Policy Options

The previous chapters have painted an unpromising picture of the future of nuclear power in the United States. Projections for new central station generating capacity over the next 20 years are much lower than those of just a few years ago. The high financial and political risks involved with nuclear plants suggest that any central station capacity that is added would be coal-fired. Under existing conditions, there are few incentives for utilities to select nuclear plants and many reasons to avoid them.

It can be highly misleading, however, to forecast future decisions on the basis of existing conditions. Some of the problems that appear so formidable now will diminish. The plants under construction now were designed according to concepts developed 10 to 15 years ago. Any future plants can be expected to incorporate major changes that have been backfitted onto existing plants and other changes that have been suggested to improve operation. In addition, much has been learned about how to construct plants more efficiently. While these and other changes would go far toward eliminating the large cost overruns some utilities have experienced, they probably are not sufficient to restore confidence in the financial viability of the technology. Other concerns exist that these changes will not address. Therefore, it is probable that additional initiatives, including Federal actions, will be required if the country concludes that nuclear energy is to continue to grow past the plants now ordered.

As recounted in chapters 1 and 3, there are reasons why the Nation could decide that it would be in the national interest to maintain a domestic nuclear option. Nonfossil fuel energy sources may be urgently required for environmental reasons within several decades, and nuclear energy could be the most economical source that can be readily deployed. Even if such environmental conditions do not materialize, it could be economically prudent to retain a generating

source other than coal. The energy outlook for the early 21st century, when oil and gas reserves will become seriously depleted, is very uncertain. If it is reasonably possible that nuclear power will be seen as very desirable or even indispensable within 20 or 30 years, it probably is more efficient to have a continuous learning curve than to try to put the industry back together when it is needed.

There are, of course, reasons for opposing these arguments. Even if it is conceded that it would be in the national interest to have the nuclear option, that does not mean it is the responsibility of the Federal Government to ensure it. The economic penalty for not having more nuclear plants would not be crippling (though the total dollar penalty could be quite high) (2,4), and as shown in chapters 3 and 5, unless nuclear plants are built and operated well, they are not the most economic choices. If any more serious accidents occur, forcing long shutdowns and expensive backfits, the economics of nuclear power will be very hard to defend. Thus, it could be more productive economically to concentrate on the development of alternative energy sources.

Therefore, policy options presented here are not intended to prop up a terminally ill industry, but to cure the problems of an industry that is salvageable and which the Nation decided was needed. In addition, some of the options can be of importance for ensuring that existing reactors operate safely and economically regardless of the choice about the industry's future.

The next section presents a series of policy goals and options that might be considered by Congress. For some of these, a lead congressional role would be needed. For others, congressional action may be no more than general policy setting and oversight because the main initiative must arise elsewhere.

One of the difficulties facing policymakers is that few if any of these options will be very effec

tive by themselves. Actions need to be taken on a broad front, but the responsibility for these actions is diffuse.

The third section, therefore, groups the options according to three different strategies: first, no change in Government policy as it currently appears; second, remove obstacles in the way of further orders for nuclear plants; third, stimulate more nuclear orders. These strategies correspond

to different levels of involvement to which policymakers may want to commit the Government.

The success of these strategies depends in turn on two other factors: the need for nuclear power and how well the industry manages its present reactors. Therefore this section also includes economic and industry management scenarios that are combined into four different futures to help evaluate the strategies.

In order for nuclear power to become more acceptable in general, progress must be made in several different areas. Reactors must be more affordable, operations of existing nuclear plants must be improved, concerns over potential accidents must be alleviated, and public acceptance must be improved. This section discusses the specific policy initiatives that would contribute to these goals. The goals and options are listed in table 34. Under each goal the options are listed not by importance, but in order of ease of implementation according to the strategies discussed later.

Goal A: Reduce Capital Costs
and Uncertainties

At present, nuclear reactors pose too great a financial risk for most utilities to undertake. Few utilities can support such a great capital cost for the length of time required to build a nuclear plant, even if lifecycle cost projections show that it would be the cheapest power source over the lifetime of a powerplant. Not only are capital cost estimates high, but the actual cost could be much higher if designs continue to change during construction. As discussed in chapters 3, 4, and 5,

this situation should improve even without any policy changes, but probably not enough for utilities to be confident in their estimates.

Policy options intended primarily to support this goal are discussed below.

A1. Revise the Regulatory Process

Regulatory reform has many proponents in the nuclear industry who argue that the licensing process is unpredictable and unnecessarily timeconsuming. Some revision may be necessary (if not sufficient) for a resurgence in nuclear plant orders.

Efforts to change licensing will encounter difficulties, however, if they do not account for other points of view. The primary purpose of nuclear regulation is to ensure safety. As discussed in chapters 5 and 6, some utilities and contractors have not performed adequately. In such cases, difficulties with regulation indicate that regulation is working. In addition, nuclear critics object to any attempt to limit their participation in the regulatory process, and suspect that changes to enhance efficiency would reduce their effectiveness in raising safety issues. Since critics have considerable influence on public opinion, it will be difficult to achieve enough of a consensus on such revisions. Thus, a complete package of regulatory change should improve the predictability and consistency of licensing nuclear plants while simultaneously ensuring their safety and adequate public participation.

Major proposals for legislative action concern early approval of designs and sites, the hearing process, combined licenses, and backfits. These proposals are evaluated in chapter 6. It is likely that efficiency and predictability could be enhanced by banking designs and sites, and this change could be structured to allow adequate opportunity for public participation. It is less clear that revising the hearing process or combining construction and operating licenses would improve efficiency or allow for adequate public involvement until the technology is more mature. Tighter management within the Nuclear Regulatory Commission (NRC), perhaps with stricter congressional oversight, might make sufficient progress in these areas.

Nuclear utilities are especially sensitive to backfitting, which can be very costly and time-consuming. The controversies surrounding backfits and the proposals for change have been described in chapter 6. There are two related problems. One is that individual backfit orders do not always take into account the impact on other parts of the plant. The second is that estimates of overall gains in safety are not made to weigh against the full cost. The prospect of ever greater costs associated with future backfits to completed plants increases the uncertainty of investment in nuclear power. Decisions on backfits generally have been made implicitly and with little consistency. It is difficult to develop a universally acceptable formula for these tradeoffs since safety is not easily quantifiable, and regulators are reluctant to factor in costs if this could result in any decrease in safety.

Several proposals have been made to revise NRC's backfit rule and procedures. All proposed revisions have recommended changing NRC's definition of a backfit to make it more explicit. In addition, it is generally suggested that threshold standards for invoking a backfit order be more clearly identified, along with the procedure for implementation.

These changes could be accomplished through administrative rulemaking, as proposed by NRC, or through legislation, as supported by the nuclear industry and the Department of Energy (DOE). Legislation could make backfit decisions more consistent but would have serious drawbacks if it attempted to be too precise. The techniques for quantifying safety improvements are still somewhat crude, and any cost-benefit analysis would be inherently uncertain and subject to bias. Institutionalizing cost-benefit considerations through legislation also may reduce NRC's flexibility to improve the process later. Such legislation also might be perceived by nuclear critics as restricting safety improvements that might be necessary even if they do not meet the cost-benefit criteria because of all the uncertainties in the technology. A productive Government role in this area might be to develop and refine risk assessment and cost-benefit analysis methodologies so that they can be more confidently applied in backfit decisions.

A2. Develop a Standardized LWR Design, Optimized for Safety, Reliability, and Economy

For a variety of reasons discussed in chapters 4, 5, and 6, the reactor plant designs currently available could be significantly improved. An effort that rethinks the concepts by which reactors have been designed could result in light water reactors (LWRs) that are cheaper, safer, more operable, and perhaps smaller than the present generation. This effort would draw on all that has been learned about the characteristics of good, safe reactors and integrate the best features into a package that would represent the best of technology. The design philosophy would emphasize resiliency and passive safety features as well as affordability and economy. The system would be subjected to intensive analysis from every possible perspective to ensure that, insofar as possible, all contingencies had been covered.

To a degree, the Westinghouse effort on the advanced pressurized water reactor described in chapter 4 meets these objectives. The rationale for a Government role is that a complete reactor and plant design is extremely expensive, and no corporation is likely to be able to finance it unless it sees a major market, which is not now the case. In addition, there are several technical questions such as the unresolved safety issues requiring additional R&D that is best funded by the Federal Government. A Government-initiated nonproprietary design could more easily draw on the work of more than one vendor or architectengineer as well as a coordinated R&D program, and be available to more producers. Therefore, a national design could have a better chance of being truly optimized. The safety analysis also might be more convincing since it would be done in a more open atmosphere, with direct feedback to the design to improve safety to the maximum extent possible. There is also a growing feeling that current reactors have overshot the ideal size. U.S. vendors are unlikely to be in a position to redesign their new reactors to be smaller.

There are several advantages to a standardized design. The cost would be much more predictable, since most of the regulatory and construction uncertainties could be cleared up before construction started. Costs also could be lowered

by incorporating improved construction techniques. It should be cheaper to operate because it would be designed to operate at a higher capacity factor, lower fuel cycle costs and lower operator exposure. Even if the technology were similar to present reactors, this new design package might represent a major improvement in the acceptability of nuclear power.

There are also disadvantages, however. It would be at least as expensive for the Government to sponsor such a design as it would for a corporation-perhaps several hundred million dollars if a demonstration were required. In addition, a Government lead in developing a new design might imply to some groups a dissatisfaction with present designs serious enough that existing reactors should be shut down.

A3. Promote the Revision of Rate Regulation

The process of rate regulation in most States was designed for an era of relatively small capital cost increments and declining costs per kilowatthour. High interest rates and high capital costs for new generating capacity have strained the system so seriously that changes may have to be made before utilities resume ordering new central station capacity. The current overcapacity gives utilities a welcome respite, but large construction programs will be needed once again.

Regulatory changes that should be considered here are: 1) rate base treatment of utility assets that takes inflation into account, 2) some construction work in progress (CWIP) to be included in the rate base, and 3) real rates of return on equity appropriate to the actual investment risk. These changes and others are discussed in detail in chapter 3. Their general intent is to even out rate increases and provide greater financial stability for utilities and their customers.

A difficulty for Federal policy in this area is that rate regulation is the prerogative of the States. If Federal action is to be acceptable, it must be taken in a way that makes it in the interest of the States. Federal encouragement of long-range regional planning and regulation (see option D5) may be useful since many States are finding that their regulatory programs are encountering increasing difficulties in forging satisfactory com

promises. To some extent, regulation of wholesale power sales by the Federal Energy Regulatory Commission (FERC) influences State regulation. In the summer of 1983, there was extensive congressional debate on legislation restricting FERC allowance of CWIP. Consumer opposition to CWIP has been intense because it allows payment for facilities before they are of any use to the ratepayers. Some States, however, do have partial CWIP allowances.

Goal B: Improve Reactor
Operations and Economics

Decisions on the desirability of future reactors will be based not just on capital cost projections (as improved under goal A) but also on the performance of existing reactors. The low reliability experienced at some plants negates their potential economic benefits and raises concerns over safety. Investors, critics, and the public will be opposed to more orders if some plants are noticeably unreliable. Thus, it is in the interests not only of the specific utility involved but of the industry as a whole to improve operations at all plants. Other means for improving the economics of existing reactors could also improve the outlook for nuclear power as a whole.

The specific options toward this goal follow.

B1. Support R&D Programs to Improve the Economics of Operation

DOE and most of the nuclear steam supply system (NSSS) vendors have modest programs for developing extended burnup for fuel elements. There would be a national benefit from expansion of these programs. Fuel cycle costs could be reduced slightly, and the volume of spent fuel accumulation would be decreased considerably (perhaps by 40 percent). This latter factor, by itself, could justify a significant Federal effort. Saving 40 percent of the spent fuel would not reduce the spent fuel problem proportionately, but it would ease the total burden considerably in the long term. The objection generally voiced to a Federal program is that private industry could handle it. While this is probably true, a Federal role would expedite matters and improve our in

ternational competitive position. A long-term R&D program could provide further benefits.

B2. Improve Utility Management of Nuclear Power Operations

None of the policy options discussed in this chapter will do as much to improve the attractiveness of nuclear power for all the parties to the debate as improved utility management. Many utilities were unprepared for the complexities of nuclear power and the dedication required. This situation was perhaps unavoidable, given the overenthusiasm gripping the nuclear supply industry and the Federal nuclear promoters. By now, however, we are in a period of operation, not expansion. Utilities now have the primary responsibility, and all utilities responsible for nuclear plants must be adept at carrying it out.

It is important to recognize that much is being done to improve the quality of operations as discussed in chapter 5. The Institute for Nuclear Power Operations (INPO) was set up for precisely this purpose and has developed a large number of specific programs. The NRC has shifted some of its scrutiny from the plants to the organizations running them. It is not yet clear whether these efforts will be sufficient.

Specific areas for attention are training and organizational structure. Both previously had been left to the discretion of the utility but are now being addressed by both the NRC and INPO.

Requirements for training show a remarkable variation. Good training programs are expensive, and qualified instructors are in limited supply. It is important to set standards for training and establish reasonable programs for achieving them. INPO is beginning to do this by establishing a training accreditation program. It also may be necessary for NRC to impose these standards to achieve the optimum progress. The NRC probably has the statutory authority to do this, but a congressional directive would expedite NRC actions. Careful observation of the results of INPO's efforts is important to see whether additional NRC action is necessary.

Criteria for organizational structure will be harder to define. One factor that is apparent,