ML19276H477
| ML19276H477 | |
| Person / Time | |
|---|---|
| Site: | Skagit |
| Issue date: | 11/01/1979 |
| From: | NRC OFFICE OF THE EXECUTIVE LEGAL DIRECTOR (OELD) |
| To: | |
| Shared Package | |
| ML19276H476 | List: |
| References | |
| NUDOCS 7911290002 | |
| Download: ML19276H477 (12) | |
Text
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Financial Oualifications 1.
The Boad considered the financial qualifications of the Applicants to construct the proposed Skagit facility in the proceas of resolving SCANP PSAR Contention 3 as well as F08/CFSP Contentions 9 and 10.
In considering the contentions, the Board construes SCANP PSAR Contention 3 and F08/CFSP Contention 9 to be similar in scope in that they question the ability of the Applicants to finance the construction of the proposed facility.M To the extent that SCANP's contention also seeks to question the ability of the Applicants to finance the operation of Skagit, it is
- improper, Since this proceeding involves the application fcr a construc-tion permit, and not an operating license, the regulations do not require the Applicants to submit evidence of their ability to operate the pro-posed facility.
10 CFR 6 50.33(f).
2.
During the course of this proceeding, the Board received evidence on this subject from the following parties:
the Staff submitted its SER, Supplement 1, Chapter 20, (following Tr.14,441), as updated by " Supple-mental Testimony of Louis Gittleman Regarding Financial Qualifications" (following Tr.14,625; hereinafter "Gittleman"); the Applicants submitted
" Applicants' Testimony on Financial Qualifications" by Russel E. Olson,
-1/
In its Contention 10, F08/CFSP contends that the NRC Staff has not com-pleted its review of the Applicants' financial qualifications. However, as indicated by the testimony filed by the Staff and the Board's findings on this subject below, the Board finds that the Staff has in fact com-pleted its review.
1424 194
. m 3 200@M Michael E. Coberley, Lawrence S. Pack, and James M. Coombs (following Tr.14,856; hereinaf ter "01sor. et al."); and SCANP submitted ":nter-venor SCANP's Testimony on Financial Qualifications" by Jim Lazar (following Tr. 14,711; hereinafter " Lazar").
F06/CFSP did not present evidence on its contention, but did cross-examine the Staff's and Applicants' witnesses.
3.
Both Gittleman and Olson, et al. discussed the general economic condi-tions of the Applicants and their ability to finance a project of the mynitude of Skagit.
Lazar, on the other hand, concentrated on his estimat.:s of the cost of the facility, and concluded that utilities such as the Applicants could not finance the project.
A.
Cast of Plant 4
The Applicants currently project the cost of the Skaait facility to be
$3,086,600,000 exclusive of interest costs incurred during construction (AFDC).
(01 son, g al., Appendix, p. 1) This estimate is based on assumed commercial operation dates for Skagit Units 1 and 2 of Septem-ber, 1986 and September, 1988, respectively.
(Id., Appendix, p. 2) The cost is based on January,1979 dollars.
5.
The Staff compared the current estimates of constructing the proposed facility with the cost projections prepared by the Department of Energy 1424 195 using its costing model (CONCEPT). An August, 1979 run of the CONCEPT model resulted in a projected cost of the proposed Skagit facility, exclusive of interest costs during consturction, to be $2,368,000,000.
(Gittleman, p. 2).
Since the CONCEPT estimate is used only as a rough check of an applicant's estimate by the Staff, and the Applicants' esti-mate is a detailed engineering cost analysis, the Staff determined that it was reasonable to use the Applicants' estimate for its financial analysis.
(M.).
6.
Mr. Lazar testified that the Staff and Applicant estimates understated the true cost of the facility.
(Lazar, p.1)
Mr. Lazar based this con-conclusion on a number of factors. The first was that he considered the planned operation dates indicated above to e unachievable.
(jd.) How-ever, during cross-examination Mr. Lazar admitted that his conclusion was his own judgment, and that he was neither an engineer nor was he qualified to testify as an expert on engineering matters.
(Tr. 14,806) 7.
A second factor cited by Mr. Lazar was that certain studies indicated that a nuclear power plant being built for the time period projected by Puget Power would cost much more than Puget had estimated, partly because it would take longer to build the facility than Puget projects, and partly because the cost would escalate faster than Puget had estimated.
(M.
at 2, 7)
Mr. Lazar relies upon studies perfomed by the Rand Corporation (Moo: Reco-t), the GA0 Report, and a study prepared by WPPSS.
1424 196 8.
Mr. Lazar concluded that the Mooz Report supported a finding that the Skagit facility would not begin operation until October,1989, or three years longer construction time than that projected by the Applicants.
Mr. Lazar arrived at this conclusion by utilizing a regression analysis contained in the Mooz Report.
In using this analysis, Mr. Lazar allowed no credit for the experience that Bechtel has in managing such nuclear pmjects, despite the fact that this experience provides for a signifi-cant impact toward reducing the construction time as concluded by the Mooz Report.
(Tr. 14,807-09). Although Bechtel is not providing the full architectural and engineering services contemplated by the Mooz Report, it is an experienced fim in providing procurement and manage-ment of nuclear construction projects. An additional problem raised by Mr. Lazar's use of the Mooz Report is that Mr. Mooz indicated in his report tht one of the supposedly independent variables utilized by the analysis, the effect on the cost of a plant from the inclusion of a cooling tower, may not in fact be an independent variable.
(Tr. 14,819-25).
Mr. Lazar admitted that if such an " independent" variable in fact turned out to be dependent on uther variables in the analysis, the correctness of the model could be in jeopardy.
(Tr. 14, 812-13) Furthemore, Mr. Lazar admitted that the Mooz Report did not support the 16 percent inflation figure that he used in estimating the Skagit construction costs.
(Tr. 14,818) 9.
The Board has not placed much weight on Mr. Lazar's interpretation of the GAO Report, which Mr. Lazar relies upon to conclude that the Skagit 1424 197 construction schedule will be significantly longer than predicted by the Applicants.
(Lazar, pages 3-4)
Mr. Lazar admitted that the GA0 analysis indicated that af ter 1974, the average construction time for a nuclear power plant jumped considerably, then leveled off and actually decreased in 1977.
(M., p. 4) Furthermore, Mr. Lazar indicated that he perfomed no analysis to determine the effect on these construction schedules from stretch-outs resulting from a drop-off of demand for electricity following the Arab oil embargo.
(T r. 14,811) The Applicants, on the other hand, have demonstrated a need for the power to be generated by the facility, and propose to construct the facility in an 84-month period.
(01 son,el a_1., Appendix, p.1 using interval between LWA date of 9/79 and commercial operation date of Unit 1 of 9/86).
The Board finds that the Applicants are ?.ot likely to voluntarily stretch out the construction schedule.
10.
Mr. Lazar also relies on estimated costs contained in a study perfomed by WPPSS which, using his own estimate of a 16 percent inflation rate and adding an additional three years to the Applicants' construction schedule for Skagit, would result in a total cost of the facility of 8.9 billion dollars.
(Lazar, pages 7, 8) However, the Board chooses not to place heavy reliance on the WPPSS results, in light of the internal inconsist-encies in the results of the report.
For example, Mr. Lazar indicated that the mid-point of a range of cost escalation found by WPPSS in its five projects was a 16 percent annual rate.
(T r. 14,825 ) However, Mr. Lazar was unaware as to whether WPPSS had separated out cost increases 1424 198
. due to budget changes resulting in changes in the project itself versus escalation alone, nor whether any of the factors that went into the WPDSS cost escalation might also be applicable to the Skagit facility.
(Tr. 14,829-30)
Furthernore, despite the fact that Mr. Lazar would rely on the WPPSS study to support his conclusion that the 16 percent cost escalation would continue out to the 1986-88 time-period, he admitted under cross-examination that the actual rate of cost escalation that was expected to occur in the interval between the time that the first and the last WPDSS facilities were to be comaleted was only 6 percent compounded cG.ually.
(T r. 14,826-27) Mr. Lazar conceded that this rate of escalation, when applied to the WPPSS estimate for its Unit 5, would result in a much lower cost for the Skagit facility than what Mr. Lazar had concluded in his testimony.
(Tr. 14,831) 11.
For the above reasons, the Board has determined to use Applicants' detailed engineering cost estimate for the financial qualifications analysis.
The Board believes this to be a conservative approach since the Staff's CONCEPT estimate arrived at a cost estimate which was substantially lower than that projected by the Applicants, and the CONCEPT model has an excellent track record of predicting the actual cost of nuclear power plants. (Tr. 14,627,14,687-89) Accordingly, the Board finds the Applicants' estimate to be a reasonable one for the cost of a plant.
1424 199 B.
Financial Oualifications of Acolicants
- 12. The ownership, cost of construction, and electrical output of the proposed facility will be shared by Applicants according to the follow-ing percentages:
Puget Sound Power & Light Company 40%
Portland General Electric Company 30%
Pacific Power & Light Company 20%
The Washington Water Power Company 10%
Exh. 175, pp. 12-13.
For each of the utilities the commitment to construc-tion of the Skagit project represents orily 20% or less of the total construction programs scheduled out to 1990.
(T r. 14,024-2 5 ) Applicants are investor-ownev, regulated utilities.
Exhs. 175, 224, 225, 226, 227. They plan to finance their respective shares of the construction cost of the facility from internally generateo funds, bank borrowings, and the sale of debt and equity securities. Olson, e_t al., pp. 1-19 and attached Table 2, pp. 4-15.
The detailed sources of funds for construc-tion estimates presented by Applicants demonstrate that this will be possible within the applicable financial tests and constraints.
I d_.
13.
The NRC Staff conducted an analysis of Applicants' ability to obtain the funds necessary to cover the construction costs and related fuel 1424 200
. cycle CSsts of the proposed facility.
SER, Suppl. No.1 (Exh. 214),
pp. 20-21; Gittlenan, pp.1-6.
The Staff found that Applicants' sources of funds estimates and underlying assumptions are reasonable and are consistent wit,i estinated conditions.
Gittleman, pp. 5, 6.
Based on these findings, the Staff concluded that Applicants have reasonable assurance of obtaining the funds necessary to design and construct the proposed facility, including the related fuel cycle costs. Gi ttleman,
- p. 6; Tr.14,630-682.
14 SCANP witness Lazar claimed that the Applicants will be unable to finance the construction of the proposed facility.
Laza r, pp.14-28.
The reasons he stressed included his belief that nuclear-dependent utilities are less able to raise money than non-nuclear utilities, and his opinion that the Three Mile Island accident has made it doubtful that any utility will be able to finance a large nuclear project. J d,,,
pp. 15-16.
- 15. The Board has reviewed the parties' testimony, and finds unreliable the primary sources upon which Mr. Lazar relies to conclude that nuclear-dependent utilities such as the Applicants will be unable to finance a project such as the Skagit facility. The Board bases this conclusior, on the admission of Mr. Lazar that he did not know the experience nor perfomance record of his sources.
(T r. 14,746-49 ) Furthemore, under examination Mr. Lazar was forced to admit that certain statements in 1424
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. his testimony were not, in fact, correct.U Furthermore, the Board notes that Mr. Lazar was not familiar with 10 CFR 5 50.33(f), the Commission's regulation regarding requirements for financial qualifi-cations of applicants for construction permits, and could not render an evaluation as to whether or not these applicants complied with that regulation with regard to the Skagit project.
(Tr. 14,843-44 )
16.
The Board finds that tne extensive and experience knowledge of utility financing and the current activities of utilities in the bond market of the Staff's witness, Mr. Gittleman (Tr. 14,626-7, 14,631-6, 14,677) and the representatives of the Applicants (Statements of Qualifications of Olson, et al., following Tr.14,886) lend great weight to their conclu-sions that the utilities do have the ability to raise the funds necessary to finance the Skagit facility even though it is a nuclear project.
For example, despite Mr. Lazar's claim that the Three Mile Island accident and adverse reaction to nuclear power would eliminate the market for bonds issued by nuclear-dependent utilities, Staff witness Mr. Gittleman testified that several utilities involved in nuclear projects have gone to the bond market since last spring.
Mr. Gittleman concluded that all of these utilities were able to sell their issuances, 2/
For example, Mr. Lazar corrected his statement that one of his sources, Mr. Knipp, has stopped trading in nuclear stocks (Tr.14, 751), and also had to correct his statement that it would be impossible for utilities to maintain their debt coverages without construction work in progress allowances by state rate commission (Tr. 14,790).
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. and that several of these utilities had bond ratings equal to that of the Applicants.
(Tr.14,631-36,14,638) Mr. Gittleman indicated that one of these successful bond issuances was made by a utility which was comnitted 100 percent to nuclear power. (Tr.14,677)
In light of this testimony and other testimony indicating that nuclear-related utilities are faring relatively well in the capital market since the Three Mile Island accident, the Board finds no finn evidence that the Threc Mile Island acc' dent has created a climate which would preclude the ability of the Applicants to raise the funds necessary to finance the Skagit project. Accordingly, the Board finds that SCANP PSAR Contention 3 and FOB /CFSP Contentions 9 and 10 are without merit, and conclude that the Applicants have demonstrated reasonable assurance within the meaning of 10 CFR i 50.33(f) that they can obtain the necessary funds to cover the estimated construction costs and related fuel cycle costs for the pro-posed Skagit project.
1424 103
UNITED STATES OF AMERICA NUCLEAR. REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY A'.'D LICENSING BOARD In the Matter of
)
)
PUGET SOUND POWER & LIGHT
)
Docket Nos. SIN 50-522 COMPANY, ET AL.
)
STN 50-523
)
(Skagit Nuclear Power Project,
)
Units 1 and 2)
)
CERTIFICATE OF SERVICE I hereby certify that copies of a portion of the NRC Staf f 's proposed findings of fact and conclusions of law entitled " Financial Qualifications" in the above-captioned proceeding have been served on the f ollowing by deposit in the United States mail, first class, or, as indicated by an asterisk, through deposit in the Nuclear Regulatory Commission's internal mail syste=, this 1st day of November, 1979:
Valentine B. Deale, Esq., Chair =an*
Robert C. Schofield, Director Atomic Safety and Licensing Board Skagit County Planning Department 1001 Connecticut Avenue, N.W.
120 W. Kincaid Street Washington, DC 20036 Mount Vernon, WA 98273 Dr. Frank F. Hooper, Member Roger M. Leed, Esq.
Atomic Safety and Licensing Board 1411 Fourth Avenue School of Natural Resources Seattle, WA 98101 University of Michigan Ann Arbor, MI 48109 Mr. Nicholas D. Lewis, Chairman Washington State Energy Facility Mr. Gustave A. Linenberger, Member
- Site Evaluation Council Atomic Safety and Licensing Board 820 East Fifth Avenue U.S. Nuclear Regulatory Commission Olympia, WA 98504 Washington, DC 20555 F. Theodore Thomsen, Esq.
Robert Lowenstein, Esq.
Perkins, Coie, Stone, Olsen Lowenstein, Newman, Reis,
& Willia =s Axelrad & Toll 1900 Washington Building Suite 1214 Seattle, WA 98101 1025 Connecticut Avenue, N.W.
Washington, DC 20036 Richard D. Bach, Esq.
Rives, Bonyhadi & Druc=cnd Mr. Lloyd K. Marbet 1400 Public Service Building c/o Forelaws on Board 920 S.W. 6th Avenue 19142 S. Bakers Ferry Road Portland, OR 97204 Boring, OR 97009 1424
?04 Richard M. Sandvik, Esq.
Thomas F. Carr, Esq.
State of Oregen Assistant Attorney General Depart =ent of Justice Te=ple of Justice 500 Pacific Building Olympia, WA 98504 520 S.W. Ya= hill Portland, OR 97204 Donald S. Means Attorney for Swinomish Tribal Canadian Consulate General Co== unity Robert Graham P. O. Box 277 Vice-Consul LaConner, WA 98257 412 Plaza 600 6th & Stewart Street Russell W. Busch, Esq.
Seattle, WA 98101 Attorney for Upper Skagit Indiat.
Tribe and Sauk-Suiattle Indian Donald W. Godard, Supervisor Tribe Siting and Regulation Evergreen Legal Services Department of Energy 520 Smith Tower Room 111, Labor and Industrias Seattle, WA 98104 Building Salem, OR 97310 Atomic Safety and Licensing Board Panel
- Warren Hastings, Esq.
U.S. Nuclear Regulatory Co==ission Associate Corporate Counsel Washington, DC 20555 Portland General Electric Company Atomic Safety and Licensing Appeal 121 S.W. Salmon Street Panel (5)*
Portland, OR 97204 U.S. Nuclear Regulatory Commission Washington, DC 20555 Patrick R. McMullen Skagit County Prosecuting Docketing and Service Section (4)*
Attorney Office of the Secretary Courthouse Annex U.S. Nuclear Regulatory Co= mission Mount Vernon, WA 98273 Washington, DC 20555 James W. Durham, Esq.
Portland General Electric Co=pany 121 S.W. Salmon Street TB 17 Portland, OR 97204 Patrick Moore, PhD, President Greenpeace Foundation P.O. Box 34307 2623 West 4th Avenue Vancouver, B.C.
V6K 1P8 Daniel T. Swanson Counsel for NRC Staff 1424
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