement States will have access to the national listing of lost and/or stolen

sources to facilitate recovery of these materials.

The NSTS rule imposes data reporting requirements related to source transactions. It does not impose any controls on the use of sources. The actual security

and control of the sources is provided by measures imposed pursuant to NRC’s authority to protect public health and safety for the majority of licensees possessing

IAEA Code of Conduct Category 1 and 2 sources. The NSTS will provide better accountability of the sources and will provide information to the government that was

not previously readily available. This information can be used as a tool to enhance

both security and safety overall. As a practical matter, safety and security are intertwined in the industrial, medical, and academic uses of materials, and the goal in

both safety and security is to prevent the loss of control of material.

The NRC’s and Agreement States’ experiences with the interim database currently in use demonstrated that Agreement State licensees responded more promptly when contacted by Agreement State officials with whom they were familiar than

when contacted by NRC officials with whom they had no history. A similar effect

is expected with the NSTS, which will replace the interim database. Of great importance, the Agreement States have further demonstrated that they can issue legally

binding requirements in both a timely and consistent manner, as exemplified by

their recent implementation of increased controls on radioactive sources. In this effort, the Agreement States are inspecting and enforcing the implementation of these

requirements for over 80 percent of the applicable licensees in this country. Therefore, it became no longer necessary for the rule to be based on promotion of the common defense and security for the purposes of expediting implementation. The lead

time for the NSTS requirements will be about 6 months from the date of publication

of the final rule. The requirements are already laid out in the rule, and it should

be a straightforward matter for the States to develop the legally binding requirements.

The time added to inspecting for compliance with NSTS in expected to be minimal, and the NSTS will provide data which will actually simplify aspects of the inspections. For NRC and Agreement State licensees, inspections will be conducted

during routine safety and/or security inspections. It is anticipated that no more than

1 hour of inspection effort per licensee will be necessary for the NSTS. The only preinspection effort will be to print the inventory/transaction report on the licensee

from the NSTS. It is estimated that the NSTS reporting requirements will apply

to about 1,000 Agreement State licensees, and the Agreement States will be responsible for providing oversight, i.e., inspection and enforcement, of their licensees’ implementation of these requirements. All licensees should be inspected in the first
29

year to make sure they have reported their entire inventory of Category 1 and 2

sources. In later years, the inspection effort would be based on reporting discrepancies.

The proposed rule on the NSTS was originally published for a 75-day comment

period. Several of the Agreement States requested alignment of the basis for rule

with the day-to-day radiation protection activities they conduct to maintain adequate protection of public health and safety. The NRC staff considered the request,

and the Commission directed a change in the rule’s basis from common defense and

security to protection of public health and safety. A 20-day comment period was proposed by the staff and accepted by the Commission because: (1) this rule addressed

the majority of the comments received on the proposed rule; (2) the Agreement

States were given advance notice of the proposed change; and (3) due to the broad

support among the Agreement States for changing the rule’s basis, the staff did not

believe, at the time, that there would be significant adverse comments on the basis

change.

In conclusion, the NSTS rule solely concerns collecting data, submitting it to a national data base developed and maintained by the NRC, and ensuring the data are

appropriately updated in a timely manner. Issuing this rule under the NRC’s authority to protect the public health and safety in no way diminishes NRC authority

to take appropriate action, nor lowers the significance of NRC actions. In fact, the

safety of the public is the main reason for implementing security measures for radioactive materials.

Senator VOINOVICH. Our next panel is J. Barnie Beasley, president and CEO of Southern Nuclear Company; David Lochbaum,

nuclear safety engineer, Union of Concerned Scientists; and Kevin

Book, senior analyst and vice president, Friedman Billings Ramsey

and Company, Incorporated.

I know, Senator Isakson, that you are interested in introducing

Mr. Beasley and we appreciate your being here to do that. I’d call

on you to introduce Mr. Beasley.

Senator ISAKSON. I thank you. I know the Chairman is interested

in us moving expeditiously so I am not going to read what is a comprehensive and very complimentary resume, but I want to repeat

what I said in my opening remarks. I don’t know of anyone better

equipped to testify at this hearing than Mr. Beasley.

Southern Nuclear, when they developed Plant Vogtle in Georgia,

Mr. Beasley oversaw construction, Mr. Beasley oversaw startup,

Mr. Beasley was in management on the operation of that plant, so

all three critical phases. I think his testimony will be of tremendous help to us.

He is a graduate of my alma mater at the University of Georgia.

He is a resident of the State of Alabama. He works for a group

company that provides electric energy throughout the southeastern

United States. I am delighted he is here today to join us.

Senator VOINOVICH. Thank you, Senator Isakson.

Mr. Beasley, we will start with you. As I said, we are limited to

5 minutes. I am going to be very strict on it. Then we will hopefully

have an opportunity to have you answer some questions.

STATEMENT OF J. BARNIE BEASLEY, JR., PRESIDENT AND

CEO, SOUTHERN NUCLEAR COMPANY

Mr. BEASLEY. Thank you, Mr. Chairman, and thank you, Senator

Isakson.

I have entered written testimony into the record.

At the outset I want to personally thank you, Mr. Chairman, and

the rest of the committee for your leadership in the nuclear provisions that were provided in the Energy Policy Act of 2005. We ap-
30

preciate the seriousness with which you take the oversight role, as

demonstrated by this hearing.

The viability of the nuclear power industry, as we all know, depends on public confidence in the safety of nuclear powerplant operations and in the NRC’s effective oversight of our current fleet

and units. The NRC’s revised reactor oversight process implemented in 2000 has resulted in a more efficient use of Commission

and licensee resources and has improved safety by increasing the

focus on objective, safety-significant indicators of performance.

While the improvements that have been achieved in these areas

are impressive, continued progress is needed in a number of areas.

I have talked about that in my testimony.

We would also encourage the NRC to make more expeditious use

of the tools of risk analysis and operating experience to ensure that

decisions are risk informed, performance based, and reflect a realistic conservatism.

Regulatory consistency and efficiency are also critical to the licensing and construction of a new fleet of nuclear powerplants. In

order for the companies to commit the investment needed to construct these plants, the economic risks will need to be comparable

to other forms of baseload generation.

We believe that the licensing process contained in Part 52 of the

NRC’s regulations is capable of providing a regulatory environment

in which plants can be licensed safely and efficiently, but the proposed revisions of Part 52 that have been talked about previously

do cause us some concern, as the previous conversations have discussed.

Progress in resolving the issue of the disposal of used nuclear

fuel is also important to the development of new plants. Nuclear

generators and their customers have paid billions of dollars into

the nuclear waste fund, and over $590 million has been paid in on

behalf of the two plants in Georgia and almost $300 million paid

in on behalf of Alabama Power’s Plant Farley.

Finally, in order to bring plants online on schedule that matches

the growing demand for the new baseload generation, it is essential

that the DOE’s nuclear power 2010 program continue to be funded

and appropriate of the Federal share of the funding for one-time

design finalization and COL development cost is a fundamental

basis for the renewal of interest in new plant development.

In summary, Mr. Chairman, we appreciate the opportunity to be

here and we will entertain questions.

Senator VOINOVICH. Thank you, Mr. Beasley.

Mr. Lochbaum.

STATEMENT OF DAVID A. LOCHBAUM, NUCLEAR SAFETY

ENGINEER, UNION OF CONCERNED SCIENTISTS

Mr. LOCHBAUM. Mr. Chairman and members of the subcommittee, on behalf of the Union of Concerned Scientists, I thank

you for this opportunity to present our views on the regulatory

oversight program. In a prior hearing Chairman Voinovich impressed upon the NRC the need to better assess safety culture at

nuclear plants. The NRC got this message and met with its stakeholders to develop a regulatory approach that will be implemented
31

in the near future. I participated in the meetings and believe the

revisions will be effective.

Chairman Voinovich and the subcommittee deserve credit for

calling the attention to the safety culture gap. Likewise, the NRC

deserves credit for avoiding the temptation of merely applying

band-aid fixes and instead devoting the resources needed for a

long-term fix.

The safety culture gap had significant safety and economic consequences. The March 2002, discovery of serious degradation to the

reactor vessel head at Davis-Besse has been attributed to its owner

placing production ahead of safety. Ten years ago, the Millstone reactors began long outages to restore margins caused by an improper safety focus. Nearly 20 years ago, the Peach Bottom reactors

began long outages to restore margins also caused by an improper

safety focus.

While no one died in any one of these events, operation of the

reactors in the years and months prior to the discovery of the extensive safety impairments exposed nearby communities to unnecessarily elevated risk. In addition, allowing the safety impairments

to grow to epidemic proportions resulted in unnecessarily high restoration costs to ratepayers and stockholders.

The NRC’s proposed revisions have very great potential, but even

if that potential is fully realized, future safety impairments will

likely continue unless two other steps are taken. One step expands

the scope of the NRC’s generic communications program to include

safety culture problems.

The NRC uses regulatory issue summaries, information notices,

generic letters and bulletins to warn plant owners about safety

problems experienced here and abroad. Owners incorporate lessons

learned from these generic communications into their training programs and plant procedures. The NRC has issued literally thousands of generic communications over the past four decades. Almost none of these have dealt with safety culture problems.

The NRC must issue generic communications when safety culture problems are identified so that other plant owners can incorporate applicable lessons into their training programs and procedures like they do for equipment-related problems.

The other step the NRC needs to take requires more effort. I recently assessed the times when nuclear reactors had to shut down

for at least a year to restore safety levels. More than 70 percent

of the causes of these year-plus outages were attributed to quality

assurance program breakdowns. The NRC’s regulations require

plant owners to find and fix problems in a timely manner, but time

and again those quality assurance programs utterly failed and the

NRC did not detect the breakdowns until the shear volume of problems eroded safety levels to the point that it required more than

a year to restore them. Davis-Besse illustrated that problem.

The NRC, in March 2001, evaluated the quality assurance program at Davis-Besse and concluded that it was fully adequate. Less

than a year later significant problems were identified. The NRC’s

determination in 2001 was completely wrong and it had been

wrong for several years prior to that.

The very first item on the NRC’s restart checklist for DavisBesse was to fix the corrective action program. The NRC’s process
32

for enforcing quality assurance program regulations remains ineffective today. The recurring tritium spills at Braidwood and the recurring steam dryer damage at Quad City share a common cause:

inadequate quality assurance.

The NRC must consistently and effectively enforce its quality assurance regulations to avoid chronic erosions of safety levels. I am

confident that the NRC can rise to this challenge.

The other year-plus outages that have occurred in the past have

been due to events like the Browns Ferry fire and the meltdown

at Fermi were damage to large components like steam generators

and recirculation piping. The NRC, through its efforts have almost

completely eliminated those causes. There hasn’t been an outage

due to one of those causes in over 11 years. In that same time,

there have been 11 year-plus outages due to quality assurance program breakdowns. I think if the NRC were to apply the same rigor

to quality assurance program enforcement, it would achieve the

same success in stopping that problem from occurring.

I have not been monitoring the new reactor process much so I

can’t provide much commentary on that other than to point out

that the NRC is looking at what security features should be built

into new reactor designs, and that issue is still on the table. That

makes it difficult for new plant owners to make that decision about

whether to build a plant or not when there is uncertainty about

what the security provisions in the design needs to be. The NRC

needs to get that in the rear-view mirror.

Thank you.

Senator VOINOVICH. Thank you, Mr. Lochbaum.

Mr. Book.

STATEMENT OF KEVIN BOOK, SENIOR ANALYST AND VICE

PRESIDENT, FRIEDMAN BILLINGS RAMSEY & COMPANY, INC.

Mr. BOOK. Thank you, Chairman Voinovich, members of the subcommittee. The views I will express here today are my own and do

not represent the viewpoint of Friedman Billings Ramsey and Company. I have submitted written testimony for the record, so I will

summarize it to be brief.

Let me offer my admiration for the members of this subcommittee and the foregoing panel of Nuclear Regulatory Commission Commissioners because oversight of this Nation’s nuclear

power industry requires an impressive breadth of financial, legal,

and technological knowledge.

My task, simply put, is that I analyze the busy people here in

Washington for the busy people on Wall Street. I look at what energy policy actions taken here will do for listed securities and for

the financial markets. I offer my assessment today turning things

around the other way: what institutional investors’ attitudes may

be toward the current nuclear regulatory environment.

First, financial investors seek returns that outperform industry

benchmarks. Whatever the criteria, timeframe, or style involved,

investors generally seek to allocate the capital entrusted to their

care to the highest-yielding investments among competing alternatives. Asset managers and corporate executives face essentially

similar challenges when considering energy investments. Energy

investments are risky by their nature. They usually take years of
33

development, and once the investment decision is taken there can

be years still before cash-flows begin.

The debt and equity markets incorporate a measure of these

risks inherent to any individual utility or energy firm that might

undertake a new nuclear power facility into that firm’s weighted

average cost of capital. Taking into account both the rate of return

the firm must offer its debt-holders and also the cost of that firm

of issuing new equity.

From the investors’ point of view, riskier investments must pay

higher returns to be worth considering alongside less-risky investments. In the end, investors do not refuse to purchase riskier securities; rather, the aggregated capital markets demand higher returns to mitigate the effects of the higher associated risks.

Second, using EIA projections of electricity demand growth

through 2025 of 1.5 percent per annum, and has been discussed

much today, it is clear that new powerplant construction using nuclear technologies will be necessary to retain at least a proportional

role for nuclear power in the Nation’s future power needs.

Third, it has been mentioned today that the Energy Policy Act

of 2005 created several meaningful incentives for new plant construction, including reauthorization of the Price Anderson Act, Federal loan guarantees, standby support to offset certain delays, and

a 1.8 cent per kilowatt hour production tax credit. Also, due to the

laudable work of the people in this room and their predecessors,

the 1992 Energy Policy Act overhauled the licensing process to create a combined construction and operating license, among many

other market advances.

Using EIA’s projected capital costs of $2,000 per kilowatt, a 1 megawatt new nuclear powerplant would be a $2 billion undertaking and require project sponsors to source capital from the debt

and equity markets. Irrespective of capital structure, it may not become clear until after advanced nuclear plant applications have

been formally submitted and the capital raising process has begun

whether incentives will be enough to generate investor enthusiasm

in financial terms that meet the constraints of the project sponsors.

Therefore, I would offer the view that there are two issues outstanding that could potentially result in investors assigning greater

risk premiums to new offerings in support of reactor construction.

The first of these is the potential for delay. Many discounted

cash-flow analyses of project or securities valuation, time is critical,

dollar next year is worth less than a dollar today. Project delays,

even at a low cost of capital, diminish cash on cash return and the

effect is not just limited to cash-flows to the equity shareholders.

Execution risk and delays in tandem with significant leverage can

erode a project sponsor’s creditworthiness, as well. Because new reactors will provide the first test of the combined construction and

operating license process, investors are likely to consider the prospect that an unexpectedly long delay might outstrip even money allocated for standby support, particularly reactors three through six

and seven and thereafter.

The secondary outstanding is waste storage. Unanticipated additional capital expenditures by project sponsors to construct waste

storage could also negatively affect project returns. While Yucca

Mountain operations can conceivably begin before the new nuclear
34

reactors even go into operation, investors must also consider that

the prospect of federally provided permanent geological disposal of

nuclear waste may not become operational at Yucca Mountain or

anywhere else in the near term, intermediate, or even at all.

In closing, it is my view that the capital markets will most efficiently support the policy goal of expanding low emissions high capacity electricity generation through the construction of new nuclear powerplants when institution investors face minimum risks

associated with regulatory delay and waste storage costs.

That concludes my prepared testimony.

Senator VOINOVICH. Thank you very much.

Mr. Beasley, what input—and if you don’t have the answer, then

tell me—has industry had in the new application that is being put

together for these 18 proposed new nuclear power facilities?

Mr. BEASLEY. Mr. Chairman, I assume you are talking about the

Part 52 changes that were discussed earlier?

Senator VOINOVICH. Right. I hark back to my days when I was

Governor and one of the things that I found in some of our regulatory agencies is that the customers never really had a chance to

look at the applications that they were supposed to fill out, and as

part of our total quality program we got into that. Because of the

fact that we talked with the customers and got an understand and

we did the applications, things moved along a lot smoother because

of the fact that everybody understood what the application meant,

and some of the problems that we were experiencing in the past

about not enough information included and the rest of it, those

things went away because we worked together to redo those applications.

Mr. BEASLEY. Through our trade organization at Nuclear Energy

Institute, we, as an industry, are very united in working with the

NRC through the comment process, and we have provided them

substantial input into the proposed rulemaking for the Part 52

changes. Obviously, as we continue through this period, we want

to continue to have a dialog with them and continue to work with

them to hopefully reach the solutions and conclusions that we

would like to see in this rulemaking.

Senator VOINOVICH. Do you feel that there has been a responsiveness to the suggestions that have been made by NEI?

Mr. BEASLEY. I think it is a little premature. We have given

those comments to the NRC and we now need to see how they are

going to deal with those comments. We will continue to work with

them so that they understand our comments.

Senator VOINOVICH. When are they supposed to come out with

the final Part 52?

Mr. BEASLEY. I believe the final rulemaking is due out at the end

of the year around the December timeframe.

Senator VOINOVICH. OK. When do you think that, say, your company would be ready? What is your vision? In other words, you are

going to make an application. What do you anticipate in terms of

the process?

Mr. BEASLEY. Well, we are going to make an early site permit

application in August of this year, and then we will follow that up

with a COL application in the early part of 2008. We are already

working on both of those efforts, and we anticipate that, in working
35

with the NRC, that we can finalize some of these issues so that our

efforts to prepare these applications can go forward very efficiently.

Senator VOINOVICH. One of the issues I raised with Mr. Diaz was

the issue of all of the other organizations that have to sign off on

one of these applications. A couple of the Commissioners mentioned

the State situation. What are your thoughts on how the Commission might expedite the States’ involvement in doing the things

they need to do to move along expeditiously?

Mr. BEASLEY. Well, I will take a little different angle at that

question. Again, this relates a little bit to the NRC, but the biggest

thing that we are doing in the States through our operating companies is we have to, as a vertically integrated utility, have to get the

certification to build and to rate base these plans, so we will be

working in our States, particularly in the State of Georgia for the

Vogtle application, we will be working with the State Public Service Commission to get that certification.

I am sure that there will be some questions related to the process. There will particularly be questions related to the spent nuclear fuel issue that we will have to deal with and work through

at the State level.

Senator VOINOVICH. Would a letter from the Commission to the

Governor of the respective State where the applicant resides and

where the facilities are being proposed about the importance of the

State moving ahead and looking at this and so on and so forth be

helpful, do you believe?

Mr. BEASLEY. I believe it would. I believe close collaboration between those entities would certainly be good for the process.

Senator VOINOVICH. That might be something that we consider,

because I know when I was Governor we had a lot of things on our

plate, and if we are really interested in moving forward with more

nuclear power in this country it seems to me that perhaps we

ought to bring it to the attention of the Governors of those States

so they can ignite some of their agencies to get moving on it and

not just put it on the back burner.

Mr. BEASLEY. We have a very strong working relationship with

our States and locals, and we are already doing a lot of up-front

work, particularly, related to things like emergency planning and

such, so a lot of that is already going on and we are pleased with

what we see so far.

Senator VOINOVICH. Is there kind of a list of things that the

States have to do that are kind of generic?

Mr. BEASLEY. I am not sure if there is a list, a specific list. I am

not sure about that.

Senator VOINOVICH. It might be good to generate one and to kind

of make it as comprehensive as possible so that people know just

exactly the things that need to be taken care of.

Mr. BEASLEY. As we go through this process we will be making

sure that kind of information is communicated. Yes, sir.

Senator VOINOVICH. Senator Isakson.

Senator ISAKSON. I will be brief because I know we have a call

for a vote and we have about 10 minutes left to vote, so I will just

make one quick comment and question.

I would call everybody’s attention to Mr. Beasley’s testimony and

his phrase ‘‘the concept of finality and the need for the Commission
36

to understand in any proposed changes to 52 the absolute dependence on the concept of finality.’’ Then I would refer everybody to

Mr. Book’s enlightened testimony regarding the cost of capital and

what regulatory uncertainty can do.

He can correct me if I am wrong, but I refer to bonds of 1970s

and 1980s, but at that time, while it is hard to believe now with

the interest rate climb that we are in, I think the last of those

bonds were tax free 15.3 or 15.4 percent bonds. If you get a protracted period of construction time and paying 15.3 percent on

debt, you are talking about literally destroying the wisdom of any

financial investment.

I hope the Commission will embrace the concept of finality and

I hope everybody will read Mr. Book’s full testimony, because his

two concerns on storage of spent fuels and timeliness of regulation

are absolutely critical.

With that I guess we need to vote, Mr. Chairman.

Senator VOINOVICH. If you want to ask another one, go ahead.

Senator ISAKSON. I am fine. Thank you, sir. I appreciate them

coming.

Senator VOINOVICH. Thank you, Senator Isakson.

Several years ago, Mr. Book, we had another hearing in regard

to new nuclear powerplants, and I recall the testimony of the witness from one of the investment firms on Wall Street that the issue

of what was going to happen to nuclear waste had a major impact

on their decisionmaking in terms of financing these new facilities.

It seems that that does not seem to be as important today, and I

still have not had it explained to me, but how important is that?

And if you compare that with what you mentioned, delays in the

application process, what would be the more dominant factor in

considering going forward and investing in one of these new facilities?

Mr. BOOK. First and foremost, I would frame the decision against

what else you could be investing in, because Wall Street investors

can choose which bonds they want to buy.

Senator VOINOVICH. By the way, you are going to have lots of

choices out there, because we have incented a lot of stuff out there.

Mr. BOOK. That is certainly true.

Senator VOINOVICH. More refineries for ethanol and——

Mr. BOOK. It is quit a list in the advanced technology title. Yes.

It is a great list, and I think investors are going to look at the

thing that returns the highest rate of return and they are going to

ask, ‘‘If I have to choose between something I know about and

something I don’t, I am going to probably go with the one I know.’’

So it is not a question of which one of the two effects necessarily

is greater, because either one of them can subvert the

attractiveness of an investment in a new plant. That said, a delay

making just some basic cost of capital assumptions giving very favorable bond ratings of even 2 years without the standby support,

for example, if your reactor No. 7 could fundamentally bring the

profitability based on just a back-of-an-envelope projection, to the

point where you, the company, might have concerns about doing it,

but the equity investor would certainly start to have difficulty. The

delay of 5 years has a significant magnitude even with very generous up-front assumptions.
37

If you interject an additional waste storage cost at year six equivalent to the $200 million, for example, that was cited in a recent

newspaper article about PG&E’s Diablo Canyon potential cost, then

you have something that also, in tandem with even a short delay,

would subvert the attractiveness of the investment.

These two things working together can do a lot to make it still

potentially, especially with a lot of incentives, a good investment,

but not as good as an investment you might make in something

else entirely.

Senator VOINOVICH. So the options, more uncertainty, you are

going to have to pay a lot more for your money. I suspect that the

first ones out of the gate are probably going to pay a little bit more

until some folks can sit back and determine whether or not it is

going to work.

I do think there are some incentives to speed up that first group,

so maybe that will counteract the uncertainty, will take a look at

the risk maybe just a little bit less because of that.

Well, that is one issue that we are really going to have to deal

with. Maybe we will get that from the Commission about the issue

of storage, of where you are going to put it. I have talked to some

of the industry people and I still have not had a really good explanation. Some of them are talking about they can keep it onsite and

they are talking about what they are doing in Europe. Apparently,

they keep it onsite and that is the cost of that, but ultimately they

have to have somewhere where they can put it. I am interested in

more information on that.

Mr. Lochbaum, in your testimony you talked about the fact that

you were not sure that the application process was dealing forthrightly with the issue of security. Would you want to comment on

that for me?

Mr. LOCHBAUM. It is on the NRC’s plate. It is something they are

going to get to this year, but more than close to 5 years after 9/

11 that is really something that should be in the rear-view mirror

instead of on the road ahead, because the indecision about what

those security measures might be or might not be makes it harder

for plant owners to make a final decision about whether to proceed

or not to proceed, just from a business standpoint.

Senator VOINOVICH. Are you familiar at all with the security

measures that have already been put in at the current facilities?

I am sure you are somewhat familiar with that. Would you anticipate that in the construction of the new facilities that there would

be added security measures, or as the alternative that when you

are building it you build it more to secure it so you limit the cost

that you have now because you didn’t build it with the idea that

you had to secure it against terrorists?

Mr. LOCHBAUM. It is more of the latter. At the NRC’s Regulatory

Information Conference in March of this year, the NRC staff indicated that they are going to look at what features need to be built

in on the front end to make the designs more robust or less vulnerable to terrorist action, and that process is taking place this year

with a decision made later this year or early next year, but that

is the process about what features will be required for new reactor

designs.
38

Senator VOINOVICH. Do you anticipate it is going to be more security than what is currently being done?

Mr. LOCHBAUM. The way it was characterized, yes. It is things

that would be in addition to what is in place for existing reactors.

Senator VOINOVICH. Do any of you have any other comments you

want to make?

[No response.]

Senator VOINOVICH. I have to run and vote. I apologize that we

don’t have more folks here to ask you questions. Again, if you don’t

mind, we are going to submit some questions for the record and if

you can get back to us in writing we would be very grateful.

Senator VOINOVICH. Thank you very much for being here today.

Mr. LOCHBAUM. Thanks for having us.

Mr. BOOK. Thank you, sir.

Mr. BEASLEY. Thank you, Mr. Chairman.

Senator VOINOVICH. The meeting is adjourned.

[Whereupon, at 11:21 a.m., the subcommittee was adjourned.]

[Additional statements submitted for the record follow:]

STATEMENT OF NILS J. DIAZ, CHAIRMAN, NUCLEAR REGULATORY COMMISSION

Mr. Chairman and Members of the Committee, it is a pleasure to appear before

you today to discuss the Nuclear Regulatory Commission’s progress on implementing the provisions of the Energy Policy Act of 2005 (the Act), programs for new

reactor regulation, and the current state of the Reactor Oversight Process (ROP).

We appreciate the support that we have received from the Committee on these matters. On a personal note, Mr. Chairman, I am grateful for the opportunity to serve

this great country of ours for almost 10 years, first as a Commissioner and then

as Chairman of the best nuclear regulatory agency in the world. It has been my

privilege to have worked with you during extraordinary times, to better serve the

well-being of this Nation.

The NRC is dedicated to the mission mandated by Congress—to ensure adequate

protection of public health and safety, promote the common defense and security,

and protect the environment—in the application of nuclear technology for civilian

use. We are committed to exercise this mandate with a regulatory framework that

is effective, predictable, and that continues to meet the changing demands of the

country. To achieve this goal, we have made preparations and continue to put in

place the infrastructure needed to conduct all the activities needed for the announced new reactor licensing and design certification work, including the 17 expected combined operating license (COL) applications beginning in 2007. We would

like to highlight our current and anticipated new reactor regulatory activities, a new

system for licensing reviews, and new human capital and space planning initiatives

designed to meet the new challenges posed by the dynamic nature of today’s nuclear

arena, which include the effects of the Act. The NRC has continued to make significant progress implementing the provisions of the Act, and we would like to discuss

them. In addition, we would like to share where we are today and the improvements

we have made and continue to make to the ROP. The continued safe and secure

operation of the current fleet of operating nuclear powerplants remains the Agency’s

top priority; therefore, the new activities are being carefully planned to ensure the

continued safe operation of these facilities.

ENERGY POLICY ACT OF 2005

Since we last spoke to you in March, the Commission has completed additional

actions to implement provisions of the Energy Policy Act of 2005. To date we have

completed the following significant milestones:

• Final rule to implement revised Price-Anderson Act and eliminate NRC antitrust reviews;

• Final rule on import/export controls;

• Proposed rule on Design Basis Threat;

• Confirmatory Order for emergency notification system backup power at Indian

Point;

• Final rule on National Source Tracking System;
39

• Grant awarded to National Academy of Sciences for a study of industrial, research, and commercial uses of radiation sources;

• Draft proposed rule broadening the definition of byproduct material submitted

to the Commission; and

• Draft proposed rule for protection of safeguards information submitted to the

Commission.

To prepare for the next generation nuclear plant (NGNP) project, the Commission

has begun working with the Department of Energy (DOE) to define the responsibilities of each agency and how NRC resources will be reimbursed. These cooperative

interactions and the reimbursement process will be incorporated in a Memorandum

of Understanding (MOU), consistent with the Act, that is being developed.

As discussed above, many actions and key milestones relevant to provisions contained in the Act have been completed and many more are on schedule to be completed over the next several years. However, a few of the milestones in the Act will

be challenging, and difficult to meet on schedule, although we are making, and have

made, every effort to meet them.

As I previously described in a letter to the subcommittee dated June 15, 2006,

one that is particularly challenging is related to Section 656 of the Act, ‘‘Secure

Transfer of Materials.’’ This section of the Act requires the Commission to establish

a system such that all non-exempt byproduct material, source material, special nuclear material, high-level radioactive waste, spent nuclear fuel, transuranic waste,

and low-level radioactive waste, when transferred or received in the United States

by a party pursuant to an import or export license issued by the NRC, are accompanied by a manifest describing the type and amount of materials being transferred

or received. This section requires that each individual receiving or accompanying

the transfer of such material be subject to a security background check conducted

by an appropriate Federal entity. The NRC has focused most of it efforts on this

second requirement since it can rely on the Department of Transportation’s manifest

requirements to address the first requirement. This section also directs the Commission to issue regulations within one year of the Act, identifying radioactive materials

or classes of individuals to be given exceptions to these requirements. The staff has

been coordinating its rulemaking activities with other Federal agencies, the States,

and other stakeholders and continues to work on resolving several significant issues

associated with implementation of the requirement. We discussed this provision at

a recent Commission meeting in which the States and other stakeholders, particularly from the medical community, participated. As a result, the NRC will not meet

the August 2006 date for issuing a final rule, but anticipates issuing a final rule

before the end of this year.

The issues that require resolution prior to issuing the proposed rule for comment

are as follows:

• Coordination with other Federal agencies responsible for transportation security

and background checks;

• Coordination with States over the regulatory basis and rule language;

• Defining the classes of individuals subject to background checks; and

• Defining acceptance criteria for background checks.

The other action that may potentially be challenging is implementation of Section

651(d)(1), ‘‘Radiation Source Protection, National Academy of Sciences [NAS]

Study.’’ This action required the Commission to enter into an arrangement with the

NAS within 60 days to conduct a study of industrial, research, and commercial uses

for radiation sources, as defined in the Act. The Act defines radiation sources as

Category 2 and above controlled under the 2002 IAEA Code of Conduct on Safety

and Security of Radiation Sources. The study must identify if there are other processes which either can replace Category 1 and 2 sources with economically and technically appropriate alternatives, or can use Category 1 and 2 sources that pose a

lower risk to the public. The NRC is required to submit the results of the study to

Congress by August 7, 2007. On January 11, 2006, the staff awarded a grant to

NAS and on February 15, 2006, held an initial meeting with NAS for conduct of

the study. However, NAS has not yet begun work on this study. The staff has requested a draft report from NAS by spring 2007 in order to meet the August 2007

due date, but it appears that NAS may not have a draft report available at that

time.

Several provisions of the Act relate to the export or import of Atomic Energy Act

material and equipment. On April 20, 2006, the NRC issued a final rule to, among

other things, revise the regulations regarding the export of HEU for medical isotope

production, and add radium-226 to our export and import regulations.
40

NEW PLANT APPLICATIONS

As a result of the passage of the Energy Policy Act of 2005 and concurrent developments in U.S. energy demands, the NRC is preparing for an increased number

of potential early site permit (ESP), design certification (DC), and COL applications.

The Energy Policy Act incentives for new reactor construction established an environment in which new nuclear powerplants are being seriously considered to meet

future generation capacity, the need for which is expected to increase by the year

2015. Last year at this time, the NRC had been notified of three potential COL applications in the next few years. Today, the number of expected COL applications

is 17 for up to 25 units, and the number of applications is expected to increase in

the future. Some of these applications are expected to reference reactor designs already certified by the NRC, such as the Westinghouse AP1000 and General Electric’s Advanced Boiling Water Reactor (ABWR), while others are expected to reference designs that are currently under NRC review, such as the General Electric

Economic Simplified Boiling Water Reactor (ESBWR) and AREVA’s U.S. Evolutionary Power Reactor (EPR) which is at the pre-application stage. We also expect to

conduct reviews of additional ESP applications. We are preparing to review and act

on the many applications anticipated to be submitted in the 2007–2008 time frame,

and are organizing accordingly. We continue to assess our resource needs, which

have increased significantly, in light of the very substantial increase in the number

of anticipated COL applications and related work. The attached graphs show the anticipated work schedule based on industry submittals, public announcements, and

expected, but as yet unannounced applications, separated by reactor design.

PREPARING FOR THE FUTURE

We are undertaking major initiatives to ensure that NRC is ready to process the

new reactor applications inspired by the Energy Policy Act. We are:

• Developing guidance on preparation and review of COL applications to help ensure high quality applications from industry and to streamline staff review.

• Revising Part 52 to make our review and licensing processes more effective and

efficient.

• Revising our Part 73 security regulations in three separate rulemakings to provide clear and stable security regulations to new applicants.

• Creating a Design-Centered-Approach to facilitate effective, efficient, and timely

reviews of multiple COL applications. This approach is founded on the concept of

‘‘one issue—one review—one position, for multiple applications’’ to optimize the review effort and resources needed to perform the reviews.

• Developing a new construction inspection program to prepare for the construction phase of new reactors. This new program will build on the lessons learned from

the construction of the existing fleet of new reactors.

• Optimizing our human capital to prepare for an increased workload while accounting for possible increased attrition.

• Enhancing our office space and infrastructure by working with the General

Services Administration to acquire additional office space as close as possible to

NRC Headquarters.

• Developing a Multi-National Design Approval Program with international regulators to leverage world-wide nuclear safety, licensing, and operating experience.

CURRENT NEW REACTOR LICENSING ACTIVITIES

NRC’s licensing reviews are supported by regulatory guides and standard review

plan (SRP). The NRC staff is reviewing and revising the regulatory guidance documents associated with new reactor licensing. These guidance documents include a

planned COL application regulatory guide which contains the information that COL

applicants need to provide in their applications, and an update of pertinent SRPs

for use by NRC staff reviewing COL applications. A draft regulatory guide, which

has been the subject of numerous public meetings and workshops, will be published

for comment in July 2006. The NRC staff expects to issue the final regulatory guide

by December 2006. This will support prospective applicants who are planning to

submit COL applications in late 2007 and 2008. This schedule is consistent with the

schedule for the promulgation of the revised Part 52 rule. The NRC staff is also updating SRPs and regulatory guides that are important to support the anticipated

new site and reactor licensing applications. This work is being conducted in a manner that complements the COL regulatory guide. The staff intends to complete the

high priority SRP and regulatory guide updates by the spring of 2007.

The Agency’s work on new reactor standardized design certification has also intensified. Three designs were previously certified: General Electric’s ABWR, Wes-
41

tinghouse’s AP600, and Combustion Engineering’s System 80∂ designs. The NRC

recently certified the Westinghouse AP1000 reactor and codified it in the NRC’s regulations, as Appendix D to 10 CFR Part 52. The NRC is currently reviewing the

General Electric ESBWR design certification application and is on schedule with respect to its review. The NRC is conducting pre-application activities for AREVA’s

U.S. EPR design. This design certification application is expected in 2007. The NRC

is also conducting very limited pre-application work for the Pebble Bed Modular Reactor (PBMR) and the Westinghouse International Reactor Innovative and Secure

(IRIS), and is expecting additional design certification applications in the future.

To effectively review multiple COL applications in parallel, the staff is planning

to implement a design-centered review approach. We believe this approach is crucial

to achieving effective, efficient, and timely reviews for multiple applications. This

approach is founded on the concept of ‘‘one issue-one review-one position for multiple applications’’ to optimize the review effort and resources needed to perform

these reviews. The NRC staff would use a single technical evaluation for each reactor design to support reviews of multiple COL applications for the same technical

area of review, assuming that the relevant components of the applications are

standardized. The design-centered approach will focus its reviews by: (1) using

standardization and coordination of approaches and applications; (2) requiring complete and high quality applications; (3) increasing the use of the DC rulemaking to

codify issue closure; and (4) using single technical evaluations to support multiple

COL applications to the extent practicable. In addition, to achieve consistency

among the staff reviews, the process for implementing the design-centered review

program will require a multi-layered project management team for each design, and

will use dedicated technical review resources. The plans and schedules of these reviews include an increased level of detail and integration to achieve the requisite

level of control and documentation. The benefits of this approach would be enhanced

by the full participation of multiple entities in ensuring that pertinent components

of the applications are standardized to the extent practicable. A schematic representation of the sequencing and use of the design-centered review approach is shown

in an attached graph. Significant efficiencies in the staff’s drafting of its safety evaluation reports for each COL applicant are expected to be gained through the use

of the design centered approach.

NEW REACTOR CONSTRUCTION OVERSIGHT

To prepare for the construction of new reactors licensed in accordance with 10

CFR Part 52, a new construction inspection program (CIP) is being developed. The

new CIP builds on the lessons learned from the construction of the existing fleet

of operating reactors. The CIP comprises four different parts: early site permit inspections; pre-combined license (pre-COL) inspections; inspections, tests, analyses

and acceptance criteria (ITAAC) inspections after issuance of a COL; and nonITAAC inspections. These inspections will cover all aspects of new plant construction and operation from early site preparation work through construction. They will

also facilitate the transition to inspections under the reactor oversight process

(ROP) for operating reactors. Associated inspection procedures for half of the program are in place and the remaining procedures are under development and are

scheduled to be in place well before the start of approved on-site construction activities.

Successful implementation of the CIP will require four main functions: (1) dayto-day inspections at the construction site by resident construction inspectors; (2)

on-site inspections by specialist inspectors; (3) off-site inspections (e.g., vendor inspections); and (4) documentation of inspection results and public notification of the

successful completion of the ITAAC. ITAAC are part of the combined license and

define specific requirements to be met prior to full-power operation. To gain staff

efficiencies and facilitate knowledge transfer, all construction inspection management and resources will initially be located in a single region which will schedule

all construction inspections nationwide.

The NRC performed an initial assessment of the existing ROP for use with new

reactor designs which confirmed that the overall ROP framework could be used, including utilizing performance indicators and the significance determination process

for evaluating inspection findings. The Construction Inspection Program will specifically address each new reactor to be built, detailing the steps that will be employed

to integrate that plant into the ROP as it transitions from the construction phase

into the startup and operations phase.
42

MULTINATIONAL DESIGN APPROVAL PROGRAM (MDAP)

The NRC is working with international regulators on a multinational design approval program intended to leverage world-wide nuclear safety, licensing and operating experience in a cooperative effort to review reactor designs that have been or

are being reviewed and approved in other countries. Key goals of this cooperative

effort are to improve safety with standard designs, and improve the effectiveness

and efficiency of the regulatory reviews of new reactor designs. The first stage of

the MDAP has already begun. It involves enhanced cooperation with the regulatory

authorities in Finland and France to assist NRC’s future design certification review

of the US EPR. The anticipated cooperation under the first stage would include the

sharing of pertinent regulatory information, the exchange of technical personnel

consistent with the applicable laws of each country, participation in inspection activities, peer review activities, and other activities that would seek to leverage the

safety expertise of each of the national regulatory bodies. Follow-on stages of the

MDAP could foster the safety of reactors in participating nations through convergence on safety codes and standards, and other technical matters while maintaining

full national sovereignty over regulatory decisions. Preliminary work to more fully

develop the framework to expand and better define MDAP is underway at the NRC

and the Organization for Economic Co-operation and Development’s Nuclear Energy

Agency.

CHALLENGES

The NRC recognizes that many challenges for new reactor licensing activities continue to exist. Key challenges include effective communication between the NRC and

the applicants, and the interrelationship between the technical review and the associated adjudicatory process. To successfully complete the reviews within the anticipated schedule, continuous clear, effective, and timely communication between the

NRC and the applicant must occur. Delays in providing or responding to requests

for information must be avoided, and any modifications to the application need to

be conveyed immediately so that reviews can be appropriately coordinated. In addition, the technical review and adjudicatory process for the application are interrelated and for ESPs and COLs both are required for the final decision making process. Multiple products are needed on schedule to maximize the early resolution of

issues leading to a final determination, including issuance of an ESP, DC and/or

COL. An applicant may decide to submit a license application in a manner different

from the originally contemplated sequence, such as choosing not to apply for an ESP

prior to applying for a COL. In such cases, the technical and environmental reviews

and the adjudicatory review that would ordinarily be performed at the ESP stage

will need to be included in the COL review and could challenge the application review schedule. To meet these challenges, we are implementing organizational

changes in our legal and technical organizations, recruiting personnel, and developing an integrated planning tool to assist in coordinating the applicant schedules.

Some challenges to success are beyond NRC’s control. A new contract for spent

fuel needs to be agreed upon. The Department of Homeland Security must prepare

for its responsibilities in emergency preparedness and security (as described in Section 657 of the Act) and budget resources for those roles. Industry must submit

high-quality applications that address and eventually resolve issues over which

State and local governments have a statutory role.

The NRC has completed substantial preparation activities and executed reviews

of supporting elements for COL applications (e.g., ESPs and DCs). We continue to

incorporate the lessons learned from past and current reviews to create a stable and

predictable regulatory process. As such, the NRC is preparing to conduct thorough

and timely reviews of COL applications and of inspections, tests, analyses and acceptance criteria (ITAAC). This should minimize the potential for dependence on the

use of the Energy Policy Act Risk Insurance Program. As noted previously, when

COL applications are submitted, they should be high quality, standardized applications that contain the safety analysis and other required components in the level

of detail that will not just allow docketing, but also will allow the NRC to complete

staff review and the adjudicatory process in a timely manner.

The NRC is cognizant and is prepared to discharge its responsibilities in new reactor licensing, the success of which depends on many factors, including the submittal of high quality applications by the industry. With the continued support of

Congress, we will carry out our responsibilities and meet the challenges ahead.
43

HUMAN CAPITAL AND SPACE PLANNING

As you know, the NRC has been aggressively recruiting a mixture of recent college graduates and experienced professionals to meet the Agency’s emergent work

activities. As we told you in March, we expect that an additional 400 FTEs will be

devoted to new reactor work by FY 2008. I am pleased to report that we have already exceeded our goal of hiring approximately 350 new employees in FY 2006. We

are in the process of training our new recruits and we are seeking to improve our

training programs. We are also putting very high priority on knowledge management, since we expect to lose about 200 employees per year for the next several

years, including many of our most senior managers and professional staff. Our aggressive efforts to recruit, hire, and develop staff will continue throughout Fiscal

Year 2007 as we prepare for receipt of the first COL applications.

To solve NRC’s immediate need for additional office space, we requested that GSA

expedite the acquisition of interim office space to enable NRC occupancy this fall.

NRC’s long-term space needs are more problematic. We are working with GSA to

address our long-term space needs through the established portfolio acquisition

process for Congressional approval. However, the established process will not result

in occupancy of additional permanent space until FY 2009, at the earliest, which

may deprive NRC of an opportunity to acquire space adjacent to our headquarters

campus. Therefore, as noted in our letter to you dated April 5, 2006, the Committee’s assistance in two specific areas would be of great value to the NRC: legislative

authority for the General Services Administration (GSA) to immediately acquire

space as close as possible to the NRC headquarters location and legislative relief

to accelerate the space acquisition process.

With Congress’ help, the Commission is poised to meet the challenge of maintaining adequate infrastructure and the personnel needed to accomplish its mission successfully. This will be accomplished through the ongoing human capital planning,

implementation, and assessment process, the space planning program, and the various tools provided by the Energy Policy Act of 2005.

REACTOR OVERSIGHT PROCESS

The NRC first implemented the reactor oversight process (ROP) in April 2000 to

provide a more disciplined and objective approach to the oversight of operating nuclear reactors. The ROP is a mostly risk-informed process that focuses inspections

on those activities or areas that are risk significant (i.e., important to plant safety

based on each plant’s design) and that increases the level of scrutiny on elements

of a licensee’s performance that appear to be declining. The ROP requires that inspections be performed in seven fundamental areas to measure plant performance

and maintain safe plant operation. For example, we recently undertook a substantial effort to strengthen its engineering inspection procedures to increase the scrutiny of operator actions and risk significant components. In addition to the component design bases inspection, the NRC dedicates a significant amount of the ROP

baseline inspection to the evaluation of other plant activities such as evaluation of

changes and tests, fire protection, plant modifications, and maintenance effectiveness, among others.

Over the past 6 years, the ROP has focused on stakeholder involvement and has

matured into a more consistent, established risk-informed process. The Commission

agrees with the feedback from both internal and external stakeholders that the ROP

is a significant improvement over the previous, more subjective oversight process.

The ROP continues to meet its established objectives and intended outcomes as

demonstrated annually through its self-assessment process. The NRC appropriately

monitors operating nuclear powerplant activities, focuses agency resources on significant performance issues, and maintains a level of oversight commensurate with

licensee performance. The results of NRC oversight activities, including performance

indicators, inspection findings, and the current assessment of overall performance

for each reactor, are publicly available on the NRC’s web site.

The NRC has made numerous improvements to the ROP since its initial implementation, including many as a result of independent program evaluations and feedback from internal and external stakeholders. The inspection program and associated resources have been adjusted to better focus on risk-significant issues, with significant enhancements in the areas of problem identification and resolution, fire protection, safety culture, design engineering, and in-service inspections. Many of these

changes were based on lessons learned from the Davis-Besse event. The timeliness

and consistency of determining inspection finding significance have notably improved over the past several years due to program enhancements and an increased

management focus. The plant assessment process has been modified to further improve its predictability, particularly in the treatment of cross-cutting issues, old de-
44

sign issues, and plants with significant performance deficiencies. The staff and industry have developed and implemented a new performance indicator, the mitigating systems performance index (MSPI), to address known problems with the

safety system unavailability indicators and to utilize important risk insights.

The MSPI combines safety component reliability and availability with plant-specific probabilistic risk assessment (PRA) information to arrive at a single performance index for each monitored system. Since the MSPI pilot ended in 2003, the staff

finalized the technical guidance needed for implementing MSPI, defined and addressed a minimum level of PRA quality, and resolved issues identified throughout

the development and review processes. At the beginning of April 2006, the staff implemented MSPI, and licensees are scheduled to submit their initial data sets in

July 2006. The staff expects a number of changes to overall plant assessments due

to MSPI implementation. The NRC has conducted training for our inspectors and

plans to perform inspections at each site to verify the proper initial implementation

of MSPI by the end of 2006.

Finally, the NRC is implementing safety culture initiatives to enhance the ROP.

The NRC, with the participation of stakeholders, enhanced the ROP to better align

the three cross-cutting areas to those aspects of performance that are important to

safety culture. We have adjusted selected baseline, event response, and supplemental inspection procedures and inspection manual chapters. Computer-based

training and training at regional counterpart meetings were provided. The NRC is

incorporating appropriate aspects of safety culture into initial training for new inspectors and continuing training for existing inspectors. The modified ROP will be

implemented by July 1.

CONCLUSION

The Commission is dedicated to ensuring that our agency is ready to meet the

expected demand for new reactor licensing. NRC’s Part 52 processes are safety focused and are efficient and predictable. We have taken action to clarify Part 52, to

ensure a clear regulatory and oversight framework; to reorganize the Agency and

put in place the processes to ensure timely review; to meet the NRC’s human capital

and office space needs, and to seek additional funding as necessary. The Agency is

prepared to meet the challenge associated with new reactors while maintaining

strong oversight of the current operating reactors. We are convinced that the Agency

has the technical and legal know-how to make the right decisions in a timely manner.

We appreciate the opportunity to appear before you today, and the Commission

looks forward to continuing to work with the committee. We welcome your comments and questions.

RESPONSES BY NILS J. DIAZ TO ADDITIONAL QUESTIONS FROM SENATOR INHOFE

Question 1. I was disappointed with the pessimistic views expressed by some of

the Commissioners at the hearing regarding the agency’s ability to meet its review

schedule for new reactor licensing, after all the support that this Committee has

provided to the Commission in terms of the needed legislation and funding for additional resources. I would like a commitment from the Commission to establish an

effective and efficient review process that adheres to the established schedule. A stable and predictable licensing process is an absolute must if we are to proceed with

constructing new nuclear powerplants in this country. If additional legislative support and/or funding for additional resources are needed in this regard, then I would

expect the Commission to identify those to this Committee as soon as possible.

Response. The Commission is committed to implementing effective and efficient

review processes that adhere to established schedules. The Commission’s commitment is demonstrated through its efforts involving the ongoing 10 CFR Part 52 rulemaking, and development of a design centered application review approach. 10 CFR

Part 52 establishes a more predictable licensing process as it provides for resolution

of issues earlier in the licensing process. The design centered review approach will

use, to the extent practicable, a ‘‘one issue-one review-one position’’ strategy in order

to optimize the review effort and resources needed to perform these reviews; that

is, the staff will conduct one technical review for each reactor design issue and use

the results of this review to support the review of the design certification and each

combined license application. The Commission is committed to completing these reviews on schedule and will not compromise on safety as it sets milestones and manages its activities to meet them. Submission of a high quality, standardized application should enable the NRC to meet its schedule.
45

Question 2. Mr. Diaz, can you expand the discussion on the impact of the Federal

Government’s continued delay in opening up a permanent repository for spent fuels

at Yucca Mountain is for new reactor licensing? Are there any statutory or regulatory requirements that tie new reactor licensing to Yucca Mountain?

Response. The Commission has expressed confidence that spent fuel and highlevel waste produced by nuclear facilities can be safely disposed of and safely stored

until safe disposal is available. The NRC is prepared to review an application for

a permanent repository from the Department of Energy when it is submitted.

In its 1990 Waste Confidence decision, the Commission concluded that spent nuclear fuel can be safely stored without significant environmental impact for at least

100 years, if necessary. Spent nuclear fuel is being managed safely today and the

Commission has every expectation that it can be and will be managed safely in the

future at least with the same level of protection in place today.

New reactor licensing relies on the Commission’s Waste Confidence decision. New

reactor licensing does not require that Yucca Mountain be opened on a particular

schedule. However, in performing its environmental reviews, the NRC may need to

make some reasonable assumptions regarding disposal of spent fuel and high-level

waste. For this purpose, the staff believes it is reasonable to assume the Yucca

Mountain location as a surrogate for performing analyses, for example, of transportation impacts.

Finally, in 1999, the Commission stated that it would consider undertaking a comprehensive reevaluation of the Waste Confidence findings if either of two criteria

were met: (1) when the impending repository development and regulatory activities

run their course; or (2) if significant and pertinent unexpected events occur, raising

substantial doubt about the continuing validity of the Waste Confidence findings.

Neither of these criteria have been met.

Question 3. In addition to the ongoing revision to the NRC’s Part 52 rule, I understand that NRC is also revising its nuclear plant security regulations affecting new

reactors. When do you expect to get this done? In the interim, what guidance would

you give to the prospective applicants for new reactors regarding the plant security

requirements? Do you anticipate the requirements for new reactors to be any different than the current requirements with all the enhancements since 9/11 for the

existing reactors?

Response. The staff currently has several rules in different phases of the rulemaking process that will ultimately support new reactors. These include rules for

the Design Basis Threat (DBT), Power Reactor Security Requirements, security assessments for new licensees, and security requirements for the construction and

manufacture of new plants. Following the terrorist attacks of 9/11, the Commission

issued orders to power reactor licensees enhancing the DBT as described in 10 CFR

73.1. The proposed rulemaking to amend 10 CFR 73.1, would revise the DBT requirements in 73.1 and redefine the level of security requirements necessary to ensure that the public health and safety and the common defense and security are

adequately protected. The agency published the proposed rule for public comment

in the Federal Register and is currently evaluating the comments that were received. A final rule is scheduled to be provided to the Commission for review in October 2006.

The proposed Power Reactor Security Requirements rule would make generically

applicable the requirements contained in the remaining post 9/11 security orders

based upon experience and insights gained by the Commission resulting from implementation of the orders. A final rule is expected to be provided to the Commission

in October 2007. The staff is currently developing a new reactor security assessment

rule which would require physical security assessments during the design of nuclear

powerplants, so that design features to enhance security may be incorporated into

the design at the appropriate stage. A proposed rule is scheduled to be provided to

the Commission for its consideration in September 2006 and a final rule is scheduled to be provided to the Commission in September 2007.

The staff is considering a rulemaking and has held meetings with stakeholders

regarding the security requirements for construction and manufacture of new nuclear power reactors and plants. This rule is on an expedited schedule. A proposed

rule is expected to be made available to stakeholders in December 2006 and is

scheduled to be provided to the Commission in December 2007. Based on these time

lines, all required information is scheduled to be available to stakeholders at least

in the form of a proposed rule before January 2007, with all rules scheduled to become final by January 2008. In the interim, the staff is encouraging prospective applicants to stay engaged in the rulemaking process and is making efforts to release

draft documents as expeditiously as possible.
46

The Commission intends for the security requirements to remain consistent for

both new and existing nuclear reactors. However, if the Commission adopts a final

rule on security design assessments, designers of new nuclear power reactors would

effectively be required to utilize design features to address security, which will represent a shift from the current reliance on active (‘‘programmatic’’) security measures.

Question 4. In response to one of the questions during the last oversight hearing,

NRC stated that it will need additional appropriation of $40 million for FY 2007

for the new reactor licensing program. I will support this request for the additional

appropriation. But, NRC will need to do a better job of developing its budget going

forward. Notwithstanding the current dynamic situation in the new reactor licensing arena, coming in for additional funding 2 years in a row doesn’t exactly foster

a high level of confidence that the NRC has its act together to manage this highly

visible program. Mr. Diaz, can you talk a little bit about how the Commission might

be able to do better in this area?

Response. The Commission appreciates your support for the additional funding of

its rapidly expanding workload related to new reactor license applications. The

Commission understands and shares the frustration with the dynamic nature of the

agency’s budgetary needs that has resulted from the success of the President’s Energy Policy and the enactment of the Energy Policy Act of 2005 by Congress.

The NRC closely monitors industry’s interest in new reactors, and bases its workload forecast on correspondence from the industry. We typically budget for that

workload which has a reasonable level of certainty to occur, and the enactment of

the Energy Policy Act has made forecasting such workload very challenging. We will

revisit our approach for forecasting future work in this area to minimize the potential for recurrence.

By way of background, subsequent to the development of the NRC’s FY 2007

budget, the nuclear industry indicated that its demand for new reactor licensing

would grow more rapidly than previously assumed. The NRC’s FY 2007 budget request included increased funding based on four combined construction and operating

license applications; one in FY 2007 and three in FY 2008. In the past several

months, 11 separate companies have announced plans to submit 17 combined license applications for new nuclear power reactors; 2 in FY 2007, 14 in FY 2008 and

1 in FY 2009. Two additional companies have also indicated that they expect to each

submit a combined license application in this time frame. Thus, a total of 19 combined license applications are now expected to be submitted over the next 3 years.

Note that this number has increased since we testified before the Committee on

June 22 because we have received an additional letter of intent to submit a COL

from the industry.

RESPONSES BY NILS J. DIAZ TO ADDITIONAL QUESTIONS FROM SENATOR JEFFORDS

Question 1. NRC is working hard to implement the nuclear provisions of the Energy Policy Act of 2005. While you have made important strides, the examples you

give in your testimony of where you will miss the law’s deadlines are troubling. New

regulations on the import and export of nuclear materials and a National Academy

of Sciences study on alternatives to Category I and II Source are very important.

Is there anything the Committee can do to ensure that the new deadlines you announced in your testimony are met?

Response. Regarding the NRC’s rulemaking efforts to implement Section 656 of

the Energy Policy Act of 2005 (EPAct) on ‘‘Secure Transfer of Nuclear Materials,’’

the NRC is confident that the current schedule, which calls for publishing a proposed rule in the summer of 2006 and issuing a final rule before the end of calendar

year 2006 will be met. The staff has considered input from other agencies and from

the Agreement States, and a rulemaking package is now with the Commission for

review.

While this rulemaking effort is in progress, the Commission believes that the public health and safety and the common defense and security are adequately protected

by the system of Orders that NRC has issued to higher risk licensees imposing additional measures for securing licensed materials from unauthorized removal or access, as well as provisions of other Federal Agencies for transfer and transportation

of material.

Regarding the deadlines for the National Academy of Sciences (NAS) study on alternative sources, the NRC has no specific recommendations for the Committee at

this time. The schedule for the study will remain under the control of the NAS. The

NRC has committed staff resources to fully assist NAS in this effort.
47

Question 2. The public is able to obtain NRC documents issued prior to 1999 from

local public document rooms, usually housed in local libraries. The NRC made a decision not to be the supplier of these older documents, but to put newer documents

on the Internet. Has the NRC realized any cost savings by not providing these older

documents on the Internet? What would be the cost to make these materials available electronically?

Response. On April 1, 2000, the Agencywide Documents Access and Management

System (ADAMS) became NRC’s official record keeping system. The Publicly Available Records System (PARS) library of ADAMS contains post April 1, 2000 documents and 145,377 pre-April 1, 2000 documents that are publicly available and accessible through a link on NRC’s Public Web site. It is important to note that bibliographic citations for the NRC documents issued before 1999 are available to the

public through the Internet using the Public Legacy Library. The bibliographic citations as well as copies of the documents are available from the NRC Public Document Room.

The full text of more than 1.8 million documents was not retrofitted into ADAMS/

PARS. At the current document processing rate, NRC has avoided incurring costs

in excess of $28 million to process these remaining 1.8 million documents into

ADAMS/PARS. The $28 million figure includes contractor document processing costs

only. The figure does not include NRC staff time or fees associated with retrieving/

returning the documents from/to storage.

Question 3. In its April 2005 report, GAO recommended that NRC establish specific requirements for the control and accounting of loose fuel nuclear rods and rod

fragments. What has NRC done to respond to this recommendation?

Response. The NRC believes that the regulations related to material control and

accounting (MC&A) are clear and do not need revision. Further, under 10 CFR

74.19, each licensee is required to keep records of receipt, shipment, disposal, and

inventory (including location) of all special nuclear material in its possession and

to perform annual physical inventories of all special nuclear material. In this context, all special nuclear material includes irradiated nuclear fuel in all forms and

includes rods and pieces.

NRC is revising the guidance and the American National Standards Institute

(ANSI) standard for MC&A at power reactors. NRC has met with representatives

of the Department of Energy, the power reactor industry, and the Nuclear Energy

Institute to prepare a draft revision of the ANSI standard. NRC is continuing inspections of MC&A programs at power reactors and wet storage sites under Temporary Instruction (TI) 2515/154, ‘‘Spent Fuel Material Control and Accounting at

Nuclear powerplants,’’ and will use information gathered from these inspections to

inform revisions to the guidance.

Question 4. The GAO report also recommended that the NRC establish specific

requirements for the way plants conduct physical inventories of fuel rods and for

the inspection of plants to verify their compliance. What has the NRC done on these

issues?

Response. The NRC agreed with the GAO’s recommendation concerning the inspection program and is conducting baseline inspections. Based on the results of the

inspections conducted to date, NRC plans to conduct material control and accounting (MC&A) inspections at all remaining power reactors and at other facilities storing spent fuel. NRC will use the information from the inspections to make any necessary changes to the procedure for inspecting MC&A programs. NRC plans to incorporate periodic MC&A inspections into the baseline reactor inspection program.

NRC is revising the guidance to address physical inventory of loose rods and

pieces, but does not plan to revise the American National Standards Institute

(ANSI) standard requirements in 10 CFR 74.19 at this time.

Question 5. In April 2005, the National Academy of Sciences released a report on

the safety and security of spent nuclear fuel storage. At our last hearing in March,

you stated that, in December 2005, the NRC competed an assessment of the spent

fuel situation at all plants. What is the status of this study and can you now discuss

any of the findings?

Response. The assessments were completed in December 2005. At each plant, the

assessment identified a number of strategies that could be used to mitigate the consequences of a beyond design basis event, and each plant is implementing the appropriate strategies. The strategies include various ways to cool the spent fuel to

prevent or minimize damage and to minimize radiological releases. These strategies

are consistent with the recommendations from the National Academy of Sciences.

Question 6. The Yucca Mountain repository is the intended destination for our Nation’s nuclear waste, but the opening of that site has been delayed by several fac-
48

tors. Even if it did open in the near future, there is already enough spent nuclear

fuel stored onsite at our nation’s nuclear plants to fill the repository to capacity almost as soon as it was operating. Given that the NRC expects 17 or 18 more combined operating license applications over the next few years, what is the plan for

safely managing the waste from these new plants? How does this impact the design

and licensing review for new plants?

Response. The Nuclear Waste Policy Act of 1982, as amended, limits the authorized quantity of spent fuel for the initial repository to 70,000 metric tons of heavy

metal or a quantity of solidified high-level radioactive waste resulting from the reprocessing of such quantity of spent fuel until such time as a second repository is

in operation. For planning purposes, the Department of Energy has stated that of

the 70,000 metric tons, 63,000 metric tons will be from commercial utilization facilities licensed by the NRC. With nuclear powerplants obtaining renewed licenses and

with the potential for new plant licensing, these limits are expected to be reached

by about 2010. Absent a legislative action to change the limits, we understand that

the Secretary of the Department of Energy is to report to the President and the

Congress on or after January 1, 2007, but not later than January 1, 2010, on the

need for a second repository.

The Commission has expressed confidence that spent fuel and high-level waste

produced by nuclear facilities can be safely disposed of and safely stored until safe

disposal is available.

In its 1990 Waste Confidence decision, the Commission concluded that spent nuclear fuel can be safely stored without significant environmental impact for at least

100 years, if necessary. Spent nuclear fuel is being managed safely today and the

Commission has every expectation that it can be and will be managed safely in the

future at least with the same level of protection in place today.

The issue of safe disposal of spent nuclear fuel and high-level waste will be considered in the licensing proceeding for a geologic repository rather than in individual licensing proceedings for new plants. The environmental review for the licensing of new plants will rely in part upon the 2nd and 4th Waste Confidence findings as incorporated in 10 CFR 51.23(a); i.e., that reasonable assurance exists that

a repository will be available by 2025; that sufficient repository capacity will be

available within 30 years beyond the licensed life for operation (which may include

the term of a renewed license); and that spent fuel can be safely stored on-site or

off-site for at least 30 years beyond the licensed life for operation of the plant (which

may include the term of a renewed license). The Commission has stated that it

would consider undertaking a comprehensive reevaluation of the Waste Confidence

findings if either of two criteria were met: (1) when the impending repository development and regulatory activities run their course; or (2) if significant and pertinent

unexpected events occur, raising substantial doubt about the continuing validity of

the Waste Confidence findings. Neither of these criteria have been met.

Question 7. The enacted provisions of the ‘‘Dirty Bomb Prevention Act’’—contained

in Section 651 of the Energy Policy Act of 2005 (EPAct), added a new Section 170H

to the Atomic Energy Act of 1954. Under this provision of the law, the Commission

was directed to establish a tracking system for radiation sources. These sources

were defined by law to include Category 1 and 2 sources as well as ‘‘any other material that poses a threat such that the material is subject to this section, as determined by the Commission, by regulation, other than spent nuclear fuel and special

nuclear materials.’’ In its May 25 decision, the Commission switched courses from

the ‘common defense and security’ approach to ‘public health and safety’ approach,

transferring radiation source tracking responsibilities from a centralized national

system to the states. As a lead negotiator on Title VI of EPAct, I share the view

of its authors, Congress clearly intended the tracking system to be a national system. At the hearing, Senator Clinton requested that the NRC expand the time for

comment and that it reconsider its decision. I support these requests. How will the

Commission respond to Senator Clinton’s requests? I would appreciate receiving a

copy of any reply you send to her.

Response. We take the concerns raised at the hearing by Senator Clinton and in

the letter from Senator Clinton and Representative Markey seriously. The Commission has extended by 25 days the period for public comment on the proposed change

in basis for the rule from common defense and security to public health and safety

and has added the letter to the rulemaking docket. In the rulemaking proceeding,

the NRC will address the comments that we receive. In addition, the majority of

the Commission submitted a supplement to the hearing record, which explains their

views. Also, we are currently drafting a response letter to Senator Clinton and Representative Markey, and we will provide a copy of the response to you when it is

issued.
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With regard to the concerns expressed in your question, the national source tracking system will be a cohesive national system, will include information from the

NRC, Agreement States, and DOE and will be developed and maintained by the

NRC. The practical effect of basing the rule on public health and safety considerations, rather than on common defense and security considerations, is that the

Agreement States, rather than the NRC, will be responsible with respect to Agreement State licensees for issuing legally binding requirements to those licensees regarding input into the national source tracking system, for conducting inspections

to ensure compliance with the reporting requirements, and to take any necessary

enforcement actions. The requirements imposed by the States will be identical to

NRC requirements and will take effect at the same time as the NRC requirements.

The NRC is continuing to consider this matter and will carefully evaluate public

comments as it completes the rulemaking process.

RESPONSES BY NILS J. DIAZ TO ADDITIONAL QUESTIONS FROM SENATOR VOINOVICH

Question 1. Chairman Diaz, I understand that a good portion of the work on new

reactor licensing will involve environmental reviews—which involve other agencies,

including the Fish & Wildlife Service, Department of Interior, EPA, and others. This

means that even if NRC does its job, other agencies could hold this process up. Has

the NRC alerted the other agencies about the 18 or more applications that you are

expecting? Who makes the final decision, and is there a process for resolving differences of opinions between agencies? Provide in writing the Commission’s plans

and strategies to coordinate with other agencies, including state and local authorities, in an effective and efficient way to expedite the review process and reconcile

any differences. One of the examples cited at the hearing was for the NRC to write

letters to the Governors of those affected states to initiate coordination.

Response. In the past we have communicated with our Federal, State, Tribal and

local counterparts on an informal basis before an application is submitted to ensure

that our counterparts were familiar with the NRC licensing process, the scope of the

environmental issues, and their opportunity to participate. As part of our overall

Program Plan for New Reactor Licensing Activities, we intend to formalize these coordination efforts and ensure that our governmental counterparts are familiar with

the plans for projects well before applications are filed.

The NRC’s environmental reviews fulfill our responsibilities under the National

Environmental Policy Act, or NEPA, to consider potential environmental impacts related to licensing. Other Federal agencies, such as the Department of the Interior

(for example, the U.S. Fish and Wildlife Service), the Department of Commerce (for

example, the Fisheries Service), and U.S. Environmental Protection Agency (EPA),

have environmental protection authorities under other statutes; some of those authorities can be delegated to the States [such as under the Clean Water Act, or the

Coastal Zone Management Act (CZMA)]. For a major Federal action requiring an

NRC environmental impact statement (EIS), we do coordinate with our sister agencies to ensure that relevant environmental protection statutes are considered by the

NRC prior to granting an authorization, permit, or license. The NRC staff formally

engages official stakeholders, notably Federal, State, Tribal and local government

agencies early in the NEPA scoping process to ensure that they can provide their

insights on the scope of the review.

For the three early site permit (ESP) applications received to date (Clinton, Grand

Gulf, and North Anna), the informal communications were successful in making

these agencies aware of the proposals, the schedule, and the coordination needed.

The Southern Nuclear Operating Company has indicated plans to submit an ESP

application next month for the Vogtle site. The NRC staff has already interacted

with certain Federal, State, and local government agencies as part of its pre-application outreach effort on the project. The staff will continue to interact with governmental agencies during the development of the EIS and will consider their comments. The staff plans to alert appropriate Federal, State, Tribal and local government agencies of the prospective combined license (COL) applications in accordance

with the Program Plan.

The NRC action to authorize the construction or the operation of a nuclear powerplant is a necessary action, but it is not alone sufficient to build or operate a nuclear

powerplant. The applicant must also obtain permits, licenses, and certifications

under other environmental protection statutes from the other Federal, State, and

local, and, in some cases, Tribal agencies. In these cases, interactions with the appropriate authorities are to be initiated by the prospective applicant, such as the

Clean Water Act Section 401 certification. Under these statutes, such as the CZMA,

there are appeal mechanisms in the case of disagreements.
50

The framework for conducting NEPA reviews is well-established in NRC guidance

and practice, and, we believe, is unlikely to result in irreconcilable differences

among the NRC and sister Federal agencies. If there is a fundamental disagreement

among Federal agencies, then, under a rarely used provision, an EIS can be referred

to the President’s Council on Environmental Quality (CEQ).

On a program level, the NRC staff also communicates with its counterparts at

EPA and CEQ. As recently as April, the staff afforded EPA and CEQ a briefing on

licensing processes and prospective changes to keep them aware of the level of interest in licensing new nuclear powerplants. The NRC intends to continue to reach out

to such sister agencies to keep them informed of developments and to interact with

the EPA regional offices responsible for reviewing EISs.

The NRC has initiated infrastructure improvement activities to enhance the effectiveness of its practices and programs. In particular, the staff intends to conduct additional pre-application activities, which includes engaging governmental stakeholders; these will be formalized in each of the individual Project Plans. We would

like to note, however, that a concerted effort by the applicant to interact early and

frequently with all authorities and to keep authorities abreast of potential issues

as they arise in essential for achieving an efficient licensing process; regardless of

the outreach and communication efforts that any particular authority may choose

to undertake on its own.

Question 2. One of the concerns identified in Mr. Beasley’s testimony is that NRC

may impose new license conditions or make changes to the licensing basis of the

plant during construction—after a combined license has been issued and in the middle of construction. Chairman Diaz, please respond to this concern and inform the

Committee of any safeguards that have been put in place to limit NRC staff authority in this regard?

Response. We believe that Mr. Beasley’s concern relates to a proposed provision

in the current 10 CFR Part 52 rulemaking. Specifically, proposed 10 CFR

2.105(b)(3)(iv) states that the notice of intended operation under § 52.103(a) may

identify conditions, limitations or restrictions to be placed on the license in connection with the finding under § 52.103(g). This provision is intended to permit the

NRC to allow interim operation if there is either: (i) a matter of ITAAC compliance

that may be resolved during a period of interim operation under appropriate conditions, limitations or restrictions; or (ii) the NRC determines that there is a significant matter of non-compliance with the Commission’s regulations that would otherwise form the basis for an order suspending operation, in the absence of such conditions, limitations or restrictions. This provision is consistent with the authority to

allow interim operation, which was provided by Congress in section 189.a(1)(B)(iii)

of the Atomic Energy Act of 1954, as amended by section 2802 of the Energy Policy

Act of 1992. Thus, if an issue arises that can be corrected by the combined license

holder during a period of interim operation under appropriate conditions, limitations

or restrictions, the NRC can permit interim operation. The Commission believes

NRC’s existing regulatory authority in this regard is appropriate.

Question 3. As you know, Chairman Inhofe and I asked GAO to review the new

Reactor Oversight Process (ROP) since it was implemented in 2000. Based on GAO’s

testimony for the record and the other testimonies for today, it appears that the

ROP is working well and that it represents a significant improvement over the old

process. However, the ROP failed to identify problems at Davis-Besse. I know NRC

has implemented numerous corrective actions—but are you confident that this process is robust enough now to prevent another Davis-Besse?

Response. The NRC has taken extensive action to preclude the occurrence of an

event similar to Davis-Besse. The NRC learned a great deal from the Davis-Besse

experience, and we have modified our regulatory program from the lessons learned.

We have also significantly enhanced our Operating Experience program, in order to

ensure that information on issues and events are more systematically assessed for

generic applicability. This includes information received from our international

counterparts.

It is important to note that nuclear powerplants are designed with significant

safety margin to ensure that the probability of a significant event occurring is very

low. The plants are also designed with diverse and redundant safety systems, containment structures, and emergency planning programs to protect public health and

safety should an unlikely event occur.

Question 4. At the March hearing, we found out that NRC expects a net increase

of 500 to 700 employees (FTEs) over the next 5 years, and as result, the Agency

need additional office space to support this growth. I know my staff has met with

the General Services Administration to see if a Congressional authorization is nec-
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essary to expedite a prospectus. Do you feel that GSA can meet NRC’s needs in the

timeframe needed?

Response. The Commission believes that the NRC would benefit from legislative

action to meet the NRC’s office space needs in a timely manner. We request approval of legislative language that would allow GSA to immediately begin procurement of space to keep pace with our accelerated hiring and need for workstations.

While GSA has expressed a willingness to expedite our space request within the established prospectus approval process, we do not believe that GSA can meet NRC’s

needs for occupancy and consolidation in FY 2008 as needed. NRC submitted the

request for our space to GSA on February 10, 2006. The GSA-provided time line for

prospectus approval, including GSA processing, OMB clearance, and Congressional

approval, will not result in NRC occupancy until mid 2009. Moreover, the traditional prospectus process requires that GSA follow competitive procurement requirements.

The NRC provided suggested legislative language would enable GSA to acquire

space adjacent to our Headquarters White Flint Complex, thereby maintaining the

consolidation benefits achieved in 1994, including maintaining our incident response

capability which is significantly enhanced by ease of access by technical staff from

various NRC offices.

Question 5. I am very encouraged to hear that you have exceeded your goal of hiring 350 people this year. NRC will be challenged in the coming years not just to

meet future hiring goals but to retain the talented individuals who have recently

joined the agency. Do you believe the NRC has the necessary authority to address

its retention and recruitment needs?

Response. Yes, the Commission believes that the NRC currently has the necessary

authority to address the Agency’s retention and recruitment needs. The NRC will

continue to evaluate and adjust its human capital strategies as market conditions

change when vendors and utilities staff up for new plant construction in the 2008–

2009 time frame. To remain competitive, we expect to increase our use of currently

available recruitment and retention tools. Should the Commission determine that

legislation is needed, the NRC would promptly inform you of our needs.

The Commission continues to be poised to successfully meet its critical hiring and

retention challenges through our ongoing human capital planning, implementation,

and assessment process and the various tools provided by the Energy Policy Act of

2005. We expect to have a critical hiring need for at least the next five years and

will continue our aggressive efforts to recruit, hire and develop staff as we prepare

for the receipt of the expected COL applications.

Question 6. In your testimony, you mentioned that you plan to implement your

safety culture initiative (at least a first step) effective July 1, 2006. Have the regional inspectors been adequately trained to implement this significant undertaking

in a consistent and effective manner?

Response. Yes, we developed a computer-based training program that all current

reactor oversight process inspectors were required to take prior to the spring 2006

resident inspector counterpart meetings. We also provided training in each Regional

Office during the spring 2006 resident inspector counterpart meetings. In addition,

we are modifying the inspector qualification program so that all new inspectors joining the agency will have the training they need to effectively implement inspection

program elements related to safety culture into their inspections. Other training development, including just-in-time training that will be taken by inspectors prior to

performing selected supplemental team inspections, will be completed by the end of

the 2006 calendar year and prior to being needed for any major team inspection.

Question 7. As we discussed at the last hearing, communication with the public

is very important if they are to have confidence in NRC’s oversight of nuclear powerplants. Unfortunately, I have heard numerous complaints that the information

NRC provides on its website is very technical and difficult to understand—and

that’s when you can find the information. Chairman Diaz, does the NRC have any

plans to improve this very important public relations tool?

Response. The Commission agrees that communication with the public is very important for improving the public’s confidence in NRC’s oversight of nuclear powerplants, and we are committed to having a website that fosters public confidence. We

strive to be an open agency and as such provide public access to the vast majority

of our official documents via the web. As with any communication tool, we continually seek to make improvements, including our work to provide a better search engine, that may make it easier to locate information on the web. Our website has

a specific ‘‘help’’ link and ‘‘contact us’’ link that enables any member of the public

to seek assistance or to communicate comments and suggestions to our website staff.
52

Question 8. Can you provide an assessment of management challenges, especially

in the area of new reactor licensing? NRC should solicit input of its customers (i.e.,

applicants) to identify potential management issues and challenges and develop solutions for a more timely and efficient process.

Response. Key management challenges in the new reactor licensing area include

developing the regulatory infrastructure and human capital needed to review the

new reactor licensing applications expected over the next several years. To address

these challenges, the staff is working to develop efficient and predictable review

processes, whose efficiencies will also help to reduce the resources needed to complete the reviews. For example, the staff is working to revise 10 CFR Part 52 to

provide clarification and reorganization of the existing requirements and to address

operational program information to implement recent Commission policy decisions.

The NRC’s work on this rulemaking has included significant stakeholder interaction

through public meetings and the formal solicitation of public comment on the proposed rule. The staff is developing a combined license (COL) application regulatory

guide (DG–1145) which can be used by applicants to develop complete and quality

applications. The staff is also updating the Standard Review Plan (NUREG–0800)

which will be used by the NRC staff in their review of the applications. The staff

is holding monthly public workshops as part of developing the COL application regulatory guide. The staff also solicited and obtained stakeholder input for prioritizing

the work to update the standard review plan sections that are expected to be used

for reviewing new plant licensing applications.

The staff has also developed a design centered review approach (DCRA) for the

review of multiple combined license applications that reference the same design.

This approach will use, to the extent practicable, a ‘‘one issue-one review-one position’’ strategy in order to optimize the review effort and resources needed to perform

these reviews; that is, the staff will conduct one technical review for each reactor

design issue and use the result of the review to support the review of the design

certification and each combined license application. The staff has held discussions

with applicants on this review approach and issued Regulatory Issue Summary

(RIS) 2006–06, ‘‘New Reactor Standardization Needed to Support the Design-Centered Licensing Review Approach,’’ on May 31, 2006, to explain NRC’s expectations

regarding standardization in order to make the DCRA effective. The RIS is intended

to promote standardization of COL applications and to facilitate the establishment

of a predictable and consistent method for reviewing applications. To this end, the

NRC requested voluntary submission of information regarding addressee schedules

and plans for standardization. Industry is working to provide a response to this request.

NRC management and staff have also met on several occasions with members of

the New Plant Oversight Committee (NPOC) to discuss strategic planning for new

reactor applications and NRC’s review of these applications. NPOC members include

Senior Executives from utilities and vendors participating in new nuclear plant activities, and Senior members from the Nuclear Energy Institute (NEI). NRC and

NPOC have agreed to establish working groups which would meet on a regular

basis to identify and discuss new reactor licensing issues and their resolution.

With respect to developing the human capital needed, the NRC is aggressively

hiring/recruiting to levels consistent with the design centered review approach. New

employees are receiving training in our regulatory processes as well as our internal

business processes, in addition to the wide range of engineering and other technical

training that is available to them. The NRC will be looking to modern information

technology and document management techniques to further facilitate the development of our human capital and improve our processes, where practicable.

RESPONSES BY NILS J. DIAZ TO ADDITIONAL QUESTIONS FROM SENATOR VITTER

Question 1. As part of the new Part 52 process, companies may submit an application for an Early Site Permit (ESP) for potential locations. Once such sites are approved by the NRC, this permit is good for up to 20 years. However, recent discussions of the COL application process have indicated that the environmental review,

essentially done as part of the ESP application, might be reviewed again resulting

in potential delays and additional costs to the COL application review process. Will

having an ESP be useful to obtaining a COL? When will an agreement be reached

on the finality of the ESP environmental review?

Response. The early site permit (ESP) is a Commission approval of a site or sites

for one or more nuclear power facilities. The ESP application and review process

makes it possible to evaluate and resolve safety and environmental issues related

to siting before the applicant makes large commitments of resources.
53

ESP applicants have alternative approaches in providing information to the NRC.

The first three ESP applicants chose not to provide detailed information about a

specific reactor design for their sites. Rather, they provided the values of parameters

and characteristics of designs and associated facilities called a plant parameter envelope (PPE), as a surrogate for an actual reactor design and its interface with the

environment. Using this approach allows the applicant to preserve flexibility, to

avoid committing to a particular vendor, and to defer the selection of a reactor design until the COL stage. In these cases, no additional analysis of the environmental impacts that have been evaluated would be required if the applicant chooses

a design that falls within the PPE values.

Alternatively, an applicant can designate a specific reactor design and associated

facilities. In this case the actual design characteristics, the actual location of the reactor or reactors on the site, and the actual design interface with the environment

can be evaluated thoroughly to assess the construction and operational impacts. At

the time of the COL application referencing the design-specific ESP, the staff would

not reconsider earlier evaluations if the design is unchanged from that previously

evaluated.

The case of Dominion Nuclear North Anna, LLC’s (Dominion), North Anna ESP

application illustrates some of the benefits of the ESP process. At a late stage in

the North Anna ESP review, the applicant recognized the existence of a significant

challenge to obtaining the necessary state approvals and revised its cooling system

design. Dominion stated that it ‘‘. . .recognizes that the revised cooling system approach has affected the NRC Staff’s schedule for completion of its review of our application. However, the ESP process has provided an opportunity to resolve important issues at an early stage. The ESP process is intended to allow resolution of

siting issues before major resources are committed to plant design and construction,

and before the COL stage. By addressing cooling system issues at the ESP stage,

the additional work that is now being performed will establish a foundation for success and reduce the potential for delays in a subsequent COL proceeding.’’
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STATEMENT OF J. BARNIE BEASLEY, JR., PRESIDENT AND CEO, SOUTHERN

NUCLEAR COMPANY

Mr. Chairman, thank you for the opportunity to appear before the subcommittee

today regarding the NRC’s regulatory oversight of our Nation’s nuclear powerplants.

My name is J. Barnie Beasley Jr. I am president and chief executive officer of

Southern Nuclear Operating Company. I have attached a brief resume to my testimony as Exhibit 1. [Resume retained in committee’s file.]

Southern Nuclear is headquartered in Birmingham, Alabama and is a subsidiary

of Southern Company. Southern Company is a public utility holding company with

its principal office in Atlanta Georgia. In addition to Southern Nuclear, Southern

Company is the corporate parent of five electric utilities: Alabama Power Company,

Georgia Power Company, Gulf Power Company, Mississippi Power Company, and

Savannah Electric Company, which will soon be merged with Georgia Power Company, as well as Southern Power Company and Southern Company Services, Inc.

Southern Company’s subsidiaries provide reliable and affordable electric service to

4.2 million retail and wholesale customers across the southeastern United States.

Southern Nuclear is the licensed operator of the Alvin W. Vogtle Electric Generating Plant and the Edwin I. Hatch Nuclear Plant, which are both two-unit nuclear

plants partially owned by Georgia Power Company, and the Joseph M. Farley Nuclear Plant, which is a two-unit nuclear plant owned by Alabama Power Company.

The six nuclear units operated by Southern Nuclear comprise over 6000 megawatts

of generating capacity and represent approximately 17 percent of the total annual

generation of the Southern Company system. Southern Nuclear’s fleet historically

has been recognized as among the best performing nuclear plants in the country and

are among Southern’s most efficient generating resources. They provide our customers with reliable and reasonably priced electric energy.

Plants Hatch and Farley have already extended their operating licenses for an additional twenty years of operation each, and the application for Plant Vogtle’s license extension will be filed with the Nuclear Regulatory Commission (‘‘NRC’’) next

year. The renewal of Plant Vogtle’s license will ensure that Southern will be allowed

to operate its existing fleet into the middle of this century.

Southern Nuclear has also been charged by Southern Company with performing

the technical work necessary to preserve the option of new nuclear generating capacity to meet the growing needs of the Southern system. In this role, Southern Nuclear will file an application for an Early Site Permit later this summer in order

to determine the suitability of the Vogtle site for two additional nuclear units at

Plant Vogtle. Southern is also a member of the NuStart LLC consortium, which is

a party to a cooperative agreement with the Department of Energy (‘‘DOE’’ to develop a standard application for a Combined Operating License (‘‘COL’’) for two reactor technologies and the final, construction-quality design for those reactors.

Southern is on a schedule to submit its own application for a COL by early 2008

for two additional units at the Vogtle site in Georgia.

I am gratified to have the opportunity to appear before the Committee today to

discuss the regulatory environment in which our nuclear units operate. Prior to my

current position, I served Southern Nuclear in a variety of positions including Plant

Manager of Plant Vogtle, Vice President of the Vogtle and Farley Plants, and Chief

Nuclear Officer for the Southern fleet. My experience leads me to believe strongly

in the benefits nuclear power provides to the Nation’s economy and to the environment. Southern Company is committed to the continued safe and economical operation of our nuclear fleet. We also believe that the renewal of interest in the construction of new nuclear units by the nation’s electric generating companies is a

very healthy development and that the construction of new nuclear units will help

the nation continue to provide better lives for its citizens and to compete in the global economy. We very much appreciate your leadership, Mr. Chairman, and that of

the rest of the Committee, in enacting the nuclear provisions of the Energy Policy

Act of 2005, which not only included needed and prudent amendments to the Atomic

Energy Act, but also helped to spur the resurgence of interest in new nuclear generation in this country.

Based on many years of experience in operating nuclear powerplants, I am convinced that a consistent, transparent, and predictable regulatory environment in

which both nuclear operators and the public have confidence is essential to preserving the benefits from the existing nuclear fleet and to realizing even greater

benefits from a new fleet of advanced light water reactors across the country. We

appreciate the unique status of nuclear powerplants in this country and welcome

the public’s scrutiny of the safety and security of our operations. The excellent nuclear safety record of the industry’s existing fleet, and the innovative safety features

of the advanced light water reactor designs that will comprise the next fleet of nu-
61

clear plants, provide ample evidence that these units can be and have been operated

at extremely high levels of safety. In order for companies to make decisions to commit the investment necessary to construct these new designs, the economic risk associated with the licensing, construction and operation of these facilities needs to

be comparable to that of other forms of base load generation. The deployment of

these new units will depend in large part on investors’ perception of that risk, as

demonstrated by the NRC’s licensing process, the NRC’s oversight of our existing

facilities and the operating performance of the current fleet of plants. Although we

obviously believe that the regulatory environment is a positive one for the development of new units, we also believe that the industry and NRC should continue to

work together to make more improvements in the regulation of the existing nuclear

fleet and to ensure that the process for licensing the next fleet is predictable,

prompt and efficient.

My testimony today will focus on four major themes:

1. The need for consistency, transparency and predictability in the regulatory environment for the current fleet of nuclear powerplants, including the effect of the

regulatory environment for the current fleet on decisions to construct new plants;

2. The connection between a predictable and efficient licensing process for new nuclear powerplants and the investment decisions potential investors need to make to

pursue the development of new plants;

3. The need for progress on the nuclear waste issue in connection with the development of new nuclear plants; and

4. The need for adequate funding of the DOE’s nuclear power 2010 program to

ensure that new plants can be licensed and constructed on a schedule that will

allow the plants to come online soon enough to meet the growing demand for electricity.

CURRENT REGULATORY ENVIRONMENT

Under Chairman Diaz’ leadership, the NRC has made great strides in the last

decade toward risk-informed and performance-based regulation. The NRC’s revised

reactor oversight process, implemented in 2000, was a major step forward in concentrating NRC and operator resources on areas that benefit public health and safety

the most, and at the same time provides for enhanced NRC scrutiny of plants that

have demonstrated degraded performance in these areas. The NRC’s adoption of objective performance indicators against which plant performance is judged, instead

of subjective evaluations of operating methods and practices that can vary from inspector to inspector, has improved the reliability of the regulatory process and has

resulted in even greater improvements in the safety and performance of the current

fleet. These improvements have helped plant operators focus resources on important

issues that are essential to safety and have improved the overall performance of the

industry.

It is essential that NRC continue to build on the progress made toward objective,

predictable regulation. Care must be taken to increase the use of formal regulatory

processes to implement new regulatory requirements. Use of formal regulatory processes ensures that the Commission has input from all affected stakeholders, provides a record for regulatory decisions that the industry, the Congress and the public can review and understand, and helps to enhance objectivity of requirements.

Regulatory requirements based on such deliberative processes invariably enjoy

greater acceptance by the industry and the public than those imposed informally,

without full stakeholder participation.

Additional progress can also be made in the predictability of the NRC’s regulatory

process, particularly with respect to the re-interpretation of requirements by NRC

staff. New interpretations of previously well-understood requirements, particularly

when developed without resort to formal rulemaking or backfit analyses, weaken industry confidence in the regulatory process. To the extent such re-interpretations

materially improve public safety, they can surely withstand the scrutiny of formal

processes, and public confidence in NRC regulation will be enhanced as a result.

LICENSING PROCESS FOR NEW PLANTS

The next fleet of nuclear plants in this country will be licensed under the process

outlined in Part 52 of NRC’s regulations. This process, which is an outcome of the

Energy Policy Act of 1992, was designed to avoid the licensing problems that

plagued the current fleet of plants. The key factors in this process are the elimination of duplicative reviews of the same issue at successive stages of the licensing

of a new plant and the final resolution of all safety and environmental issues before

construction of the plant begins. The renewal of interest in nuclear power in the

electric industry is closely tied to our expectation that NRC, using Part 52, can li-
62

cense new facilities in a predictable, efficient way. It is essential that Part 52 be

implemented as intended in order for the investors to have confidence that new nuclear plants can be licensed, constructed and operated on a schedule that is both

predictable and competitive with other forms of base load generation, such as large

coal units.

Timely and predictable licensing is critical to investor confidence in new nuclear

units. Delays in the licensing process necessarily delay the construction and operation of the units. These delays cause severe financial consequences for the builders

of the plants, which must look to other, more expensive forms of generation for the

supply of electricity to their customers to fill the void caused by the delays. Without

a licensing process that is both reasonable and predictable, potential developers of

nuclear units, many who like us have expressed an initial interest, will find it difficult to justify continuing with the final licensing and construction of new nuclear

powerplants, notwithstanding the obvious environmental benefits and fuel diversity

that nuclear generation provides.

The final resolution of environmental and safety issues at the correct point in the

licensing process is a major ingredient in the efficiencies provided by the Part 52

licensing process. Safety issues related to a standard reactor design certified by the

NRC, for example, should not be re-reviewed or litigated during the proceeding on

a Combined Operating License referencing that design. Similarly, environmental

issues reviewed by NRC staff and resolved during the proceeding for an early site

permit should be treated as finally resolved in that proceeding and should not be

subject to re-review or litigation during the COL process. Elimination of duplicative

and redundant licensing reviews will help NRC to use its resources more efficiently,

and reduce the number of additional licensing staff needed for the multiple COL applications expected to be submitted over the next several years.

As currently drafted, Part 52 provides for such finality and provides confidence

that the process can be implemented in a predictable, efficient way. There is no

need for redundant review and litigation of the same issues at each step of the process, which would increase the delay and uncertainty of the process. The process that

is in place for both standard design certifications and early site permits provides

ample opportunity for staff review and public involvement in all issues relevant to

those licensing actions. It is essential the implementation of the process, as well as

any proposed changes to part 52, respect the concept of finality so that potential

developers and investors can have confidence that new plants can be licensed, and

therefore constructed, on a predictable schedule.

Earlier this year, the NRC proposed a rulemaking to revise its regulations, as

they relate to Part 52 that is 150 pages long and contains a multitude of changes

to the NRC’s rules. The sheer volume of changes contained in proposed rulemaking

introduces great uncertainty into the licensing process, at a time when several applicants are actively preparing COL applications. In addition, as demonstrated by

the industry comments on the proposed rulemaking submitted by the Nuclear Energy Institute, which I endorse, many of the proposed revisions conflict with the

principles that make Part 52 a workable licensing process. As Chairman Diaz has

emphasized, high quality applications are critical to the NRC’s ability to complete

its licensing work for new plants on a timely basis. The proposed rulemaking, in

its current form, will make preparing such an application much more difficult and

time consuming without a corresponding benefit to the safety of the new fleet of

plants.

The other keystone of the Part 52 process is the resolution of all safety issues

prior to the commencement of construction of the facility. The Combined Operating

License process requires applicants to provide all information necessary for the NRC

to license the facility, and review operating programs and procedures, prior to the

issuance of the license. All licensing issues are required to be finally resolved prior

to construction, with the only questions after construction being whether the plant

has been constructed in accordance with the license The licensee is required to construct and operate the plant in conformance with the Combined Operating License

with oversight by NRC inspection and enforcement programs. The licensee must

prove that the plant has been constructed in accordance with the license by conducting inspections, tests and analyses and by satisfying acceptance criteria prior

to loading fuel. This process ensures that the unit has been constructed and will

be operated as licensed. In order for the licensing process to function as envisioned

by the industry, and I believe by Congress in the Energy Policy Act of 1992, NRC

must strictly observe the limits on its authority to impose new license conditions

or make changes to the licensing basis of the plant during construction.

The industry’s renewed interest in pursuing a new fleet of advanced light water

reactors reflects our confidence that the NRC and the Congress are committed to

the regulatory philosophy embodied in Part 52. The industry and NRC have made
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good progress toward implementing the process, consistent with the requirements

of the Atomic Energy Act and the need for new base load generation in the country.

For example, the NRC and the industry have reached an understanding regarding

the concept of standard COL application reviews. Except for site specific issues,

NRC could review such standard application at one time for all applicants referencing a particular reactor design. Similarly, we have made some progress in

adapting the Design Certification, Early Site Permit and Combined Operating License processes so that those processes can proceed concurrently for a particular

plant, resulting in a more streamlined process. This could compress the total time

needed to complete these processes, compared to the time required if each process

was pursued sequentially. Each of these adaptations is consistent with existing law

and regulation and could help NRC and industry to more efficiently utilize their

limited resources.

We recognize, however, that we will all have to be vigilant to ensure that the

principles of predictability and finality underlying Part 52 are followed in practice.

The principles underlying Part 52 and that were embodied in the Energy Policy Act

of 1992 were based on the industry’s and the NRC’s experiences of the late 1970s

and 1980s, when long delays in licensing and construction, uncertainty in the regulatory process, and significant cost overruns due to evolving regulatory requirements

were routine. We should not let the passage of time erode our memory of those lessons. The industry is concerned that some of the revisions to Part 52 proposed by

the NRC this Spring could undermine the principles underlying the improvements

to the licensing process made by the Energy Policy Act of 1992. Changes to Part

52 that make the process less predictable and efficient will not only result in a less

effective licensing process, they could negatively impact the current enthusiasm on

the part of investors in new plants. We encourage the NRC and its staff to carefully

review the industry’s comments and carefully consider them in promulgating any

revisions to Part 52 and encourage the Congress to diligently exercise its oversight

authority by ensuring that any revisions to the regulations are consistent with the

intent of the legislation.

USED NUCLEAR FUEL

With respect to the issue of new nuclear plants, it is also important to note that

there are policy issues other than the licensing process that are important to the

economic viability of the plants and the acceptance of the plants by the public. The

most obvious issue is the continuing delay on the part of the Federal Government

to deal effectively with the issue of used nuclear fuel. Although the industry has

demonstrated that used fuel can be safely stored at reactor sites on a temporary

basis, the government must resist the urge to treat this temporary measure as a

de facto permanent solution to the issue of where and how to dispose of used fuel.

The ratepayers of Georgia Power have paid approximately $580 million and the customers of Alabama Power have paid almost $300 million to the Federal Government

for used nuclear fuel disposal and have received nothing in return. State regulatory

authorities authorize the collection of nuclear waste fees from customers and the recovery of the cost of temporary storage facilities on reactor sites. Since many of the

new fleet of plants, including Southern’s, are expected to be built under cost of service regulatory structures, these same regulatory authorities will also play a critical

role in authorizing most potential new plant developers to pursue such investments.

Aside from the obvious inequity of forcing nuclear operators and their customers to

pay billions into the federal Treasury for disposal services that are not being provided, the communities where our current fleet of plants operate and where the next

fleet of plants will be constructed want to know when the used fuel from the plants

will be removed to a central repository. State officials are becoming increasingly impatient with the federal Government’s failure to make concrete progress on this

issue, which places pressure on all of our plants. The nuclear industry and the public needs and expects the federal government to fulfill its responsibilities under the

Nuclear Waste Policy Act.

FUNDING FOR NUCLEAR POWER 2010

Finally, in order to bring new plants on line on a schedule that matches the growing demand for new base load generation, it is essential that the Department of Energy’s Nuclear Power 2010 program be adequately funded. Appropriation of the federal share of the funding for one-time design finalization and COL development

costs is a fundamental basis for the renewal of interest in new nuclear plant development. Any shortfall in the funding for this program will increase the cost and risk

associated with new plants, and will reduce their attractiveness to investors as compared with other more traditional forms of generation.
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CONCLUSION

In summary:

1. Risk-informed and performance based oversight of our existing reactor fleet is

critical not only to our existing fleet of plants but to the industry’s willingness to

invest in new nuclear powerplants;

2. An efficient and predictable licensing process is critical for the licensing of new

plants. Proposed revisions to Part 52 that are contrary to those principles should

be rejected;

3. States with existing or proposed nuclear plants want to see real progress by

the federal government in fulfilling its obligation to remove used nuclear fuel from

nuclear plant sites; and

4. Adequate funding of Nuclear Power 2010 is essential to bringing a new fleet

of nuclear plants online on a schedule that will satisfy the growing demand for electricity in this country.

Mr. Chairman, I want to thank you and the other members of the committee

again for your support of nuclear power and for the opportunity to appear before

you today. I will be happy to answer any questions you might have.

RESPONSE BY J. BARNIE BEASLEY, JR., TO AN ADDITIONAL QUESTION FROM

SENATOR INHOFE

Question. Mr. Beasley, your statement suggests that there still are considerable

amount of uncertainties in NRC’s new reactor licensing process. Do you have any

suggestions for this committee either legislatively or through other means as to how

to mitigate these uncertainties? Obviously regulatory certainty is a key to the future

success of the nuclear industry.

Response. As I stated in my testimony, we believe that the process currently outlined in the Commission’s regulations provides for the regulatory certainty needed

for the licensing of new nuclear powerplants, provided that the process is implemented in a consistent, efficient way. The primary threats to regulatory certainty

in the new licensing process are several provisions of the NRC’s proposed rulemaking amending its licensing process. Among these are provisions which would

make it easier for environmental issues that have been resolved in an earlier stage

of the process, such as in an early site permit proceeding, to be reopened during

the COL process. Another proposed revision to the NRC’s rules suggests that additional license conditions could be added to the COL as the NRC staff makes its findings regarding the satisfaction of inspections, tests, analyses and acceptance criteria

(ITAAC) as a prerequisite to loading fuel, which is directly contrary not only to the

fundamental purpose of the COL process but to Congress’ intent in enacting the nuclear licensing provisions of the Energy Policy Act of 1992.

Because any licensing process is only as effective as its implementation in practice, I believe that the most effective thing Congress can do to mitigate this uncertainty is to continue to exercise its oversight responsibilities with a view toward ensuring that NRC performs its duties in a consistent way, and that changes to Part

52 are minimized to enhance, rather than detract from, regulatory predictability.

RESPONSES BY J. BARNIE BEASLEY, JR., TO ADDITIONAL QUESTIONS FROM

SENATOR VOINOVICH

Question 1. Mr. Beasley, for the benefit of this committee, can you lay out a time

line for when you expect to begin and complete construction, and have the plant go

on line generating electricity?

Response. We expect to file an application for an Early Site Permit for two additional units at the Plant Vogtle site in August of this year. By early 2008, we expect

to file an application for a Combined Operating License. If all goes according to

schedule and the decision is made to begin construction, we would expect to begin

site preparation by 2010 and commence the major construction in 2011. Our scheduled date for commencement of operation for the first new Vogtle unit is projected

for the mid-2015 to 2016 timeframe.

Question 2. At the hearing, we talked about a number of factors that are outside

of the NRC’s control, such as State and local government permits and authorizations

required in siting, licensing, and construction of a new nuclear plant. Have you and

others in the industry been engaging the appropriate State and local officials? Are

there any generic issues at the state level that can be addressed by the industry

as a group in a comprehensive way?
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Response. Southern Nuclear Operating Company and Georgia Power Company

have engaged in discussions with a variety of state regulatory officials concerning

the COL application for the new Vogtle units. These include the state public service

commission, state environmental officials, and state and local emergency response

agencies. Interaction with each of these agencies is critical to the ability to license

and/or construct a new nuclear powerplant. Because these issues tend to be state

and site-specific, approaching these issues from a generic perspective is difficult,

and could be confusing for the state officials involved. We believe these issues are

approached more clearly and effectively on an individual basis by companies’ interaction with their own state officials.

I do agree with your suggestion at the hearing that close coordination and communication between federal and state officials involved in the licensing and construction process would be helpful to our efforts to bring new plants on line. Expressions of support for new nuclear plants from federal officials would be helpful to our

interactions with state officials. The converse is also true. Expressions of support

from state officials for new plant efforts are helpful to our interactions with federal

regulators.

Question 3. Other than the ongoing rule change, I am interested in other concerns

that you have for constructing new plants. What do you see as the biggest challenges in the licensing process? How about financing the construction of a new

plant? Do you think we have the people for engineering, construction, and operation

of all of these new plants that are projected? Will the public accept new nuclear

plants?

Response. All of the issues mentioned in your question are challenges to some degree. The biggest challenge in the licensing process is that it is untested and, at

this moment, still evolving due to NRC’s proposed rulemaking. This uncertainty is

one of the, if not the primary, variables cited by financial analysts in assessing the

risk of investment in new nuclear powerplants. The availability of an adequate

workforce to design, license, construct and operate new plants is also an issue of

concern. We certainly have to attract people to our industry and adequate numbers

of engineering and construction personnel are essential to this effort. Attracting and

training a workforce to operate the new plants, while at the same time maintaining

the excellent performance of our current fleet, is equally critical. My belief is that

as new plant activity becomes more of a reality that new people in sufficient numbers will be attracted to the industry. Certainly, support for engineering and other

technical education by the federal government is important to creating an adequate

supply of trained workers. It should be noted that the increased nuclear plant construction activity is world wide. In fact, our plans in the United States pale in comparison to what some other countries are planning. With that said, we should expect

to compete for resources and talent on a global level.

We believe that the public generally will accept and support new nuclear powerplants. In fact, the question most asked in Georgia is why we are waiting so long

to commence construction and bring the new plant on line. As I stated in my testimony, I believe progress on issues such as the disposal of used nuclear fuel would

engender even greater levels of support from our citizens, and our state and local

governments.

Question 4. I have heard that we might have to rely on foreign countries like

France or Japan to make key reactor components for these new plants because we

have discontinued building nuclear reactor components in the past two decades. Is

this true?

Response. Yes. Based on our preliminary discussions with potential vendors, we

believe it is likely that at least the first group of plants will be heavily dependent

on foreign sources of supply for key components. Over the 30 years since the last

nuclear plant was ordered in the United States, many of the domestic vendors who

supported construction of nuclear plants closed their doors. Because nuclear construction has continued in Europe and Asia, a small number of vendors have continued to operate there.

Question 5. Can you talk a little bit about the projected electrical power needs

in the region that your company services and how nuclear power compares with alternative energy sources such as coal, gas, hydro, wind, solar, or biomass in meeting

this demand?

Response. The region served by Southern Company is one of the fastest growing

regions in the country. Georgia, which is served by Georgia Power Company and our

prospective co-owners in the additional Vogtle units, Oglethorpe Power Company,

Municipal Electric Authority of Georgia, and the City of Dalton, projects a growing

need for base load generating capacity through at least the mid-2020s. We believe
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that the bulk of this need will have to be served by a combination of new clean coal

units and nuclear power. Additional generation from hydroelectric facilities as well

as from wind, solar or biomass simply cannot support enough reliable baseload generation to meet our growing needs. However, the company is pursuing the development of such renewable sources of generation where feasible.

Question 6. Mr. Beasley, can you describe the impact the Federal government’s

continued delay in opening up a permanent repository for spent fuels at Yucca

Mountain has on your company’s decision making process to pursue new reactor licensing?

Response. Because we have strong local support for nuclear power and because

we have demonstrated the ability to safely store fuel temporarily on-site, the Government’s delay in opening the repository has not prevented us from going forward

with our plans to seek a COL on the schedule indicated above. Notwithstanding our

enthusiasm for nuclear power as a generation option, however, the Government’s

delay in meeting its obligations under the Nuclear Waste Policy Act of 1982, as

amended, complicates the development of new plants. As Mr. Book testified at the

oversight hearing on June 22, 2005, the financial community may attach a risk premium for used nuclear fuel management costs to financing for new nuclear powerplants. Similarly, state regulators, whose approval will be necessary to commence

construction of a new nuclear powerplant, are increasingly frustrated with the Government’s failure to remove used fuel after the ratepayers of Georgia have paid over

$580 million into the Nuclear Waste Fund. Finally, opponents of new nuclear construction frequently cite the delay in opening the repository as a reason not to build

new plants.

RESPONSES BY J. BARNIE BEASLEY, JR., TO ADDITIONAL QUESTIONS FROM

SENATOR JEFFORDS

Question 1. Your testimony strongly supports the NRC’s use of formal rulemaking

procedures, including public review and participation. I am pleased you have made

such a statement. Too often in this Committee, utilities and businesses argue for

cutting rulemaking procedures short. They favor more informal actions by regulators or, often, no regulation at all. Your testimony makes clear that more formal

procedures improve understanding and acceptance by all parties and establish regulatory consistency. Are you able to give the Committee an example of where a formal rulemaking would have been the preferred approach instead of a more informal

action by the NRC?

Response. I firmly believe that new requirements should be imposed on licensees

through formal rulemaking, rather than through generic letters, regulatory issue

summaries, and information notices. As Mr. Lochbaum’s testimony indicates, those

mechanisms provide a way for the NRC to communicate practical information to licensees but are too often used by NRC to impose new requirements without adequate stakeholder input.

As an example I note that in 2005, the NRC issued Regulatory Issue Summary

(RIS) 2005–05 regarding criticality control in spent nuclear fuel pools during cask

loading operations. Prior to issuance of the RIS, spent fuel cask loading operations

were understood by the industry to be governed by the requirements of 10 CFR Part

72. The RIS cited differences between the licensing basis for casks approved by the

NRC in accordance with the provisions of 10 CFR Part 72 and the licensing basis

for the spent fuel pools licensed in accordance with the provisions of 10 CFR Part

50. Specifically, Part 72 requires credit for soluble boron in the cask to maintain

the spent fuel subcritical during cask loading operations performed in the spent fuel

pool. Part 50, however, requires licensees to demonstrate by analysis that the spent

fuel will remain subcritical in the spent fuel pool without credit for soluble boron.

Both methods have been previously determined by the NRC to preclude an inadvertent criticality event in the spent fuel pool during cask loading operations. In essence, the RIS documented differing opinions within the agency for preventing an

inadvertent criticality event and highlighted the need for rulemaking to specify the

applicable requirements for cask loading activities. That is, rulemaking was needed

to specify whether movement of spent fuel into a spent fuel cask represented an activity governed by the requirements of 10 CFR Part 72 or an activity governed by

the requirements of 10 CFR Part 50. Instead, the RIS stated the requirements of

both 10 CFR Part 50 and 10 CFR Part 72 were applicable and required licensees

to obtain a license amendment to the Part 50 license. This is an example where an

RIS was used to impose additional requirements on Part 50 licensees (i.e., a license

amendment) that could have been avoided had timely rulemaking been initiated by

the NRC. Rulemaking is currently being considered by the NRC to eliminate the
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overlapping requirements of 10 CFR Part 50 and 10 CFR Part 72. Issuance of the

RIS resulted in an unnecessary regulatory burden on licensees that did not result

in a commensurate increase in public health and safety. We believe that NRC

should use formal rulemaking or licensing process to effect such changes.

Question 2. In your statement, you say that, during NRC consideration of a new

plant operating license, safety issues related to reactor design and environmental

issues related to an early site permit should not be subject to re-review or litigation.

How would you propose that the NRC restrict such review? Do you believe new regulations or a change in the law are required?

Response. At the outset, I want to emphasize that my statement is not directed

to issues that have been rejected by the NRC as having not been properly raised

in a licensing proceeding. Instead it is to address issues, such as environmental

issues, that were resolved in one phase of the licensing process by way of a full

hearing.

The NRC’s current licensing process should adequately limit the reconsideration

of issues that were fully heard and resolved at an earlier stage in the licensing process. If implemented consistently and efficiently, that process is sufficient and no

new regulation or change in law would be necessary. Several of the proposed revisions to the NRC regulations could, however, undermine the finality that is currently envisioned and should be rejected for that reason.

STATEMENT OF DAVID A. LOCHBAUM, DIRECTOR, NUCLEAR SAFETY PROJECT

Mr. Chairman and members of the subcommittee, on behalf of the Union of Concerned Scientists, I thank you for this opportunity to present our views on the regulatory processes for existing and potentially new nuclear powerplants.

My name is David Lochbaum. After obtaining a degree in nuclear engineering

from The University of Tennessee in 1979, I worked more than 17 years in the nuclear power industry, mostly at operating reactors in Georgia, Alabama, Mississippi,

Kansas, New Jersey, Pennsylvania, New York, Ohio and Connecticut. I joined the

Union of Concerned Scientists in October 1996 and am the Director of the Nuclear

Safety Project. Since nearly its beginnings in May 1969, UCS has maintained an

interest in nuclear powerplant safety. UCS is neither an opponent nor a supporter

of nuclear power—our interest is that of a nuclear safety advocate.

In a prior oversight hearing, Chairman Voinovich impressed upon the Nuclear

Regulatory Commission the need to improve its processes for assessing safety culture at nuclear powerplants. The NRC got the message and undertook a series of

public meetings with internal and external stakeholders to develop methods to regulate safety culture that will be implemented in the near future. I participated in the

public meetings conducted by the NRC and sincerely believe the proposed revisions

will provide effective regulatory assessment of safety culture. Chairman Voinovich

and this Subcommittee deserve credit for calling the NRC’s attention to the safety

culture gap in its regulatory processes. Likewise, the NRC deserves credit for avoiding the temptation of merely applying a band-aid to the gap and instead devoting

the resources needed to prepare an effective permanent fix. (Attachment 1 provides

a fuller explanation of our position on the NRC’s revised safety culture processes.)

The safety culture gap had significant safety and economic consequences. The

March 2002 discovery of serious degradation to the reactor vessel head at the DavisBesse nuclear plant in Ohio has been attributed to its owner having placed production ahead of safety. Ten years ago, both reactors currently operating at the Millstone nuclear plant in Connecticut began long outages to restore margins caused by

its owner having an improper safety focus. Nearly twenty years ago, both operating

reactors at the Peach Bottom nuclear plant in Pennsylvania began long outages to

restore margins also caused by its owner having an improper safety focus. While

no one died from any of these events, operation of the reactors in the months and

years prior to discovery of their extensive safety impairments exposed nearby communities to unnecessarily elevated risks. In addition, allowing the safety impairments to grow to epidemic levels resulted in unnecessarily high restoration costs to

ratepayers and stockholders.

The revised regulatory processes soon to be adopted by the NRC have great potential. But even if that potential is fully realized, future safety impairments like those

that afflicted Peach Bottom, Millstone and Davis-Besse will likely continue to occur

at existing—or new—nuclear powerplants unless two other steps are taken. One

step should be relatively easy for the NRC to take. It merely involves expanding

the scope of its generic communications program to include safety culture issues.

The NRC’s generic communications program uses an array of communication documents (e.g., Regulatory Issue Summaries, Information Notices, Generic Letters, and
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1 10 CFR 50, Appendix B, ‘‘Quality assurance criteria for nuclear powerplants and fuel reprocessing plants.’’ Available online at http://www.nrc.gov/reading-rm/doc-collections/cfr/part050/

part050-appb.html. 2Kozak, T. J. 2001. Davis-Besse nuclear power station NRC inspection report no. 50–346/01–

05(DRP). Letter to Guy G. Campbell, vice president, nuclear, FirstEnergy Nuclear Operating

Company, March 27. Thomas J. Kozak is chief, projects branch 4, division of reactor projects

at the Nuclear Regulatory Commission. 3Dyer, J. E. 2002. Transmittal of NRC inspection manual chapter 0350 panel restart checklist. Letter to Lew Myers, chief operating officer, FirstEnergy Nuclear Operating Company, August 16. James E. Dyer is regional administrator at the Nuclear Regulatory Commission. 4 Atomic Energy Commission, 1970. Quality assurance criteria for nuclear powerplants. Federal Register (Vol. 35, No. 125, pp. 10498–10501), June 27. Washington, DC.

Bulletins) to help its licensees learn lessons from safety problems experienced here

and abroad. Upon receiving generic communications from the NRC, owners incorporate applicable lessons into training programs and procedures at their plants. Literally thousands of generic communications issued over the past four decades are

posted on the NRC’s website at http://www.nrc.gov/reading-rm/doc-collections/

gen-comm/. A small handful of these numerous generic communications deal with

safety culture problems. For example, the NRC issued Information Notice 2002–11

(available online at http://www.nrc.govireadin2-rmidoccollections/gen-comm/infonotices/2002/in02011.html) to alert plant owners to the reactor vessel head degradation found at Davis-Besse. The NRC never issued a single generic communication document about the determination that production had been placed ahead of

safety at Davis-Besse, even though it caused the extensive reactor vessel head degradation and several other equipment problems. The NRC must issue generic communications when safety culture problems are identified so that other plant owners

can incorporate applicable lessons into their training programs and procedures like

they do for equipment related problems.

The other step the NRC needs to take requires more effort. I recently completed

an assessment of the times when nuclear power reactors had to shut down for a

year or longer to restore safety levels. My research focused on the causes of these

year-plus outages. The NRC’s current regulatory processes were then back-tested

against the outages causes. My work, which will be documented in a report issued

by UCS in the near future and respectfully submitted to this subcommittee at that

time, concluded that the leading cause for year-plus reactor outages remains ineffectively regulated today. More than 70 percent of the year-plus outages at U.S. nuclear power reactors over the past four decades have been caused by quality assurance program breakdowns. The NRC’s regulations1 require plant owners to have effective quality assurance programs that find and fix problems in a timely and effective manner. But time and again, those quality assurance programs utterly failed

and the NRC did not detect the breakdowns until the sheer volume of problems

missed or inadequately repaired eroded safety levels so far that the reactors remained shut down for longer than a year while overdue corrective actions were finally taken.

The NRC’s ineffective enforcement of its quality assurance regulations at DavisBesse illustrates the problem. In March 2001, the NRC informed Davis-Besse’s

owner that its inspection team ‘‘concluded that problems were properly identified,

evaluated, and resolved within the problem identification and resolution programs.’’2

Problem identification and resolution programs are the current nuclear industry terminology for quality assurance programs. Less than a year later, extensive degradation to the reactor vessel head was identified at Davis-Besse. In August 2002, the

NRC identified a long list of tasks to be completed before it would permit DavisBesse to restart.3 The first item listed by the NRC in a section titled ‘‘Adequacy of

Safety Significant Programs’’ was ‘‘Corrective Action Program,’’ the very same program determined by the NRC to be fully adequate in March 2001. The NRC’s 2001

determination was completely erroneous. The quality assurance program did not

conform to federal regulations in March 2001 or for several years prior to that date.

The NRC failure to enforce its quality assurance regulations contributed to the

depth and breadth of the problems plaguing Davis-Besse.

Nothing in the past 5 years leads us to suspect, yet alone believe, that the NRC’s

process for evaluating whether its quality assurance regulations are being followed

is any more effective today. The recurring tritium spills at the Braidwood nuclear

plant in Illinois and the recurring steam dryer damage at the Quad Cities nuclear

plant in Illinois share a common cause—defective, pitiful quality assurance. The

NRC’s vision impairment to quality assurance program failures continues.

The NRC, or actually the NRC’s predecessor the Atomic Energy Commission, promulgated its quality assurance regulations in June 1970.4 Embarrassing quality assurance breakdowns at many nuclear powerplants such as Zimmer in Ohio and Mid-
69

land in Michigan prompted the NRC and the nuclear industry to adopt the terminology ‘‘corrective action programs’’ in the late 1980s to get away from the stigma

that had become linked with ‘‘quality assurance programs’’ at nuclear plants. Embarrassing corrective action program breakdowns at many nuclear powerplants such

as Sequoyah and Watts Bar in Tennessee, Browns Ferry in Alabama, Indian Point

in New York, and Millstone in Connecticut prompted the NRC and the nuclear industry to swap to ‘‘problem identification and resolution programs’’ in the late 1990s

to once again avoid a stigma. Unless the NRC effectively enforces its quality assurance regulations, another stigma evasion swap will be needed towards the end of

this decade because of embarrassing problem identification and resolution breakdowns at nuclear powerplants such as Davis-Besse, Salem and Hope Creek in New

Jersey, Palo Verde in Arizona, and Braidwood and Quad Cities in Illinois. The NRC

must consistently and effectively enforce its quality assurance regulations to avoid

chronic erosion of safety levels that have led to dozens of year-plus reactor outages

and which could someday factor in a tragic nuclear plant accident.

This second step requires greater effort by the NRC than the first step of expanding the scope of its generic communications program to include warnings about safety culture problems. But my research into year-plus reactor outages leaves me confident that the NRC can rise to the challenge. Year-plus reactor outages caused by

events (e.g., the 1966 partial meltdown at Fermi Unit 1 in Michigan and the 1975

fire at Browns Ferry Units 1 and 2 in Alabama) and by damage to large components

(e.g., the steam generator repairs at Turkey Point Unit 3 in Florida in 1981 and

at Maine Yankee in Maine in 1995 and the piping replacements at Nine Mile Point

Unit 1 in New York in 1982 and Pilgrim in Massachusetts in 1983) have essentially

been eliminated due to successful regulatory actions by the NRC. There has not

been a year-plus reactor outage caused by an event or damage to a large component

in over a decade. But there have been 11 year-plus reactor outages caused by quality assurance program breakdowns in the past decade. Based upon the findings from

my research, it is my firm conviction that year-plus reactor outages caused by quality assurance program breakdowns could be significantly reduced—if not outright

eliminated—by proper regulatory attention from the NRC.

In closing, thanks largely to this subcommittee and its chairman, the NRC is

about to implement revisions to its regulatory processes that should significantly reduce safety culture problems at nuclear powerplants. The NRC needs to complement

those changes by expanding the scope of its generic communications program to include safety culture problems when they are identified. And the NRC needs to supplement these measures by regulatory process changes that enable the agency to

consistently and effectively enforce its quality assurance regulations.

On behalf of the Union of Concerned Scientists, I thank you for conducting this

hearing and for including our perspective.
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RESPONSES BY DAVID A. LOCHBAUM TO ADDITIONAL QUESTIONS FROM

SENATOR VOINOVICH

Question 1. Mr. Lochbaum, the information NRC provides on its website is very

technical, hard to understand, and hard to find. However, this communication is imperative if the public is to have confidence in NRC’s oversight of nuclear powerplants. I am interested in your views on the degree to which the public understands

all of the information that is available related to the ROP and plant safety performance. Do you have any suggestions for how the NRC can improve this vital communication?

The NRC’s website contains a wealth of information about the Reactor Oversight

Process (ROP). The bountiful information includes a brochure about the ROP intended for a broad, general audience (available online at http://www.nrc.gov/readingrm/doc-collections/nuregs/staff/sr1649/r3/sr1649r3.pdf), procedures used by NRC inspections in assessing plant performance, and results from those NRC inspections.

The challenge facing the public is wading through this information pool. The ROP

information is presently posted on the NRC website in an illogical and baffling manner. For example, it took me several minutes to locate the aforementioned brochure

even though I knew it existed and access the NRC’s ROP webpage on a weekly

basis. One has to be an ROP expert to decipher they nukespeak and navigate the

NRC’s ROP webpage. That’s too much of a burden for the NRC to place on any

member of the public who merely seeks information about the performance of the

reactor in his or her backyard.

The NRC’s ROP webpage needs major redesigning. In our view, the ROP webpage

should start with the Action Matrix Summary (see response to Question 2) because

it provides the current status of what the NRC thinks about the performance of operating reactors. It provides the public with a straight-forward guide to the reactors

performing well and the reactors getting increased attention from the NRC. From

this overview, members of the public should then be able to drill down through additional ROP information to find details about why the NRC thinks a reactor is doing

well (or not) and material about the ROP itself.

One class of documents conspicuously missing from the NRC’s ROP webpage are

the slides used by the NRC during its annual public meetings in each reactor community. The NRC has truly done a very fine job of communicating to the public attending these annual meetings about its assessment of the nearby reactor’s performance. The NRC’s slides convey reactor results in context and also provide very useful information about the level of effort (e.g., person-hours expended on inspections

and breadth of areas inspected) used by the NRC in reaching its conclusions. Currently, the value of this commendable communications vehicle is limited to those

persons attending the annual meetings and those persons stumbling across the documents in the NRC’s online electronic library (ADAMS). These presentation slides

should also be available from the NRC’s redesigned ROP webpage.

Question 2. From your perspective, what has improved from NRC’s old oversight

and the newer Reactor Oversight Process in use today. NRC’s prior oversight used

the ‘‘watch list’’ to indicate which plants were poor performers. From your indepth

look at the ROP, what distinguishes the good performers from the bad performers?

Response. The NRC’s Reactor Oversight Process (ROP) is better than its previous

process in many ways. I consider the most significant improvements to be in the

areas of timeliness (current process updates plant performance measures on a quarterly basis instead of the former 18 to 24 month frequency), discreteness (current

process examines performance in approximately 25 categories instead of the former

4 broad categories), and defined regulatory responses (graduated dependent upon

the extent of the performance decline instead of the former ad hoc, case-by-case response). Collectively, these improvements should enable the NRC to detect performance declines sooner and engage so as to turn around declining trends before they

droop to epidemic proportions.

The most visible measure for the NRC’s determinations about good and bad performers is the Action Matrix Summary. This summary is available online at the

NRC’s website at http://www.nrc.gov/NRR/OVERSIGHT/ASSESS/actionmatrix—

summary.html. The Action Matrix Summary is updated by the NRC on a quarterly

basis and shows the agency’s overall assessments for each of the operating nuclear

power reactors. The ratings are presented in tabular format. Reactors are placed

into five columns, with the good performers in the first column (Licensee Response

Column) and progressively underperforming reactors in the second through fifth column (Unacceptable Performance Column). At present, the overwhelming majority of

reactors are in the first column. No reactors are in the fifth column and three reactors (Perry and Point Beach Units 1 and 2) are in the fourth column. Each reactor
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not in the first column has a footnote explaining when and how the NRC determined its performance decline.

Complementing the Action Matrix Summary are two online charts showing the

Performance Indicator (PI) and NRC inspection finding results for operating reactors. The PI chart is at http://www.nrc.gov/NRR/OVERSIGHT/ASSESS/pi—summary.html and the inspection finding chart is at http://www.nrc.gov/NRR/OVERSIGHT/ASSESS/pim—summary.html. These charts allow individuals to put results

for a single reactor into context. This context supports the Action Matrix Summary

in distinguishing between good and bad performers. The reactors with performance

issues will have White, Yellow, and/or Red PI and/or inspection findings.

RESPONSE BY DAVID A. LOCHBAUM TO AN ADDITIONAL QUESTION FROM

SENATOR JEFFORDS

Question. In your testimony you focus on the failure of quality assurance programs as the main reason for nuclear plant outages that lasted longer than one

year. Can you please elaborate on how these problems have led to safety issues?

Can the NRC address this problem by simply enforcing its existing regulations?

Response. The 2-year-plus outage at Davis-Besse illustrates how quality assurance program breakdowns have led to safety issues. The many other year-plus outages have similar histories. The most notorious problem at Davis-Besse was the degradation to the reactor vessel head discovered in March 2002. Had that problem

been the only safety issue, Davis-Besse could have restarted in fall of 2002 after the

damaged reactor vessel head was replaced with one acquired from the cancelled

Midland nuclear plant. But Davis-Besse did not restart until March 2004 because

many other safety issues were also uncovered. For example, the high pressure injection (HPI) pumps had a design flaw that likely would have caused them to fail

shortly after being called upon to mitigate an accident. The flaw had been identified

and corrected in French nuclear plants more than 10 years earlier, but Davis-Besse

had not corrected this known deficiency. In addition, Davis-Besse’s restart was delayed by repairs to peeling paint on the inner surface of the containment dome (not

merely a cosmetic problem, the paint peels could have clogged the inlets to safety

pumps during an emergency, preventing them from adequately cooling the reactor),

to the containment air coolers damaged by boric acid, and to undersized screens protecting safety pumps from debris created by the hydrodynamic forces occurring during an accident. Each of these safety issues had been detected long before March

2002 and had either not been addressed or had been inadequately corrected. Consequently, the collection of unresolved safety issues grew larger with time, decreasing safety levels over that period and increasing the cost of repairs once the collection could no longer be tolerated. Had the NRC enforced its quality assurance regulations, these safety issues would have been resolved long ago, protecting the public

from unnecessary erosion of safety margins and perhaps avoiding the high cost of

a 2-year-plus safety restoration outage.

UCS is confident that the NRC can reduce, if not eliminate, the chronic year-plus

outage problem plaguing the nuclear industry by enforcing its quality assurance

regulations. It merely requires the agency to refocus how it handles NRC inspection

findings. Each time an NRC inspector finds a safety problem, two separate issues

are identified. The first issue is the specific finding—a broken widget, a failure of

a worker to follow approved procedures, a failure to perform a surveillance test

within the prescribed interval, etc. The second issue involves the quality assurance

problem breakdown. In theory, NRC inspectors should never find anything because

the plant owner’s quality assurance measures should have already identified such

problems. So each NRC inspection finding represents an implicit failure of the quality assurance effort at that site. But the NRC essentially ignores the quality assurance breakdown component of its inspection findings, thus closing its eyes to the

systemic problems that led to the year-plus outages at Davis-Besse, Millstone, DC

Cook, Salem, and so many other reactors. More importantly, the NRC’s regulatory

blindness to these identified quality assurance failures exposed persons living

around these reactors to unnecessarily elevated risks during the months and years

the reactors operated with numerous safety deficiencies. The good news is that the

NRC can fix this problem by enforcing its existing quality assurance regulations.

STATEMENT OF KEVIN BOOK, SENIOR ANALYST, VICE PRESIDENT, FRIEDMAN,

BILLINGS RAMSEY & COMPANY, INC.

I would like to thank Chairman Voinovich, Ranking Member Carper and all of

the distinguished members of this Ssbcommittee for the honor of being invited to
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contribute to the important work you are doing here today. The views I will express

are my own and do not represent the viewpoint of my employer, the Arlington, Virginia-based investment bank Friedman, Billings, Ramsey & Company, Inc.

Let me begin by offering my admiration for the Members of this subcommittee

and the foregoing panel of Nuclear Regulatory Commissioners. Oversight of the Nation’s nuclear power industry requires an impressive breadth of financial, legal and

technological knowledge.

My comparatively modest task is to serve the men and women who manage institutional assets on Wall Street. Like you and the Commissioners, they are busy and

committed professionals who bring a wide range of skills and expertise to their alsocritical roles in stewardship of the nation’s economy. To the best of my ability, I provide these institutional investors with my interpretation of the energy policy actions

taken here in Washington.

Put another way, I analyze the busy people here in Washington for the busy people on Wall Street. Today, it will be my privilege to turn the process around and

offer my assessment of institutional investors’ attitudes towards the current nuclear

regulatory environment.

THE INVESTMENT DECISION

Financial investors seek returns that outperform industry benchmarks. An investor’s charter or institutional mandate may define the class and type of portfolio assets in which he or she might invest. These choices may vary considerably across

different firms, funds and asset classes but, whatever the criteria, timeframe or

‘‘style’’ involved, investors generally seek to allocate the capital entrusted to their

care to the highest-yielding investments among competing alternatives.

Asset managers and corporate executives within energy and utility companies face

similar challenges when considering energy investments. Energy projects usually require years of development once the investment decision has been taken, but the

price of a given commodity may change abruptly (and often) within the sustained

time period required before cash flows begin. Furthermore, demand for a given commodity can also change, potentially transforming an attractive profit opportunity

into a financial loss, sometimes as a result of unforeseen developments.

The debt and equity markets incorporate a measure of the risks inherent to any

individual utility or energy firm that might undertake a new nuclear power facility

into that firm’s ‘‘weighted average cost of capital’’, taking into account both the rate

of return a firm must offer its debt holders and the cost to the firm of issuing new

equity. It is usually more expensive for firms of any kind to undertake higher-risk

projects or for higher-risk firms to issue equity or debt to fund the same type of

projects routinely undertaken by lower-risk firms. From the investor’s point of view,

riskier investments must pay higher returns to be worth considering alongside less

risky investments.

Financial investors may also modify expected project returns by multiplying projected future revenues by a coefficient that encapsulates the probability of a successful project or project stage, using this ‘‘expected value’’ in their risk-adjusted return

calculations. Modeling project and securities values requires investors to make subjective assumptions about future conditions using all available information. This can

explain the discrepancy in analysts’ estimates for different securities. At the same

time, investors may show enthusiasm for firms with strategic advantages vis-a-vis

their competitors or for industries characterized by the prospect of rapid earnings

growth. Likewise, investors may be highly sensitive to the prospect of a significant

change in time prior to project completion. Lack of visibility into future regulatory

or political circumstances or other key externalities may reduce investors’ perceptions of the future value of a given firm’s securities.

In the end, investors do not refuse to purchase riskier securities. Rather, the aggregated capital markets demand higher returns to mitigate the effects of higher associated risks. The capital budgeting process can result in firms (or investors) pursuing other options when Wall Street demands a higher rate of return than firms

undertaking new projects can afford to pay (or choose to pay given the returns they

expect to receive from the underlying project). For many years, a combination of

these dynamics has driven capital away from new nuclear power facilities and towards other forms of power generation.

THE OPPORTUNITY AHEAD

The Nation’s 103 nuclear powerplants currently provide approximately 20 percent

of U.S. electricity and a total capacity approaching 98,000 MWt. With EIA projections of electricity demand growth through 2025 of 1.5 percent per annum, new nuclear powerplant construction will be necessary to retain at least a proportional role
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1http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109—cong—public—

laws&docid=f:pub1058.109. 2 2006 EIA Annual Energy Outlook. Table 38, p. 77.

3 Again, using EIA numbers. At an average retail price of 7.62 cents per kilowatt hour across

all sectors and all users for most recent data available, 1.8 cents would represent 23.6 percent

of end-user retail price. See website at http://www.eia.doe.gov/cneaf/electricity/epa/epat7p4.html.

for nuclear power in the Nation’s future power needs. (A May 15, 2006 letter from

Chairman Diaz to this subcommittee’s leadership projected 3,795 MWt of power

uprates at 23 nuclear powerplant units over the next 5 years, implying new capacity

creation of at least 40,000 MWt to retain a fixed 20 percent role within the generating portfolio).

This represents a significant change. Since the Three-Mile-Island accident in

1979, the combination of potentially long delays associated with new reactor permits, high up-front capital costs, unclear regulatory risk horizons and once-cheaper

natural gas-fired generation has deterred new nuclear reactor construction. On the

other hand, the Energy Policy Act of 20051 created several meaningful incentives

for new plant construction: • Section 602 of the Act reauthorizes the Price-Anderson Act through December

31, 2025, limiting the financial risk to operators in the untoward event of a reactor

accident. • Section 638 of the Act offers the Secretary of Energy authority to enter into con- tracts to provide ‘‘standby support’’ to new powerplant sponsors totaling up $500

million (for the first two plants) to offset capital costs associated with certain delays

during Nuclear Regulatory Commission approval, Congressional oversight and judicial review or litigation. • Section 1306 of the Act creates an 8-year, 1.8-cent per kilowatt hour production

tax credit for new advanced nuclear power facilities subject to certain capacity limits.• Section 1703 of the Act includes advanced nuclear power facilities as eligible

projects for federal loan guarantees for 80 percent of project cost.

In addition, the Energy Policy Act of 1992 overhauled the licensing process to create the combined Construction and Operating License (COL) in place today under

10 CFR 52.

TWO POTENTIAL OUTSTANDING ISSUES

Using EIA’s projected2 capital costs of $2,014/kW, a 1,000 MWt new nuclear plant would be a $2 billion undertaking that will require project sponsors to source capital

from the debt and equity markets. The capital structure of any prospective transaction would likely reflect the character of the project sponsor itself Merchant generators might structure more debt-leveraged transactions to take advantage of the

lower cost of capital associated with federal loan guarantees under Section 1703 of

the Act (thereby minimizing the dilutive effects of new equity issues) while regulated utilities might set 50:50 debt-to-equity project capital structures in order to

expand their equity rate bases.

Irrespective of capital structure, it may not become clear until after advanced nuclear plant applications have been formally submitted and the capital raising process has begun whether incentives will be enough to generate investor enthusiasm

at financial terms that meet the constraints of the project sponsors.

It is my view, based on conversations with clients and colleagues, that the current

policy framework leaves two issues outstanding that could potentially result in investors assigning greater risk premiums to new offerings in support of advanced reactor construction.

The first of these is the potential for delay. In any discounted cash flow analysis,

of project (or securities) valuation, time is a critical factor. Because a dollar next

year is worth less than a dollar today, longer project delays even at a low cost of

capital will diminish cash-on-cash returns. The effect is not just limited to the cash

flows available to equity shareholders; the prospect of execution risk in tandem with

significant financial leverage could potentially erode a project sponsor’s creditworthiness. The legislated incentives for new plant construction suggest a favorable economic

result for an on-time completion scenario: the first plants in service will be eligible

to receive production tax credits of 1.8 cents per kilowatt hour—a potential boost

worth 20 percent (or far more) of average retail price for electricity produced3. The

problem is that project sponsors cannot capture this economic benefit until the

plants go into operation (and only if operation commences before December 31,

2020). Because new reactors will provide the first test of the combined COL process,

investors are likely to consider the unlikely prospect than an unexpectedly long
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4 Baker, D. ‘‘Waste storage dilemma crimps nuclear future.’’ The San Francisco Chronicle.

June 11, 2006.

delay might outstrip even the $500 million offset provided under section 638 (a consideration that becomes much more relevant for plants 3–6, where the offset is only

$250 million, or plants 7∂, for which no offset is provided). Nuclear Regulatory

Commission reviews of the operators’ inspections, tests, analyses and acceptance criteria may also contribute unpredictable delays to the final stage of the process. Regulated utilities might be able to recoup unforeseen costs associated with delays

through rate-base proceedings, but competitive pressure could force merchant generators to offer power at prices closer to prevailing competitive levels, creating the

prospect for diminished project returns.

The second area outstanding issue is waste storage. Unanticipated additional capital expenditures by project sponsors to construct waste storage could also negatively affect project returns. According to the testimony of Paul Golan, the Acting

Director of the Department of Energy’s Office of Civilian Radioactive Waste Management, before the full U.S. Senate Environment and Public Works Committee on

March 1, 2006, the nation’s powerplants maintain more than 50,000 metric tons of

nuclear waste at 122 temporary storage facilities in 39 states. Mr. Golan suggested

during his March testimony that he hoped to publish a schedule this summer for

the Department to submit its permit application for Yucca Mountain to the Nuclear

Regulatory Commission.

While Yucca Mountain operations could conceivably begin before new nuclear reactors even go into operation (and therefore well before new nuclear waste would

be ready for transportation from onsite facilities to geologic storage), institutional

investors must also take into consideration the prospect that federally-provided permanent geologic disposal of nuclear waste may not become operational at Yucca

Mountain or anywhere else, in the near-term, intermediate term or even at all. A

recent newspaper article4 projected that new storage at PG&E’s Diablo Canyon facility could cost as much as $200 million. If project sponsors were to bear the costs

of constructing storage facilities to accommodate waste from new reactors (in addition to the 2,000 incremental metric tons each year created by the existing fleet of

reactors), the additional spending could also diminish expected project returns.

In closing, it is my view that the capital markets will most efficiently support the

policy goal of expanding low-emissions, high-capacity electricity generation through

the construction of new nuclear powerplants when institutional investors face minimum risks associated with regulatory delay and waste storage costs.

This concludes my prepared testimony.

RESPONSES BY KEVIN BOOK TO ADDITIONAL QUESTIONS FROM SENATOR VOINOVICH

Question 1. Mr. Book, I am interested in the investment community’s scrutiny of

the NRC in their oversight of the current fleet of plants. Do delays today in terms

of a license extension (or power uprating) for a plant or how the Commission handles an issue at a specific plant play a role in financing the construction of new

plants?

Response. Chairman Voinovich, it is my belief that approval delays for license extensions or power upratings today may not necessarily affect the specific financial

characteristics of a given nuclear powerplant sponsor at a future date unless that

sponsor is unable to generate cash flows sufficient to service the leverage (or equity

dilution) incurred as a result of those undertakings.

However, investors in new nuclear powerplants will have very little information

with which to set their expectations as they calculate financial returns under different delivery scenarios. Sustained delays today could cause investors to assign a

lower probability weighting for an on-time delivery scenario, lowering the risk-adjusted returns to equity holders on a per-share basis and ultimately increasing the

cost of capital to the project sponsor.

The character of, and reason for, the delay would also play a role. Structural incapacity or bottlenecks at key administrative junctures might signal to an investor

that future Nuclear Regulatory Commission decisions that incorporate the same

staff or administrative processes could carry a higher risk of delay.

Question 2. I am very interested in your comments about the risk posed by delays.

In terms of licensing a new plant, is there a point at which a delay is more significant than another? For example, if the first plant to go through this process has

delays early is that significant or is it seen as just a learning process? Or is a delay

in the process for a second plant worse than for the first?
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Response. Chairman, the answer to your first question depends on how plant financing is structured. Under a scenario where project sponsors capitalize a new

project through securities offerings at the beginning of the project life, any event

that pushes back cash returns beyond the projected start date will diminish the expected rate of return.

To your second question, investors are likely to be forgiving of delays associated

with early efforts, particularly as the industry itself has offered full disclosure of the

human capital ramp-up they will face for new plant development and the anticipated challenges associated with new skills acquisition, retraining and experiential

learning. These expectations should already be built into the financial forecasts of

analysts and project sponsors alike.

In general, I believe regulatory delays that are neither anticipated nor ascribable

to the steepest part of the learning curve are likely to have the most chilling effect

on investor enthusiasm.

Qustion 3. Mr. Book, I am interested in how new nuclear plants compete with alternative energy sources such as coal, gas, hydro, wind, solar, biomass in meeting

the demand for electricity?

Response. Chairman, the question you pose can be evaluated at many levels. In

my published research, I rely on one of the most basic measures of comparative

project economics, the ‘‘levelized generation cost’’, usually expressed on a cents-perkilowatt-hour basis. Computing levelized generation cost requires one to make a

number of assumptions about capital cost, plant life, fuel costs and construction

timeframes.

Using the Energy Information Administration’s own numbers provided within the

2005 Annual Energy Outlook, photovoltaic generation would represent one of the

most expensive options at 21.0 cents/kW-h and solar thermal generation would

weigh in at 12.0 cents/kW-h. Natural gas combined cycle and pulverized coal, on the

other hand, reflect considerably cheaper production costs at 4.7 cents/kW-h and 4.3

cents/kW-h, respectively, but both of these build on assumptions of relatively stable

base-case prices for fossil fuel inputs. Wind comes in at 4.8 cents/kW-h, open loop

biomass at 5.1 cents/kW-h and nuclear power at 6.0 cents/kW-h, although existing

production subsidies could yield adjusted generation costs of 3.9 cents/kW-h for

wind, and 4.2 cents/kW-h for open-loop biomass and nuclear plants.

By the same token, these numbers do not account for the production scale of nuclear powerplants compared to other sources. The potential capacity provided by nuclear power (in the 1,000–2,000 MW range) far outstrips the capacity of most of the

renewable sources and there are realistic limits that each of renewable sources

would encounter in attaining that capacity (think of hillsides and prairies endlessly

covered with wind turbines as far as the eye can see).

Likewise, these levelized generation assumptions do not consider the upward

pressure that would be exerted on the nation’s already-straitened natural gas resources if all that capacity had to come from new combined cycle plants—the resulting demand spike could conceivably make natural gas much more expensive than

the current EIA base case suggests and skew the levelized generation numbers upwards.

Finally, the levelized generation metrics do not incorporate all of the potential

costs of credits to offet nitrogen oxide, sulfur dioxide and mercury emissions from

pulverized coal plants. These credits are subject to market-based price moves under

the EPA’s Clean Air Interstate and Mercury Rules. Furthermore, these numbers do

not incorporate the potential cost associated with any future regulation governing

carbon emissions from coal-fired powerplants.

It is my personal view that the relatively stable ongoing production costs of nuclear power make it an attractive base-load source for the expected 50 percent

growth in U.S. electricity demand over the next 25 years. It likewise seems inevitable that coal-fired production will retain its prominent station as a source of baseload power within the Nation’s generating portfolio, whereas the renewable and alternative sources you mentioned will likely continue to present utilities with the

greatest value as ‘‘peaking’’ sources to offset maximum demand periods. Conservation, too, if it results from price-responsive behavior by U.S. consumers, may prove

to be a useful (albeit necessarily finite) ‘‘source’’.

RESPONSE BY KEVIN BOOK TO AN ADDITIONAL QUESTION FROM SENATOR JEFFORDS

Question. You stated in your testimony that one of the main outstanding issues

that might deter investors from investing in reactor construction projects is waste

storage. As you also mentioned there are questions about if and when the Yucca

Mountain repository will begin operation. There is also the question of the capacity
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of Yucca Mountain being depleted by existing spent nuclear fuel. How are potential

project sponsors responding to the uncertainties about waste storage?

Response. Ranking Member Jeffords, as I have not yet seen any debt or equity

prospectuses offered to support new nuclear powerplant construction, I cannot speak

to how any of the 18 potential applicants referenced during testimony on June 22,

2006 might respond on an individual basis.

On the other hand, I can anticipate three general categories of action available

to project sponsors. First, sponsors might account for this uncertainty by factoring

in the cost of constructing new onsite storage. Second, sponsors can project the costs

of purchasing interim storage from a third-party provider. Third, sponsors can consider the ‘‘sunny day’’ case that federal government provided permanent storage will

be provided in a timely fashion. By the same token, it would not be unreasonable

for sponsors also to consider a ‘‘rainy day’’ outcome whereby new onsite or interim

storage costs are higher than expected due to a growth in demand. In every case

but the ‘‘sunny day’’ operation of a federal repository, the net effect of uncertainty

appears to imply diminished expected returns from the new reactor project.
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