ML19344A178

Proposed Findings of Fact & Conclusions of Law of Intervenors Other than Dow Chemical Co.Continuation of Const Pending Completion of Remanded Hearings Cannot Be Justified. Board Finds That Continued Const Cannot Be Authorized

ML19344A178
Person / Time
Site:	Midland
Issue date:	06/30/1977
From:	Cherry M, Flynn P CHERRY, M.M./CHERRY, FLYNN & KANTER
To:
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ML19344A177	List: ML19344A176 ML19344A178 ML19344A180 ML19344A181
References
NUDOCS 8008060503
Download: ML19344A178 (115)

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gfl ? Q UNITED STATES OF AMERICA NUCLEAR REGULATORY C0ltiISSION I gg\. y h ds S Before the Atomic Safety and Licensing Board e

~

,  % 9 In the' Matter of )

) Docket Nos. 50-329 CONSUMERS POWER COMPANY

)  : 50-330

)

.(Midland Plant, Units 1 and 2) ) .

PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW OF INTERVENORS OTHER THAN DOW CHEMICAL COMPANY

/

Myron M. Cherry Peter A. Flynn l One IBM Plaza i Suite 4501. l Chicago, Illinois 60611 312-565-1177 1

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8008060.[C 3 i

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TABLE OF CONTENTS

, Page

- Title Number-Introduction .......................................... 1 4

I. FACTUAL AND PROCEDURAL BACKGROUND .................. -

3 t

A. The Proceedings Prior to the

Court of Appeals' Decision .................... 3' -

I l '. The Dow~ Issue ............................. 3

t

2. The Energy Conservation Issue

. . . . . . . . . . . . . 5 l

3. The ACRS Issue ............................ 6 i

4. The Fuel Cycle Issue....................... 7 -

, 5. The QA-QC Issue ........................... .

8 ,

B. The Review Proceeding in the -

Court of Appeals .............................. 10

. C. The Decision of the Court  ;

of Appeals ...................................., 12

1. Energy Conservation .......................- 12 . 1

2. The ACRS: Report ........................... 14 l

3. The Fuel Cycle. Issue -

. . . . . . . . . . . . . . . . . . . . . . 16 -

4. The Dok Issue ............................. 18 l

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D. The' Proceedings Since the Court of .

1 A ppeals' Decision: The Stay Motions, 'l the Motions to Halt. Construction, and the Suspension Hearings ....................... 19 -,

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1. The Stay' Motions

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. . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3: ,

2 The Motions to Halt Construction .......... 23

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TABIZ OF CONTENTS (Continued)

Page Title Numb ~er II. THE NATURE OF THE SUSPENSION ISSUES AND THE PARTIES' PRESENTATIONS......................... 25 A. The Issues in this Proceeding ................. 26 B. The Positions'of the Parties .................. 30

1. ' Consumers ................................. .30

2. The Staff ................................. 39

3. Intervenors ............................... 42

4. Dow Chemical Company . . . . . . . . . . . . . . . . . . . . . . 43 III. ANALYSIS OF THE EVIDENCE AND CONCLUSIONS . . . . . . . . . 45

,A. Can it be Reasonably Concluded That .

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the Full Remanded. Hearings on the

• l Issues Identified by the Court of Appeals.Will Not Produce a Signifi-cantly Altered Cost-Benefit Analysis ? ......... 46

1. The Consumers-Dow Dispute and the Slippage in Costs arid Timing of the Midland Project ....................... 46 Conclusion ................................ 59

2. The ACRS Report and'Other Safety Issues .............................

63' 1

Conclusion ................................ 71

3. The Fuel' Cycle Issue ...................... 73 l

B. 1&ie Need for the Midland Project  !

and Energy-Conservation: Will A Suspension Significartly Impair Consumers' Ability to Serve Its

. CustomersNeeds? ............................. 74

1. Load Forecasts and Energy Demands ......... 75 Conclusion ................................ 86 11~

G. G TABLE OF CONTENTS (Continued)

Page Title Number B. The Need for the Midland Project and Energy Conservation: Will A 4 Suspension Significantly Impair Consumers' Ability to Serve Its Customers' Needs? (Continued) 9

2. Reliability and Reserve ~

Requirements

........................... 88 Conclusion .................... ....... 97 C. Are the Incremental Costs of a Suspension So Large as to Warrant Continued Construction in and of .

Themselves? ............................... 98 Conclusion ................................ 108 4

D. Cohclusion .......'......................... .11.0 .

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, 1. . ,, . :q 7 UNITED STATES.0F AMERICA  !

. NUCLEAR REGULATORY COMMISSION - <

Before ' the Atomic Safety and Licensing Board j, .

i. In-the Matter of. )-

)

p CONSUMERS' POWER. COMPANY ) Docket Nos. 50-329

. . ) 50-330 (Midland Plant, Units 1 and-2) ) .

. PROPOSED FINDINGS OF FACT -

l AND CONCLUSIONS'0F LAW 0F

! INTERVENORS OTHER THAN

, DOW CHEMICAL COMPANY 1

Introduction I-

1. This proceeding.results from two rulings of the

' Court of Appeals for the. District of- Columbia Circuit: Aeschliman a

s. .

4

v. NRC, 547 ' F.2d 622 (D.C. Cir.1976) , cert. ' granted, U.S. ,

.i 45 U.S.L.W..3570 (Feb. 22, 1977), and Natural itesources Defense ,

i Council v. NRC, 547 F.2d - 633 (D.C. .Cir.1976) , gert . granted,,

4

.U.S. , '45 U.S .L.W. 3570 (Feb. 22, 1977) .: The first of those cases reversed the . Commission's grant. of a construction.li-j ., cense to -Consumers Power Company"(" Consumers") in connection with iH

!. . ' Units 1 and 2 of the proposed Midland Nuclear Plant, and remanded

[} -the' case.to the Commission for further hearings on specified issues.

'X The Lsecond . decision, partia11yLincorporated.into - the first ruling'-

D insofar as fitjheld that fuel: cycle matters must be addressed anew,

2. invalidated the Commission's earlier fuel cycle rule and remanded.

that matter to'the Commission for further consideration.. In these hearings,(.we do' not yet deal with the merits o'f the issues remanded.

f. 1infAeschliman.1 ;Rather, the Midland proceeding is now before us for i

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'a decision, p trsuant to. the ' direction of . the Commission in~ Consumers Power Company '(Midland Plant, Units -l & 2) , CLI-76-11, NRCI-76/8, 65 (August 16, 1976), as to whether construction of the Midland nuclear facility should be ' suspended pending completion -of the full remanded hearings on the. merits. required by the Court of Appeals.

2. Because we do not write on a. clean-slate, a summary of the prior ~ history of this lengthy and hotly-contested matter is important to a full understanding of the suspension issue and the context in which it arises. Part I below sets out the necessary factual and procedural background, both before and after the deci-

,sion of the Court of Appeals. In Part II, we then provide a brief overvieu of the nature of the issues before us and the positions of the parties--Consumers Power Company (the applicant) , Dow Chemical Company (without whose active participation and support, according to the final Environmental Impact Statement in the ear-lier liuensing proceedings, the proposed Midland Plant would be only half as Llarge and quite possibly located at a different site),*

. numerous individuals. and groups opposing .the project (collectively referred to as '.' Midland Intervenors" or simply "Intervenors") and the Commission-Staff. Part III then analyzes the evidence (or, in some: instances, the lack of evidence) on the suspension issue, Jand setsiforth our conclusions. Part IV contains our Order.

DEspite itsf eruciallrole in the. Midland project, Dow has . objected to being treated as a. party.here. The.. Board. ordered,-however,'that

'Dow be treated as. a aarty, .since Dow's electric and steam needs and

-its: relationship witi consumers are central issues. See ' paragraphs .

40, 42-51 below.

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- I.

r . ~rUAL AND PROCEDURAL BACKGROUND i A'. The Proceedings "rior to the Court of Appeals' Decision.

-3. .ra January 13,.1969, Consumers filed with what.was

. then the Atomic Energy Commission an application for a license to construct and operate a dual purpose pressurized. water nucle'ar power plant, locat'ed in Midland, , Michigan and described as follows by. the original. Licensing Board in its Initial Decision, Consumers ,

Power Company (Midland Plant, Units 1_& 2), LBP-72-34, 5 AEC 214, 1

(1972): -

, "The proposed plant, designated the Mi_dland Nuclear Plant, Units 1 and 2 ._. . , would produce approxi-mately 1,300 megawatts of electricity and 4,050,000 pounds of-p'ocess steam for sale by [ Consumers) to

, the Dow Chemical-Company." -

The "o= Issuec '

1.. ,

4. . The Dow Chemical Company _("Dow") involvement in the Midland proj ect is of great. importance. . Paragraph 46 of the-Licensing Board's Initial Decision noted. that "[t]he chief benefits claimed by [ Consumers] and the [ Commission] Staff are the produc-tion of electricity (and process steam) and the elimination of the hir.-pollution from:Dow's-present fossil-fuel steam plant," and the Final Environmental Impact Statement ("FEIS") - prepared prior to the Initial Decision went even farther (at page XI-3) :

4 -

.,"If [ Consumers] were not to supply process steam to -

the ' Dew Chemical? Co,., one . unit of the Midland Nuclear Power. Plant -would be cancellec anc consideration would be given to transterring the other unit to a ditferent site, probably the existing Palisades site." [Empha--

sis added.j s

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.5. .On February 1, 1974--while this case was pending in the. Courtfof Appeals--Consumers' and Dow announced a major

- renegotiation of' their contracts concerning the Midland Plant. The new contracts

• made a number of significant changes in th'a parties '

relationship. First, shile the original- contracts had required

- Dow to purchasei all of its Mi'dland electric and steam needs from the Midland Nuclear Plant, - the new contracts -radically cut back.

bot h - of those commitments . .Under the new contracts, Dow became i

committed to purchase n_o_ electricity from the Midland Plant other l

1'

- than as "auxiliaryfor-standby" to Dow's fossil-fuel generating facilities; similarly, the renegotiated contracts obliged Dow to i l

i. purchase only_2,000,000 lbs./hr. of steam from the Midland Plant, j while the Initial Decision--and the FEIS--contemplated double that '

s

} amount. The new contracts also no -longer required Dow tio close l .

down its fossil-fuel facilities . Tr. 2342-46, 2384-85. Since both 4

i the FEIS and the Initial Decision regarded the sale of electricity

[ .and process steam to Dow, and the shutdown of Dow's antiquated

' fossil-fuel. facil'ities, as the major . justifications for both the

- size and location of the proposed Midland Plant (see paragraph 4 l above), . Intervenors promptly sought reopening of the records for -

further cost-benefi': evidence, on the ground that the renegotiated contracts had fundartentally undercut the cost-benefit analysis of the plant--which .wasi also open to doubt on. the additional ground  ;

that byLJanuary,1974 the projected cost of the' plant had risen

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.to~=approximately $940,000,000, almost triple.the cost on which i the construction application and the FEIS were-based.- Again I

• l cConsumers ' - Exhibits 7 (a-c) .

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AInt'ervenors were unsuccessful.- The. Commission twice refused to, i freopen the proceeding in order'to consider the changed circum--

stances.- Consumers Power Company (Midland Plant, Units 1 & 2),

CLI-74-77.,.,7 AEC.147)(1974);/.Consumess" Power Company (Midland Plant, Units 1 & 2) , CLI-74-8, 7 AEC 149 (1974) . Thereafter, prompted by what it termed ' the ..rather unusual step" of Dow's

! withdrawal from.the proceedings in the Court of Appeals, the Com -

! mission (without notice to or participation by Intervenors) - ob-tained and reviewed copies .of the revised Dow-Consumers' contract.. i Again, the Commission concluded'that the proceedings should not be reopened. Consumers Power-Company-(Midland Plant, Units 1 &-2),

$ CLI-74-15, 7 AEC 311 (1974).

2. The Energy Conservation Issue.

6. In the couise of the initial license proceeding, Intervenors also attempted to raise numerous'other contentions, many of which were rejected by the Licensing and Appeal Boards in '

rulings brought'lefore the Court of Appeals and enlminating in the  ;

, Aeschliman.decisi:q previously mentioned. For example, the Licen-sing Board initiaU.y held that no_ environmental contentions at all

.__ .could be raised in the- proceeding; even after Calvert Cliffs' i Coordinating Committee .v. AEC, ~449 F.2d.1109 (D'.C . Cir.1971) , and H l

.the resulting revision-of the-Commission's rules to permit con- l uideration ofalvironmental questions, Intervenors still experienced.

'l difficultyLin raising their environmental' claims. Although Iater- i

. venors forcefully pointed out that both ' the draft and the final EIS prepared by the. Staff.: totally.' failed to consider energy conservation

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. alternatives to the Midland project,, contrary to the requirements of-.55 :102(C)(iii) and 102(D) of the National Environmental Policy

1 Act. ("NEPA") , ; 42 U;S.C. 5 5; 4332(C) (iii) , 4332(D) , . the Licensing Board reje ted 'energyJconser.vation) issues as "beyond our province."

Initial Decision, supra, 11.48-49,.70.*- Even t after the' Commission -'

itself held that' energy' conservation alternatives should be con-sidered :in license aroceedings, Niagara Mohawk Power Corp. ,.

1 CLIa73--28, '6- AEC'995 ~ (1973)--a' development which occurred after

the -Midland lice'nse, had been granted and

the case was pending in j i

the Court of Appeals--the Commission refused Intervenors ' Jfequest . l to reo' pen the Midland record to allow evidence concerning energy i ' conservation and held that Niagara Mohawk would be applied pros-F .

pectively only. Consumers Power-Company (Midland Plant,-Units 1 -

p & 2), CLI-74-5, 7 AEC 19 (1974). -

. i 3. The ACRS Issue.

.'7 . During the original license hearings, Intervenors

also attempted to challenge the adequacy of the safety report pre-1 pared and submitted by the Advisory Committee on Reactor Safety That report was. submitted in the form of two letters, 4

("ACRS").

, the first of which (dated June 18, 1970) said'in pertinent part:

I

-* TheEAppeal ~ Board affirmed on the ground tha't Intervenors ' con- -

tentions 'were "beyond the, pale of what'we view as required by.

NEPA." Whilezit suggested that energy conservation alternatives had been " inherently ' part^of the Licensing' Board's analysis , the,-

l Appeal Board ' cited for that pr'emi' s e the 'very portions of the Licen-

.. sing Board's Initial Decision in which the Licensing Board had l - had refused to' consider energy conservation. - Consumers Power-Company (Midland. Plant, Units 1 & 2) , ALAB-123, 6 AEC 331 (1973) .

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l. . 1,; . , ,' ~q .q "Other problems relatedito large water reactors have

-been identified.by the RegulatoryLStaff and the ACRS

.and cited iniprevious ACRS reports. The Committee

. believes that resolution.of these items should apply equally to.the Midland Plant, Units 1 and 2.

~,"The Committee believes that the above items can be

- resolved during construction . .. .- "

The' ACRS did not identify what the ."other problems" were, nor.

indicate how they could be'" resolved during construction." Inter-

venors accordingly; argued that the report did not satisfy the requirements-of 42 U.S.C. 55 2039, 2232b,' and that its cryptic

! language prevented Intervenors from fully exploring. safety prob-lems. Since the ACRS report must be offered "in, evidence" at.the license hearings , 10 C.F.R. , Part 2, . $ 2.743(g) , and the Lican- .

sing Board is authorized to rely upon the conclusions of the _

1 report unless ' they are formally disputed ,by a party, Id., Appendix p, .

A, 1.V(f)(1) , : and .since the Board is affirmatively directed to

" review and become familiar with" the ACRS report before hearings 5

4 begin (Id. , . App. : A,1 I(d)) , Intervenors also argued that the l

report constituted substantive evidence in the proceedings and-sought-discovery concerning what the "other problems" were, what I l

sort of "due consideration" the A'CRS felt they should be-given,

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and'why the ACRS had concluded that they "could be resolved during.

construction."- Denial of- those contentions was affirmed by the-

!Appeal Board..~ Consumers Power' Company (Midland' Plant, Units 1 &

2) , . ALAB-123, 6 AEC 331 L(1973) ~.

..-  :}h

~4.  ? The Fuel. Cycle Issue.

8. -During the initial license proceedings, Intervenors 4

... A. m i .

L also unsuccessfully attempte[ te 2aise issue.s. concern'ing the environmental' impact of generating, disposing of, and reprocessing nuclear waste material. In part, their contentions were rejected on the ground' that--as the IEIS asserted (at pp . XII-11,12)--the environmental costs associated-with waste disposal problems are

" remote and speculative," because waste disposal mattere are

"beyond the licensee's control" and because, as stated in Vermont Yankee Nuclear Power Corp., ALAB-56,~4AEC93021972),"ithas

. not yet been ( termined what the nature .or location of the ultimate depository (for high level waste] will be." In addition, Inter-venors' fuel cycle contentions were rejected on the ground that waste disposal is a " generic issue" appropriately handled in rule-making proceedings rather than in the context of individual -

license' hearings. Consumers Power Company (Midland Plant, Units -

1 & 2)',' ALAB-123, 6 AEC 331, 353 (1973) .

. 5. The QA-QC' Issue _.

9. In addition to their unsuccessful attempts to raise the Dow " changed' circumstances" issue, the energy conservation

.. issue' the'ACRS~ issue, and the fuel cycle issue in the original liccase. proceedings Intervenors also raised numerous contentions concerning quality assurance and quality control ("QA-QC") prob-lems exp'erienced at the Midland Plant. QA-QC requirements are the Commission's primary line of defense against safety prob 1 ems (see AEC Doc. No . WASH-1240 (1973) , at pp . 2-lff. , 3-19) , and full compliance with all QA-QC regulations is'es.sential.

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Vermont Yankee 4

Nuclear Power Corp.,-ALAB-124, 6 AEC-358, 362 (1973).

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10. Concerning,the QA-QC issues, however, the earlier-l

. Licensing Board ,took the view;that its only. function was to _ ascer-L~ tainLwhether an appropriate QA-QC program had been adopted; it regarded the question of whether Consumers. could or would live up -

~ .to-the requirements of that. program as beyond its province.

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)-

j' tial' Decision,. supra, 11'28-29.- The Appeal Board disagreed,.

holding that '"the . [ Licensing]' Boar'd' also should have determined whether there was a reasonable assurance that-[ConsumersJ . . . .

would carry out the terms t of; the program," and finding as a fact:

. that neither [ Consumers] nor [its] archi-Etect-engineer had provided. reasonable assurance ..

that the-QA program will be. implemented properly ~.

. ... . . They have in th,is project not demonstr.ated their. concern with maintaining QA programs in syn-chronization with their construction programs, nor

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have they demonstrated that they will have properly "

trained' people on site to implement the QA programs.

Consumers Power Company-(Midland Plant, Units 1 & 2) , ALAB-106, 6'AEC 182, 184-85 (1973). However, instead of reversing the grant o'f the construction permit or remanding the proc'eeding for further hearings.on QA-QC issues, the Appeal Board simply imposed addi-tional " reporting, requirements" on. Consumers--requirements which the' Board deemed necessary "because of the history of the failure of- (Consumers] anddhe -architect-engineer to observe the required i-

[ :QA'piactices and procedures, as: documented'in this' record." g. ,

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B. The. Review Proceeding in ,

= the Court of Appeals .

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11. The' Licensing Board's 2n'itial Decision, granting the i  ; Midland. construction permit, was issued on December 14, 1972. On May 18, 1973,- the Appeal' Board affirmed that Order,' Consumers. Power

, Company- (Midland Planti, Units 1 & 2) , AT %-123, 6 AEC 331 (1973);

the Commission declined to review those rulings . On Auguse 6, 1973,

! the' Mapleton Intervenors filed a Petition for' Review in the United-

! States Court of Appeals for the District of Columia, and on Septem-j ber 7, 1973,'both Dow and C(.nvr.mers intervened in the review pro-

)

i ceeding (although, after the contract renegotiation described in I I

paragraph 5 above, Dow withdrew itis intervention) . That pro-

-l 2..

ceeding was sub'sequently consolidated with the Saginaw Intervenors' ,j l

l Petition for Review of the' Midland rulings . l i

12. In addition to the unavoidable delay in the judicial 1

review proceedings occasioned by awaiting Commission rulings on j i

Intervenors' petitions to reopen the record for " energy conserva-tion" and."Dow changed circumstances" reasons, a further' delay-arose from the fact ' that, after the Midland review proceedings were

• ' Although the Appeal Board subsequently concluded that QA= require--

ments had been1 satisfied, . Consumers Power Company (Midland Plant, Units :1 &. 2) , ALAB-147, 6 AEC 636 ' (1973) , not long thereafter

.the Appeal Board > decided that'its' optimism had been unjustified.

,By letter;of-November 26, 1973 to the. Director of. Regulation, l the.' Appeal Board concludedJthat:.." ... . -cont rary to our findings in ALAB-147 . .. .. there' is not a reasonable ^as.suranc~e that 'appro-priate QA' action'is now being taken. If anything, there is a solid assurance that exactly the opposite is the case." A .

show-cause proceeding was instituted, but was eventually terminated faverably to Consumers.

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instituted, Petitions for Review-~were also filed in other pro-1 V caedings involvin~g the Commission's , handling of- nuclear waste reprocessing and disposal issues. Because Intervenors had raised similar issues in this' case (see~ paragraph 8 above)', on' April 8,

-1975 (after the Midland oral argument) the Court of Appeals sua

sponte entered an-Order holding this case'in abeyance pending its .

decision in Natural Resources Defense Council v :NRC, 547 F.2d 633 (D.C. Cir. 1976). Since this ' case had already been argued orally, it appears that:it was the Court of. Appeals' sua sponte Order, rather than any delay attributable to the parties , which caused

, the ensuing 18-month gap between the oral argument and the final

decision.

[ 13. During the p'endency of the case in the Court of -

Appeals, construction of the Midland Plant continued, numerous

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)- additional QA-QC problems' arose (see paragraph 56 below) and  !

l

) the total cost of the Midland project continued to soar. As pre-

.]

, viously indicated, in. January, 1974 the project cost was estimated

. at approximately $940,000,000,.or 2507. of.the total project cost estimated in.the application and the'FEIS and relied on in the -

-Initial Decision..- Between January, 1974 and July, 1976 (then the.

Court 'of Appeals issued its decision), that $940,000,000 figure

-itself nearly ' doubled, - and. the:; total project cost is now conserva- ~

tivelyfestimated at.$1.67, billion.,-Tr. 5,6.84; see, paragraphs 46 arid 48 below.. - -

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- C. The Decision of the Court of Appeals .

14. On raly 21, 1976, the Court of Appeals decided both this case and the fuel-cycle case (in connection with which it had held this caseLin abeyance). Aecchlican v. NRC, 547 F.2d 622 (D.C.

- Cir.1976) ; Natural' Resources' Defense Council _ v. NRC, 547 F.2d 633 (D.C. Cir. 1976). The holdings and reasoning of the Court must be expleired in some detail, because they frame the nature and scope of the full remanded hearings on the merits as well as indi-cating what deficiencies in the licensing record mur.c be cured before any affirmative licensing decisions can be made, and thus bear directly on the suspension-of-construction question presently i before this Board. -

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1. Energy Conservation.

15. The Court of Appeals' Aeschliman opinion begins by taking up the energy conservat: co problem. Noting the failure of the Midland EIS to consider energy conservation and the rejection of that subject by the Licensing and Appeal Boards , as well as the Commission's contrary ruling in Niagara Mohawk Power Corp., CLI .

28, 6 AEC 995 (1973), the Co'rt~

u turned to the Commission's refusal to reopen the Midland record.after Niagara Mohawk was decided.

Aeschliman, 547 F.2d at 625-26. The-Commission's 1974 ruling had imposed a " threshold' test" on energy conservation issues,.under

.which such issues need not be considered unless the alternatives were " reasonably available" and, further, unless the alternatives "would, in;their aggregate effect curtail-demand for electricity a

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to :a :1evel at which ' the proposed facility would not be needed."

J Consumers Power Co. ~(Midland Plant, Units 1. & 2) , CLI-74-5, :7.

4 AEC 19 ' (1974) . . First, the Court of Appeals concluded '(547 F.2d

).

at 627..n. 10) that:

" Con'trary.to the Commission's formulation, an i

.- alternative cannot be ignored simply because-it

would not tot:11y alleviate the need for a pro-

[ Citations omitted.']

posed facility .'. . .

1' "It is sufficiant that energy conservation might reduce projected demand for electricity so that  ;

j a smaller facility, having lesser adverse environ-l mental impact, would be adeocate."*

Next, the court of Appeals turned t ), and rejected, the other requirement of the " threshold test, ' which effectively placed the i burden upon Intervenors to show tha: proposed energy conservation

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measures are feasible and realistic (547 F.2d at 627) :

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"Saginaw contends'that the v.hreshold t'est' applied - / -  !

in this case is-inconsist'.nt with NEPA's ' basic man' '

dateto the Commission ao 'take the initiative'-in '

4 considering environmen',a1 issues . Calvert Cliffs '

I Coordinating Comm., I.c. v. AEC, 146 U.S. App. D.C.

E 33, 449 F.2d 1109, 1I1T-19 TlT71) . We agree.

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• Under the circumstances. here, that holding has particular impact.

!: ' There 'is. at; present considei able controversy. over how.far.. (if at ' q

, all) -Dv.:' is , willing .to go.t in supporting'.the Mid'.and'. proj ect . iSee

' paragraphs 42-51. below,l : .As 'theI earlier FEIS"noted. (at page .' '

XI-3),- :if Dow :i's ' removed from consideration, all parties agree L that the Midland Plant.could and should be considerably smaller, and probably located at a different site... Even if Dow remains in the picture, moreover, its ongoing negotiations with Consumers-- m..-

! negotiations wiich, historically as well-as presently, have'been l

in theidirection of le'sser~ commitments ~on~Dow's-part--require careful examination. .Like energy conservation measures,.the ef-

~ facts of: the negotiations may be to " reduce projected demand... .. . .

- s'o that.a smaller facility", having lesser. adverse environmental' '

!- impact,'would be adequate.

2

• yy v t b e y- s-r- yv-= , e.-rw y , y-v< r- -=wm we a n s. - w a.r e -er-en.--.mre-w= - v - +rw r e e -army g- v eg n

o 7 ,,

,; y

.. a.

e "In Calvert Cliffs the Commission proposed to limit c the consideration of environmental issues under NEPA to those 'which parties affirmatively raise.' Id.,

1119. This court reversed, pointing out "it is iin-

-- realistic to assume tliat there will always be an inter-

'veaor with the information, energy, and idoney required' to investigate environmental. issues. . Id . . The court.

held that theE' primary responsibility'~ Tor' fulfilling i

-NEPA must lie with the Commission, which may not merely

' sit back,.like an umpire, and resolve adversary con-

tantions at the hearing stage.' [ Citations omitted.]

i '

The same considerations persuade us that the Commission may not refuse.to consider energf conservation alterna-i tives unless an intervenor first brings forward informa-tion satisfying the strictures of.its ' threshold test.'"

f The Court went on to hold that "an intervenor's comments on a l

draft EIS raising a colorable alternative not presently considered therein must only bring ' sufficient attention to the issue to 1 stimulate the Commission's consideration of it, '" and that Inter-l ,

veno,rs ' conmients in this case had met that test. Aeschliman, 547 F.2d at 628-29. Noting that the Federal Power Commission "rou-tinely requires" consideration of energy conservation alternatives in deciding whether to build hydroelectric facilities, and stressing v

the important role of energy conservation in terms of overall energy policy--a role significantly heightened, we might add, by the Admin-i istration's energy program--the Court concluded (547 F.2d at 629):

"It ' follows' that energy conservation was not to be

dismissed by"the Commission without inquiry or explanation.

, . 2. The ACRS Report.

i

~16. The'Aeschliman opinion'then addresses the ACRS-issue.

J After analyzing the . legislative history -of ' Congress ' requirements 4

that the ACRS report.:on the's'afety of. each' reactor proposed for licensing and that the~ report be made public, the Court of Appeals

'14-

1 '.. J -

9. g- ,

determined that the report serves two essential functions: (i) to i -provide a thorough, - substantive. evaluation' of all safety issues

~

so 1that they can be fully discussed 'and resolved before ~the reactor '

I is. licensed, and (ii) to provide the public with full information ,

concerning "the safety or possible hazards of the. facility."

i

.Aeschliman,~.547.F.2d at 631. 1&te Court then held that the opaque, i and urexplained."other, problems" language of the ACRS report,, des'- ,

cribed in paragraph 7 ' above,1was inadequate , (547 F.2d at 631) :

1

~

I "While the reference to 'other problems' identified in previous ACRS reports may have been adequate to give the' Commission the benefit of ACRS members'

• technical expertise, it fell.short of performing

, the other equally important task which Congress

gave'ACRS

informing the public of the hazards .

! At a minimum, the ACM report should.have provided a short1 explanation, understandable to a layman, of the additional matters of concern to the committee, -

+ and a cross-reference.to the previous reports in 3

which those problems, and the measures proposed t,o '

. solve them, were developed in more detail. Other-wise, a concerned citizen would be unable to deter-mine, an Congress ' intended, what other difficulties l might be lurking'in the proposed reactor design."* I

• The court might well have added that Intervenors, as well as l

" concerned-citizens," are prevented from addressing safety  !

issues by. an unduly .c'ryptic' ACRS report. As the court com- I mented, 547 F.2d at 631 n.18, "When ACRS conclusions are con-

.troverted,- a factual record is compiled anew before 'the Licen-

-sing Board.": ' But those . conclusions canno't be " controverted,"

, -nor cza important safety issues be. fully explored in licensing proceedings , unless the ACRS advises the parties (as well as

' -the public) of what its conclusions.actually are in sufficient

_ detail to-be understandable. Just as an inadequate ACRS report fails to trigger the desirable public debate over the possible hazards of ta nuclear reactor,- so it also fails to trigger the extremely important process? of resolving those: difficulties, in.the open,cduring.theilicensing-~ proceedings.. See paragraphs

,52-55'below,:where these' of the present hearings : points' are analyzed in the framework j

r q

., - - , .-~. - - - . ,-.. . . - . ~ . - . _ , . .- - - , , , , - , , , , ,

. : . '.: . . . m

.-l '

3 .

Accor'dingly , the Court ~ concluded - (Id'. , at 631) that "the ACRS report on its face: did not comply with the requirements of the

~

statute" m2di that l the _ Licensing Board should therefore,' ~sua~ 'sponte ,

have' returned the. re. port to the ACRS "for further elaboration: of

-the cryptic refer =.ce~to 'other problems.'" The'importance of .

-full 1and conscientious Board compliance -with that ruling is under-

scored by 'the _ Court's rejection of Intervenors ' contention that

they were entitled to discovery from the ACRS. Since~Intervenors -

- cannot themselves ensure that ACRS reports ' fulfill the Congres-a sionally-mandated. purposes describ2d by the Court, the Board must j bear full responsibility for enforcing the statutory requirements

and goals. -

l . 3. The Fuel Cycle Issue.

.17. 'The Court of Appeals next took up Intervenors' fuel j cy'cle contentions, which the Court held were controlled by its

!. contemporaneous decision in Natural Resources Defense Council v.

i NRC, 547.F.2d 633-(D .. Cir. 1976). In that case, the Court held

.a j

that the Commission could not refuse to consider the environmental problems of . nuclear waste reprocessing and disposal on the ground

'that--although: concededly the operation of any nuclear plant re-sults in "an' incremental environmental -effect" on the waste prob-I lem throughithe creation of additional waste--that effect is

" presently indefinable." Citing its decision in Scientists' In-stitute-for Public-Information, Inc. v. AEC, 156 U'.S. App. D.C.

'395, j481 F.2d 1079i;(1973), _ the : Court held that "the' obligation to-make reasonable; forecasts.of the future is implicit in NEPA and t

e w -

c -- e- --

-- s v

-a p c , g,-*w, i ee v? r- y

q q -

therefore an agency ~cannot ' shirk [its] responsibilities under NEPA by labeling any and 'all discussion of future 'environmenta?,

effects as " crystal. ball inquiry."'" NRDC, 547 F.2d at 639.

The Court added' (Id.;.at 640) :

"As' more.and more reactors 1 producing more and more waste -are brought into being, ' irretrievable com-mitments [are] being made and options. precluded,'

[ citation omitted), and the agency must predict the-environmental' consequences of its decisions as it.

makes-them. See Aberdeen & Roekfish RtR. v.. SCRAP _,

~

422 U.S. 289, 320, 95 S.Ct. 2336, 4,5 L.Ed. 2d 191 (1975)."

The Court also reje~cted the argument that consideration of the environmental effects of waste disposal and reprocessing could appropriately be deferred until license proceedings for reproces-sing plants . The- Court held (547 F.2d at 640-41) :

"The real-question . . . is whether the environ-mental effects of the wastes produced by a nuclear -

reactor may be ignored in deciding whether to build it because they will later be considered when a plant is proposed to deal with them. To answer this question any way but in the negative would be to mis-

. construe the fundamental purpose of NEPA.

Once a series of reactors is operating, it is too late to cons'ider whether the. wastes;they. produce should have been produced, no matter how costly and impractical reprocessing and waste dispcsal = turn out to be; all that remain are engineering details to make the best of Lthe situation which has been created . . . . Deci-

'. sions to license:; nuclear reactors which~ generate large amounts of ' toxic wastes requiring .special isolation from the environment for several centuries are'a para-digm of ' irreversible and irretrievable commitments of resources ' which. must receive ~' detailed analysis' under

- S '102(2) (C) (v) of NEPA, 42 U.S .C. 5 4332(2) (,C) (v) . . We therefore' hold.that-absent effective ~ generic proceedings to consider these issues, Lthey. must be dealt with in

individual licensing proceedings."

LThe Court .went on to hold _that ;the generic proceeding which trecelted in ' the. fuel 1 cycle rule was fatally defective. Accordingly, i

i

,',' q' i

• i . : ' '.l.f 3

the Court set aside'r.he fuel cycle rule ~and remanded the case to J

the Commission, notinf(547 F.2d at 641' n.17). that "until- an ade .

quate generic proceeding is hel'd . ..., these issues' will be ripe ,

in individual licensing proceedings." .

18.- The- Court of Appeals applied its fuel cycle holding to this case as' follows .(Aeschliman', .547 F.2d at - 632) :

"The' final EIS prepared in regard to Midland Plant Units 1 &. 2 says only that fuel wastes will be On'.

~

shipped' to . unidentified offsite disposal areas .

remand, the: Commission shall undertake appropriate- -

. consideration of waste disposal-and other unaddressed fuel cycle issues, and restrike the cost-benefit analy-sis.,',as.necessary,.,is,1accordance with NRDC v. NRC,, supra."

s The Dow Issue.

..l .."

J 4 ._

19. In summary, then, the Court of Appeals concluded: (i) that both the Environmental Impact Statement and the record in' the -

, initial Midland-construction permit proceeding'were fatally defec- , ,

tive; because'both failed to consider energy conservation issues and because both failed to consider fuel . cycle issues ; and (ii) that the record in the license proceedings was further defective because, : contrary to ; the explicit ' requirements of 42 U.S .C.

I 2232b , and the Commission's regulations (see 10. C.F.R. , Part _2, 5 S. 2.101(b) , 2.101(c) , 2.743(g) ; Id. , App . A, : 11. I(a) , (b) , - V(f)) ,

a valid'ACRS report had not been prepared. The Court of Appeals.

also made it plain that the material changes in the Dow-Consumers

-relationship fshould be- fully considered in .the- hearings on remand

(547 F.2d'. acL632)f:

"As':thislmatter requires r.emand and reopening of

,-Lthe. issues of energy j conservation alternatives-as

-well1as recalculation of; costs * --

and benefits , we

.. e; .  ; .. 3, j .g. ,, , , ,

a.. + 18 . .

- +

',- 1

_p' q 2 ,.

i assume that the' Commission will take into account-the . changed. circumstances regarding Dow's need for process steam, and the intended continued op'eration of Dow.'s fossil-fuel generatiing facilities ..

• Further impetus for a s'earching' reexamination.of thefDow-Cons'umers relationship (crucial' to any' cost.-benefit analysis 'of the Midland ,

project, as.noted'ingpapagraphs 4-5 above).. appears from. Common- ..

wealth Edison Co ,, ALAB-153,j 6 AEC, 821, ' 823-4 (1973) :

.. . [I] t is not proper to resolve 'a major envir-t onmental questioh on the' basis' oft a set. of facts' .

existin' g~in the past if there 'is ' good reason to be-lievs that there may have been an appreciable, and j matuial, change in the factual situation."

. D. The Proceedings.Since the Court ,

of Appeals' Decision: The Stay _

! Motions, the Motions ~to Halt Con -

[ struction...and theTSuspension. Hearings. I y (

t 20. Following the Aeschlican and_NRDC decisions, on Augus't .

l l

, 16, 1976 the Commission issued a General Statement of Policy (41 '

f Fed. Reg. 34707) reopening the fuel cycle rule-making proceeding l -(in order.to supplement the record concerning nuclear waste manage-

ment and reprocessing and to determine whether its prior ~ treatment of those issues should .be revised) and- ordering . that no new or i

full-power construction or operating licenses issue until a revised environmental survey and'an interim fuel cycle rule had-been pre-pared. Id. at 34708. The General Statement of Policy directed

• Citing - Uni'on of Conc ~erned Scientists vi AEC, -163 U.S . App .? D.C.

.64'.499 F.Zd-1069, 1064 n.37, (1974) , '.the court emphasized that

<e

% ;in reanalyzing costs and benefits , - complete 'abandonmerit. of the i

' project is "at alternative'to be considered," and repeated its i

long-standing holding 1 that '"s6nk costs" may, not be ' considered t

in-the'new cost-benefit analysis. Aeschliman, 547,F.2d at 532 n.-20.. -

^

.~ .

e 6 * '

s ,

> . m , - . '

a  ; .

g.S q.

l case-bywese: treatment ;of whether ' existing construction or opera-

~. .. . . .. .

, tingilicenses'should be modified =or suspendedias a res~ ult'of the NRDC - fuel ' cycle ' decision, adding: "An evidentiary hearing on

' other issuas willLbe r aquired in Midland,'bar2. g further. review.

i . l

- That hearing,7however, . should not be commenced until the Midland-

~

decision has become final.'.' I_d,. at 34709. Also on. August 16, 1976,.

[1-the Commission issued a Memorandum and Order in these dockets,

)

7 reconvening an Atomic Safety and Licensing T ard "for the limited-purpose 'of considering, in light of the facts and the applicable 1

[ law, whether the construction permit for [the Midland] facility i should be continued, modified, or suspended until an interim fuel cycle has been made effective," and. repeating that "no hearing on-1 i

the merits of';qe other issues assigned for reconsid.eration by' the '!

l

,- Court of Appe'als in.the' Aeschliman v. NRC decision will be appro- R L

priate until the decision of the Court.of Appeals has become final."  !

-l

- Consumers Power Companyc.(Midland Plant,' Units 1 & 2) , CLI-76-11, l

, NRCI-76/8, 65 (August 16, 1976).*

l .. . 1. The Stay Motions.

R ~ 21. fVery shortly fter.-the Licensing Board was reconvened, is j Consumers began a sefics' of attempts to prevent or stay the ;suspen- '

sion proceedings. On' August 26~, 1976, Consumers moved the Commis -

- sion~ -to recall :and . reconsider cits - August '16, 1976 Order reconvening-J

.* STrie- Commission designated tihe members of theUrecon wied Midland

' Board en Ksgust 18 , :197_6. On Dec. amber 21, 1976, the Board.was

^

reconstituted pursuant to i 2.721 of the ' Commission's rules of practice by: replacing;the: prior Chairman,' Daniel M.-Head, Esquire, u ,

- with the'present.. Chairman,- Frederic J. Coufal,' Esquire.

. . 4

, \

-20-1 4 T 4  %

U ,.

.- - e _ , . m-.. , ,. ,ac r,, ... ... . .- . m - ,,, , , . , _ , , . . , . _ . , ~ ~ , - . . . . - , . -

r . 'k ,1 h the. Licensing Board. That request was denied by the Commission,

,, in a ruling.which pointed out that the Court of Appeals had issued v .

l -its mandate-in Aeschliman despite Consumers' strenuous opposition, and no'ted: . "We cannot disregard the Court's issuance of its man-date despite cdnsumers Powers' arguments to it along lines similar to those offered here. Hearings on the issue of suspension are immediately, ripe and should he addressed by the Hearing Board."

i Consumers Power Company -(Midland Plant, Units 1 & 2), CLI-76-14, I NRCI-76/9,163 (September 14,.1976).* Undaunted, on October-22, 4

1976, Consumers again. sought to stay further proceedings before g this Board, arguini that consideration of the remanded issues would

be inappropriate until the Supreme Court acted on Consumers ' peti-tion for certiorari in Aeschliman. Although the Commission halted l 1

other ' fuel cycle" suspension proceedings by issuing a Supplement'al l 1

General Statement of Policy,-41 Fed. Reg. 49898 (November 11, 1976)',

j it egain refused to halt these hearings insofar as the three . -

non-fuel-cycle issues remande'd by the Court of Appeals--energy l

+.

conservation,- the ACRS repart, and the Dow-Consuraers changed cir- u i

cumstances--were concerned. Consumers Power Comoany'(Midland Plant, Units 1 & 2), . CLI-76-19, NRCI-76/ll, 451 [(November 5,1976) .

-* In the same ruling, the Commiss' ion noted that the issuance of.

ths Aeschliman mandate " alters the situation from what it had i

. theen when the -[ General Statement of Policy) was issued. Now d -

- the decision in' Aeschliman -is final . and consideration of all '

issues remanded to the Commission by the' Court of Appeals is appropriate.".The-Commission accordingly is' sued a fresh-~ order 4

..to the Licensing. Board,Ldirecting11e to.. con. sider those issues J

as:wellias the_ waste issue.

t a

. -21 1

. , ,-. .. . . a .- , ,n_ __.n , , ._ _,. ..,..___ ..____ . _. . . -- .

i.2 Q ., , ,'

W W i j22..'Although its: attempts'.to halt.these hearings had. .

been rejected both by the Court of Appeals fand (twice)' by the )

I i iCommission,~lon' March _4,;1977, Consumers again sought,to stay the 2

suspension hearings ,- this' time 'on the ground that on February. 22, .

4 1977, the United-States: Supreme Court had granted certiorari in both the Aeschliman and the NRDC cases.-(Consumers.also askedL l this - Board-- to defer further proceedings until the Commission had

-~ i j

, ruled on.the Motion.

By Order issued March 11, 1977, supplemented by Memorandum Opinion is' sued March 16, 1977, the Board declined'  !

j to do so, b'oth on grounds of practicability and because "[w]e are  !

i l now proceeding as ordered by the Commission and we are reluctant j I

i

.to do otherwise unless we are directed to do so.") The Commission l i

referred' Consumers'3 motion to the Appeal Board, which denied the ~ '

!= motion in language which speaks' directly to 'tlie suspension issue

.l now presented for. decision: )

"' , ,, ... - The# basic issue' .which"is before: the Licensing

, Board on the merits--whether to re-authorize the con-i' struction of - the Midland facility in the face -of

claims that the-project-as presently structured cann't o

' survive a proper NEPA-cost-benefit analysis--can be j prejudiced by a continuing commitment of resources to i the project.- The more that is expended, - the less like- '

ly .it is that, on account of-' environmental considera-2 tions, either the co,st-benefit balance will be tipped against~the plant or. potential alternatives will remain'

i - . feasible. . In essen'ce',[ Consumers ] is' seeking to' defer

' decision on the wisdom of completing the facility while continuing-the' construction activity that could tilt the decision-making. process in its favor.- There is a saying- '

- for-this--having your cake and eating'it, too. Only the

- most extraordinary circumstances could justify our re-  !

quiring a party- to stand .by .while 'another ~ is satiated at .

- its expense." [ Emphasis'~ added. l i- l Consumers Power. Company'(Midland. Plant, Units 'l & 2) ,f ALAB-395, 5, _

NRC (April 29,i977) . On.,May 24, 1977, Consumers also asked 22-n W W d d - 'T+ r s. m -#

g3 e-n--- t t'M' f e-f ita- im>" W v 1's '=*9++w r Fr** f'-"" t Y~ # 9'e+F"W 4 C-wi-

' ~

V.d . . n . + ,L . . .. -..

.. . f ~

7 ., .. Q. M. , ff.

.q . ,u- . a . . .. , ,c,,-a y s .. ,

L a

3

, athe! Court lof' Appeals.to re'callliti mandate. On' June 23. 1977, the-

. X .. ~-. .

Cour't o'ff Appeals.. denied that J)otion.:

c2. The Motions to Halt Construction.

23. - In: addition to an1 oral motion made at the close'of  ;

Consumers ' E direct presentation . (Tr. 4107ff.) ~ and based. on Cons'umers ' .

. asserted failure t to carry its burden _ of proof on the ' suspension .  !

issue -. (which Consumers admittedly bears : J Tr. 4126) , . Intervenors

• I have filed four1 written motions _ seeking-an immediate halt.to fur-

- ther construction of the Midland Plant, pending completion of _the full remanded hearings'on'the merits. On September 3, 1976,-Inter- a venors asked the Commission ~to halt construction,-on the ground _

~ that the' Court of -Appeals' j.ust-issued _ mahdate in Aeschliman so

~

required. -The Commission denied _that motion, ruling that Inter-

.venors .had not offered sufficient reason = for altering its belief

~

(announced in the August 16, 1976 General Statement of Policy)

"that the . question ~ of modification or suspension . . . . is not appro-

- priate for-summaryidisposition and should be decided 'in formal

~

proceedings:in light of the facts and the applicable -law'. '" -

Con -

sumers' Power / Company (Midland Plant, Units -1 & 2) , CLI-76-14,' - NRCI-76/9, .'163((September 14,1976) . On September 10,1976, Intervenors g f also moved. this. JMrdf to haltf f construction, arguing: (1) . . that the spendingloftadd'it3.onal funds.on. construction pending. completion

.of. the remanded: hearings would:be unfair and. improper (in -large

.g x  !

f

'4= .,h,-,e .+" - . , - , -r v.,p- , . ---y >r-e=+-ev+-- y 6,--i----+v,w -

• ==+y1wr* 'wws---v

.; ... p ,[

v f ^Q d

part forc the reasons. articulated by the~ Appeal Board in its April .

~

-29,7 1977-ruling,idiscussed in paragraph 22 above)'; (ii) that as .

~

:a matter ofJlaw the. Court.of. Appeals' invalidation of the EIS and-its ACRS ruling rendered issuance of the original construction permit invalid, so that. activity could not properly proceed under.

that permit; and ~(iii) . that the Court of Appeals ' decision, by requiring a complete restriking of the cost-benefit analysis , Jalso

~

required suspending construction until that fresh analysis was com-plete' . On- October 4,1976 the Board denied that Motion, explaining (in a Memorandum filed on: October 21) that evidentiary hearings were I

required in order to produce an up-to-date record.*' On December 31, 1976, Intervenors again urged the Board to put a stop to fur-tner.constraction. In addition to :the points tbey had earlier pre-sented,'Intervenors argued that 'the drastic char:ges in the Dow-C'on '

sumers relationship and the lack of. candor. shown by Consumers .as to

.those changes . (see paragraphs .29-33, 42-51, below) required imme-dlate_ suspension. On. the' basis of such decisions as Hammond Packing-Q,. v. Arkansase -212- U..S . -322, 350-5i (1909) , Alabama Power Co . v..

FPC, 511 F.2d 383,' 391'.(D.C. Cir. 1974), and Warner Barnes & Co. v.

Kokosai Kisen Kabushiki Kaisha,-102-F.2d~450, 453 (2d Cir. 1939)

.( per L'. Hand,7J.),' Intervenors argued that Consumers' attempts to 1

1 ~

for over i *- The. Board 3 years "inalso.noted reliance onithe that. Consumers

. [ construction] had been permits acting - [ originally]

issued b -

. parties 'y.the faultCommission'."-

- (see paragraph

_ However,12- above) that, and, time 'inlag view was~of. nothe the ~

prohibition against: considering " sunk. costs" wheti restrikin -

' thel cost-benefit balance ?(see paragraph 19 above), it does not of itself militata against. a suspension otherwise appropriate.

The' Board's point:was that Consumers is entitled'to a hearing--

- not:that threef(or even ten) years of operation pursuant to 2n finvalid permit could ex post facto legitimateJit.

~

24-Er += c* .-%,r -

• u------ w e-=3-- --wee e e mw e- +gw <-+ rre-*-age-e-1-m* wwn Sr -* -W w me r e

p -~_

m y

9, j manipulate the . testimony .of Dow witnesses justified an inference.

"that prospects Jfor the succes~s 'of - the' Midland projecit are feven 4 worse'than we have already_.found out." The Board has not yet l

ruled on.that Motion. Finally, on March 12, 1977 Intervenors

~!

- asked the Appeal Board _ for an immediate halt to construction,-

-l L repeating their earlier arguments to this' Board and asserting that~ -

) - although both . Consumers and the Staff had -finished their direct presentations, the record contained no showing that construction 1 -

should be permitted to continue. In the same ruling denying Con- 'l sumers ' morion to staf=.these - proceedings , . the Appeal Board. de -

i clined to act on Intervenors ' motion, on the ground that thecsus--

l pension issue; should be determined by this Board.., Consumers -

3

- Power Company .'(Midland

Plant,.; Units -17 &"2) ,. . ALAB-395, 5 NRC- ..

J

'(April 29, :1977) . .

. II.

i-THE' NATURE OF THE SUSPENSION-ISSUES AND THE PARTIES' PRESENTATIONS.

t .

24,. . The hearings _before this Board on the suspension issue occupied very nearly a full month of actual trial time. ' Hearings were held.on November 30, 1976; December 1-3, 1976; January 18-21 and.31, 1977; February 1-4,.7-9,_11, 15, and 16. 1977; March 21,

.23, and 24,-1977; and' May 9-13, .1977. In addition to the hearings 't themselves, the parties have also submitted several hundred pages I

of written- testimony and well over a hundred exhibits . Because of-the Tength and complexity of the hearings and the evidence 'before 4

thelBoard, Lit.is appropriate to preface our detailed examination

a. . . . - . - . . ~

l. } .l K

^

3 ~

.of the evi~dence with an overview of the- issues before the ~ Board,

. the nature -of the evidence presented, and the positions of the' -

\

parties

! - A; The Issues in'this Proceeding. .

25 . . At the opening- :of thei hedrings on., November 30, '1976, . '

the Board noted that the Court of Appeals hnd remanded the fol-I

' lowing issues to the Commission for reconsideration in this. case - ,

~

l (Tr'. 4) :

1

" .. .._,.' Energy conservation as a partial or. complete

- -l substitute for construction of the '[ Midland] facility, any changed circumstance:concerning the need of the l

'Dow Chema. cal' Company for' process steam, the impacts of H the. continued operation of Dow's fossil-fuel ' generating. H facility,: cidrification of a report by the Advisory Com- l

, mittee on Reactor Safeguards, and the environmental ef- H facts of nuclear waste disposal and fuel reprocessing."  ;

The n Board went on to point out that, although "che Commission originally appointed this ' Board to consider whether t'he construc-tion permits should be continued,-modified, or suspended until an-

interim rule regarding = the fuel cycle issues could be placed in

' effe~ct," on November 5, 1976, the Commission had also directed the

- Board to consider "all'the~ issues that were. remanded by the Court of Appeals" '-except .for-^ the fuel cycle issue, concerning which I

~ "the Commission-ruled that we:should defer proceedi6gs' relating to i ~

Lsuspension on the! basis of fuel cyclefissues ." Tr. 5-6.* However, L; . the Board made it; clear that - these hearings were 'not to be

_. .O .A.. . , , , , .

b.z . .

, . . ,, *T ,.

~

• -As if May!4,~ 1977, the' fuel' cycle / issues were'again iluced before

the Board.- . However,; bechus~e of the late..o'ccurrence of ' that event 11n> terms'of these' hearings and the-importance.to the parties and the publicLof: a prompt ruling on the suspension issue, the fuel cycle issues - have not yet beeniconsidered .by the . parties or the

Board. ' See l paragraph 58, below.

26-t

._ 1

.--4 * * .. ,..,w- .s w--.-- s --.wv . .~3w , , we-. ,.ms ,g-.-.,, p.g,.-p,,-,,,,,yv,7- a , .e w . , o + y y

0 D D

,[

considered the full- hearings on' remand ordered by the Court of Appeals.and ~ directed by the Commission.

Rather, "the purpose'of this particular hearing .is to ' determine whether the 'constic: tion

, - permits for the facility should be continue'd, modified, or sus-pended pending completion of the reopened hearing." Tr.'6.

26. The Commission's - August 16, 1976 General Statement of Policy set forth several factors to .be ' considered in reaching a determination on the suspension issue, as opposed to the ultimate hearings on the merits and restriking of the cost-benefit balance (41 Fed.- Reg. at 34709) :

! "It is the Commission's understanding that resolution 1 of [the suspension] question turns on equitable factors well established in prior practice and case law. Such factors include .whether it is likely that significant adverse impact will occur until a new interim fuel cycle -

rule is in place; whether reasonable alt'ernatives will

~

j be foreclosed _ by continued' construction or operations;

• the effect of delay; and the possibility that the cost /

benefit balance will be t'ilted through increased invest-i

! ment.[ Citations omitted.] General public policy concerns, the need for the project, the extent of the NEPA viola-

?

tion, and the timeliness of objections are also among the pertinent consideretions.

[ Citations omitted.]

27. Putting aside for the moment Intervenors ' contention that suspensi. is required here as a matter. of law (see paragraph ,

23 above), we believe that applying the suspension factors enun-ciated .by_ the ; Commission -to this proceeding results in presenting three major questions for' decision at this stage:

-1. 'Whether the record made so far enables us to say with' reasonable assurance that a signi-

.' ficant alteration of the cost-benefit balanca is unlikely 'to _ result - from full consideration

.of the issuee remanded by..the Court of Appeals, and'restriking of the cost-benefit balance, during the remanded hearings on the merits.

. , ~ _- . - . - . . - -. .-- -.

m 4: +

g. n

~ (In! view.of the: inevitable tendency of continued E

construction to foreclose alternatives and " skew" the ~ cost-benefit . balance, as ~ the Appeal Board R recognized in Consume' s'r Powe~r . Company .(Midland

n 5 NRC Plant , - U' its .1 & 2) , ALA3-395,if-we'do not have ssurance 29, 1977), a reasonabTe a that the remanded hearings will terminate in favor-of - the Midland project, a continuation- of construc-7 tion pending the- outcome of those hearings cannot

be justified.) This. requires us to examine each of the? issues remanded by-the Court of Appeals, in order to -determine whether on the record.before

, us - they present ;"a fair ground for . . . . more deliberate investigation," so that a halt to con-i struction'is required. -See Hamilton Watch'Co. v.

l Benras Watch Co. , 206 F.2d 738,. 740 (2d Cir.1953) . .

2. Waether continued construction is necessary in

' order to permit Consumers adequately and reliably to fill the needs of its customers--or, put another i way,.whether a suspension.would significantly impair j j Consumers' ability to serve those needs. In this 1 4

connection, Consumers has argued that the remanded hearingsfon the merits are likely to last between

five mad nine _ months, and .that (because of start- i i up delays and the like) a five- or nine-month --

suspension will probably result in ad overall nine-

or fifteen-month delay in the commencement of l commercial operations by the Midland facility.* '

, Accordingly, the question is whether Consumers'

- needs are so critical that a delay of that-length--  !

2

~

especially when viewed against Consumers' previous self-induced delays aggregating some seven or eight-years (Tr. 407)--cannot be tolerated.

W 4

• Intervenors have-challenged the reasonableness of these' time estimates and the extensive record already developed during

these hearings. suggests that less Etime may be required for the full remanded hearings than might otherwise be the case. A substantial question also exists as, to whether the asserted start-up delays will.last as long as estimated. Staff _ witness P

,- Lawrence Crocker, who testified on that-question, conceded on cross-examination that -his estimates- (given in the- text) were

' not based on ' any firsthand. information.- See paragraph-37-below.

' -Conversely, the remanded hearings.may require longer than esti-

-mated;L that -would gro ' tanto increase the liklihood that continuing F construction--or, aypothetically, completion of the entire

. project--will' foreclose alternatives, and thus increaser the

importance of preserving-the' status quo vis-a-vis those alter-l 1 natives ~ by declining to allow continued construction.

28-m e e =-s-v - + . - tr + -v-ae = ww + e, er -+e =wm--- - +E

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3. Whether the incremental costs . occasioned by a.

nine or fifteen-month-delay in the commercial operation.date of the Midland facility--assuming that aheyecan properly be considered at all (see

~

paragraph 74 below)--are so large as to militate-against suspending further construction while the remanded hearings fully explore the merits of the issues 1 identified by'the Court of Appeals. In this connection, it is pertinent to recall that--

again, for; reasons unrelated -to any proceedings before the Commission or the Court of Appeals--

the cost of the Midland Plant has increased hugely during its construction, and now stands _at approxi- 1

' mately $1.67 billion. See paragraph 13~above.

Because Consumers stands in the. shoes of an applicant for a i

license--the ruling of the Court of Appeals having undercut the basis for the original grant of a construction permit to Consumers--

I and.because, as noted above, any continuation of construction inevitably tends'to increase the difficulty of fully and fairly considering the remanded. issues on the merits ,. Consumers bears l the burden of- proof on 'the " suspension issue. Consumers'has~so-recognized (Tr. 4126). Whether the ultimate suspension decision 4

is perceived as one of "public policy" or " equity" (as Consumers suggests, Tr.146), or as one of " likelihood of success on. the merits" in the remandedLhearings (as the Staff proposes, Tr. 158),

{ any significant showing of : facts tending to tilt ' the cost-benefit analysis against the Midland-project, or indicating that a smaller t

facility 'than the one presently proposed may be adequate to meet

[ .- Consumers' needs, warrants a halt.to continued construction pend-ing complete exploration of the issues . Tnat is particularly true if such facts--tested on -the basis of presently available information, as required by Commonwealth Edison Co. , ALAB-153, 6 g

AEC .821, 823-24 (1973)--are not offset by new facts more favorable to=continuedJconstruction~than the facts available to the Licensing-

Board atithe' time of its-Initial, Decision.

,]

y -

n lB. The Posit-ions of the --Parties. .

l.. Consumers.

28. . A discussion of Consumers ' position during the sus-pension hearings must necessarily begin with a- brief recitation of the facts' surrounding Consumers' presentation of the testimony of Joseph.G. Temple, who was until December 13, 1976 General Manager of Dow's Michigan Division and as-such the Dow official most di-rectly fdmilia: with and' responsible for Dow?s participation in the Midland project, and who has now been promoted to the position L of Vice President and Director of Marketing for Dow U.S.A. and mem-l bership on its Operating Board (Tr. 218, 385).* l

^

29. Since the Dow-Consumers relationship is the principal

~ l reason for the present design and location of the Midland facility (see paragraph 4, above) , a major--if' not the maj or--issue in the l suspension hearings is whether the Dow-Consumers relationship has undergone significant alteration. Accordingly, on October 21, 1976 the Board opened discovery concerning the Dow-Consumers relation-  ;

l

. ship , _ and Consumers ' , evidentiary presentation began with the writ- )

ten testimony of Joseph G. Temple, incorporated into the record at

• On June 15, 1977 the Board repeated that-though it has ordered the parties to complete.the record concerning certain issues arising from the Temple _ testimony--it will not now decide those collateral issues ,- including the question of whether (and, if so, what) sanctions should be imposed against Consumers . Such issues unnecessarily interfere'with=a prompt decision on the suspension

. issue, which is _ required both by the public interest and in fair-ness.to the parties.. As appears below, however,'the circumstances surrounding the Temple testimony inevitably: tend to affect the credibility of much of Consumers' other presentation in-this pro-ceeding, L and- therefore merit brief description here.

J

ll [,b' A

)Tr.L220;

. That testimony asserts (at pp. 2-3) . that "at the present

.- time circumstances -have not changed sufficiently to call for a.,

j. modification-of-Dow's commitment to nuclear produced. steam to be -

' supplied- by consumers . Power' in March of 1982. Under the present f = circumstances.as'known to.Dow, the nuclear alternative remains the-I most attractive.one economically."

s l'

30. That statement is at best seriously misleading, and at worst false. It . omits the extremely important facts--unearthed l by-Intervenors in discovery--that: (i) Mr. Temple and Dow's Michigan

] Division have affirmatively concluded and repeatedly stated that the W.dland nuclear project is no longer advantageous to Dow (see

] Board Ex.1); (ii) although the'.Dow corporate review of the j . Division recommendations resulted in the decision that Dow would- -

. 1

not oppose the Midland project in these hearings, that decision

+

!. . was largely-if not entirely based on Consumers' threat to sue Dow

{ for some~$600,000,000 if Dow did not actively st pport the .proj ect, a threat Dow's counsel termed " pretty damn close to blackmail"

~

[

I (Midland Intervenors ' Exhibit 25) ; and,(iii) Dow' I corporate j

~ management isso - disenchanted sich Consumers in get eral and the Midland project in particular that, if the Dow-Consut'ers contract were tendered to Dow today,-Dow would refuse'to sign it (Tr. 414-17,. 2320, 2322, 2707). See paragraphs 42-51 below.

31. .The record shows that Consumers knew those facts, but deliberately chose to~ conceal them from the Board. Mr. Temple so

testified (Tr. 2379-82), .and the documentary evidence is clear.

! 4 j' l I '

1

, _ . _ . . , , .._.__.,,.,,.w,.,--, , - . , , , , - .

., } , , ,j.' , m N - p~ ,

fat a meehing between. attorneys for Consumers and attorneys for.

7 Dow on Septemberi21,.'1976--prior to the-filing of the Temple testimony--Consumers, according to - the written notes of one of Dow's-attorneys,~t'old Dow:

i

" Consumers 1 assumes Cherry [Intervenors~ counsel] will-not appear.because of lack of funds--Consumers says suspension hearing most critical--they believe that '

since there is no discovery, and probably no Intervenor-cross-examination--will be-able to finesse Dow-Consumers  :

continuing dispute. [ Emphasis added.J

- 1

.In~ order to.further-the " finesse," Consumers suggested that Dow witness might be someone from Dow Chemical U.S.A. or corporate .

arer who'is unaware of Midland Division recommendation to Oreffice."*

After Dow declined to do as Consumers wished, Consumers: -

l

. .then made naked threat that if Dow testimony _

not'sup,ortive.of. Consumers (Note: _no longer if we just go too far) and- that results -in suspension or l cancellation of permit, then Consumers will file suit for breach'and include as damages cost of delay, cost of project:if cancelled and all-damages resulting from cancellation'of project if it causes irreparable finan- 1 cial- harm - to : Consumers (bankruptcy) ._ (Note: pretty i damn close to blackmail.)" - [ Emphasis added.] ;l

' ~ ~ ~ ~

Midland -Intervenois ' ENhibit . 25. -

32.- Mr. Temple himself agreed, on-cross-examination by! q l

Intervenors, that'his; written testimony was-at'best seriously l

' misleading-(Tr. 2307; see also Tr. . 2379-82):

Both Mr.lTemple and Mr. Oreffice, President of Dow U.S.A.,

' testifiec - to: Consumers' desire to use "a witne'ss who wasn't the most knowledgeable." 'Tr. 2399-2400,'2703.

=

• ^

y Q

"Q . . . - . . Would you . agree with me- that the presenta-tion of your-testimony if the goal was toLtell in

! complete; det' ail, everything that.was going on at that. point, that your testimony was, as - judged by that criteria, :not open, not honest, .and not con-sisting of-all the relevant.information?

"A. . .I would--I'would agree to that."*

The' record show's that Mr. Temple's written testimony was prepared primarily by . Consumers . In response to a request'by the Board, the parties submitted'br'iefs on the issues raised by the Temple testimony. Documents presented by Dow show that--prompted in part by Consumers ' threats of litigation--Dow regarded. the nature and scope of1the Temple testimony as a matter-to be determined.by.

Consumers rather than by Dow. See, e.g., the October 20, 1976 letter ' from Eb. - Nute (Dow's counsel) ~ to Mr . Renfrow (Consumers '

counsel) , Txhibit Al to Dow's December- 22, 1976 Memorandum Regarding Hearing Preparation (Midland Intervenors ' Group Exhibit 60A) :

l

" Enclosed is a copy of the outline for Mr.. Temp 1.e's affidavit'which.you-drafted on 0ctober 18, when you.

were. in . Midland. and a copy of Mr. Temple's affidavit

~

that conforms to that outline. . . .

r ".. ._ . . We have agreed - that the' matters of-what to include and what to exclude'are issues to be decided

-by Consumers' counsel as-the affidavit will be used to support. consumers' brief." [ Emphasis 1added . ]

• Consumers' lack of-candor has evidently infected Consumers' dealings with ' Dow, as .wel1~ as Consumers ' behavior in these hearings. 'Concerning consumers' _ financial ~ situation, which within.ll8 days after the' signing of:the 1974 renegotiated Dow-Consumers contract had taken a " disastrous turn," Mr.

1 Temple testified that "either [ Consumers] financial planning was in a bad state of repair, or- else we didn't get -the whole story." 7 Tr. 2505-2507. Also, Consumers' present response to several of 3Dow's contract: negotiation demands has been'affected -

by. consumers desire to postpone'until^after these hearings any changes 1having~an adverse impact on the cost-benefit analysis.

.Tr.;439-444,.2413-14,.2457-58, 2466, 2718-19; see paragraph 49-below.

3 m,.

L '.,x ,

o' Mf h:-

1: N g .;

As:the21etter indicates,'by October 20,~1976,: Consumers had.taken p LthetlaboringToar in ternis .of what the Temple testimony was to say.

[ 'Thereafter, Consumers again redrafted the Temple' testimony; on '

i November 1,-197.61two of Consumers' counsel traveled to Dow's L Midland pl ei for that purpose. On November 4, 1976, Mr.'Nute again wrote to Consumers' counsel, enclosing "the final version of l

Mr. Temple's testimony for, the suspension hearing," which was-

'" essentially the same as the. draft [ Consumers' counsel] prepared

when you were here on Monday," and making the following comments p

l concerning~ Consumers' draft of the testimony" j s

i "I want to reitera_te my agreement.... . that the

! question and answer ferm-of testimony is the pre-

, -ferred form . . . . Using such a - form obviates our

[

~

concern that your initial draft of Mr. Temple's i testimony could.be said to be misleading, or even .

]. - disingenuous , - by the Intervenors or the NRC. It -

1 ~ now is clear that Mr. Temple is responding to speci-fic: questions. asked by Consumers Power, rather than attempting-to tell an all-inclusive story. Use of this form of testimony also underscores the fact that thos'e matters which were chosen:to be covered

~

I' -by Mr. Tem 31e on direct examination were chosen by

) Consumers-?ower and not by Dow." [ Emphasis added.]

l-Exhibit B-to Dow's December ~22,.1976 Memorandum Regarding Hearing Preparation. (Midland- Intervenors ' Group Exhibit 60A) .

33. ,

The facts described -in the preceding four paragraphs

[.

. (none of which :is .open to any significant dispute, since they are drawnz from ' document's for the most part) are extremely disturbing,

~

.and. raise-serious' implications for this proceeding in terms of the

.overall, candor;of Consumers' presentation at the hearings. It is-

' clear that,71n preparing the written Teuiple testimony, Consumers l'

-knew of bothithe strong recommendations of Mr. Temple and Dow's

+

A

p. .

~ .

a ~

x i '

- . . , ., . - . - - , . - . . .. .- -- - .- - .. - - .~ -

, ;. g . . = 3 -

1 Michigan. Division (which were. discussed at .. length -in the course. of

preparing that testimony) and the direct ' relevance and importance of that1information in.this' proceeding. At the September 21, 1976 meeting described in M.I. 'Exhint 25, Consumers ' attorneys expressed the flat belief that "if Dow a r.cepts Division recommendation and takes o that- position in -suspension hearing, then construction license -

'will be suspended for at least one year--no doubt about it." In a further Consumers-- Dow meeting on September 24, 1976, Consumers'

~

Chairman of the Board agreed (Midland Intervenors ' Ex. 64; Tr. 2394-

95) that if this : Board learned that Dow's continued support of the Midland Plant was reluctant or shaky, the likelihood that continued construction would be allowed-pending completion of the remanded hearings.would. drop dramatically: _

"If Dow gave lip service to the contract between Dow and Consumers Power, but indicated it .did not like the deal anymore--the odds would be reduced to 50-50.

It was added that this would be a high-risk situation."

Nor can it be seriously contended that- Consumers did not realize the full- implications of what it was doing. Board Exhibit 2 shows

-that. Consumers 1quite frankly expressed its intent to " finesse" the facts by suppressing information, . attempting 'to induce Dow to presentua'nonknowledgeable witness,-and threatening litigation if Dow did not cooperate, andiit appears from the record-(Tr. 2572) that Consumers.has also attempted to present its desired view of the-factsftoLthe: Staff ~ on . an ex parte basis prior to these hearings.

Mr.LTemple certainly' understood what Consumers wanted (Tr. 2399,

2401):

"Q. .... . Mr. Temple, at any time did you or others at Dow:ChemicalLCompany, as a result of the Aymond

, c.

[ .

7

~ Land Falahee threats, feel thattConsumers Power-Company,was making anJ attempt to prevent evidence.

from coming into this : case through ~you or:any.

other Dow. witness?

t "A.

~

iYes,:it_wasisuggested, I believe, in the~same-meeting 1that it might be :possible for Dow to furnish *a. witness:from the U.S. area or Corporate

- area who was'not-aware of the Division's conclu-f aion with ' regard ;to - the . Midland ' Nuclear- Plant .

,_ .n. . _.- Mr. Aymond was also suggesting that they .

would certainly rather have someone from Dow!who~

lis more enthusiastic about the project than Joe

[ Temple.-

"Q. But ulsimately_ the- Michigan. Division. position

'in substance became the ~Dow Corporate _ position, aside - from- the lawsuit ' threat, is tb f t ri'ght?

~

"A. Well, that's a big aside,-but that's my view." l!

34 . _ These facts compel the conclusion that Consumers

). knowingly undertook..to suppress-evidence on an issue which it x

} ' knew to be not only material, but possibly determinative ~of the outcome: of these suspension hearings . While the question of sanctions -(if any)- in that regard will be determined in a later j- . ruling,ithe Board'must note at this point that Consumers conduct

inevitably impairs the credibility of

the testimony and evidence

.it has offered inithis proceeding. That impairment is strengthened

by. the -fact--again, brought to -light by Intervenors--that Consumers -

1 g 1has' apparently1taken:positionsLin these hearings seriously incon .

t Lsistent with positionsLit is contemporaneous 1y a'sserting in other -

. cases",; both -bEfore the : Commission 2(see paragraph 70 below) and-

befora the Michigan-Public: Service Commission (see paragraph 77

below) '. .

l _

L35. . In addition to'the evidence ~concerning the Consumers-

~

, Tbw relationship',5 previouslyL mentioned, Consumers presented evidence "l

. . - _ _ __ - __ .. - .=_m.__ _

n , . . . .-

(l. . ..-

m ?

n concerning the needIfor power from the Midland. Plant (including

~

' Consumers ' system. reserve requirement's and reliability criteria) ,-

the c'osts which>would result from.a suspension, and the nature 3 and cost oftalternativesito the Midland facility. As appears from.the analysis in Part III below, much of-Consumers' evidence

~

'is flawed by the use of-inaccurate or incomplete information I

(e,.g;, Consumers.' Exhibits 11 and-13 concerning. peak demand and j

energy supply), by a failure to take pertinent facts into account

-(e.g.,1the time _value of money, in calculating the net costs attributable to a suspension), and by reliance on guesswork as

.a' substitute for hard information in areas in which Consumers .

could readily have obtained the facts if it had 5 shed to do so.

An_ example is Consumers' claim that sales to municipalities and. .

.co5peratives, projected to be made from'the Midland plant, will

.have to be made by consumers even if operation of the Midland plant is delayed. Not only does Consumers' position regarding-those sales. ignore the ' availability of power from Detroit Edison

-(see- paragraph .70 below) , but also--and despite repeated requests a

from Intervenors--Consumers refused to present any witness from theLmunicipalities or cooperatives involved for the purpose of examining.whether the projected sales will in fact be made.

L Similarly, although Consumers repeatedly attempted to inject into

the-hearings' matters pertaining to-the effect of a suspension on

utilities'and purchasers outside Consumers system, it never 7 presented.any witness with firsthand information on those matters.

[

L Under~the circumstances, including the matters previously-dis-1

. cussed'regarding.the Temple testimony, the Board cannot ignore H

• * - . ~ = v r -e--ev-- -e+ e-,--wr ---t w rN m.tMV'=-w---+r--r- =**t-

t *-' =f Y

.,4 w- q

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l

~

4

,the long-standingCrule'of evidence.that afparty who fails to Lproduce,information.withinLhisicontrol is presumed to have

~done so:because the information is adverse to him.- See 2  !

. 1

- Wigmore On Evidence (3d Ed. 1940), S 285; United-States v. I l

-Di Re,-332'U.S.--581, 593 (1948) ; Sims v. Georgia, 389 U.S. -

l 1404,1406 (1967). -In other areas,'thefrecord also indicates-  !

-1 that consumers based arguments on assumptions which, while j tendingito' skew the evidence in Consumers' favor were contrary-to sound. utility: practice 1(an example is the " forced purchase" [

inputs to Consumers' cost-production computer runs, discussed '

in paragraph 77< below), or generated important information g in-ways precluding any proper validation of its conclusions ~ '

(as-with the " probability encoding" method used to estimate.

long-tenu load growth:- see paragraph 65-66 below) . Nor is it clear'that all of the deficiencies in-Consumers' presentation

have=been exposed. As. appears from the following three para- .

graphs, tlum Staff has undertaken little if any independent investigation of the facts and-assumptions underlying Consumers' presentation, and while Intervenors have pointed out many defi-

^

- ciencies in: Consumers'1 analyses, financial constraints have precludedLthem from retaining any expert other than Dr. Timm, whose full-time job..as Supervisor of Energy Planning for the State;-of Oregon has' inevitably limited.the-time available to

. ' him for . review of the: mass of testimony and exhibits offered by Consumers. Given those1 circumstances, and-in view of the 4 *p - am P-*tp g- w y $ T * 'M$>- gv- ----a ,_ e 9 y--t- w 3 y* y ---'

( T-e'

+. m . 1 x

._9 s. *, . . L.

~ . -

/

factsesurrounding'the Temple testimony and:the.' discussion of

-Consumers'1otherl evidence in-this' paragraph, Consumers' overall- _

.j; presentation must=be' viewed with a degree of skepticism.

2..-The Staff

. 36.- The Staff's. position in this proceeding has been

. generally-supportive.of Consumers, and has been almost' exclusively based onlthe information submitted by Consumers rather than on

, ~

independent information generated by the. Staff. See,.e_.g.,

i.

'Tr. '4294, 4296 - (cross-examination of Staff witness Lawrence

~Crocker):

"Q. It's clear that with respect to.all of your-

~

-testimony about your judgments you made no' ~

i

independent analysis-based on any data,-

~

i - -

isn't that correct? . . .

"MR.HOEFLINb: Objection. What does he~mean by

'indep'endent analysis _'?

~

i I "MR.; CHERRY:'....I mean one done by him based on data j j

~

i he's collected. Would he tell me about it, explain -

it to ne, show me. i i "THE WITNESS: I think that it is a fair statement,

, yes."

e 5

"Q. And there is no specific data .that was collected-Lby anyone in. terms.of hard evidence to support any part'of your testimony;;it's' just your-judg -

!. ' ment- based 'on what you were - told?- .

"A. LThat'is correct."

i See_also p. lh 11'of-the prepared testimony of Staff witness

] Sidney.Feld,.on~Need-forFacility;andseeTr'. 5070, where the.

• * < +,-...J - - . . -- . . , 1.. 24, , , L.'-..-- m , - - -m,

-

' [*l

.- A Board ~ learned that the testimony. of Staff witness Arnold Meltz consisted'only offa " personal opinion . . . plus publicly avail-

. :able~ records,"'which Mr. Meltz; considered " normal" practice for the Staff. As the Board later explained- (Tr. 5081) , that suggests 3

a tendency to rely uncritically on " data' that had been supplied -

~

l basically . by the licensee ." A similar tendency appears from the cross-examination:of Staff witnesses Walter J. Gundersen (Tr.

5152-53, 5161, 5175-76) and F..S. Echols (Tr. 3068, 3117-20, 3130, 3135), and from the fact that the Staff's limited attempts to' ascertain factual information bearing on Consumers' presenta-l tion consisted .largely of 'asking Consumers itself to obtain the i

. data. See, e_ g. .. Midland Intervenors ' Exhibit 49 ; Tr. 4370-71, j 4397-99. Unfortunately, this tends to reinforce the implication

. l Intervenors drew from Consumers' appa' rent belie'f that it could .

" prepare" the' Staff to support:its position. See Tr. 2572.

-37. -Apart from relying heavily on Consumers' data rather than on independentLinquiry, the Staff testimony also contains

-assertions which, on cross-examination by the Board, proved-to be without foundation. For example, Staff witness Lawrence Crocker-asserted in his prepared testimony that completion'of the' Midland units as presently designed was preferable to changing to a" smaller plant because even if all of the projected Midland )

i l ' capacity is not needed,_the_ plant can be run at_ lower power

' levels.: Under questioning by-the. Board, however, Mr. Crocker i

. conceded ((Tr . . '4231-32) - that he did not regard that alternative as realistic: ' fit would not be realistic to me, no. I would i

v . l

r. . ";s * *.-n-. ;-e *.

• h n

- not toperate itiat;less than t rated output.!'* Similarly, Mr.

Crocker's -testimo'ny.-on ACRS issues suffers from his admission

that he:has no' idea:of whether,'or at whatfcost, safety issues Ei'dentifiedLby.thefACRS can be resolved:(Tr.'4259-62,-4265-66),

and his- testimony that' "a period- of. four to .six months would be required for:remobilization of construction effort" in the event of. a nine-month construction suspension suffers from- his admission (Tr 4290-91, . 42931 that he had'made no attempt to -

determine through factual inquiry whether that figure was.

reasonable. The same dearth of information affects the testi-many 'of J Staff witness- Sidney Feld. Although testifying at length concerning the need L for the power _to be produced by the Midland-plant, under.the-Board's cross-examination-Dr. Feld-conceded.that the Staff had mad.e'no independent attempt to verify' Con'sumers'

" probability; encoding" load growth forecast, and had undertaken no independent analysis at :all of any of- Consumers ' assumptions with regard:to'the need'for' power. Tr. 4472-73, 4480-82. Even though he feels the que~stion important and " worth looking into,"

Dr..Feld also admitted that he.had no idea whether such a large user _of electricity as the City of Lansing did or did not purchase

. power from. Consumers. Tr. 4,477-79, 4488-92.

~ .. ..s -

• That admissionjis of particular importance-because operation at:a lower outputhis virtually the only alternative to con-structing:a smaller 1.lant which Mr. Crocker proposed.; Mr.

Crocker; conceded, at page-3 of:his written testimony, that "continuedLconstruction;of the Midland' plant-to the current.

design.doesLtend-to further preclude a. subsequent. change to aLplant.Lwith afsmaller outputs" 'However, if the only alter-native to:assmaller plan't is "unrealis' tic,".as Mr. Crocker

admitted,;and-if-; continued construction. increasingly precludes

-theismaller-plant' option itself, then'it appears.that a'very

' strong-showing should>be'[ required before allowing continued-cconstructionito foreclose the smaller plant option..

, _ .-41--

h,s.'f~' ,,

.t.r, .. y _ y);

3.. Intervenors

. 38. -.

! As! appears' from the. preceding paragraph, an.ong the-

. parties,Intervanors_ shouldered most-of the burden of inquiry linto;the accuracy, candor,.and completeness =of' Consumers' presen-

, .tation.- Unlike Consumers '(which was represented by .as many. as.

L four lawyers and some 16 witnesses) and- the Staff '(five lawyers 1 ,

i: and six witnesses)~, Intervenors undertook that task with the

[ aid of only one expert witness (Dr. Richard Timm) and (except-i 3 for the cross-examination of Dr. Timm) only one lawyer.

Intervenors. repeatedly' requested financial assistance from the 1:

P Commission, so that they could retain additional experts and I- present a fuller case,* but- both the Board and the Appeal Board

) concluded that any such assistance .was . precluded by Commission

[ ' policy. In the Matter of Nuclear Rigulatory Commission (Financial'

! Assistance to Participants -in Commission Proceedings), NRCI-76/ll,

} :494.(November 12,'1976). As stated in the Board's' Order of 1:

February 25, 1977,. it. reached that conclusion in full recognition-1 I of the value 'of- Intervenors' participation in these hearings and l l 'in the-hope that Intervenors would be able to continue. ,

i-  ;

L ' 39. In addition to c.ross-examining most (though not all)

!of the. witnesses put. forward by Consumers and the Staff,'Intervenors -l submitted a total of 130 pages. of written 7 testimony and numerous

[

exhibits prepared by

Dr. Timm.- The bulk of Intervenors' prepared O testimony and exhibitsfasserts the. existence-of multiple errors, t -

• With verygfew exceptions,.the witnesses 3 appearing for ,

> iconsumers' and; the : Staff- testified in the - course of their  !

regular employment, sothat no7out-of-p'ocket expense was

!incurredtand the1 witnesses coul~d-devote.as much. time'to

their testimonycas Consumers'or the Staff desired.

4

- .=~44,', 4 + v .em .+ Tw -E -

, , - , , - ~ .w.. ., ,ww w+-, s ,-m+,- .,-p.wy+.,y,< y 4,w r 3-v----,.- v-+ww v

i

.. i . . y , ", ,

W' -

h

' inconsistencies, Land-incorrect lor misleading assumptions in

' Consumers presentation. 'A'lthough; Consumers cross-examined Dr.

~

~

Timm fori.almost aEfulliweek, and took issue with the correctness-of Dr. Timm's recalculation of Consumers'-data, the1 existence l

of ,the errors iin Consumers' preser.tation described by Dr. Timm is for-the most part unchallenged. DAs; appears from the dis-cussion:incPart III below, after the correction of occasional computational errors-in the1 n exhibits. prepared by Dr. Timm,- .

f those exhibitsEindicate-that"both Consumers' claims of a need

. for the power to be produced by the Midland plant and' its ~est3-

_ mates of~the incremental costs of a suspension'are serious 1y y.

exaggerated.- In~ fact, Intervenors assert that a five- or rine-j_ month suspension of construction'* wiil not' impair Consumers'

, ., 'abilityfto serve,its. customers, and that thefincremental costs t.

of a suspension are both insignificant in terms of the overall

-costs of the : Midland plant and insufficient tonoffset- the strong

[ probability that continued construction of the Midland plant

.pending1 completion;of the remanded hearings on ti.e merits will.

l l l tend to foreclose.most, if not all, of the favorable alternatives

)

to'the' Midland.plantiin its present. form.. As previously noted, l in. addition to:those contentions, intervenors also assert that

'aniimmediate-halt to construction is required as'a matter of

).

law for several reasons.-

~

f-  ? 14. ~Dow Chemical Company (4 0. . 1 Finally,Ethe position'of.Dow Chemical Company in

~

ithese" proceedings mustLbriefly be considered. Initially, Dow

. *) uThe'-periodimay be=eitlar longer.or shorter,-as noted in para-l graph 271above. 'Intervenors have'us~e~d..the 5-month /9-month

. J - figures"suggestedyb~y: Consumers, however,'in order to mininiize x  ; disputes?overLcomputation procedure.

i

-43~

._...-u.__ . _ . _ ~

E,M 'j,-y ,l m

'h . .

q

~

took; the position that it was not a . party here _ in any sense, since ?it had withdrawn from the proceeding in Ethe Court- of-

. Appeals?(Tr. 119-122), . and throughout the proceeding Dow has

~

refused to take any position as to .whether or not it ' remains contractuallyTobligated to: Consumers. -Tr. 939-40, 2432-33. ,

While ' Dow '.' officially" supports the Midland project and Consumers ' ,

position here,Jthat support,is reluctant at best and induced largely by; Consumers' litigation. threats (s'ee paragraph 51 below),

and is L subject . to reevaluation. in the event of "any significant change that might take place.from the. current conditions--that could include almost anything." Tr. 323. In fact, Mr. Oreffice, President of Dow U.S.A;, testified that he could only " speculate"

. concerning whether, "if the- [Dow] corporate review [resulting in -

Dow support)-were conducted today . . .Jthe same' conclusion would .

.be reached -(Tr. 2690) , and the extensive testimony and documentary evidence submitted by. Dow shows that: (i) Dow regards the Midland projectdas only marginally :(if at all) advantageous to_ it, (ii) l Dow does not consider Consumers to be reliable and doubts that it can complete the project on the present time and cost schedule,  ;

' and- (iii)L Dow 'is seriously ~ considering rejecting any further

-involvement? in the project. and suing Consumers for breach of contract.

Although'Dow has submitted proposed Findings, they are extremely cursory and do not address _ (let alone alter) - that testimony. 1 1

Rather, they appear. calculated Eto avoid any statement which might l l

Jimpair- Dow's _ " realistic ~ option" of withdrawing from the Midland

- project; on the ground :of Consumers' breach.. See Tr. 2432,.2516, 2522 22524,--2730_,1and paragraphs 42-51 below.

- s

-]

.- ., . h . , [, * ' -* - ].

III' .

4 ANALYSIS OF THE EVIDENCE AND CONCLUSIONS

41. As we noted in Part II(A)' above, it is not the pur-

-pose of these hearidgs--nor, on this record, is it yet possible--

to-undertake a complete restriking of-the Midland cost-benefit-analysis on the basis of a full consideration of all the issues remanded by the Court of' Appeals, and of all significant changes in the facts during the four and one-half years since the Licensing Board's Initial Decision in this case, as required i i

by-Commonwealth Edison Co., ALAB-S3,-6 AEC 821, 823-24 (1973).

Rather, the. Board now confronts only the three major questions

, l described in paragraph 27 above. We discuss those questions below, looking first to the condition of the record with regard to the issues remanded by the Court of App:eals, next to the impact (if-any) of a suspension on Consumers' ability to serve m .___ . . - - . . _ . . _ _ . . . .

its customersLduring'the suspension period, and finally to what costs are attributable to a suspension and whether they )

are significant-in light of the history of this case and the record in.these hearings.. Throughout, the ultimate inquiry.

is whether continued construction of the Midland plant pending U completion of the full remanded hearings on the' merits--thus risking the foreclosure of desirable alternatives to the 1

' Midland-plant and, in the words of the Appeal Board in Consumers Power Company (Midland Plant, Units 1 and 2) , ALAB-395, 5 NRC (April 29, 1977), allowing Consumers to "have its cake

.and. eat it, too"--is justified.

y,

.." h 4 j-.

LA. Can It Bm.. Reaednably 1

. Concluded That The Full' Remartded Hearings On1The Issues Identified By The:

Court Of Appeals'Will Not Produce A Significantly 1 Altered. Cost-Benefit. ..

Analysis?-

1. The Consumcm -Dow Dispute and the Slippage in Costs and Timing of the. Midland Project.

~

42 An indication of. the current position of Dow Chemical Company concerning the . Midland project can be~ gleaned from the discussien in paragraphs 29-33 above concerning the Temple:testi-many. .However, the record contains much more detailed evidence as to Dow's position. Since Dow's support of the Mialahd project is-crucial to its. success and to its feasibility, as the original Environmental Impact Statement acknowledged (see paragraph 4 _

above) , we begin.with the evidence on that subj ect. ,

43. Two primary factors bear upon Dow's position: factors pertaining to the Midland project itself, and factors pertaining to Dow's ability to operate its present fossil-fuel generating plant past 1980. The latter factors are of great importance

- because if in fact Dow cannot operate its existing facilities 1past 1980, then it will inevitably have to invest in other facil- I ities to meet its.needs without regard to whether Midland i

cons truction --is - suspended ~. Ev&h'6n the present schedule Consumers l does not anticipateL that either unit of the Midland plant will be i placed in:o'peration prior.to.sometime-in 1981.* Naturally, Dow's

• '.Quite apart'from the issue of suspension and the possible- 1 effect of the4 remanded hearings,_ there is reason to doubt whether the11981 date is one in which we can have confidence.

AsL Dow's Mr. ; Temple : testified '(Tr. ' 407, 2299) , Consumers has repeatedly promised that the' Midland plant would be placed in operation 'at a. given time--and, just 'as repeatedly; has been -

, wrong.

Y . . -. . -. - . - . - - . - . .

, I t,. . .

A) willingness:tofsupport the Midland project is conditioned on its ability to'obtain. electricity and steam from the Midland plant before its:ownifossil-fuel facilities must be shut down

'or rebuilt. . Otherwise, Dow would be placed in the untenable pos'ition of being.-compelled to spend large sums of money for new generating' facilities pending~ completion of the Midland-nuclear ' plant,- and, at the same time,- be committed to spending additional large sums 'for redundant, electricity and steam from the Midland plant itself.

44. From Dow's point of view, the pertinent dates are 1980 and 1984. The written testimony of Joseph Temple poincs out (at' p. 4) that, although Dow's fossil-fuel facilities violate applicable Michigan air pollution requirements, the -

Michigan Air Pollution Control Commission has consented to continued operation of tho'se facilities until 1980, but adds

-that no post-1980-prediction is possible:

" Continued operation of these units beyond 1980 will be dependent upon obtaining a further con-sent order from the MAPCC. It is not possible to predict at this time whether such an-order can be obtained:or for that matter what new regulatory-or. statutory provisions Dow may be fac'ed with at that -time." ~ [ Emphasis added.]

If Lthe MAPCC will not accept an extension of the Consent Order past 1980--a point we cannot now determine--then the nuclear plant becomes a burden, .rather than a possible advantage, both from Dow's point :of view '(see paragraph 43 above) and from the full ' cost-benefit standpoint _(see' paragraph 4 above). This."u:c.known", which must be fully -exploredEduring the remanded hearings , therefore argues against continued construction and expenditure' of large additional sums

-4 pending;.those' hearings, p

1

%,, Y 45 '. . It'io po:ciblo,_howsysr, thct MAPCC will consider an

. interim extension of the Consent Order past 1980, provided that

~

there is some reasonable degree'of. assurance that completion of the Midland nuclear plant will not be unduly delayed. However,

-for other reasons there is a 1984 outer limit on Dow's ability to await commercial operation of the FEdland plant. Dow has advised 1both the MAPCC .(Board Exhibit 3) and this Board that, come what may, it cannot operate its existing . facilities past

~

1984:

"[Dow's prescat] facilities are quite old, with major pieces of equipment that will be- 30 to 50

. years old in 1982. Dow is concerned that some

.of. these turbogenerators and boilers already may have been stretched beyond their meaningful life.

~

Dow hasLstudied as carefully as it can how much

, further these powerhouses can be pushed, and it

has concluded that there is simp y no way in which .

_ they can be made to operate safe y and reliably

, beyond 1984 at the outside. Dow will be continu-ously~ reviewing the situation' to see whether 1984 itself^isn't indeed too far." .

46. Just as Dow's willingness to continue supporting the Midland. project is heavily- dependent on Cc sumers ' ability to

~

meet the required completion date, Dow's position is also heavily dependent upon questions of cost. As previously noted, since the execution of the initial Consumers-Dow contract in 1967, the cost of the Midland project has. soared. The $554,000,000 estimate given in the final Environmentai Impact Statement (on which the original cost-ben'efit analysis ~ was' based) has more -than tripled,

_ and: Consumers presently estimates the cost of the Midland project at . $'1.67 l billion. - That estimate itself is open to considerable

~

doub t .. It. appears that the $1.67 billion'figsre rests on highly

'opcimistic assumptions concerning labor troubles, QA-QC problems,

. '.' , 4, l

. } D.

~

. . v and thes like~ which have not} proved ; justified in; the past-fMidland?Intervenors. Exhibit 68--notes of a May. 19, 1976 I)ow-

_ . Consumers meeting--at p . ' 21). and may. not be valid in the future.

Tr; ~ 2412, : 2722-23 ; : Midland. Intervenors ' c Exhibit 68 (notes of.

.a-September 13, 1976 Dow-Consumers meeting)',- p .- 7-; see also paragraph 56 below.- . Although the prepared testimony 'of Mr.

. H l Joseph Temple asserts (at.pp.:2-3) that "under the present l

circumstances as known to Dow, the nuclear alternative remains the most' attractive one economically," on cross-examination Mr. Temple-candidly admitted that the economic advantage is tenuous if not. nonexistent. For some.- time , both Mr.- Temple (in his former capacity as head of Dow's- Michigan Division) and t-he Michigan Division it'self have taken the. position that  ;

the Midland nuclear plant-is no longer attractive. economically, as well as for other reasons (Tr. 2288-2290):

"Q. By the time of. your testifying in Midland, you

-had already told Consumers Power Company, either in writing or orally', that you believed that the cost-benefit analysis in -favor of- nuclear steam was about - to be lost if it wasn' t lost already.

Isn't.that correct?

"A - . I'would like'to rephrase.it. I said that as far as' Dow was concerned, we had concluded that it wasonot likely toibe advantageous for us, the Division. ,

' "Q . . And you meant not likely economically?

"A. . Economically.

~'

y .

.s

- Q .1 'AndLthat is still your position, isn't it?

N "A'. Lyes,Jit is. .'Although there is to. day, still

~

Jbas'ed .on the - $1.67 billion cost and the March, j 1982 startup,-some economic'advant' age to the

• . s

, - ~ .

. m [ ;, [

.?

Q: s, ].

, nuclear. system versus our own internal alterna-tive, -strictly-'on the economic basis .

' "O . . . . ..There-are.other noneconomic factors that

.cause me-and~others on-the negotiating team to.

l feel.that as the future unfolds and events took

. place, that the economic advantage would disappear and probably -become a disadvantage."

If t he' current Bechtel Power Corp estimate of the total Midland .

' proj ect . cost is correct, in fact, the marginal economic advantage I

to which Mr. Temple referred has already disappeared (Tr. 2290-

l. 2291): '

9 4

"A. . .. . . The economic advantage that nuclear has over our proposed new-powerhouse, if we were to build one in the Division, i's about $4 million

per year in cost of steam and electricity. And -

there are several-factors not terribly large, that would cause- that_ advantage to evaporate if ~

j they all went against the nuclear case. ,

l * *

• l "A.

-if the . cost of the - plant indeed was higher Well,$1.67 than billion, that advantage would disappear..

4 If~the relationship between the costs of nuclear 4

fuel and the costs of coal were to change signifi-E cantly,7 that would affect-it. . Almost any combination

.of cost factors and capital that work to the. dis-i advantage of the nuclear case, such that $4 million I' disappearsJ out of- the total cost of, I think in the range of $100,000,000--

p "Q. So .we are talkin'g: about an advantage Lof about

' c fourL percent a _ year, .which is eroded by any increasedycapital costs,-is that. correct, on an annual ba' sis?- -

"A. LWell, for . instance, 'IL looked at y the number that

, Bechtell has given; to Consumers as a potential-

incre'ase /in costs of- $90,000,000, and if nothing

~

c else changed',-1that would evaporate the advantage s

-of ' the . nuclear proj ect versus - the.. current coal-

~

., fired facilities' that'we would. anticipate we

. might . build now. .Although as you:know, there u sis'other-technology we are considering."

l

~ '

< l

• i, ! '. . . ' . ]

i 1

That. testimony gains.added force from the' fact that Consumers'  !

own in-house review team concluded that the $1.67 billion figure should be . increased by $80,000,000--just $10,000,000 short o'f the Bechtel figure (Tr. 5684) and that, as noted above,.the Consumers /Bechtel figures appear to err on the side of optimism. l Although~ Consumers has officially declined to adopt the result of its in-house review, we cannot ignore the significance of

.that review and, h1 light of the testimony of Mr. Temple just quoted, its significance in this proceeding.

47. .The conclusion drawn by Mr. Temple and the Michigan Division from the standpoint- of the timing and cost issues just discussed is as follows (Tr. 2322) : -

I ~

i "Q.' If your position and Dow's position are l inconsis tent', then tell me both. Now with l that background, let me state the question again: From Dow's standpoint, would you l agree with me today that from a cost-benefit l standpoint, knowing all you.know including l . the prospect of an. increased price and every-thing we know, that we have discussed, that the project should not be continued? l "A. From Dow's point of view?

l .

"Q. Yes, j l

"A. I would agree with that."

Mr. Oreffice, President lof Dow U.S.A. , agrees (Tr. 2707) :

l "Q. Now, Mr.'Oreffice,.you are familiar generally j

.withLthe: terms and conditions of the arrangement -

with Dow-Chemical and~ Consumers Power; are you not?

"A. Yes.

1 l

l 1

-l l

). 9 "Q. With the $1.6 billion ~ cost, theJschedule, 1981-82, and the hardness or lack of hardness of those

. figures; in other words, I want you to take exactly that situation as it exists today .with all of the uncertaintiei or certainties and if there were no

, contract witn Consumers Power at-all today, none at all, would Dow' Chemical sign that contract today?

"A. The contract, as of .today, would we sign it today? .

This is an opinion, a speculation; no." -

The analysis an which that conclusion is based is broadly accepted within Dow, and has not been challenged or questioned by the ,

Operating Board of Dow U.S.'A. See Tr. 409-10, 460, 2299-2301, 2309, 2311-2312, 2494-95, 2699, 2707-09. Particularly in light of the substantial evidence that fossil-fired alternative facil-ities are both feasible and more economical from Dow's viewpoint than the Midland project is likely to be (Midland Incervenors ' -

Exhibit 26, an an.alysis of alternatives prepared by Dow; Tr. 2405-2411, 2417-19, 2456-57, 2492, 2553-55) and in view of the Board's obligation to determine the issues on the basis of presently existing facts, Commonwealth Edison Co., ALAB-153, 6 AEC 821, 1

823-24 (1973), the doubtful or nonexistent character of the finan- )

cial benefit of the Midland project to Dow is a matter of grave concern. It .cannot blandly be ignored on the theory that, economic or_ not, Dow is contractually obliged to purchase steam and elec-tricity from the Midland project. The purpose of the NEPA cost-benefit analysis required by the Court of Appeals is to determine where'the true economies or diseconomies, and thus the true public interests, lie, independent of contractual coercion; in-any event, this record ' does not permit a conclusion as to whether or not the Consumers-Dow contract requires (though from

-52 .  ;

O

. ( b .

a _ NEPAistandpoint11t clearly cannot justify) ' Dow to endure

~

economic; hardship for-.the -sake of the Midland project.. - As. ,,

?noted in-paragrap1.40 above, during these hearings Dow has

~ as'aiduous!.y -resisted all Tattempts. to compel it to take a posi-tion on whether the contract is binding, though it has asserted  ;

l

. that_ repudiation and suit' oni the ground.of breach is a " realistic s

p option." Tr.72432, 2516, 2522,.2524, 2730.

L 48. In addit: ion to; the issues of increasing costs and.

uncertain completion. dates, Dow management also expresses' concern over Consumers ' financial' ability to complete the Midland project.

i As Consumers' answers to interrogatories ind5.cate, in 1974 Fl i- Consumers suffered what Mr. Temple described (Tr. 2505) as "a disastrous turn ofLevents financially," such that it was compelled i to slow down construction of the Midland facility due to lack of ,_

I- funds and the-value per share of its common stock dropped almost j

50' percent between 1973 and 1974. While the value of .its . stock r has since risen,. Consumers' November 9, 1976 stock prospectus, quoted in: the prepared testimony of Staff witness Arnold Meltz

" (fol. Tr. 5065) , indicates _ 'that Consumers ' ability successfully L

[

to' finance completion of the Midland project depends in large j part on fa,ctors not within. Consumers' control:

~ "The' Company [1.e., Consumers] will need signi-

ficant and timely rate increases -if revenues .

[

~

~

and: income are to reach'.and be-maintained at levels which will result in sufficient ~ internally

generated

funds to meet.its operational require-

'ments-andEpermit external-financing of its-

_ iconstruction program at reasonable co'st."

.7

% 3' .- . ._ _ = -

Evan'if rate relief,is granted, that will not 'alone suffice to

~

finance 7 completion of the Midland plant. Consumers' prospectus also notes that-in order to finance its construction' program and' meet' debt maturities, "it-will be nec'essary for the Company to sell substantial additional' securities, the amounts and types of which have not yet been determined," and that Consumers ' ability

' effectively to - finance construetion ' through the issuance of securities "will be' contingent upon increases in earnings'through .

rate' increases or'otherwise."- Meltz, supra, p. 5. Consumers' .  !

1976. Annual Report (Midland Intervenors ' Exhibit 57) supports that. view,. adding (at pp. 1-2) that its rates are " inadequate,"-

its - preferred stock and bond credit ratings are " low,"'it has -

issued stock at11ess than book value, and it will be unable to -

a'chieve '* adequate earnings and stocid. performance" without l'arge ,

rate increases, 'which past experience indica'tes will not easily  !

-be'obtained. Both because Consumers was apparently less than candid with . Dow- concerning .its' financial: difficulties (see .

Tr. 2505-07) 'and because of the other factors just described, Mr. Temple and Mr. Oreffice-(cpeaking for Dow management gen--

erally) have expressed ~ a lack of confidence in Consumers' financial and management ability (Tr. 407,.2709, 2711-12), and

-Mr. Oreffice categorized Consumers'~ proposal that Dow make.~a t

$400.million interest-free loan to Consumers to help finance continued' construction as " extortion" (Tr. 2710-11, 2723-24).

1 That: proposal:itself,.in fact, rai~ses. serious < questions about-

. Consumers ' ifinancial ability: to. complete the Midland. plant--a l goal which:Stafffwitness Mr. Meltz (supra, at p. 7) considers r

e ^-5 4- --

a , ,f  ;

f. . .*, , . ,[

Q- O.

" attainable" but ' concerning.which he immediately' adds : '"Whether

.it will'be. attained is not something one can answer with any degree of certainty." The record indicates that the $400 million 4

loan is quite .possibly essential to Consumers ' plans for comple-t tion of the . Midland project, and also that there.is little or no prospect that Dow will agree to-the loan. Tr. 2427-30, 2711-12, 2720-21, 2723-24~ . The record also indicates that, loan or no

~

loan, Consumers will be unable to finance completion of the ,

Midland project unless it' succeeds in selling a sizable portion

- of Midland. projected- capacity to certain municipalities and cooperatives--sales which may never materialize (see. paragraph 70 below) and which. are presently barred by the Consumers-Dow contract. See Midland Intervenors ' Exhibits 29 -(a Consumers . _

memorandum to file dated September '14, l'976); and 67 (notes of 1

j a September 13, 1976 Dow-Consumers meeting) .

These facts indi-cate that Dow's lack of confidence in the Midland financial

-picture is far from groundless, and is shared by Consumers itself. We cannot ignore those~ problems in our analysis.

49. - A further factor in Dow's reluctance wholeheartedly to support: the' Midland project is the ongoing negotiations between

Dow and 0bnsumers. concerning ' contract revision. Since the 1974

. revisions (outlined in. paragraph 5 above), Dow's. lack of -confi-dence in Consumers and Consumers' , repeated announcements of cost increase's and completion delays:have led Dow to formally demand adequate assurance 'of performance from Consum.ers, without receiving swhat:DowLregards:as a satisfactory. response (Tr. 664-65, 2524);

w w .

. . , . ., _ -y - 4 - , , , - ,, ,,,,r ,w, , , . - , , .. , s. .

9 y .+.,,-e,

l ..

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to considerra's. a ';' realistic option" a'-breach-of-contract suit against Consumers and a possible-claim that the contract has been abrogated byf Consumers ' breaches (Tr.-2432, 2522,.2524, '

2730) and thus avoid taking any final position here with regard to the validity o'f.the~ contract (Tr. 939-40, 2432-33) ; and . to

- demand, so -far with no success , contract revisions which would.

put' an absolute outer limit on Dow's alleged obligation to deal-L with Consurners and relieve Dow of any and ~ all restrictions on. . .

its "right to make, purchase and utilize. process steam and ,

electric power'at any time'at the - [Dow] Midland Pl.ntt" (Temple Testimony, p . 7_; Tr. 2695-96) . In particular, Dow regards

[ removal of the contractual restrictions on its generation and.

use of its own power'as essential in order to preserve Dow's _ ,

, flexibility and:--as it' has repeatedly = stated (see paragraph 40 above)--to kaep its options open. Tr. 2356.- Those contractual restrictions are also a -subject of concern to this Board. It appears that Dow is barred from sharing or resale of ' electricity

~

- provided by Consumers (Consumers ' ' Exhibit 7(b) , 14) , which  ;

effectively increases its. cost to Dow since Dow must pay for 607.

of its' contract demand.whether it uses the electricity or not-

. (Tr. 2384) .* -In addition, Dow is barred from sharing or resale .

I of ateam ;-(Consumers ' . Exhibit 7(c) , - 110; Tr. 2356-57) , and-

_* Dow's. cost! is also: increased if.' Consumers is. correct (which L~

H Dow disputes)1 1n asserting that:Dow must pay: for its full u electricity contract' demand even before? steam is available.

Tr..2456-57. 'Dow believes that Consumers.has.^taken that .

; position",.Lat

::least in part; -in order to avoid the "ercid'irig -

ceffect onHthe: cost-benefit relationship" which would flow

-:from accepting Dow's; position. .Tr. 2457-59.

I e >

v

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A

• L ~ I.1 , ,1,' ~

C) .

Consumers ~has-demanded,'as a condition of any alteration in those provisions,.that Dow agree to a noncompetitive price

' clause imd - a ' firm 10-year,:1007-of-need contract and in effect to language barring-Dow from buying power from any third party.

which itself buys: from Consumers' (Midland Intervenors ' Exhibit 78, pp. 6, 7, and 18 of Dow's minutes of a February 24, 1976 l Dow-Consumers; meeting). These provisions appear to present a

" situation , inconsistent with the antitrust laws." Because we i

~

1: ave no. antitrust jurisdiction, on June 15, 1977 we referred  !

the matter to the ', Appeal' Board--before whom the Eldland anti-  !

trust decision is now pending--with.the suggestion that the l Midland- Antitrust Board be directed to reopen the record.

i I

)

1 .

50. As a result of the facts described in paragraphs 42 i

through1 49 above,. the Dow-Consumers relationship, vital to the-  :

success of the Midland project, has eroded to-the point where the parties.are now.further apart-than they have ever been before con-

[ 'cerning the' Midland project (Tr. 409, 2296-98, 2707-09) . Dow

. presently .has no confidence in Consumers ' overall management ability vis-a-vis the < proj ect,- in:its ability to finance completion of the

. project, in its projected on-line dates for the Midland plant, or in its costlestimates--which have already increased so far~that

the

Midland-project is L at best only " marginally" advantageous to .

I Dow' and may even be economically ' disadvantageous (see paragrc,h 46:above):. Tr.'407-09, 2289-90, 2299-2301, 2311-12, 2505-07, 2513e14, 2708-09. Dow1 considers repudiation':of its contract a

[ " realistic 1 option" (see paragraph 49 above) , - and Messrs. Temple 57-1 1

, , , e- .. - ,n - . , - ~ , - + , - . . . . - - . . . , , , ,

^

O.  ?) l and Oreffice testified that Dow would abandon the contract if 1 it could -do so .without penalty and, if the contract were tendered today, would probably be unwilling to sign it. Tr. 405-06, 2288-89, 2311-12, 2322, 2707; see paragraph 47 above.

It also appears  ;

that Dow's' own projections indicate that self-generation of Dow's electric'and steam needs would be less costly to Dow than con-tinuing with the N1dland project.* Under date of January 13, 4

1977, Dow prepared a comparis~on of alternatives, including the nuclear option, for supplying its steam and electric needs (Midland Intervenors ' Exhibit '26) , . basing its nucle Ar cost esti-mates on Consumers' data and its non-nuclear estinates on the i best information available (ine'luding some date from Consumers).

Tr. 2293-94, 2404-09, 2553-55, 2738-39. The comparison shows _

that Dow self-generation of ele.ctricity, with steam as a by-product, from a coal-fired plant is less expensive to Dow1 than the Midland project by some $43,000,000 per year, and slightly less expensive than the Midland project even on a 20-year total cost basis if a 15% . return on investment--a reasonable . figure (Tr. 2408)--is assumed. ' That alternative, Case C on Midland Intervenors' Exhibit 26, includes projected inflation (Tr. 2732) and the cost of complaince with all environmental regulations (Tr. 2492)'; it -involves ' fewer " unknowns" than any of the others

• 'Intervenors have'also argued that a similar alternative,

- coupled with an 800 MW fossil-fired plantu to be built by Consumers , would be less costly (a) to Consumers and (b) overall than completion-of.the Midland project. See para-graph.78.below. For present purposes, however, we limit our analysis to-Dow's costs.

• I, ,I .\ . . , j  %, ']

considered, including the nuclear optionsf(Tr. 2405-06,-2417-

19) . . In. responset to questions by the Board, Mr.. Oreffice testi- <

fied L that' Dow would- have "no- problem at all" in obtaining the necessary-capital'to proceed with the Case C alternative. Tr.

2739-41.

Conclusion

51. It is impossible to conclude that the facts adalyzed -

in- the preceding nide paragraphs will not play a major, perhaps :

decisive role in the' restriking of the Midland co'st-benefit .

balance following-the full remanded hearings on the merits.

Without Dow's active support and participation--which on this record is .at best extremely reluctant and subject to change at -

anymoment--theMidlandprojectinits}presentform,isneither

. economically nor: environmentally justifiable. See paragraph 4 above. Its costs 1have more than. tripled since the original-cost-benefit analysis, and may already have. reached the point I

at whichlit.is an' economic burden t'o Dow-(see paragraphs 46 and 50 above); in addition, the record compels serious doubt l as.to.whether Consumers'can finance.the. project in its present form. - Dow' is most un1'ikely' to advance the $400.million interest-

~

. free loanLConsumers has ' demanded,. and' even if the: loan were made c .

-it would' further- tilt the economic balance ~ against - the project

,. from Dow's ' standpoint. !Similarly, the sale of capacity'to .

municipalities :and cooperatives, important for financing purposes,-

may ; noti materialize and' apparently cannot3 tak'e place.without

[

' 59 -

l 1

. 1

+ . , . . ., - , - , , ~ . . , . - - , - . - , , ... .- .

i .; . ;: ..

m -

,~

L -changes'in the Dow-Consumers contracts.

3 See paragraph 48 above,

~

and cf. . paragraph 50, noting the deep gulf between the parties '

i . negotiating' positions. The current state'of negotiations-and the antitrust problem outlined in paragraph 49 above add a

- further element of uncertainty. If Dow does not prevail in' the negotiations, : litigation is a _ real possibility; but if Dow does

[ obtain the changes :it wants--an outcome we cannot predict--the cost-benefit balance will be affected. adversely to the Midland project, according to Consumers ' negotiating team. All of:these~

factors will require fuller. exploration during the remanded

~

- hearings on-the merits, and we canno't conclude that they-are unlikely to' affect - the ultimate cost--benefit -determination.

Inasmuch as continued construction increasingly tends to fore- -

close . alternatives - to the Midland, project in its present form (see paragraphs 22 and 27 above)--alternatives which b'ecome extremely.important.if, as-the' foregoing analysis indicates.is' l -possible,'either the. Board's or Dow's ultimate cost-benefit

conclusion does not favor the Midland project in its present form--our analysis does not' support a. continuation of construc-tion. Nor can

we conclude that continued construction is 'necessary i from Dow?s1 point of view. Dow has asserted that-it:will wait until the end of-1984, or two and one-half' years beyond the presently 9

' scheduled-Midland-completion:date,'for steam and electricity from

~ the' Midland; plant, provided that the1 Michigan Air Pollution Control Commission:is willingito extend its consent order and othcr

' circumstances'do nottchange'.significantly. Tr. 2515, 2546, 2672, L .

- 60-F 1

-o e w s4- -+ mw -ee.- .,,r%-g-w- se v-=--e 3- o s >#w, , , - .we v -Aecy- ,, e-yevv g~,-y-.-c.ye-.,,,%- y

O ' ; ,,D . , .

Q

-2718. The record also~ indicates that Dow can wait until-t .approximately two years from now (more than twice as long as the parties: estimate:will.be. required to. complete the remanded.

4 hearings.on'-the merits) before irrevocably committing itself-to eit her the- Midland project or one of Dow's alternatives (Tr. '2323),. and (that the cost of. the alternatives is not, in lDow's-opinion, likely.to increase significantly in that period 4

(Tr. 2405-06,~2732, 2737-39). It does not appear, therefore, i

that a-suspension per 3 will affect Dow'.s position one way

or the other. See Tr. 2515. If the 1980 expiration date of the MAPCC Consent Order (see^ paragraph 44 above)' becomes crucial because.the MAPCC refuses to grant further relief, Dow will be required to seek alternatives regardless of the effect of a L ' suspension, ~ since' Consumers cannot complete th'e Midland pro' ject by 1980.. See paragraph 43 above. Nor will a suspension-per se affect Dow's end-of-1984' deadline, because a-suspension is not expected to push the completion date past 1983. See paragraph

$ .27 above. Finally, a suspension will not affect the most important time: consideration from Dow's standpoint--the time requi' red to complete the remanded hearings and reach a final cost-benefit reevaluation of . the-- Midland project--since we will proceed "with j ' appropriate / dispatch" in that. regard. See Pacific Gas & Electric

-Co. l(Stanislaus Nuclear Project,- Unit No.1), ALAB-400, 5 NRC i, -(May

20, 1977),.. Slip Op. at'7._: Finally, we note l that Dow's pro-l posed findings.l(cursory in the extreme, as we-commented in paragraph

40- above) do not. provide much guidance. They avoid-any reference

'to Lthe1 great bulk of the : evidence discussed in- the ' preceding nine

. -- 'E . . . _ . . x. , . . _ _ . . _ _ _ . . . . _ , - - . . . . . _ _

' ^

%. o

... .. .,s.,, -

paragraphs, and effectively decline = to -take any position as to

-the present desirability of-the Midland project to Dow. Certainly-

Ethey do not undercut .the_ plain and repeated testimony of. Messrs. ,

Temple and Oreffice concerning Dow's lack of confidence in Consuners, the marginal or nonexistent economic 1value of the Midland project.to Dow, the strong possibility that'Dow will re- .

-assess its position of reluctant support for the project in the event of "any significant change" which may: include "almost any- ,

thing" (Tr. 323) , or the exi'stence' and feasibility of Dow 'self-generation alternatives. The record strongly indicates that Dow's present support for .the Midland project, tenuous.as it is--in i essence the very " lip service" Consumers ' Chairman Aymond feared

^

(see paragraph 33 above)--rests principally if not exclusively on 1

Consumers' litigation threats, which Mr. Oreffice quite reason-ably saw as calculated to influence Dow's stand in these hearings (Tr. 2707). As Mr. Tempic testified (Tr. 2311), with the explicit  ;

concurrence of M'..Oreffice r (Tr.. 2714-16; see also Tr. 2494, 26.99, q I

2707-09):

"Q . - All right. Now just between you and me,  !

MW. Temple, isn 't it' true ~ that the only J reason that [the] Midland Division's  !

findings and conclusions was not the Corporate finding and conclusion was a -

lawsuit.- Wasn't that the only significant-

. reason?

"A. In my j udgment that 's true . "

t The- cursory - and ambiguous nature of Dow's proposed Findings tend, if:anything,-toLsupport the conclusion that Dow is an extremely l Ereluctant bride whose'" support" of Consumers results far more 1 from contractual' compulsion-(see Tr. 2563) and litigation threats l

= - . - -. -. . .,

m

' L. ; '. .

O

'than from a genuine belief that the Midland project is still in its best interest. Given'those threats, the Board feels that great weight must be accorded to: the frank and straightforward testimony of. Messrs. Temple and Oreffice.

2. The ACRS Report and Other Safety Issues.

52 As directed by the Court of Appeals, on October 14, 1976, the Board returned to the ACRS both the ACRS letter Report of June 19, 1970 and the ACRS supplement of September 23, 1970, for clarification of tha Report's reference to "other problems."

On November 18, 1976, the ACRS submitted a three-page Supplemental

, Report. identifying 11 "other problems related to large water .

reactors,," together with copies of the ACRS reports and other proceedings in which those problems-had been identified. On February 11, 1977,- .the ACRS materials just described were received in evidence (over' the objection of Intervenors) as Staff Exhibits 1, 2, and 3. However, the Board explained (Tr. 4183-4185) that Staff Exhibits 1, 2, and 3 were received only tx> show that the ACRS had submitted a response to the Board's request, and not as showing or implying _that the Board considered the ACRS response

.- adequate. To the contrary, on January 28, 1977 the Board had again written to thefACRS, identifying three major areas of

, , , ;, , , ' a n-concern.with the November.18, 1976 Supplemental Report.(and indicating that the areas identified were intended only as examples of a pervasive ambiguity and lack of clarity in'the Supplemental Report) , and requesting that the ACRS respond further.. The Board noted that the minutes of an ACRS meeting discussing the Midland plant (enclosed with.the November 18,

-1976 Supplemental' Report) themselves included ambiguous refer -

.~ ences to " matters of concern" not described in sufficient detail

~

to meet the requirements of the Court of Appeals ' opinion; that at least some of the 11 "other problems" identified by the ACRS were described in unclear and nonspecific terms, again failing to meet the requirements of the Court of Appeals; and that the references to other ACRS letters in the Supplemental Report included letters which.themselves contained ambiguities identical to those disapproved by the Court of Appeals . The Board's January 28, 1977 letter. to the ACRS , raising these points, con-cluded by noting that because of the need for a prompt response

~

in order to facilitate resolution of the suspension hearings, the Board had prepared its letter "without waiting to fully identify all of the possible areas of concern" in the November 18, 1976 ACRS' Supplemental Report. -

53.. In addition to the problems identified in the preceding paragraph'and in the Board's-January 28, 1977 letter to the ACRS~ ,

-Intervenors'. cross-examination of Staff witness Lawrence Crocker

-(who - testified concerning the ACRS Supplemental Report) disclosed

~ . o

$*f,

= ', . . ;. s -

. 1:. ..

auditi~nalidifficultiesLwith the Supplemental Report.

~

o The-originalrACRS Report had . stated, with ' regard to the "other;

' problems" to which it referred, .that:

! ". . .the'above itemsEcan be re' solved'during i, construction:and that,.if due. consideration

- is given to theseLitems,.the nuclear units

! proposed for.the-Midland plant.can be

• constructed with reasonable-assurance that P they-can be operated without undue risk to F

the health-and safety of the public." ,

. [ Emphasis - a'dded. ] ,

That language presents the question of what constitutes "due consideration," and the~related question of whether a failure to " resolve the items during construction" would affect the ACRS' conclusion that the Midland plant did not pose an undue health and safety risk. .Concerning those questions, Mr. Crocker ~

testified (Tr. - 4217-4221) : -

"THE WITNESS: . . .The ACRS in the lett'er identi-

~

fiesiareas-pertaining to a particular plant or a series of plants where they feel that either the.

Staff and/or the Applicant should give some'addi- -

tional' design consideration. The ultimate resolution of these matters 1in some - cases is taken care of by the--time ~the plant-is constructed. 0thers are .

continuing concerns'that may'or may:not be resolved .

at the time the plant finally is constructed, but duringJthe final reviewLfor.the operating license r

we, the: Staff, and the ACRS musticome to an agree-ment that;the facility as constructed-is going to be adequate to as' s ure public health and safety.

"BY MR. CHERRY:

. What'I'm.trying to get at is your under-

"Q.

standing _of the term 'due consideration, '

Mr. Crocker. LLet-me seeLif I can go about-

'it insanother way. Is it yourJunderstanding-2

/

,- ,, j n

• q that due consideration does not mean the problem must be resolved prior to the com-

,  : pletionh of -construction by a ' fix?

"A. Yes, I would guess this is correct. It need not be_ totally,- finally resolved.

"Q. But ' due 'censideration may j ust' mean a' go'od-faith effort and continually trying to find the answer?-

~

"A. In many areas this~is precise 1y the state '

that we're in,.yes.

"Q. Do-you know what the standard that.the ACRS a7 plies as to what is good-faith working on t:2e answer to a problem? I mean, how do you figure out whether someone is doing the best job they can to try to solve ~a safety. problem?

"A. I do not know the standards that the ACRS.

applies-to it, no. . .

"Q. So as.you understand the-problem these out-standing safety. problem's'that the ACSS sa

-due consideration should be given'to, it'ys s your understanding that the plant can be

. constructed, operated, decommissioned, dis-mantled and buried, and so long as the

. apolicant was trying to work to solve the prcblem the ACRS standard would be met?

I I

"A.

I think the plant in fact could go through '

its entire lifetime with some of-these items ,

still being-held in a resolution nending I category by the ACRS , yes . " [ Emphasis added.]

That' amounts to a-statement.that:there is, in effect, no way to

' determine at any givenftime whether a problem " identified" by.the "AURS: f(i)-is capable of resolution, -.(ii) -requires resolution

. in order to assure ~ safe ' operation of. the facility, or -(iii) is

~

s v.

l

- . . .- . . - . -. . ~ .-

+ _. . - ... . -. - -.

,c, , ,

n

• A

~

'seri'ous.1 Mr. Crocker also testified that, even though theJcost of . resolving problems identified by ^ the ACRS might well have an 1

-impact.on'theicost-b~enefit analysis-with regard to a particular.

i, facility. such as the Midland project (Tr. 4265-4266) ,- he could i

not say ho'w much it would' cost to resolve (or attempt resolution

[ of) the items identifie.d by the ACRS in either its original or

.its Supplementsi.Reportc(Tr. 4259.-4261):

I 4

"Q,

. . . .Since you interpreted due consideration as essentially' good faith working on a program

j. '

. you we're .not in a position to say that all of 1

.the outstanding ACRS mteters will be resolved prior:to the completior of construction, is that correct?

' *A . That is correct.

i

! ." Q. -And you cannot tell me what the cos't of '

~

resolution will be if they are resolved. -

1 during the course of construction', is that - -

, Lalso correct?

"A. I.could not tell you the precise cost, no '.

"Q. You cannot tell me at.all what the figure

will be,-because you don't know whether the l problem.will be solved; isn't that correct?

, "A. I could not give: you a total' figure for what i theyresolution of the' problems might be. That

is correct. ..

"Q. Well, forget about what might be, Mr. Crocker.

L

.It'is'true that neither'.yo'u nor the Regulatory Staff nor Consumers Power Company nor the ACRS, to your knowledge, can set down-a reliable. cost

-for the resolution of the problems which are not

.yet resolved;-isn't that correct?-

?"A. .ThatE is correct." ![ Emphasis added.]

e

Consumers'1Mr. Keeley; agreed. Tr. 3711-12,~3718-19, 3756-58.

2sy_  :

~~

l -

.- _ = - _ . . - . . , . . . ..

. . t. x ,

-n

.... . . .' O ' , -

25 4 . Accordingly, the November. 18, 1976 ACRS. Supplemental Report neither. complied with what this Board considers to be the requirements laid down by the Court of Appeals, nor affords information sufficient. to the- task of factor'ing the . cost of compliance with ACRS' concerns into-a cost-benefit analysis. .

Indeed, from'the testimony of Mr. Crocker it appears that neither

the Board nor the parties are presently in a position even to determine how serious the "other problems" identified by 'the ACRS in its Supplemental Report may be. Nor has the Board received a satisfactory response from the ACRS.to the Board's letter of January.2.8, 1977. On March 16, 1977,.by letter to the Chairman of the Commission, the ACRS refused to respond to j the Board's January. 28,.1977 request. . Rather than explaining -

the ambiguities.and obscure references noted in the Board's request, the ACRS asserted that the Board has " misinterpreted the'Aeschliman decision"~and concluded: "The ACRS does not feel tha any further clarification of its reports on Midland is necessary." ,

f

55. With regard to the ACRS Supplemental Report, the recent comments: of two of the three Licensing Board members in Tennessce. Valley Authority (Hartsville Nuclear Plant) , LBP ,.5 NRC -(April 28,1977)--a majority which included one of :the members cf this l Board--areL pertinent. At-11 159-163 ofi hatfdecision,LBoard t members Drs. F. J. Remick and J. V.

' Leeds,NJr. expresFed their'" reluctance-to. assume" that ACRS-language identicall to that involved- in' this case did not

. m. . _ . ,_ _ - _ _ . . ~ . - . _ . - . _ . ._

o, .

-

6; .

a n

f maan that the problems in question required resolution during

' construction. -Drs. Remick and Leeds ~also noted'(Id,., d 1 165)

-that the opacity of the ACRS language--again, identical- to that- before- us here--did not " provide sufficient information to fully understand ACRS intent, hampered the licensing i

[.

process, and failed to perform "the other equally important ,

1 task 'which Congress gcve ACRS: informing the public of the i hazards.'"* .

j 56. In addition to the continuing ACRS difficulty, the record in this proceeding indicates the occurrence of other l l

!l 1-

. disturbing, developments which, while not expressly the subject of the Court of Appeals ' remand (see Aeschliman v. NRC, 547

[ F.2d 622, 632, n. 21 (D.C. Cir.1976) , . nonetheless require -

. mention in light of the Board's obligations t o act on the basis-of all currently available information, Commonwealth Edison Co.,

ALAB-153, 6 AEC 821,.823-24 (1973), and to deal with QA-QC A problems as they. occur, Duquesne Light Co.,.ALAB-408, 5 NRC

- (June 2, 1977) , Slip Op. at 8. .As noted in paragraphs 9 above, - Consumers ' handling of QA-QC matters concerning the Midland. project has historically been so unsatisfactory that the' Appeal. Bo'ed not onlyzimposed special requirements on Consumers

~

, but'also, sua sponte, took the unusual stepIof contradicting its own findings and causing the institution of a show cause proceed-ing. . The record before .us'shows that since then, and continuing

.*:lSignificantly, Dr.; Leeds >(who has had:the duty of reviewing-4 both' documents)Lconcluded that3despite its manifest inadequacy

. "the,Hartsville-letter is better than the Midland letter dis-p . cussed in.Aeschliman."' Tennessee' Valley Authority,:' supra, 1 167.

-69 .

~ ._ , _ . . ~ . _

s.

.( -

,g 9

' M n'duringLthbss hdarings, furthsr QA-QC proulems hava'dsvalopsd owith alarming: regularity.. InfMay,'1976, Consumers told Dow that:

"The'NRC is: concerned about the trend of [QA-QC]

i problems.. The NRC' feels that:this is~a very important'(adverse]-trend.that Consumers hasn 't- [

, handled very well. .:. ._..[T]his-problem spotlights

-the' effectiveness of the whole Midland'QA-QC program."

- Midland' Intervenors ' Exhibit f68 - (Dow's notes of a_ Dow-Consumers q l

meeting) , - at 21. . InLaddition, as recently;as August?10,l1976

~

[ the Commission's 0ffice of Inspection and Enforcement reported' h, that eleven separate' trend analyses,. representing "significant

cons'truction or problems '.which involved a number of nonconforming c

reports," were " unsatisfactory" and that inspection-disclosed-

]- "no systematic- evaluation:of the nonconformances. and deficiencies."

IE-Inspection'. Report Nos. . 050-329/76-05~, 050-330/76-05 (Aug. 10,  ;

1976), pp. 3, 5, 7; see also IE Inspection Report Nos. 050-329/

76-04, 050-330/76-04(July 2, 1976).- 'Three additional infrac .

j .' tions.were noted as'of October 18, 1976 (IE'. Inspection Report ,

. N'os. 050-329'/76- 08, f 050- 330/76-08) ; in February, 1977 a serious problem with Unit No. -2. containment liner plate bulging, causing considerable damage,'was identified and led to special inspec-F tions:.(IE Inspection Paports Nos. 050-330/77-02, 050-330/77-03; i

50-330/77-06);-. and-in April, .1977 misplaced and omitted tendon  !

. sheaths in the' Unit 1 c~ontainment building were identified (IE l . Inspection (Report l No .- 50-329/77-03). These problems cannot be regarded:as: miner. . The ' cost of correcting. them may be ' substantial,- -l Las Consumers has admittedito Dow,* and in a ' letter of April 29,

• :5- * .and Intervenors Exhibit 67- (Dow's notes of a : September 7 _l' ) ? Dow-Consumers meeting) , p . ' 7. For example, Consumers

% s estimated that. repairing:the liner plate bulge may cost

~

i 1

e more than,$800,000, f and-as of June 15,c1977 had still not fully 1

~~ determined its evaluation-of1 damage or "the. corrective action . l c.

andethefsafety impli~ cations of the correction'." Midland-Intervenors ' Exhibits 79 c (a Midland ' Daily News article of May 27, 1977)j and 80 '(Consumers June c 15,-1977 Interim Report) .

4 1 70_:

x. .. , . . . . - . - - , . _-.._--._.a.- a _._.--a_m_,

, q.

j 1977 to Consumers, the Commission's Region-III Office repeated that continuing violations and past history:

. . . indicate further evaluation of your

-QA-QC program:may-be needed to assure' safety related work is accomplished in accordance with your conmitments and design specifications." .

L C.o.nclusion

57. - We 'do not regard the ACRS November 18, 1976 Supplemental

-Report as adequate,.either to satisfy theLCourt of Appeals or to' ,

l permit full analysis ~ of safety issues and .their possible substantial  ;

{E impact on the cost; benefit analysis (see paragraphs 54-55 above),

nor- can we now assess the potentially significant impact of .the t i . . >

continuing QA-QC problems. discussed in paragraph 56 above on the.

J cost or' schedule of the Midland project. Those matters must .be

. thoroughly, explored during the full remanded hearings on the 4

{1 merits, both because 'of the great importance of timely and complete l

{ - resolution of safety-related issues (see paragraph 9 above and Duquesne Light Co., supra, and cf. Aeschliman, supra, 547 F.2d

! at 631) and'because Aeschliman contemplates a de novo consideration ,

) of safety. contentions which, due to the opacity of the ACRS Report, f,- 'could not earlier be raised -Sse paragraph-16-above.* At this i

I -* In Tennessee Valley Authority (IIartsville Nuclear Plant),

LLBP-77-- , 5 NRC- . (April. '.28, l:07.7) previously mentioned, i n

-Drs.-Leeds and Remick agreed (at !'L64) that:they could " rely [] I on ACRS ' belief 1thats [ generic] items .can~ be resolved during i 4 ,

construction."' They based' that conclusion, however,1x1 the

' fact;thatcno ACRSjitems had-been' contested in that proceeding.

Jus stated in .-the ; text, we cannot 1 take.the same approach-here, y

'~

-iniview of the(different nature:of-this proceeding, the Court

offAppeals', directions, land the'-fact that'the ACRS. conclusions 4

are-nctiuncontested.

~

%i R

)

h

_, s . . . . _ ._ ,_ _ - - - - --- - - - -

' O -l

-..1...

~

. stage, the record _ clearly cannot support a finding that the ACRS

~ ~

and QA-QC issues will not have a significant effect on the ultimate cost-benefit analysis. The Midland project's long and I almost uniformly unsatisfactory QA-QC history. precludes such a finding in the QA-QC context; in' fact, since a suspension of construction will allow additional time-for review and correction of QA-QC procedures,. a suspensisn may result in a long-run saving by decreasing the amount-QA-QC problems will add to the overall project cost. In terms of the ACRS issues, Drs. Leeds and.Remick j .

have noted in-Tennessee Valley Authority (Hartsville Nuclear Plant) , LBP , 5 NRC (April 28, 1977', f 163, that to authorize continued construction without first determining which

~

(if.any) of the problems identified by the ACRS must be resolved during-construc' tion may produce sub'stantial difficulties.at the I operating-licensing stage. "[A]t that point, the ACRS might have 1 to advise withholding an operating license or modifying a-plant l

that' could result in delay if the Staff's interpretation of the ACRS letter is wrong." Also,. continued cc'tstruction, and the

. expenditure of additional millions of dollars , Rievitably tends to render-increasingly difficult any decision to withhold an L

operating . license or modify the plant design, for the same reason that continued construction tends to affect the ultimate cost- .

1 benefit cualysis.- See. Consumers Power Company (Midland' Plant,

. Units 1 and 2)~, ALAB-395, 5 NRC _ (April 29, 1977), quoted

.at paragraph 21'above.- -Intervenors, pointing out that the ACRS' refusal.to comply with either the Board's requests or the Court

- 9 , - e a,+ ,-,,+--g - 4 ,y -w. , --y y- ,-,-e-, ,-

9 -ey -,,e

T . '.1.1 . .. :

n ,

d of ; Appeals ' ruling- has: so: far prevented. consideration of safety

'l issues or their cost-benefit impact, and that .QA-QC: problems also require' direct action in order.that continuing construction ]

r Tti prejudice full compliance with vital Commission regulations, t

have stated.that they intend to raise. safety. contentions in 4-those areas.during the remanded hearings and have moved for an immediate halt to construction as the only appropriate course.

Tr. 6029-37, 6043-44. Like Intervenors , we cannot regard with equanimity, the unsatisfactory and incomplete state of the record concerning safety issues-or the prospect that continued con-

! struction may tend' to foreclose full and punctilious consideracion - l

^

and resolution of safety problems , any more than we. can ignore L the impact'of continued construction on the cost-benefit analysis _,

1 required by the National' Environmental Policy _ Act. .

.j I 3. The Fuel Cycle Issue; i 58. Leaving to one side for the moment the " energy con-servation" gissue . (see paragraph 59 below), the remaining issue remanded by the Court of Appeals is the effect of nuclear waste

< reprocessing and disposal matters.on the cost-benefit analysis.

As indicated.in paragraphs 21 and 25 above, the Commission's November 11,1976. Supplemental General Statement of Policy (41

. Fed.' Reg _49898) rem;ved fuel . cycle issues from consideration cin suspension 1 proceedings pending adoption by the Commission of -

an-interim; fuel-cycle-rule. On. March 14, 1977, an interim rule was:. promulgated (42 Fed. ' Reg.13803), and on May 4,1977, the

- Appeal 1 Board finstructed. this . Board to consider fuel cycle matters

v..... .

4- , ,

g .

~

7f'. -

t . .

in the' context of: "(1). the terms of the . interim rule; (2) the Commission's counsel 4 in CLI-77-10; and (3) (the~ Appeal Board's]

l comments in ALAB-392. consumers Powe'r Comoany' .(Midland _ Plant, L ,

L . Units 1 and :2)l,_ ALAB-396 t5 NRC '

(May 4, 1977). The Appeal l l' . - ...

' Board'airuling does no't in terms. address itself.to the suspension issue presently before this Board,- but speaks rather of fuel

._ cycle matters

in the co$stext of the ' remanded hearings on the P

merits. For that reason, and because of the importance of a:

prompt suspension ruling,;we have not asked-the parties to address fuel cycle issues in detail at.this stage, and we therefore do L - not determine whether those issues will have a significant effect

! on the ultimate cost-benefit' analysis . '.We note, however, that l-l' those- issues -will require discussion during the full remanded _

hearings, and that .Dow's Mr. Temple test-ified that it would be difficult for him to finalize Dow's cost-benefit analysis without considering fuel cycle matters,.since "in the discussions we've had . .

. we've concluded that the cost [of nuclear fuel) will~ .

go up when all these answersfare found." Tr. 2419-22. Since i

that. testimony,. consumers has already significantly increased its nuclear fuel' cost estimates.. See paragraph 77 below. I B. The Need For The Midland Project And E .ergy-Conservation:- Will A

. Suspension-Significantly

Impair-Consumers' Abilit -

' To Serve Its. Customers' y L' TNeeds?

.59.. We., turn now'to-a consideration of whether the record supportsfa finding that energy conservation measures--the final

' issue remanded:by- the Court of - Appeals--are unlikely to produce-anyf significant' alterationLin' the. :ost-benefit : analysis resulting

=

-_74-

u. . ~ . .2 = - . . ~ = . . - -

~

[. ... .

, 4

, . + .

- from the remanded hearings, bylleading to the conclusion that -

some or all of. the electricity to be produced by: the Midland a

! ' project is not needed'. Because that. question involves examina-h  ; tion of' Consi mars ' load Jforecasts , demand proj ections , and system .

reliability criteria, as. does the' question of whether a suspension-will impair Consumers ' ability to ' meet its r:ustomers ' needs during.

the;added perio'd prior. to- completion of the Midland plant (see-paragraph 27 above)', we treat the two questions, together.

! 1. Load Forecasts and Energy Demands.

2

.  :. 60 . Testiimony presented by consumers projects electric g

[w' energy sales increases of 3.57. for 1977, and an' average annual

! icompound rate of growth of electricity sales of 5.27. for the

~

c ..

[ period:from 1977 through 1985.- Consumer's projects the same

' average annual compound growth rate for the period 1978-1982 f

)

L(Tr. 3429- 39, 3441-45, - 3448, 3453-54; Board Exhibit 4, p.1.1-17 ;

i ,

Midland Intervenors ' Exhibit ~ 11, p . . III(2)) , - although Consumers '

Mr. -Mosely conceded .that growth may well be lower during those' years (Tr.;3414-16, 3426). That projection is based on: (i) 4 1

'a short term " Budget Forecast" for the balance of.1976 and 1977, l'

< (ii) :a less detailed, planning forecast for 1978-1985, and - (iii) i_

t a " verifying : study" performed by Consumers witness Philip L.

b

- Bickel in connection with the long term forecast. Since the Budget Forecast'isLtheEstarting point of-the long range forecast,

,- <we discuss'.itifirst.

61'.. : The Budget Forecast 3 Midland Intervenor's Exhibit 11)

Lis divided intoisix sect' ors, the first of 'which is " domestic.

[ average use,_excludingispace heating."' The forecasted non-space

+

(

.  : 75- ,

e _ - . . - _ . - _. -. ... . _ . _._._.._ _ -. _ _ . _ . _ . ,_. _

. ,\, ,', S, '~i

-heating residential use is % sed on a trending of historical ~

,' data from 1964 through 1976; trands are developed for each month,'with the chill factor, time, and the temperature / humidity index as -independent variables, and are then adjusted by judg-ment factors. This " trending" approach, however, does not 4 properly take into account price elasticity, the Federal Energy R

[ . Administration's program to. increase the efficiency of home

. appliances, or the change in the relationship between average annual . residential electric customers ' bills and average annu' l a disposable income per household, because most of those factors 4

have become significant only in the last two or"three years. ,

See Tr. 1935, 1953-58, 3262-63, 3279-80, 3326. According to Midland Intervenors' Exhibit 80 (Consumers' compilation of the .

l

]- relationship between residential electric bills and disposable.

perronal income for the. years 1961-1975), for example, since. - '

1973 residential electric customers' bills have increased much i

more rapidly than disposable personal income. A continuation of that trend--which appears highly probable in view of the Administration's recently announced ~ energy program *--will tend I to further reduce demand. It is instructive to compare Consumers'  ;

' failure to give -' express consideration to these demand-reduciing factors - with the September 21, 1976 statements of its own Messrs. l Bishop and Macintosh (quoted at page 47 of the prepared testimony i i

• ISea Midland Intervenors ' Exhibit 61, the Administration's 4 -

detailed. Fact: Sheet', for a description. '

i 3  ;

> ,, , ,s.. , - - . - - - - , , - , - . .- . , - ~ ~ . . , ,. - --,.-- .-

n o'f Intervenors ' _ witness Dr. Richard Timm) concerning the impact .

of_"a continued emphasis en conservation as a result of higher energy costs and the recognition of a continuing energy supply problem along with the lack of large new appliances , fewer and smaller new homes being added as a result of high construction costs,:and a continued low birth rate."

62. The second cat; gory of demand addressed by Consumers '

short-term Budget Forecast is that of " residential space heating use." Historical data from February 1973 through April 1976 were used to arrive at a forecast for the May 1976-December 1977 period, with echanges in electric rates (a rate increase of 10.6%

from March 1976 through December 1977 was assumed), degree days, .

. and the temperature / humidity index as independent variables. .

4 Largely as a result of the assumed rate increase, actual space heating electricity use per customer was projected to decline, by 2.1% between 1975 and 1976 and 1%. between 1976 and 1977.

Notably, those declines follow 5.9% and 13.2% declines reported for the_two previous heating seasons. Tr. 1896-97. This empha-sizes the importance of explicitly considering price elasticity in demand forecasting--a consideration lacking in Consumers' long-term forecast and in its short-term forecast of commercial and industrial sales (for which the regression equation centains no price effects and is primarily an extrapolation of past trends)--

since when price increases'are considered, the effect is a signi-ficant reduction in-demand. See Tr. 1913-16,-3279-80. Nor are substantial price increases unlikely to occur. It is common 9

p,a-l .

,mg.

. knowledge ;(cf. Rule 201(b)fof the Federal Rules of Evidence) that price increases- are a major component of- the Admin!stration's-energy program,: and the record also shows that Consumers will require--as _ its own cost' production ' computer runs -(see _ Tr. 3799-3800) anticipate- -

".=. .'significant and timely rate increases if revenues'and income are to reach and be maintained at levels which will result in sufficient. inter--

nally generated funds to meet its operational-  ;

requirements and permit external financing of its

{

construction program at reasonable cost." i Testimony of Staff witness Arnold H. Meltz (fol. Tr. 5065), p. 3.

6 3 .' -With' regard to " residential electric customer gains,"

"GM account," and "small accounts (each a separate category in the short-term Budget Forecast), analytical deficiencies- appear.

~

The residential electric customer gains. analysis, for example, is based on nothing more precise than an " eyeball estimate of ratioLof gains to national [ housing] starts," and the statistical accuracy of-the "GM account"'and "small, accounts" forecast i.s not great; Consumers ' standard error of estimate is 10% of the largest moathly use'value and'1,000% of the smallest value. See Testimony ofIIntervenors' witness Dr. Richard Timm, pp. 49-50; Tr. 3801.

64. Analysis of Consumers ' short-term Budget Forecast thus L

1 yieldscfour significant' points. First, the short-term forecast

depends heavily on-trending historical data, which may produce

overly;1arge1 demand'. forecasts in view of recent demand-reducing t

c.

,, , - J.-, .

'[.' , , [, - -

factors and; energy conservation programs (many too recent to be fully reflected in.a. historical trending analysis). Se'c'ond ,

where; price factors were considered explicitly in the short-term analysis, those -factors had a substantial downward impact on

- projected use per customer. This not only shows the importance of explicit price elasticity consideration, but also calls into question the -accuracy of forecasts made without such.considera-tion. Third, the statistical accuracy of the trending regression 4- equations in several sectors of the short-term forecastLis quite poor, so that the forecast may be significantly in error--errors which are. inevitably magnified if the Budget Forecast is used (as it was) as a basis for a long-range forecast. Fourth, the short-term- forecast projects an overall energy growth through 1977 of only 3.5%, significant.ly less than the projected 5.2%

~

long-range growth forecasted. See paragraphs 60-64 above.

65. Consumers' long-range , load growth forecast is trouble-some in several respects. In theLfirst place, the " probability encoding" method used to generate the forecast presents- grave difficulties. . Consumers ' witness Philip Bickel and W. Jack Mosely testified that it is. heavily. subjective in nature and that the j

i subjective. bases for its results were not probed (Tr. 1918-20,  ;

3293-94, 3299, 3363). As Mr.-Bickel explained (Tr. 1918-1920):

"Q.- Well, let me ask itianother way: Does c your forecast essentially ~come down to ,

your talking to'a lot of people at the company?

A 1

i

I

, 'h .- a .

4 "A..:It certainly consists of gathering input from allot of people at the company'1n

_ conversation and inJdocument form. I then-take the.information--and again'this is a general rule the-best-information.I can find available--and make calculations and try to come up with something that looks reasonable to me, review it withLthe people from whom I got the information, try toget an'overall consensus'of something that looks reasonable to the knowledgeable peoole with-in the-company before I present it to the forecast committee. . . .

"Q. . . ..Is it' fair to say-that the study which_

you are supporting here today was more or less based'on entirely subjective considera-tions, whether verbal, documentary or feedback loops.

"A. The' forecast was based primarily on professional judgment. . . .

',' Q . Would-you' answer my. question, Mr. Bickel? -

I "A. The answer to your question is yes."

[ Emphasis added.]

As.a consequence, it is simply impossible to determine whether the method or its-results:are reliable, as Staff witness Dr.

' Sidney Feld testified in response to questioning by the~ Board (Tr. 4471-72) :

, "Q. 'Have you made an; evaluation of this method L:Ln any respect? Do; you know of any other

. utilities- where, for example, cthey use it?

"A. . -I would1say that the-most serious weakness associated with something like the probability encoding' methodology is-that the' methodology

+-

and the assumptions that go into that defy ~

any kind-of validation on the part ot-anyone who wants to make a determination of how reasonable it is. All you essentially get l >

~ rg n- --.-e, .. w e, ,..v, .e e- .m,- ,u,

a, .

^'

i a .E.]

, L'

. .: ,.- = .3 y h '

"w in thi bottom lina,'tha end result. And in that case, - the' prob ~abilit' ' y'en'co' ding methodology,'in'-my opinion, is not one'that I would have much confidence in, at least I couldn't validate it. . . .. " [ Emphasis added.]*

The unverifiability 'of the long-range forecast is not its only drawback. It also appears that--despite the dramatic effect of

, explicit . consideration of. price elasticity 'on the short-term -

1-forecast--the long-range forecast did not give express considera-i tion.either to price. elasticity or to any of the. energy conservation b possibilities : identified at pages.- 17-18, ~50(b)-50(c) , 53 ' of the

^

-t'estimony of Intervenors' witness-Dr. Timm. Tr. 3262-63, 3326.-

' Messrs .~ Mosely and Bickel conceded on cross-examination that the

]

" probability encoding" analysis had not used. even the price J-elasticity data available within Consumers (Tr. 1913-16, 327,9-80), -

l( .

and many of the data inputs to the analysis appear to be out of f

date (Tr. ~ 1907-0_9, 1918,1997, 3398) or, as regards energy-conser-vation, ;the product of subjective judgment (Tr . 1~911, 1994) . That

~ judgment must be considered 'somewhat' lacking in depth as a result of the admitted lack of -familiarity of both Mr. Mosely and Mr.

Bickel with the. Energy. Policy and Conservation ~Act and the i

Industrial Energy. Conservation Program: of. the ' Federal Energy 1

. Administration'. Tr..1990,.-3326; see paragraph 67 below.

• -tDr. FeldJalso testified, on further questioning by the Board,

~t hat the:' Staff had made no evaluation' of the spread. _of numbers

-generat'ed_~ by [ Consumers!Dlong-term forecas t, and could not say whether ' Consumers identification .of :5.27. growth .as the "most iprobable" estimate was-correct; Dr. Feld added that "I honestly.

cdon't know,enough about that type of methodology to answer"

~

4 F chow: the most": probable" figure was = obtaine:d. Tr. 4472-73.

~- 81-m v , 4 ,4egga, _ y y .g .yc---ye.,- cv e, n- -

., , , , , - ,,--v-

-vy3-g- ,,,yg q-,~ ,-~w ww t--y- t y + *-"owuw- g 7

.n . . . . - - - - - - - - - - - - - - - ---

,[.,, . ,['

!]

+ v 66.. Consumers'Liong-range forecast, moreover, is subject

-to substantial doubt.even on-.the part'of' Consumers' Energy Forecast.

Executive 1 Review Committee: (EFERC")', 'which was .esponsible for_its -

7 adoption..lJust as Dr. Feld was-unable to say:whether-Consumers'

~ 5.2% prediction had' been appropriately derived 1(Tr. 4472-73) and Mr. ~Mosely could not' identify the subjective- bases for that figure (Tr.- 3293-94,' 3299, . 3363) , so an October 9, 19.76 memorandum pre-1 pared by EFERC .'(Midland Intervenors Group Exhibit 11) 'shows that. .

a majority; of EFERC. members believe that:

~

(i) there is only a L50%

likelihood that Consumers' annual growth' rate will even equalr.5%,

~t and (ii)L the ' likelihood of the 5.272 prediction. is only. 33%. .

The same memorandum adds that'one member-of EFERC'" takes the position that there -is essentially no . probability Ehat the- growth rate will be" outside of the range of 273 to 5%','" .and candidly d'escribes the '

forecast as a "first attempt," remarking that "we have'more to do.

respecting. market. analysis and in perfecting our techniques ."*--

The three independent studies reviewed by the. Staff similarly suggest'that the-5.2% figure.is too high. The Augus t, - 1976 s tudy

.by the4 Michigan Governor's: Advisory Commission on Electric Power -

Alternatives 1("GACEPA")- projects growth on the combined Consumers-

' Detroit Edison system of 4.59% annually between 1975 and 1985, -

l without " vigorous conservation ~me~asures." Testimony of I)r.: Sidney

- Feld (fol . Tr. 4375) ,:. pp . 15-16.

(Dr. Feld testified that he l himself-hadL not taken mandatory energy conservation measures into .

• On cross-examination,-Mr.lMosely admitted;that the " probability 1 encoding"itechnique was new.to Consumers, and that he knew of:

~

nolother utility.using-the? technique'.

Tr.;3388. ~l L.

" ~

L .

< q t .~ _

-; -, , a. ,

. - a.-. , , - . . ~ - . _ .-..w-c,-.., . u,.. ;

hl k p e

z ..

. q .

q ,

faccount, ' even ithough "[i]t certainly is_ a possibility" in the next five years. 'Tr;-4468.)1 If Michigan causal variables are assumed to "moveEat the sama rate forecast for the nation

by Chase Econometrics," the GACEPA projected annual growth rate drops to.3.4%.. Feld

Testimony (fol'.-Tr. 4375), pp. 15-16. - A February,1976 Federal Energy Administration study also yields a projected 4.65% annual sales growth rate :(4. 79% for Consumers' system alone). .I_d., pp. 19-21. The. remaining s tudy, performed '

l .by the Michigan Public--Service Commission, is less than current >

(it dates from ' late 1974) , is not based on independent data but rather on a ' raview of Consumers ' an'd Detroit Edison's 1974 forecasts, and is " overly optimistic on growth." Feld Testimony j (fol. Tr. 4375)., p. 10;:Tr.,4415-16.

67. Consumers ' Mr. Bickel (Testimony, .fol. Tr. 3995) also undertook-his own '.' verifying ' study" with regard to the probability. -

encoding" long-range forecast. The verifying study, however, is sharply . challenged by Intervenors ' witness Dr. Richard Timm (at pp. 51-59 of his prepared testimony) , and appears to suffer from 4

serious- deficiencies with regard _ to each of its three major sectors

~

-(residential,' commercial, and industrial). The residential fore-cast, for example, improperly adopts without inquiry some of' the

-EFERC assump.tions, so?that the validity--of those. assumptions is-never) tested. Sec. Timm Testa. mony,:pp. 51-52. It also incorporates-

~.a number..of high1:r doubtful assumptions, such as that of a 21.4%

~

~

l -

m increase in: residential space heating use . (from 16,060 kwh/ customer tof 19,500. kwh/sustomer) between 1977 and 1985- (Midland Intervenors' f

83 -

e e -n t v- + -+-w5:- w_ r - * 'e '--

T *f

.,. ': , , ,[ N q Group Exhibit 11), which ignores both the actual 1974 13.2%

'and 1975 5.9% declines (Tr.1897). and the Budget Forecast projected 1976 2.1% and 1977 1% declines (Id.) and also assumes (without documentation) a change in the " mix" of residential space heating customers. (Tr. 1960-1968, 2013. It appears-that the more recent data, not used~in the verifying study, contradict that assumption. See Tr. 1965-66, 1968.) In addition, the verifying study projection of a 2% annual growth in residential domestic average use did not consider changes in real personal income, even though Consumers' senior executive economist, Nk. Denton, projects a decline in real personal income L over the next five years (Tr. 2015; Midland Intervenors' Exhibit 22), nor did it explicitly. consider changing insulation stancards - ;

L .

1 and other home heating conservation _ efforts (Tr . 1953-58) cn:  !

l l

- price elasticity (Tr. 1935). On'the other hand, the verifying L study did include such asserted. demand-increasing factors as

! "the invention of new electricity-using appliances for homes l

that are not yet envisioned." Tr. 1959. The commercial forecast l in the verifying study, which projects commercial sector load growth of. between 3.56% (for 1976) and 5.55% (for 1985) also l l

[ fails to consider price -elasticity (Midland Intervenors ' Exhibit- I 20; TDr. 2020) or Mr. Denton's projected decline in rea1 personal income-(Tr. 2015, 2018), 4 assumes a net increase in IEchigan i- state popu!-r,an despite the fact that both Mr. Denton and the Michigan Department of Management and Budget. foresee "no net L change. . .within the foreseeable future" (Tr. 2004; Midland 84-

. .' , , , ' W .O IntervenorsY Exhibit 22) .

~

The industri'al-forecast in the verifying study contains even more serious difficulties. .In '

addition to overlooking:all of the factors noted with regard

'to the commercial. forecast, it ignores completely the impact of theLEnergy. Policy and Conservation Act, 43 U.S.C. SS 6341ff.,

mad the Federal Energy Administration's Industrial Energy Conservation Program

• as well as the conclusion of Consumers '

EFERC' (Midland.Intervenors ' Exhibit -36) that " Michigan will not be sufficiently attractive to- industry = . .to causs aty significant growth in industry." The important General Motors component of'the' industrial forecast also ignores.the potential impact of price increases on GM energy -consumption. (Tr. 2007) ,

j even.though GM regards itself as price-responsive in that area -

(Midland Intervenors Exhibit 21) ; predicts a -14.66% greater.

energy consumption per vehicle in 1984 than in 1986, eve.a though a greater percentage of total vehicle production will be rato-mobiles , which require less . energy than trucks - (Tr. 1979, 1981,-

1983-84) and even.though Mr. Mosely expects n_o_ ine:: ease in per-vehicle consumption (Tr. 3322-23); . and completely fails to take i

into account: (1) GM's specific statement to Consumers that GM

-expects to reduce its energy censumption (Midland Intervenors'

, lExhibitL 21--GM's response to Consumers ' Load Fb .agement Survey--

a1 document with which Mr. Bickel was not famili ar, Tr.1985); (ii) the_ transportation industry commitment to the Federal Energy

~ Administration-to reduce' energy consumption per vehicle by 16%

• - Mr. .Bickel is "n6t partictilarlpifamiliar" with that program -l (Tr.< 1990) , even' though--for. example--Dow Chemical Company is

. committed to it-(Tr. 2474-75).

x . . _ __.

j i

. m,

. . - - ,z .

., . .s,. .

.9: .

for 1980 .(Tr.1991); and (iii) the conclusion by Consumers ' own i

Hr.:Denton that GM energy. consumption will-lessen, b~oth overall J

. and per vehicle,. as "proportionallyi more cars and trucks [are] j sassembled in;other than:GM's.home' plants (which] are located 1

outside Michigan and. thus - outside Consumers ' service area (Midland H

Intervenors ' Exhibit 22;. Tr. 2000-01, 2006) . The impact of those errorsois significant. Intervenors' witness Dr. Timm calculates (at p. 58 of. his prepared. testimony) that if one assumes with-

, Consumers' Mr. Mosely (Tr. 3322-23) that electrical consumption l l

per vehicle remains constant (which appears conservative in view l of the facts just discussed), a reduction in estimated peak demand of between 67 megawatts mad 122 megawatts results.

Conclusion

-68.. It is extremely- difficult to accept Consumers ' 5.2%

l'ong-range load growth forecast on the basis of the information presently contained in the: record of this proceeding. Even a slight change _ in the assumptions used to generate the forecast, or in~its result, can produce a substantial change.in the peak

-demand estimates on which' Consumers bases its claim that power from the Midland-facility is needed during the period of any possible suspension. For example, a 1977-1983 drop in compound annual load growth from 5% to 4% results in a decrease in 1983 sales of more-than 7%, and cn equal decrease in-1983 pr.ojected peaktload'.*~ Similarly,.if one assumes that space heating use per l* ' Consumers' forecasting assumes equal. growth in sales and

. peak. demand. 'See testimony of Dr. Sidney Feld (fol. Tr.

4375), pu 22. .

9- *

• w -, ye. e-w== - w-a W

'[ . . . . '

O  %-

customer remains constant?at' its 19771value through 1984, rather:than-increasinglby the. dubious 21.4% assumed by Mr.

Bickel, approximately a 60 megawatt savings 1in 1984 fore-casted ^ growth results. Timm Testimony, p. 53. As.noted in paragraph 67 above, an even' larger-saving results if price elasticity, the: impact of FederalEconservation policies, the

. General 1 Motors' own energy 1 reduction goals are taken into

' account in forecasting the GM demand. At a minimum, these facts and the other facts-discussed in the preceding paragraphs compel the conclusion that substantial further examination of probable load growth is required -before confident predictions can be made. Neither the highly subjective and unverifiable nature of Consumers ' " probability encoding" forecast nor -

. Consumers' past. tendency-to: overestimate demand growth (Tr.

3384-85; see also Consumers Power-Co., Quanicassee Units 1 and 2, Dkts. 50-475, 50-476. Petition ~ to Withdraw Notice of Hearing,

~

May 9',1974) -induces confidence in the accuracy of the long-range forecast. While it might seem prudent at. first blush to err on the side of overestimating load growth, that causes serious-con- '

sequences to both1Consumerscand its rate payers (Tr. 3318-19; Timm-

, Testimony,- pp. 64) , and major -errors are introduced into the cost-benefit analysis. . Indeed, because of the importance of '

~

-price elasticity, unduly rapid construction of . facilities ixt order to meet' overly:1arge growth expectations, and the conse-quent increase inithe utility rate base and in charges paid by customers,~can'itself operate as a significant demand-reducing

, factor. ;While the record.does not _ permit the drawing of_ any

+

.. Q thard conclusions with' regard to Consumers' system in this regard, it should- be recalled that, 'as explained in paragraphs 48 and 6z above, Consumers. expects (and will require) substan-tial rate increases-in the near future even apart from the impact of new construction. In sum, we cannot conclude that-Consumers' load growth estimate is sufficiently free from' doubt to warrant a finding that it will survive further examination during the full remanded-hearings on the merits. -

2. -Reliability and Reserve Requirements 5

69. In addition to our inability to accept without.

further. inquiry Consumers' load growth forecast for the 1978-1985 period, an equally serious difficulty is presented by Consumers' contention that commercial operation of the $1dland plant on the present schedule-is needed in order to assure Consumers of meeting its.LOLP criterion of one-day-in-ten-

, years. ..Intervenors challenge Consumers' assertion on two i

grounds--first, that even if Consumers' long-range. forecast is correct a proper consideration of demand factors shows that the 20% reserve requirement projected by Consumers can be met without the Midland plant, and second, that the 20%

reserve requirement (which Consumers asserts to be necessary in order to meet the LOLP criterion) is: itself overstated,

'Intervenors contend (Timm Testimony, p.'19), that "at least

. a.two-years' delay can be' tolerated without adversely affecting the ava~ilability and reliability of electrical. energy to

' Consumers' customers."

-h g - ..

4

• * (;P :: y,.. ,

, , ,'S Q q e l

-l g .

170. Econsumers'1 contentions rest principally on consumers' Exhibitsill (showing the- effect of suspending or cancelling Midland-construct on i on summer reserves) and 13 - (showing the -

effect of suspensionior? cancellation on energy ' supplies),.

prepared by.' Consumers ' witness Gordon L. Heins . . Even assuming 5 'the -accuracy of Consumers ' 5.2% long-range growth forecast, t

l however,.the-system reserves _shown in-those exhibits. appear to

! be significantly understated. First, the peak. demand figures E '

incorrectly assume that Consumers' demand remains constant I~

regardless of (i) the . commercial operation date of the Midland

) plant, and (ii) whether- or not Dow continues its present :self-

!= generation of its .needs . . Conservatively' assuming that Dow will cease all self-generation as soon.as the first EEdland. unit

' ~

is' commercially-on-line (which is Consumers' present interpre- ,

tation.offthe Dow-Consumers contract: Tr. 2456-57,- 2724-25) i g and accepting Dow's estimate of its electrical demand from i .

Consumers -in .the "as ' scheduled," "5-month suspension," 9-month' suspension," and " cancel Midland plant" cases (set forth r

f. in-Dow's January-28,L1977 Answers to Interrogatories, Midland

-Intervenors ' Exhibit 30) , a major reduction in Consumers' - 1981-

84 summer' peak demand--and thus ma increase in both the amount i

I

'and percentage-of its available reserves--results.*

Second,

~* ' Midland- Intervenors ' ~ Exhibits 31A, - 31B . (recalculations of i

Consumers' Exhibits 11 andi13 by Intervenors ' witness Dr.

Timm,'who,Eas" explained _at 14 9-12 of his Rebuttal Affidavit,

performed lthe recalculation ~using the same. assumptions and procedures' adopted by. Consumers ' Mr. Heins with' the -sole

_1(Footnote continued on the'-following page.)

- :- 89- A

,-# e - -- ---,.vrv% - w,r ,y +=r-.., ~ q,,.-,-e.w,,+--

. .h jy . ;.'

j'

. Consumers' Exhibits.11 and 13 assume that: Consumers ~will be

-required to.~ satisfy the demands.of several. municipalities'and cooperatives, j presently projected to -purchase a portion of the

{ -Midland plant- capacity,. regardless of when -(or whether) the

~

Midland ylant is-on-line. Consumers' witness Mr. Heins conceded

on cross-examination, however, that Consumers is under no i -

, contractual obligation to serve those muntrip:litipe and coop-eratives -(aggregating some. 272.MW of -demand) even if the Midland -

- ' plant

commences operation on schedule--let alone if it does Lnot j- .(Tr. 1664-66, 1782-84, 1788, 1799-1800; see~also Midland Intervenors ' Exhibits 14, -15, and 16) ; at 11 1-2 of his rebuttal 1.

testimony, bound in a separate March 23, 1977 transcript volume,

~

.'.Mr. Heins.also indicated,that Censumers does not customarily-in-clude in its' load' projections anticipated demhnd.from interconnected ^

entities such:as the municipalities and cooperatives, since there

} is no contractual obligation to supply that-demand. In addition, Mr. Heins conceded on cross-examination that the municipalities and~ cooperatives do not need to rely:on Consumers during the 1981-

~

(Footnote continued from preceding 1page.)

4 4 -

exception. of correcting for' Mr. Heins ' . improper handling

-of Dow sales). The rebuttal testimony of' Consumers' witness David:Lapinski challenged Dr. Timm's use of Dew's demand c , estimates:rather-than the Dowcenergy requirements estimated -

by . consumers 1(shown in Midland Intervenors ' Exhibit '18) .

' 'However,? Consumers.does-not challenge-the fact fhat-the i originalocalculation of Consumers ' Exhibit il was erroneous; iin addition,L1T 3-8-~of Dr. Timm's-Rebuttal Affidavit and

~

-TableFA:thereto sho~w-that the aggregate reductions in peak idemand:resulting from correcting Consumers ' Exhibit 11 to reflect proper treatment: of: Dow sales are not1significantl laffected.by whether Consumers ' or!Dow's projection of Dow'y: s Lenergy needs is used.

4 d

, . . _ _ . -- ..-~._- _ _ _ _ ._ _._ _ a.~.

&' l

/ *.m

. >~. .. , . , _ .

184)perio~d, Esince. Detroit Edison's - Fermi. plant will have !suffi--

' icient capacityJto supplyftheir.needs'.-(Tr..: 1809) and ' Ontario- '

~

Hydro'will also have such' capacity-(Tr. 1848.49). In view of 2

h ~t h'eLrelhtively.' inexpensive power available from those' sources--

)_ approximately 6.19 mills for.the Fermi plant,-versus as much

{ .as'64 mills for-Consumers' most1 expensive plantsL(from which

}

e

-the addedidemand would necessarily be . met) ,- according' to Consumers cost production computer runs--it would. appear

j. 'likely thatIthe municipalities and cooperatives wil1~not pur-

[ chase.their needs from-Consumers, even if timse needs exist i 4 i

} and are not met by self-generation.* ' As noted in paragraph 35

above, Consumers presented no witness- (or other evidence) from-r the municipalities and'cooperativas to. support Mr. Hein's assertion of their needs. Midland Intervenors ' Exhibits 31C ',

? and 31D =show the impact on Consumers' Exhibits 11 and 13 of ~

j removing ths municipalities ande cooperatives' 272'MW demand f from Consumers ' peak ' load, energy . supply, and reserve proj ections - ,

4 j Third,.Mr..HeinsUtestified that Consumers' Exhibits:11'and 13 include the assumptionLthat Consumers' 686 MW Palisades plan.t b . output will be reduced by 35 MW per year, _-beginning in 1977, s

E and willJbe cutcoffl entirely in 1981 and 1982 (Tr. 1668, 1670).

Mr. Heins-basedRthat assumption;on "a possibility that-further

~

steam- generationstube: problems :will reduce [ Palisades output] on I;: a year-by-year basis ," coupled with "my judgment that we should.

[ iconsider if this deterioration 1of' output' continues. . .taking i~ '[ Palisades] out of Es'erviceiduring the' period 1981-82 for re-n 3 -

T*?SeeLTimm Rebuttal'- Affidavit,; 117.

~

-9f- 1 s

. 4' Om.

_ . . . ~ _ _

o-g

. :;. . . m  !.

m conditioning" U(Tr.1670; emphasis added) . .However, during-cross-examination Mr..:Heins1 conceded;that Palisades.is not -;

now losing , capacity- (Te. ' 1833)., that as La result of altered

- operating techniques :it Jis also; possible. that no, further steam; tube detriaration will occur (Tr.1671) ,. that' even if-L such deterioration is f found. " sleeving" the tubes .may well solve the problem with no loss of. Palisades- capacity (Tr.1671),

( and:that.in any evenc vatario Hydro projects sufficient avail-

[ ~ able : capacity for' the 1978-80 period te permit a two-year withdrawal of Palisades ' from service without affecting Consumers.'

2 available energy supply (Tr. -1848-49) . In addition, Intervenors

[_ have noted (Timm Testimony,. p . 32) that - there is . presently pend . .

e- -ing. before the Commission an application by Consumers for. a 100-MWe uprating of Palisades. . The draft EIS Adden,dum in that

proceeding, prepared'by the' Staff in November, 1976, does not -

t a.

mention ' steam tube degeneration problems or possible derating of'Palirades:in the near future; 'it is reasonable to conclude,.

i on - that basis , that Consumers does not regard the derating q q

postulated by Mr. Heins as a likely occurrence. Nor does the Staff 'l regard the problem:as exigent. The Staff-Safety Evaluation support-ing~ Amendment No..28'to Palisades.' Operating License--an extension

~

- ofathe-~ steam generatgr tube inspection interve' >-brws that'as of

--June 17',e1977 "the1[ tube]; wastage rates at Palisades have

~

{ . .- ..

decreased"~.and~" steam generator tube corrosion [has been] effect-l ively minimized,:" so.that inspection can safely be deferred for' l

five months. ; Midland Intervenors ' : Exhibit ' 83, p . 2.

-922

^

.a . . . . . - . - ; - ._ - . - ,a - . - . . - . . . -. -

. o

,'~ g-o Midland Intervenors ' Exhibits 31K and 31L show the cumulative effect on Consumers ' Exhibits 'll and 13 of removing Mr. Heins.'

assumed derating of Palisades and his assumed sales to muni-

.cipalities and cooperatives, and correcting his erroneous handling of Dow sales. Those ! recalculated Exhibits indicate

. that-when the corrections are taken into account Consumers' 1ergy supply reserves and percentage reserves exceed the 20%

level considered adequate by Mr. Heins (Tr.1663), regardless of a five- or nine-month suspension. That remains true, in.

fact. even if it is assumed that the 272 MW sale to municipal-ities and cooperatives is actually made (so that Consumers' Exhibits 11 and 13 are corrected only for the improper ' handling of- Dow saies and the Palisades derating) . Tr. 1696-97, 1840-41; Midland Intervenors' Exhibits 311 and 31J. That does not even take into account, moreover, the fact that Mr. Heins ' Exhibits i i

11 and 13 assume a sale of 60 MWe from Consumers' Campbell 3 l generating unit, despite Mr. Heins ' admission on cross-examina-

. tion that the sale has not been contracted for 'and may never be made.(Tr. 1816-17) _ and despite the quite different treatment of such hypothetical sales in Consumers' filings with the Michigan Public . Service Commission (Tr. 5996) .*

l

• . Indeed,.Intervenors have noted substantial and, so far as appears, unexplainable differences between Consumers' filings with.the Michigan Public-Service Commission in the

.pending rate' proceeding (Case No. U-5331) and its filings here--notably with res

factors for Consumers fossil

'pect tofuel the units.

use of different capacity.

See N1dland Interve'nors '. Exhibits 50-55; Timm Rebuttal Affidavit, if:27-28;'Tr. 5989-6005.

.) . * .

o r ~

[

LAccordinglyk even if-Consumers'E5.27. long-range growth fore-cast and'Mr.-Heins' assumptionxthat:a 20% reserve margin is _

'needed are'both' assumed..to be, correct,La suspension:does not impair -Consumers ' o ability . to _ sarve it s' cus temer l~oad- with the

. desired:one'-day-in-ten-years LOLP criterion.. ,

171.. Intervenors, however, question whether-the 207. reserve margin selected: by Mr. Heins is necessary to ' meet. the;one-day-in- '

ten-years LOLPLcriterion.. Noting;Mr..Heins'-testimony-that 30%

to (407. of Consumers peak load:is "normally available from other--

~

utilities" as bask-u'p power-(Heins Testimony, fol. Tr. 1648, at

p. 9 ; Tr. 4446, ' 4449) and.'using Consumers ' projections of 'gener-

. ating unit reliabilities for the 1981-84 period (found in Midland' Intervencrs' Exhibit 32), Intervenors ' witnes's Dr. . Timm has cal -

culated that the ' desired LOLP criterh.on can be . met with only 167.

installed reserve margin ~in 1981~-82, decreasing to only 137. in-

- 1984; Midland Intervenors ' Exhibit 35R (a correction of Exhibit 35~ for; a computational error); Tr. 5846-47. - While Consumers' witness ' David Lapinski ~ asserts that if effect is given to anti-cipated--summer derating the installed reserve requirement increases-byc.9%, thatistill; yields figures'significantly:less.than Mr.1Heins' 20% assumption. (Mr.ILapinski also asserts,that Dr. Timm'.s use~of Consumers ' ' proj ected: generating; unit reliability figures :(Midland Intervenors.'- Exhibit 32)i rather,than its-somewhat' lower historical figures ~ ~(Midland Intervenors ' Exhibit 33) results in . overly opti-imisticJr'eserve margin conclusions. - However, .the projected figures -

~

are:ithosefused by Mr. Heinsfin ~ calculating replacement . power ? costs, ri S. , ,, ., .

.. .y. ; q .

n Heins _ Testimony (fol. Tr.1648) , pp. 8,16, so that use of

-those figures. achieves consistency; use of the historical figures would significantly idecrease replacement power costs .

- Timm Testimony, pp. 38-39 ; Timm Rebuttal, 1 25. In addition, Consumers ' Lproj ections appear- reasonable . . Consumers' 1976 Annual-Report notes (Tr. 6125-26) that between 1973 and 1976 Consumers' system maintenance program was sharply scaled down for financial reasons--resulting in a-drop of-approximately 10% in overall plant availability, as shown on Attachment C -

to the _ May - 19, 1977 Rebuttal Affidavit of Consumers ' witness Itc. Lapinski--but has now been substantially increased.

Accordingly, historical reliability figures will tend to suffer.

from the budget cutback.. Conversely, since Consumers' projected .

availability figures Ifor 1982 and 1983 are only slightly. higher than the overall~ actual figures in 1973 (before the budget cut),

as shown on Mr..Lapinski's Attachment C, it appears that I Consumers in effect has six years (from 1976 until 1982) within-which to regain, with the aid of the new plant-maintenance pro-gram announced in the 1976 Annual Report, the reliability lost during only: three years of budget cutbacks . That prospect, and i ts attainability, is confirmed by Consumers ' proj ections.

72. Further difficulties with Consumers' reserve require-mentLprojections result from the question of which system is usedlin the calculations--Consumers' alone, the liichigan Electric )

l Coordinated System ("MECS") consisting of Consumers and Detroit Edison - or the entire East Central Area Reliability Coordination

~

y , x n f n. f,' +

',' f

' Agreement h("ECAR")' group of stilities . During-cross-examination and: Board _ examination of: Staf.f. witness Dr. Sidney; Feld, it was established-that reserves on Consumers' own system between 1981 .

and 19841 range from~ 23.6% to 39.4% even in the event of a sus-

. pension, or-substantially'in exces.s of Mr. Heins'.20% goal F -(which'is for. Consumers ' system alone, though it assumes some

. available Detroit Edison _ power: Tr. 4404), so that in effect

-Consumers is. supplying extra reserves _to the MECS in order to counterb~alance extremely low reserves of Detroit Edison--which nevertheless'quite recently negotiated a 200 MWe sale of new plant ' capacity . - Tr. 4403, 4476-77. The most recent available

data, moreover, 'show that Detroit Edison's demand projections 4

have-been substantially reduced and its reserve margins dramat- -

i

. ically increased, from'5% to 16% in 1980, from 11% to-22% in L

1981, and from 13%~to 16% in 1982.. A5fidavit of Gordon L. Heins, i I May 19,_1977, p. 3. Similarly~, if ECAR reserves are examined l (which appears reasonable inagmuch as Mr. Heins' testimony l assumes the availability of. ECAR power: Tr. 4452) , the most I- recent available data, which again were not used in Mr. Heins '

i initial calculations, show continually ; increasing reserves -of l 23% in 1980, 24% in 1981, and 26% in 1983--'a dramatic difference -

fromithe ~ decreasing reserves postulated by Mr. Heins at Tr. 4026.

Affidavit'of.Gordon L. Heins, May_-19, 1977, p. 4; see also Supple-mental Testimony _of Walter J. Gundersen. These new figures further-support Intervenors' calculation (Midland Intervenors ' Exhibit

-35R);that a120% reserve margin on Consumers system is not-reededL

.e - -

. . . _.; n- A Conclusion

73. As.the preceding four paragraphs indicate, considerable doubt concerning Consumers' reliability and reserve requirement assertions 1 exists on.the present record. Espec1211.y - as new  !

information.becomes available ~(see paragraph 72 above), problema

~

arise with both of Consumers' major assumptions--the amount of j its projected demand (paragraph 70 above), and its asserted need  !

for a 20% re$erve margin -(paragraphs 71 and 72 above) . When those uncertainties are added to the uncertainties discussed in r

paragraphs 60 through 68 above as to Consumers' long-range growth  ;

forecast, the conclusion must be reached that Consumers has not carried its admitted (Tr. 4126) burden of justifying continued construction, and the tendency to foreclose alternatives and 1

" skew" the ultimate' cost-benefit analysis which continued con-struction entails. In addition, both the' dubious nature of  !

Consumers ' long-range growth forecast and the uncertain state of the record with respect to its reliability and reserve' require-ment also compel the conclusion that we cannot now find with reasonabic assurance that full consideration of energy conserva-tion alternatives in the remanded hearings on the merits will not significantly -affect the ultimate cost-benefit analysis.

~ As'is apparent 1from paragraphs 60 through 68 above, energy t eonservation has received little if any deliberate consideration in Consumers ' present forecasting; taken together with what on this record is an apparently marginal demonstration of need for the: Midland plant.even without energy conservation (although we

.. .c

3 9 do. not . imply'any prejudgment :o'f what the' fulliremanded hearings

.willE show. in that regard), that . suggests a need for considerably more energy conservation evidence before a firm conclusion can

.beHdrawn.

C.. - Are-The Incremental Costs

- Of-A Suspension So Large R

-As To Warrant. Continued

• Construetion In?And Of Themselves?:  ;

l 74.: In view of the foregoing analysis, the " cost of. delay"'

issue '(see paragraph 27 above) reduces to the question whether, even though other factors militate-against continued construction,

~

the costs which can be-expected from a cuspension areLso large that conscruction must nevertheless be permitted to continue. ~

That question itself, moreover, must be viewed in light of: (i) -

the very substantial" delays and: cost' increase's in the Midland' project which .have occurred for . reasons unrelated to Commission or court proceedings , and which engender doubt that further delays and. cost: increases will'not occur even if construction continues (so that the concept of a suspension- is not per se shocking in view of the history off the' Midland project); (ii) the fact that

a. suspension has real~ significance only on-the assumption that the Midland plant will ultimately be built: (since if the remanded hearings: on the1 merits result in a conclusion that .the plant.

should be : reduced in size: or' cancelled, a suspension saves other-

~

wise- wastedifunds rather than resulting in a true '.' cost"); and

'(iii)LIntervenors'-contention that as a matter of law the incre-mental costsfof.a; sus ~ pension?cannot properly be, considered'here, w

_ - , . .  : _ f _. . _. _ _ - . _ - _ - _ _

m

.. . u ..

~.

J since they are :merely. a . form of '.' sunk costs" inappropriate .for consideration under Aeschliman v. NRC, 547 F.2d 622, 632 n. 20.

(D.C. Cir.1976) ,* and Uni'on' of Cotic' erne'd S'ci~entis ts v.' AEC, l'63 U.S . App =. D.C. ' 64~,: 449 F.2d 1069, 1084 n. ~37- .(1974) , and since-

'to refuse Lan otherwise warranted suspension on the sole ground

of cost would appear toiput~ a price tag .on the Commission's ful- t

.fillment of m.its . statutory' obligations under NEPA in violation of Calvert' Cliffs' - Coor . Comm. , Inc . v . AEC, 146 U .S . App . D.C . 33, R

449 F.2d' 1109,11129 '(1971) .

' 75 .

D 4 Consumers ' witnesses Gordon L. Heins and Gilbert S.

KeeleyLassertithat.a 5-month suspension would e'ffectively result in a 9-month halt in construction activity, and total increased costs.of.$335,935,000 (a $142,000,000' increase in total capital

cost,.an $11,935,000 increase in the. cost of nuclear fuel, -and - '

a'$181,900,000 increase in replacement-and/or differential ~ power costs). In the' event'of'a 9-month suspension, which would mean an estimated 15-month construction delay, Consumers projects i total. costs of $578,831,000 (a $245,975,000 increase in. total capital. cost, a-$19,756,000 increase in nuclear fuel ' cost, and a $313,100,000 incraase in replacement and/or differential power costs).. Consumers ' Exhibit 16; Keeley' Testimony (fol.

.Tr. 2 3638) , at - III; : Heins Testimony (fol . Tr. 1648) , at 13-16.

• Apart from the general problem of whether all incremental costs are a: form of " sunk costs," Intervenors have'also -

pointed out'that sorm of the' costs projected by Consumers

, are_explicitlyL" sunk costs" of'the precise nature barred iby]Aeschliman. Tr. 3730-31.

.-99_.

--; ~

q _ g

76. :These' estimates appear exaggerated. First, the m increased' capital cost estimates omit to take into' account-the~

I time.value of money--the saving to Consumersratepayers which

)

results . from a 9 : or 15-month delay in the commencement of pay-ment for the remaining'.construetion to.be done on the Midland i

I project. Consumers has. failed to compare the total plant cost q

estimates for: the "as scheduled" and " suspension" cases. on a

~

l l

- 1 present-worth basis, which is necessary in' order to arrive at -

a true cost differential rather than one improperly increased by '

the fact that, as. payments are delayed, they are made in inflated

, dollars. While in the normal case the saving w.hich results from

. delayed payment is overtaken by the added cost resulting from real price increases over. time, in this case

(i) engineering o '

. -ac tivities on the Midlan.d project are approxi.mately.637. complete 4 .

+

and cunstruction itself .is ~ approximately 197. complete, so that redl price increases and inflation do not affect those items

(Keeley Testimony, fol. . Tr. 602, at I-2) ; and (ii) it appears i'

that a substantial portion of the power to be generated by the

. Midland facility will not need to be replaced during a suspen-sion period:.(see' paragraph 69 above), so that the cost of replacement power willibe lower than in the normal case. There is. general l agreement that Consumers. failed to consider the time value of. money in its cost-of suspension calculations, just as itialso failed':to consider (though fully including replacement

~

- power .coses for a1 suspension period now) ' the' logical corollary

^

of a 9-ior115-month

period'at the "other end" of the 34-year -

.t

,, s

-100-

.4 e r - , sy =-+--> 9 '--ee--w.-e-- - --m--, v-- swwe e

• l ,

-F . p.. m.

.y r,

life of^the Midland plant.during which replacement or differ-.

-ential powerJ costs will' not be incurred. See , ' e;.g. , Affidavit i 1of Arnold Meltz .(May.19, L1977) , p: 2. However,:there is sharp

. disagreement-over.the effect.-on Consumers' cost-of-suspension analysis'which results from' factoring in the-time value of ,l l

money and the " credit" for the 9. .or 15-month added. life-of the l

Midland plant. An admittedly simplistic and rough, but never- -

theless -informative, calculation performed .by Intervenors ' l

_ 'witnes's Dr. Timm (Timm Testimony, pp. 65-69;.Tr.;5595-5640; i

Timm Rebuttal Affidavit, if 37-41) indicates that assuming Consumers' present official $1.67-billion plant cost estimate,  !

L and a present worth factor of 11.757. and ' annual fixed charge j' rate of 17.577. (the reasonableness of which have not been , .

! questioned), an approximate present-worth saving resulting ,

, from considering the time value'of money of $114 million (5-

. month suspension) or $140. million (9-month suspension) can be L

derived. That leads to a net decrease of some 337. in Consumers'

'5-month _ suspension cost estimate.- While those calculations are c

! imprecise, as previously noted; it is-apparent that the impact

-.of'considering the time value of money isLsubstantial. Similarly,

'although calculation of the credit" for' the added life of the i, -M,idland plant. is rather speculative in view of the uncertainties t

of predicting; economic 1 conditions 34 ~ years from now, even the conservative assumption that replacing the Midland plant in 34 years will cost no more-than building the plant now ($1.67 billion)! yields a substantial " credit" in present-worth dollars

--101-

.. ..e , ,

for the: fact that the Midland plant will not have' to be~ re-E placed,y and $1.67 billion spent, until the expiration of the added 9- or 15-month period. Timm.Tes'timony, pp. 68-69.

.77. Seco3d ;,iConsumers' calculation.of replacement and/or I

'different ial^ power costs attributable to a suspension--the largest- l single ~ item in its cost estimates--appears inflated for several l reasons.- To .begin wit.h,; Consumers ' replacement ' power costs are I based-on the s'ame demand,' load growth, and reserve requirement forecasts and- assumptions made by Mr. Heins and discussed at paragraphs 60 through 72 above; accordingly, they are flawed by a failure to-consider-reductions in Dow demand, an unwarranted inclusion of sales to. municipalities and cooperatives, and an unwarrantedderatingof: Consumers'Palh.sadesplant (see paragraph 69 above),Jas well aslby what d pears to be an overforecast of ~

long-range growth ~ (see paragraphs 60 through 68 above) and re-serve nes.ds (see paragraphs 71 and 72 above) . In essence, Consumers has premised its replacement power costs on an attempt to supply the Dow, Consumers, and municipality / cooperative loads exclusively-from'its own system rather than taking into account j power available.from other sources and giving appropriate credit for . the ' reduced costs to other systems , such as - Detroit Edison, resulting--from its analysis. -See Timm Testimony, pp. 71-72.

This inflat-ion of. demand, moreover, inevitably exaggerates replacement power-' costs by;a- factor larger than the demand infla-tion,-since as demand grows progressively less efficient and more expensive. generating units are used to service he incre-

~-101-

n ., . . ... .

.g p-

?; . mental' demand, and the. incremental power cost thus exceeds the

] demandiincrement. - (Timm Rebuttal Affidavit, 11 16-17.) In i

addition, Consumers' cost production computer runs used to q;enerate the replacement . power costs ' have produced inflated

. costs because of~ improper input. Midland-Intervenors'IExhibit-

37- (Consumers' workpaper

descr;i.bing the input in question)

~

.st ates :

I

'"idditional; purchases made-in delay case:are l labeled purchase 10. 'These-purchases were.

based on a reserve-level of 20%, if reserves

- fell below 20% an on-peak cap. [ capacity]

4_ purchase at 90% C.F.-[ capacity factor] was I

.made. .. .The cost of this purchased power  !

l .. .was:20 mills / kwhr 1976 esc. at 10%/yr'. This .

cost is based 'on: baseload coal units , and is considered. conservative."

( .

- 1 ,

[e In other words,-Consume $s' computer simulations include " forced purchases'.' introduced in a way which takes no account of whether L

the purchase is economical and which (because no prudent utility. ,

~

F -would act.ually make such -purchases ,.. and Consumers ' does not now d i do so: Tr. - 1848) results in significant and unjustified increases -

in the cost of replacement -power. Tr. 6121-6123; Timm Rebuttal Affidavit,. 11 18-21 and attachments B1-3,.C, D. A further

apparent error.in Consumers' estimates of replacement power costs

{ ' is an improperly high-coal cost estimate. The record indicates that; Consumers :p.rojects extraordinarily large increases in coal .

' ^

. costs.-(for~ example, an-increase of more than 300% between 1976-p and 1982 in coal: costs for Karn Units 1 and 2), that its coal

~

-cost projections are.-substantially higher. than those o~n which -

t 6

-102-0 -

, a

~$,.- , .,3-,. , . , . . , . . - , - - - , , .,,,,,.,ve, ,,,,#$ y,r-* r'r-'*-v--ee--

• we 7 +t w v v 'e-* -*e -" = ve '

- - . - .. g - .- . - , -,.. - -- - -- -

m .,- ----- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --

. . : > . . . u. '

, s_

Dow: Chemical Company bases:its.own planning--and to which Dow has adhered despite Consumers' higher figures-(Tr. 2293-95)-- .

ano t.hnt its projections are fully twice-as high as the average low-sulphur coal cost- estimates - from studies ' identified by Intervenors'. witness Dr. Timm. Tr. 6130-6131; Timm Rabuttal  :

Affidavit, 1:32. In addition, Staff witnes's Dr. Sidney Feld testified that at least-two Federal Government studies he has consulted (one prepared by the Federal Energy Administration and the other by . the Council .on Wage and Price Stability of l

the Executive Office of the President) project an actual decline ~

in real coal costs between 1975 and 1980, and s.uggested that it i-would be reasonable to assume tha't factors tending to drive up the price of coal and those tending to drive down the price of I s coal "would-balance each other out." Tr. 4538. We must,also

)

take into account, sin calculating the difference between replace- l ment power costs _ and the cost; of operating -the Midland facility as presently planned, recent increases'in the cost of nuclear fuel. During'the course of these hearings, Consumers' witness

. Gilbert S. Keeley has substantially revised upward the nuclear 4

fuel cost estimate which he offered'in his prepared testimony.

Tr. 3781-85. : In addition,.one of Mr. Keeley's basic assumptions--

s that the cost of nuclear-fuel will increase more slowly after 1985-because of plutonium recycling--now appears doubtful,

-according to Consumers ' own testimony. before the Michigan Public .. i

. Service Commission (quoted in Timm Testimony, pp. 81-82) .

Consumers: now believes that "it is not clear that- the Government-will permittreprocessing and recycling [of uranium and plutonium].

I o .

-103--  !

9- - - ,m ---,wp. -

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V. .x  ;,b .

to ba produced in- the futura" and that in computing nuclear fuel costs " uranium salvage value', should:be zero. This Board-

can take official notice .(see Rule 201(b)' of the Federal Rules of Evidence) cof the Administration's decision that plutonium l

~

. reprocessing and~ recycling - should not be pursued. While the  !

i ultimate outcome of the Ad=4nistration's. recommandations is not )

-yet certain, they indicate that optimistic assumptions concern-ing reprocessing and recycling cannot' now be justified.* A final but nonetheless significant error in Consumers' replacement-power cost estimate's results from assuming an unrealistically high availability factor for the Midland' plant, and thus exaggerating the amount of power to be replaced. At page 77'of his prepared testimony, Intervenors ' witness Dr. Timm notes that Consumers assumes that " Midland will operate at a capacity factor of 707.

beginning from the first day it is placed in commercial opera- 1 tion,." and correctly points out that "any new plant, whether it is coal or nuclear, when first placed in operation can be

. expected to have some initial problems which will reduce its overall availability and-thus its capacity factor."'

78. Consumers'. erroneous calculations regarding the incremental costs of suspension, even if only partially correct, render an accurate computation of -suspension costs virtually

• c The uncertainty we noted inL our discussion of the- overall

- fuel cycle . issue . (paragraph. 58: above) affects the nuclear Lfuel' side of theLreplacement power cost differential as well'.

Furthermore,'we' have not yet ruled on Consumers ' proprietary claims concerning nuclear fuel documents--more of which Consumers transmitted to;us on June 24, 1977, well after

.the evidentiary record;was closed--and that adds to the in-completeness and. uncertainty of the present record on fuel

.cycletandJfuel: cost ~ issues:and their impact on the cost-

' benefit analysis.

'-104-

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.: ~,.

9 -

- , . l

~

. impossible. :Without accurate cost production. computer runs

- based upon genuine " economic dispatch" purchases from other -

i utilities - (as" oppose'd to the uneconomical ". forced purchases" l

. Lwhichtdistort Consumers' original data and the. total failure

-1 to consider any economic purchases which distorts its rebuttal I j presentation, see Timm Rebuttal Affidavit, T1 18-22) , without i I- an accurate computation of the savings-resulting when the time value.of money is considered, and without a complete recalcula- g tion of coal and nuclear fuel costs on the basis of appropriate l

{ and up-to-date estimates, we are unable to do more than guess i i l j at the true incremental costs of a suspension. Consumers could have provided that inforntion had it wished to do so; in fact, j Dr. Timm suggested' that just such information was needed. Tr. .

~

' Consumers ' silence cannot help its position. See para-j- graph 35 above. Even so, however, two points are clear. First, i

j it appears unlikely that any increase in the total capital costs  :

of the M2.dland project due to a suspension will . exceed the  !

enormous increases in capital costs which have- occurred for other

[ reasons during the past several years; indeed, because a suspension will afford some additional time within which to consider and

[ . correct the expensive and continuing QA-QC problems (see paragraph 56 above), a suspension may result in an ultimate savings,' by 4

decreasing lthe ultimate amount those QA-QC problems will add to I.

theitotal project costs. Sec~ond, it appears probable that as time goes on, the Administration's energy = program.-(which we can- .

not safely assume.will fail completely in Congress) will-tend

~

G .

t l -105-v n. g 1 -, - - y e,.. .g.e.. m ,_-a,-u.,-.e.,. .,<-,-we-,

further to lower the cost of coal by encouraging additional coal _ production. and use, 'and raise the" cost'of nuclear fuel

'by' effectively prohibiting recycling and reprocessing activity.

'The former point gains support from the May, 1976 Federal Energy Administration Coal Mine Expansion Study-(see Timm Testimony, i p. 76), and the latter point from Consumers' own presentation before the Michigan Public Service Commission concerning nuclear

fuel costs- (see paragraph 77 above) . Accordingly, even during f the remanded hearings on the merits, the differential between the cost of power to be provided by the Midland project and the l cost of alternative power during the suspension period can be c expected to decrease.

79. A full consideration of possible alternatives to the ~

~ Midland proj ect is not presenti before the Board--it must. await i

the more detailed analysis and' recalculation of costs and benefits i to be uncertaken in the full remanded hearings on the merits, and  !

i

-in any event is not possible at this early stage in the development

, oof the record, since the parties have not addressed the question in l

, detail. Nevertheless, with that caveat in mind it is instructive i to note -briefly the parties' submissions concerning the cost of l alternatives, since they present in a summary fashion the out-come of nuch of the analysis contained in Part III of these Findings. While all'of the' parties have submitted testimony 1 concerning possible fossil-fired alternatives to the Midland plant, Consumers' lbr.,Keeley has' postulated a 1600 MW coal-fired plant,- (Keeley. Testimony, fol . Tr. 3643, at -IV-3) , 'while 1 --106-l:

I:

, - , , - - - - . , . < . . ,, - , ~ - - - - - - . . , , , ,

[.. .

6, Intervenors have suggested two separate-facilities--one to be built by fxnr. to meet Dow's electric and steam needs, and the other to be -built by Consumers to replace ~the portion of Midland T

capacity Consumers expects to own (Timm Testimony, pp. 80-85) .

Intervenor ' suggestion appears the more reasonable. In addi-tion to incorporating the dubious fuel cost and -other assumptions

previously discussed (see Timm Testimony, pp. 80-82), Consumers '

3 proposal fails to meet-Dow's steam needs, s ace steam production has not. been. projected and in any case the alternative would '

be built at a different site (Tr. 3686; see Tr. 2670-71), and also would produce substantially larger amounts.of electricity-than Consumers would obtain from its own portion of the Midland plant. (In evaluating alternatives, we must subtract from the -

1300 MW expected output of N1dland, Tr. 3686, both the 272,MW Consumers expects third parties to own--see paragraph 70 above--

and Dow's electrical demand, since Dow will generate its own

, electricity if, as Consumers' altcrnative implies, it must .

i supply its own steam. Tr. 2404-G5; see Tr. 2456-57. We must also take into account the fact that a coal plant has a higher capacity factor than is expected for Midland--80% for coal l

, versus 70% for Midland--so that a smaller coal facility is

, needed to produce the same output.) Intervenors' proposal, on the other-hand, contemplates the same electrical output

, Consumers ~ anticipates owning from Midland and the-same Dow steam and electric' output Dow projects; in terms of its impact 1 on Consumers, . Intervenors ' proposal is equivalent to construct-

~

4 b

-107 .

~

- m. q ing'-a jacility identical to Consumers' Campbell S.* Inter-

.~venors derived-all of their capital cost estimates from Mr.

~

Keeley's-workpapers or from-documents produced by Dow (Timm Testimony, pp. 86-88) , and assumed (Id. p. 83) that"Dow.would complete its separate' facility by 1982-(as Dow itself assumes, Midland Intervenors ' Exhibit 30) and consumers would complete its 800 MW facility in 1983, a data derived from Consumers '

planning. studies (Tr. 5585-86). While Consumers questions that date, . and has revised its planning studies , the record does not indicate any persuasive reason for ' the revision. Since Intervenors' proposal is identical to Consumers' campbell 3 unit, in fact, it would seem that constructing the plant should

require, if anything, less time than Campbell 3.

-Conclusion .

80.

On the basis just described, Midland Intervenors '

Exhibit 46R (correcting computational errors and updating the l

figures in. an earlier exhibit: Tr. 6169-79) was prepared.

That Exhibit' estimates the the total cost of the Midland faci-

~

. lity in 1981 ' dollars at $3.727' billion, and the total . cost of

( separate Dow and Consumers coal-fired alternative facilities

• See Timm Testimony, pp.. 80-82, 86-88. Intervenors purposely selected the 800 MW coal-fired alternative because it would-i ~ be-identical, to . Campbell:'3 and would thus -permit the use of actual historical data pertaining to Campbell 3 rather than unsupported projections. For that reason,:Intervenors' alter-native has 'a capacity which exceeds that portion -of- the Midland plant capacity-. projected to 'be owned by Consumers.

Accordingly, Dr.: Timm adjusted. his Jealculations ~for that fact by assuming that Consumers would sell-the excess.capac-

'ity. zTimm Rebuttal Affidavit, 1 33.

108-

=

y q.

at$3.439 billion, ora'differenceofJ288,000,000'infavor 4

Lof the alternative.* Those figures reinforce what on this l' ' record appears. a ' substantial possibility that the full remanded i

j hearings on the merits will res' ult in a conclusion that the

, c .

I Midland plant' cannot be justified in light of its present, i

hugely escalated cost (see parasraph 46 above). The figures j also compel the conclusionf independently supported by the 3 -

j findings in-paragraphs 75-78 above, that--even apart from the

{ substantial legal issue of whether the incremental costs of J

a suspension can properly be considered at all (see paragraph 2

t 74 above)--we cannot find on this record that the incremental

costs of a suspension are so large, in terms of the overall cost of the Midland project, as to mandate continued construc- -

-tion despite the predominance of other fhetors favoring -

1 suspension. See paragraphs 51, 57, and 73 above.

4

• While the May 19, 1977 Rebuttal Affidavit of Consumers '

witness Richard F. Brzezinski asserts that Intervenors'  ;

calculations contain eight errors, Mr. Brzezinski concedes i that three are corrected by Midland Intervenors' Exhibit 46R, and 1Y 32-36 of Dr. Timm's Rebuttal Affidavit respond l L . to the remaining five claims. The procedure adopted by Mr. I Brzezinski in correcting the asserted errors, moreover,,is not halpful. .Mr. Brzezinski started from the assumption that the coal. costs used by Dr. Timm were unduly low. Instead of correcting those coal costs, however, Mr. Brzezinski

[ asserted that.the entire alternative facility should be re-designed as a result. As Dr . Timm no tes , the coal costs he used in preparing Midland Intervenors' Exhibit 46R are higher than the average low-sulphur coal' costs found in studies on

. the~ subject (Tr. 4538, 6130-31), and in_ any event could be increased by as much as 307. without altering the conclusion that Intervenors' alternative facilities are cheaper than

, the cost of~ constructing the Midland plant in its present form.

._109_

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= I

, D. ' Conclusion

- I

81. On the -basis of the present record and taking into r

account the present: factual situation (as we must in restriking.

the cost-benefit analysis: see paragraph 27 above), a continua-tion of construction-pending completion of the remanded hearings

l. cannot be : justified. ' That continued construction tends1 to fore-close alternatives to the . Midland project, including. partial ,

redesign of~the plant and including safety-related design or

- construction. modifications, and to prejudice ~ if not destroy l fall' and f mpartial restriking of the cost-benefit . analysis, is .

plain from ~ the Appeal . Board's recent ruling in this ~ case (see

. paragraph 22 above) and, . in -fact, is admitted by Consumers (Tr. -

1066-68,1138) and th'e Staff (Crocker Testimony, fol. - Tr. }4177,

p. 3). The information developed during the hearings--the serious Dow-Consumers dispute (paragraphs 51) , the huge increase in the cost:of the Midland project and the resulting virtual dis -

4 appearance of any Dow economic advantage from the project (para-a

{ graph' 46). and serious doubt as' to Consumers ' ability to finance it' (paragraph 48), the fexistence ofL continuing QA-QC problems which may have "a' very adverse economic effect on the project" j and '" result- in a big potential cost exposure for Consumers"

- (Midland Intervenors. Exhibit 3, Dow's notes of a Dow-Consumers July 15,~1975 meeting; see.also-Tr. 1054-46' and paragraph 56

-above)., the drastic- increase in nuclear 1 fuel; prices (paragraph '

77) , ~ and the growing doubt _ as ' to whether the- project is needed .

9 o

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.9 in light of past-1972 demand changes and presently increasing reserves (paragraphs 60-73)--forcefully argues that a fresh, hard look at costs'and benefits is essential. Certainly "a fair ground . . . for more deliberate investigation" is pre-aented, within the meaning of Hamilton Wat~ h'c Co. ,- v. B'enrus Watch Co. , 206. F.2d 738, 740 -(2d Cir.1953) . And'that does not begin to consider the information, vital to the revised cost-benefit analysis, which we do not have. We do not know .

whether Dow (which refuses to indicate one way or the other:

see paragraphs-40, 49 above) will decide that Consumers has irreparably' breached its contract; even if the contract re-mains in force we do not know what outcome will flow from the ongoing negotiations--except that, as Consumers has t;old Dow, '

almost any"of the changes Dow demands will shift the cost -

benefit balance away from the Midland project (paragraphs 49-51 above).- But that information is essential to our ultimate task, as Consumers concedes (Tr. 1183, 1191-94). We do not

'know what sweep of ACRS and QA-QC issues will develop.when 4

the ACRS finally provides the information requested by the Board and the-QA-QC issues are' explored in depth, nor can we predict their effect on the cost-benefit analysis--b'ut, here -

again, we noted above that the effect may be substantial. We do j i

not know what impact resolution of Consumers' fuel-cycle l

" proprietary',' claims, or of fuel cycle matters themselves,

.will have on'the cost-benefit analysis, though the increased j nuclearLfuel prices already of record and the analysis of 1

. i

-111-

l , n s

alternatives in light of those prices -(paragraphs 58, 77 'above) preclude any~ sanguine sloughing off of the~ issue, as-Dow's Mr. Temple testified (Tr. 2419-22).

82. In light- of those " knowns ," almost uniformly ' adverse

~

, to the Midland project by comparison with the information on e

which the original cost-benefit analysis was-based, and those important " unknowns,"-to authorize continued construction and-risk. effectively aborting the results of "more deliberate

investigation" would be allowing Consumers to "have its cake and eat it, too" with a vengeance. See Consumers Power Co.,

ALAB-395, 5 NRC ~(April 28, 1977-), Slip Op . 'at 13-14, l

- quoted at paragraph 22 above. Only an extraordinary showing of need (If.) could justify such a course. Consumers has made no such' showing-here. Apart from the flaws in'its evidentiary l 1

presentation (see paragraphs 35 and 77), Consumers' predictions l of intolerable delays seems overstated, both in view of its admission that the existing schedule has up to four months of

-leeway (Tr. 3695-96, 3722-24; c'ompare the two years of leeway, in addition to the present. schedule, which Dow is willing to

, accept,'Tr. 2515, 2546, 2672, 2718) and in view of the fact that even if cnly a .few ofits misdalculations are corrected its available reserves meet its own 207. requirement despite a delay

of as much as a year. Tr. 1696-97, 1840-41;.see paragraph 70 above.-

83. - Accordingly, the Board finds that,. balancing all'of thefactorsLinvolved insthis. proceeding, continued construction

-112-

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p 3

of the Midland facility should.not be' authorized pending com-pletion.of the full remanded hearirgs on'the merits in this matter.. As repeatedly. indicated herein, that imports no conclusion either way as to the ultimate outcome. Rather, we simply find that, in view of the adverse consequences of allowing continued construction in terrs of the ultimate cost-benefit analysis and possible foreclosure of alternatives and l in view of the existence of. numerous issues "so. . . substantial

~

~

r .as to ma'ke them a. fair ground for.

. .more deliberate investigation," Consumers has not shown that construction must l

continue during the remanded hearings.

4 Respectfully. submitted, '

Myron M. Cherry 1

Peter A.-Flynn

• " Attorneys for Int'ervenors other than Dow Chemical Company dn'e IBM Plaza Suite 4501 Chicago, Illinois 60611 (312) 565-1177, June 30, 1977L

-113-

3 gne,

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+$Y $337 Ay UNITED STATES OF AMERIC/s [

9Og5 NUCLEAR REGULATORY COMMISSION W -

6 Before the- Atomic Safety and Licensing Board 6

. a' In the Matter of ) ,

)

CONSUMERS POWER COMPANY ) Docket Nos. 50-329

) 50-330 (Midland Plant, Units 1 and 2) )

ERRATA SHEET l The following typographical errors in the Proposed  ;

Findings of Fact and Conclusions of Law submitted by Intervenors l

other than Dow Chemical Company should be corrected as shown below:

l Page 35, line 19: "" Board Exhibit 2" should read- l Midland Intervenors' Exhibit 25". l Page 36, fifth line from bottom: " paragraph 77" should read " paragraph 70".

Page 49, line 4: "Ex hibit 68" should read

" Exhibit 67".

Page 58, footnote, lines 4-5 : " paragraph 78" should read " paragraphs 79-80". , ,

Page 76, line 13: " Exhibit 80" should read

'" Exhibit 81".

Page 92, last line: " Exhibit 83" should read

" Exhibit.82".

Page 105, lines 13-14: "Tr." should read "Tr. 5779, l 6119-20." q F y --7 7

- y v -- g4m ' w-w