On May 16-18 2005, the Nuclear Energy Institute hosted its annual Nuclear Energy Assembly. The conference, held at the Fairmont Hotel in northwest Washington DC was titled Nuclear Energy 2005: A Time of Opportunity. There were both optimistic and cautionary speeches given during the conference. Some of the speeches are available for download from our audio archive page. (http://atomicinsights.com/audio-archive) The text of many of the other speeches is available on the NEI web site at http://www.nei.org/index.asp?catnum=3&catid=1283 .
As is the case during many industry gatherings, there were also a number of interesting and valuable discussions in the hallway outside the main hall during the breaks and at social gatherings associated with the conference.
The leaders of America’s nuclear enterprises are a compact group of people that have been meeting each other at similar gatherings for a number of years. As a sometime participant in these meetings, I saw a number of familiar faces and talked to quite a few long time acquaintances. I also watched and listened to a number of animated conversations.
The bottom line is that there is a level of optimism and excitement for the future that has been missing from the nuclear enterprise for a number of years. The words “new”, “nuclear”, “power” and “plant” were being used as a single phrase frequently and with great vigor. The politicians generally agreed that “new nuclear power plants” were not only worth discussing, but worth some initial investment. Some local and state political leaders figuratively opened their arms and invited the industry to “come on down.” (Most of those positive politicians were from states south of Washington, DC.)
Though I am pretty sure that he does not remember me, I was happy to see Skip Bowman (ADM, USN-Ret) in his new job as the President of the Nuclear Energy Institute. I watched him in action when he was the Commanding Officer of the tender that serviced the submarine on which I served as Engineer Officer. I remember him as a dynamic leader who inspired people to do exceptional work and have some fun while doing it.
New industry faces
One of the more interesting conversations took place during the first day cocktail party with a young woman named Amy who illustrates a new, dynamic and aggressive style of leadership and engagement. She is an active member of the North American Young Generation in Nuclear (NA-YGN), holds a BA in psychology, is a first generation Asian-American, and is a strong supporter of the importance of nuclear energy development. When I discovered the identity of her employer, I asked about the company’s projects in China and about whether or not she is concerned about the protection of intellectual property in that important, but economically risky market.
Her answer was straight and well considered. She agreed that the protection of intellectual property is not a strong part of the Asian culture, but she was confident that the leaders in that region respected strong negotiation and could be reliable partners as long as the correct words are included in all contracts. I certainly hope that her advice is being followed carefully and that she is one of the people assigned to look her company’s customers in the eye during negotiations.
Chief regulator’s challenges
Another interesting, but more sobering conversation took place late on the last day of the Assembly as the participants were shaking hands and making their way out of the building. I introduced myself to the Chairman of the NRC, the Honorable Nils Diaz, and asked him a couple of questions about the personnel situation at the NRC. Like the nuclear industry itself, the Nuclear Regulatory Commission is facing the retirement of a large portion of its current staff within the next five to ten years.
Though there might be some businessmen that see the retirement of regulators as a good thing; the fact is that a large scale exodus of experienced design reviewers could be a huge problem for the industry. The process established for reviewing new plant proposals has been streamlined in recent years, but there is every indication that the first ones will take five or more years to complete. That timeline will be significantly stretched if key personnel begin leaving before the job is complete.
This problem is exacerbated by the fact that it has been three decades since the last period of new plant construction ended. There have been some new design certifications issued, and there have been continued modifications of existing plants, but there has not been a new start with a completed construction project in a very long time. Chairman Diaz admitted that this is an area of concern, and he described some recent steps that the NRC has taken to mitigate the risk posed.
These steps include rotating regulators from operating plants to design review projects for cross training and a new hiring program to find and begin training new people before the experienced ones have left. This final part, he admitted, is challenging because Congress is not fond of paying for training new people before the old ones have departed. I certainly hope that he is successful in his efforts to sell the importance of time and experience in the complex world of nuclear plant regulations, design review, and construction permitting.
Risk of Bandwagon Applications
When I asked Chairman Diaz what would happen if more than two or three applications for combined operating licenses were received in rapid succession. The impetus for my question was the fact that the electric utility industry has a long history of “bandwagon” purchases. He gave me a funny look and said that his organization was probably ready for two or three applications for third generation light water reactors, but that a large number would require additional resources and time. I then asked what would happen to an application for a Generation IV gas cooled reactor; he told me that his organization is not ready for that and does not expect one for at least 5 to 7 years.
To say the least, that response is disappointing and seems myopic considering the progress that is being made with gas cooled reactors in China, South Africa, Japan and France.
History of bandwagon decision making
It might be worth a little explantion of what I mean when I speak of the history of electric power “bandwagon” purchase decisions.
What often happens in that very conservative industry is that information builds up indicating a change in the competitive nature of the various choices for new construction, but no one is willing to be the first to make the change. By the time a leader emerges and takes action to implement what has become an obvious choice, there are ten, twenty or even thirty other companies that jump in the market and place orders in rapid succession. It happened in the 1950s with natural gas fired steam plants, in the 1960s with oil fired steam plants, in the late 1960s and early 1970s with the first generation of nuclear plants, and in the 1990s with combined cycle gas turbines. The bandwagon process can be self destructive – once the pent up demand is released, the equipment suppliers are swamped with orders that they do not have the industrial capacity to fill.
This causes supply delays, increased prices as market power shifts to the sellers from the buyers, and labor shortages as skilled personnel have to be located, hired, and trained. Project timelines stretch, interest payments increase, and the economic calculations that justified the shift get thrown out of the window as the “what if” bands used during the business case analysis depart the assumption bands.
If the industry can work its way through the initial ramp up of the new supply industry, many of the problems work themselves out. The large number of orders allow suppliers to invest in additional capacity, new workers are attracted by the prospects for long term employment at generous wages, and there are improvements in productivity as everyone involved learns how to do their jobs better. If the industry loses confidence during the middle of the bandwagon, the worst possible things can happen from an economic point of view.
As orders slow or disappear, the suppliers halt their investments in new capacity and try to fill existing orders with their current production capability. New workers are not attracted to the industry, and older workers become protective of their employment. This sometimes leads to behavior that is designed to stretch out the work, which can be a frustrating and costly event for the owners that do not get any returns until the project is completed. This is the sequence of events that ended the first nuclear bandwagon market. In combination with a time of double digit inflation and interest rates, the bandwagon crash led to huge cost overruns and lengthy project delays often caused by workers afraid that job completion meant employment termination.
This should not happen to the nuclear industry this time around. Not only is there a huge need for new plants to meet the population growth and growth in the number of electrical applications during the past 20 years, but there is a wonderful opportunity to replace existing fossil fuel plants. America’s coal fired power plants are old and tired, and its gas fired power plants are designed to burn a costly fuel that has more valuable uses. This time, getting on the bandwagon should lead to a far less bumpy ride.