Atomic Insights

Atomic energy technology, politics, and perceptions from a nuclear energy insider who served as a US nuclear submarine engineer officer

Nuclear’s Fork in the Road

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By Jim Little

Would you be willing to continue investing in an established business with flat revenues, increasing costs while competing against an agile field of competitors who enjoy a market advantage of lower costs, quicker deployment schedules and the support of government subsidies and favorable public opinion? Should you stay the course and focus on addressing those challenges or divest? This is the stark choice facing the nuclear power industry today.

The Curves in the Road Ahead

The current situation that the nuclear industry is experiencing is best captured in the familiar “S Curve” graphic below illustrating the life cycle that many industries undergo beginning with birth, through growth, expansion and maturity and a potential decline when later facing factors such as obsolescence, substitute products or a changing competitive or political environment. If conditions do not improve, they eventually come to a point where a decision must be made to either continue on in a declining business, make changes or go in a new direction.

The Current Road Ahead Isn’t Straight – It Might be a Dead End.

There is great concern over the continued viability of nuclear power in the United States going forward. It is facing threats to its very existence, ironically at a time when its performance has reached its peak and when its value could most be appreciated with its carbon-free generation, reliability of supply, and economic benefit. The utility industry is facing some tough choices. Will nuclear generation continue or decline? Will the nuclear industry turn its attention away from new plant builds and extended-life operation activities and rather focus on decommissioning as evidenced by the plethora of recent conferences focused on decommissioning as the new market opportunity?

These threats are multi-faceted and are due to factors both external and internal. The external factors are well known by now – a disruption in the formerly stable power market created by imbalance between supply and demand. The supply side has been disrupted by an abundance of extremely low-priced natural gas produced through technological advances such as fracking and horizontal drilling and the rapid growth of increasingly cost-competitive renewables, sometimes supported by favorable government policies and subsidies. The demand side has been affected by the recent economic recession which suppressed growth in demand for power generation, already being tempered by improvements in energy efficiency.

The internal factors affecting nuclear are both existing and new. As no significant additions to the nuclear fleet have been made in many years, the fleet is aging and has required significant capital investment for upgrades and license extensions. Compounding this further are ever increasing regulatory requirements, the largest of which are those resulting from the events at Fukushima some six years ago.

One of the more disconcerting and difficult issues facing the industry is a loss of talent and experience right at a time when it is most needed to transfer knowledge to the next generation. The nuclear workforce demographic contains a large percentage of experienced talent reaching retirement age within the next five to ten years. With fewer people entering the industry, addressing the needs of the operating fleet will become more and more difficult and expensive. Further efforts to reduce costs by trimming workforces would only exacerbate the problem.

With revenues remaining flat, cost increases are significantly squeezing the profit margins of these operations. The financial outlook for nuclear utilities is bleak in an investment environment which rewards growth in revenues and profits. A number of utilities with nuclear units in merchant markets have recently announced decisions to decommission those units which are no longer able to sustain profitability. Utilities with units in regulated markets are likewise feeling similar financial pressures.

This situation was recently described to me by one nuclear utility executive: “From a shareholder perspective, how can I justify a recommendation to continue to invest in a facility when facing a forecast of declining returns while there may be other more profitable uses of capital?” So, should the default decision be to retire that unit and fund those efforts through its decommissioning fund; i.e. a “Nuclear 401(k)”?

There are no easy choices. While the logic may seem straightforward, abandoning even a single unit could have cascading effects and far reaching implications. This same executive explained his concerns further: “How does one retain and attract talent going forward when there is a signal that nuclear may not enjoy full support going forward?” The inability to offset talent loss due to retirements in the workforce can affect performance on the remaining operations, increase costs, and further accelerate the departure away from nuclear. With a downturn in the industry there are other outcomes such as the reluctance of students to enter the nuclear field, university decisions to pursue other programs of study, research budgets reduced and grant applications no longer being sought. There are a number of other issues; the loss of existing, stable baseload generation and economic impacts such as those being experienced in host communities such as Zion, Illinois, and Vernon, Vermont. From a national policy perspective, it directly impacts the largest source of carbon-free generation in the United States, currently 63% of the nation’s total carbon-free generation.

Lastly, for the industry, the departure from nuclear is likely irreversible once made in the U.S. as the current talent and knowledge base is the result of over 50 years of investment and development. The situation may best be described by Stephen Wright, a comedian who is a master of the art of irony: “I live in a house halfway down a dead end street. It’s one way.”

The Industry Drives On

Challenges aren’t new to the nuclear industry which, since its inception, has successfully addressed numerous challenges throughout the past five decades. With a culture based on a need for certainty and a search for excellence, it has focused intensely its attention “head on”. Over the past few years significant investments have been made in improvements with upgrades, upratings, and efforts to improve regulatory processes through risk-informed approaches among others. In response to the recent market conditions, it has undertaken initiatives on multiple fronts. Legislative efforts focused on political and community support have begun in states such as Illinois, Ohio, Pennsylvania, New Jersey and New York highlighting the economic and environmental benefits of the nuclear facilities in those locations and the negative impact of early retirements opon communities and the need for the treatment of nuclear power on a level playing field with other competing sources of supply. Efforts are being made in the regulatory arena with the Nuclear Regulatory Commission (NRC) regarding the need to address the seemingly never ending increase in regulations without demonstrable need or benefit. A good example of progress in this area is the recent commission decision to uphold Exelon’s appeal for the NRC Staff to adhere to the cost-benefit analysis requirements of the Backfit Rule.

Under the leadership of the Nuclear Energy Institute (NEI), the industry has focused on internal issues with its cost efficiency initiative, Delivering the Nuclear Promise, which has an aspirational goal of saving one third of operating costs. Utility members are identifying cost improvements and sharing them with the membership in a series of efficiency bulletins for consideration and implementation. In the past year, the program has identified over thirty bulletins with a potential savings exceeding $650 million across the U.S. nuclear fleet. Not relying on this program alone, some utilities are taking direct actions to reduce costs by mandating fixed budgets and corresponding organizational streamlining and workforce reductions. The key question is whether these actions will identify enough remaining potential for improvements. Furthermore, will there be a sustainable benefit over the longer term to address future challenges not yet encountered? With a legacy focus on continuous improvement and efficiency, what’s really left to improve upon?

Did We Miss a Turn?

Faced with an uncertain path forward, these obstacles may seem insurmountable with success being elusive. Yet, there may be an option other than continuing to pursue a traditional method which uses robust, tried and true problem solving approaches. The answer might not lie ahead but along the side of the road already traveled. Did we miss a possible turn as we forged ahead during the past years in the search for excellence?

This possible option might be best described in Oren Harari’s book, “Jumping the Curve: Innovation and Strategic Choice in an Age of Transition”. He points out an alternative to the traditional approach which searches for answers to problems. After all, he was famously quoted saying, “The electric light did not come from the continuous improvement of candles.” This new approach is not based on finding answers but in asking questions. Curiosity is used as the tool to explore and find new opportunities. Rather than focusing on answers to lowering costs it focuses on asking “Why should we do this?” and “What are we doing and why are we doing it? Have we gone too far down that road in that search and find ourselves on an unsustainable road to “Excessilence”?

This New Path Isn’t Necessarily Straight Either

The nuclear industry operates with a psychology and tradition of ensuring certainty and having solutions to problems. There is a very strong drive to adhere to established practice. Take, for illustrative purposes, a simple example: the practice used for years to sign documents. It was always required that documents be signed using black ink. Quality Assurance would reject anything signed with blue ink. The simple reason behind this requirement was that in the past, copy machines were not able to capture the color blue; therefore the requirement to forbid the use of blue ink. In some cases, organizations were even not allowed to stock blue ink pens. Yet for some years later, even after copier technology evolved to capture the color blue, the prohibition remained in place.

New solutions may be found by questioning current practices and departing from tradition. Rather than look at the efficiency of those practices, are they effective? We need to probe deeper to look for improvement. Are our operations effective in delivering the value that we need to reliably and safely deliver cost effective nuclear produced electrical generation? So, we need to ask ourselves, are we still using “black ink”?

Let’s look deeper and question the scope and extent of programs and practices which have been developed and implemented over the past decades. Are they still appropriate or have they expanded further beyond their purpose and become part of tradition? There are lots of areas to evaluate but consider some sample questions in just three:

1. Have quality assurance programs gone too far? Are some records now produced primarily as a defense for potential audits? Are corrective action programs focused on correction or just protection?

2. In the area of security, are assessments and activities focused on credible threats that are possible and probable or have they been stretched to a hypothetical and theoretical limit?

3. In procurement, does a predominant focus on lowest cost with multiple bidders deliver the best result? Does an arms-length relationships ensure customer satisfaction (i.e. access to alternative solutions and the best result) and supplier success (i.e. stable workloads that keep companies with good talent available)?

The questions may seem simple, but actually the answers are complex when considering that those practices and processes that were validated and adopted years ago in the pursuit of excellence. Questions pose a whole new set of questions or concerns: How can we “back up” from our current methods? What will the reactions of stakeholders be to a perceived reversal of those practices solely for the purposes of saving money? How can we undertake such an effort and ensure that any revisions do not have unintended consequences?

When you come to a fork in the road, take it.
Yogi Berra

Moving Forward on a New Path

Facing the need for change is not anything new. As a species, we have been exceptionally good at dealing with change. We are naturally skilled at assessing our environments and adapting to the changes we perceive. These adaptive skills have allowed us to find novel and useful solutions to complex challenges. Were we to stay in our comfort zones and hope things get better (or hope we don’t get eaten) we would not have become the dominant species on the planet.

We also know that change is difficult. Our brains are wired to pursue the familiar path. Our neural networks don’t have to work as hard when we are engaged in routine behavior. We fear that doing things differently will result in the loss of all that has been built and invested in. This is precisely why the process of change needs to involve the right people, working toward a clear set of goals that lead to a shared vision. The process also requires the courage to face uncertainty and to engage the imagination to figure out the best ways to get there.

One of Charles Darwin’s most often quoted phrases is: “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”

The time to act is now. We must address the issues facing the industry on all fronts to preserve nuclear as a valuable asset for the nation. Doing less is simply irresponsible and unacceptable.

We are beginning the start of this dialogue with a panel discussion to be held at in the executive session for the upcoming American Nuclear Society Utility Working Conference on August 6-9, 2017 at Amelia Island, Florida. I will moderate a panel of executives with utility, regulatory and supplier experience to discuss their opinions and perspectives of this path forward. In addition, this September, the Carolinas Nuclear Cluster which is part of E4Carolinas, a 501(c) energy industrial trade organization serving the Carolinas will undertake an effort entitled “Nuclear, What’s Next?” to further pursue this initiative.

As always, reactions, input, comments and questions (of course!) are welcome.

p.s. It’s ok to use blue ink.

Jim Little is an Executive Consultant, Nuclear Energy Programs
He’s a member of the State of South Carolina, Governor’s Nuclear Advisory Council. He earned an MS in Nuclear Engineering from Carnegie Mellon University

Editor’s Aside: Better ways to document acceptance and approval should be encouraged. Ink is so last century.

Note: The above article was originally published on Linkedin at Nuclear’s Fork in the Road. It is republished here with permission from the author. The author presented his thoughts at a well-attended session at the Utility Working Group. He gave Atomic Insights permission to share his slide deck.

Atomic Show #253 – Delivering the Nuclear Promise

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The US nuclear industry has decided that it’s time to take aggressive action to improve its operational efficiency. Leaders have looked hard at the competitive landscape. They’ve clearly recognized that while they produce a valuable, desirable commodity, their production costs are not competitive.

Many of them aren’t willing to give up their markets and valuable assets without a fight. In the fall of 2015, they decided to focus on eliminating wasteful efforts and begin prioritizing efficiency alongside their traditionally strong core competencies of safety and reliability.

Note: The CO2 emission-free nature of atomic fission is an inherent attribute that comes with the technology choice. So is the elimination of other noxious air and water pollutants. End Note.

On April 22, I spoke with two senior executives from the Nuclear Energy Institute about their efficiency program. My guests were Maria Korsnick, the Chief Operating Officer, and Tony Pietrangelo, senior Vice-President and Chief Nuclear Officer.

No one is more knowledgable about the high priority initiative, which has been named, “Delivering the Nuclear Promise.” It’s an industry-wide effort that is scheduled to last for three years with expected effects that will live for many productive years.

In preparation for the discussion I had read the strategic plan issued in February. I also sampled the program’s early products, which are being delivered the form of “Efficiency Bulletins.”

Here is how Ms. Korsnick began our discussion.

I’ll start with the name, Delivering the Nuclear Promise. Why did we name it that and what does it mean? We stepped back and looked at the value proposition for nuclear. We said nuclear was always intended to be very safe, it was always intended to be very reliable and, if you can remember way back when, it was going to be “too cheap to meter.”

So our challenge is that we’ve delivered on the promise of being very safe, we have a very strong safety record. We delivered on the reliability. Last year, as a US fleet we were at about 92% from a reliability perspective. We took a hard look at the cost side and said, not so much.

The idea of delivering the nuclear promise was essentially that we would continue our focus on safety and continue our focus on reliability but really sharpen our pencils from an efficiency perspective and better understand how we can do a better job on the efficiency side.

It’s a cost as well as revenue piece. We want to be as efficient as we can at running the plants and also make sure that the product we’re producing, that carbon free product, is valued in the market place.

It would be difficult for anyone who has ever worked in the commercial nuclear industry, looked at a typical plant organizational chart, or observed the way that the plant is administered and guarded to fail to notice that there are many inefficiencies that can be addressed.

The industry has a long tradition of complying with requirements; which may be part of its Nuclear Navy roots. Unfortunately, the commercial users of the technology and operating modes invented and refined by ADM Rickover haven’t always applied the “questioning attitude” that his program also demanded of all participants.

Now that they’ve realized that cost is an object and that excessive costs can destroy valuable plants almost as easily as improperly operating them, leaders have decided it’s a good time to ask “Why are we doing things this way? Is there a more efficient and effective way to accomplish the task. Is the task in question useful at all, or should it be planned for elimination?”

Ms. Korsnick described the early steps of the program, which took place in the fall of 2015, as a group of Chief Nuclear Officers “shined the flashlight” into all areas of plant operations, focusing specifically on cost information. Member companies were asked to provide their last ten years worth of financial information with expenditures broken down into major categories like work management, training, and the corrective action program.

After reviewing the information for several days, the group established focus areas where spending had increased significantly or where the area represented a large portion of the total expenses. A Chief Nuclear Officer was assigned to be in charge of each focus area. The CNO’s gathered a team of cross-company and cross-functional subject matter experts from the industry to engage in detailed investigation.

The number of assigned team members is approaching 1,000 if all of the working teams are included. Industry employees don’t have to be formal members of a team to submit ideas for evaluation and possible implementation.

Early screening produced an initial list of approximately 180 areas that could be targeted. Since that is too many to address at one time, the list was narrowed to the 35 or so items that seemed to have the largest potential gain or could be implemented quickly for early wins.

Mr. Pietrangelo provided a more information on the types of efficiencies that are being addressed.

What we’re looking for is a lot of administrative gains because as an industry we’ve layered a lot of processes on top of processes over the years. So when we look at efficiency, it’s really trying to get the work done in the most efficient way. Free up the worker and provide some more accountability such that we can do this work smarter, safer and more efficiently.

Based on comments provided here on Atomic Insights, I asked Mr. Pietrangelo about the non-value added aspects of preparing for inspections and responding to corrective action program requirements. He acknowledged that those were among the areas being investigated but also provided a list of the other dozen or so focus areas.

Training is such a big part of the industry’s expenditures that it has been broken up into at least three separate topic areas, each with its own focused team.

It might strike some people as a bit incongruous to spend so much time and effort [aka cost] on trying to find efficiencies and reduce work efforts. However, that is the way that the industry often addresses difficult issues and achieves its admirable results.

It’s important to know that the Efficiency Bulletins receive a wide ranging review that includes EPRI, INPO, NEI, and a team of experienced chief nuclear officers before thy are released.

Ms. Korsnick explained that this review process is designed to avoid the probability that changes related to doing things better would be nullified by inspection team suggestions or comments if they observe that the implementation is different from the standard way of doing things.

Getting buy-in in advance should allow the changes to be implemented and accepted without having to invest costly effort to explain the improvement decisions to outside inspectors.

It’s encouraging to see the nuclear industry engage in this kind of “all hands on deck” effort improve efficiency and cost competitiveness. Our chosen technology efficiently produces vast amounts of high quality electricity with small material inputs and few environmental impacts.

Unfortunately people have proven they can bloat almost any task or facility if they’re not encouraged to ask “how much” and “is this worth doing?” It’s never easy to go on an organizational diet and effectively slim processes while maintaining performance, but the nuclear industry has a habit of overcoming challenges when it prioritizes solutions to those obstacles.

For more information about Delivering the Nuclear Promise see Mareia Korsnick’s post on LinkedIn https://www.linkedin.com/pulse/delivering-nuclear-promise-maria-korsnick

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Atomic Show #237 – Dave Lochbaum, UCS

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