ML20040D585

Supplemental Statement of C Komanoff Opposing Applicants' Exemption Request.Net Costs of Delay Extremely Small Relative to Applicants' Estimate.Certificate of Svc Encl

ML20040D585
Person / Time
Site:	Clinch River
Issue date:	01/28/1982
From:	Komanoff C KOMANOFF ENERGY ASSOCIATES
To:
Shared Package
ML20040D580	List: ML20040D579 ML20040D581 ML20040D585
References
NUDOCS 8202020050
Download: ML20040D585 (13)

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DOCKET NO. 50-537 l SUPPLEMENTAL STATEMENT 0F CHARLES KOMANOFF PRESENTED TO THE NUCLEAR REGULATORY COMMISSION ON JANUARY 28, 1982 IN OPPOSITION TO APPLICANTS' EXEMPTION REQUEST UNDER 10 CFR 550.12 Applicants' answers to Questions 9(a) and (b) provide the' source and basis of Applicants' estimate of a cost of $10-20 million per month of delay in commencement of site preparation activities. However, examination of the three sources of. delay costs raised by Applicants confirms the conclusion in my January 18 comments that the net costs of delay are, at most, extremely small relative to Applicants' estimate and may, in fact, be negative.

(1) Costs of Unavoidable Management Activities:

Applicants state that the cost of maintaining the various management groups for an additional 1-2 year period is $42.3 million per year. Applicants have not demonstrated the point but have only asserted it. Applicants' support for this figure consists merely of (i) assertions that, due to long lead times in re-hiring or to the essential nature of 4 management functions even during project delays, project 1

management staff must be maintained essentially at present levels; and (ii) calculation of the current costs in salary and overhead of maintaining project management staff. No demonstration is provided of the impracticality of 1

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re-assigning staff to non-CRBRP work during delay periods, even though such an assumption implicitly underlies Applicants' response.

Moreover, examination of Applicants' response turns up several other assumptions suggesting that the estimate of management costs is overstated.

First, some of the job positions included in Applicants' estimate pertain to functions that are characterized elsewhere as having been largely completed. For example, the Westinghouse LRM team, which accounts for $11.2 million of Applicants' total annual cost estimate of $42.3 million for retaining management personnel, has as one of its prime functions the provision of project design work. 1/ Yet elsewhere Applicants have estimated that l CRBRP " design work is approaching 90 percent completion".

( Attachment A to DOE Letter to NRC Commissioners, December 31, 1981, p. 13.) On the face of it, the $11 million-per-year l maintenance of a management team to provide, as one of its l

1/ Applican*.s state that the " specific functions" of the Westinghouse LRM team are said to include " guidance for the planning and implementation of the reactor manufacturers' work in the design . . . of the NSS of the CRBRP . . .

l integration of the NSSS through top level design guidance

. . . review of designs in order to assure appropriate design consistency . . . participat[ ion] in system design reviews

. . . continuing co-ordination with the Architect-Engineer, l including review of designs relating to the nuclear island

. . . . (See p. 56 of Applicants' Answers.)

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main activities, design-related work appears to be excessive for a project whose design work is close to 90% complete.

Second, the unit costs of retaining managerial personnel appear excessive in some cases. For example, the

$110,500 annual per-person estimate for salaries and ancillary costs for the Westinghouse LRM team (Applicants' Answers, p.

60) is an unusually high rate. The charging rate includes, inter alia, R&D costs (ibid., p. 60n). Yet Applicants estimate that "engicer. ring research and development is approximately 95 percent complete". (Attachment A, op. cit.,

p. 13).

Third, Applicants' estimate of costs for retaining managerial staff assumes implicitly that during a delay period staff will not (or cannot) perform beneficial activities that l

would offset the gross costs, at least in part. This assumption flies in the face of experience with the CRBRP.

Elsewhere in Applicants' Answers are descriptions of major design changes which occurred during the period of previous delay. These changes include: 18-foot increases in basemat width and length to accommodate a confinement building around the reactor containment; a 9-foot increase in basemat thickness; increases in foundation sizes of the diesel generator, reactor service and steam generator buildings and of the cooling tower; relocation of roadways and support l facilities to optimize flow of materials and equipment; I .

increase in the size of the turbine-generator building; addition of an emergency cooling tower; etc. (See Applicants' Answers, pp. 26-28). Presumably, such changes have been instituted to satisfy various safety, environmental, economic, and/or R&D objectives. It is reasonable to assume that the approximately 640 management and' technical personnel who, Applicants contend, must be retained during construction delays, have the capability to make further design changes to

' optimize the CRBRP. None of the benefits of such changes, including the obvious benefits of making them prior to start of construction, are reflected in Applicants' Answers.

(2) Inflation: In my earlier comments, I indicated that inclusion of the time value of money in calculations of the effect of deferring project expenditures results in net savings, so long as the interest rate (the measure of the saving from deferral) exceeds the inflation rate (the measure of the cost of deferral).

Two points, however, deserve elucidation.

First, the estimate in Intervenors' Comments of a

$30 million benefit per year of delay (p. 33) assumes 11%

l current interest and 8% anticipated inflation; at today's actual 14% interest and 8% anticipated inflation, the benefit of delay in the immediate future would be approximately twice the $30 million estimate.

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Second, Applicants' simplistic calculation of inflationary impacts outside of a present-worth context (i.e.,

exclusive of the time value of money) essentially duplicates calculations made during 1981 by DOE, NRC Staff and nuclear industry representatives of the costs of delays in granting operating licenses for light water reactors nearing completion. Such calculations were without merit then and are without merit in the present context as well. S/

Inflation per sjt does not add to the real costs of capital projects if it operates through delays that also postpone the public's responsibility for payment.

(3) Interest: The last category of costs incurred through delay is said by Applicants to be interest on expended capital that will accrue during the delay period. In Applicants' own words, Whenever an organization, including the United States Government dedicates funds to a capital project, it foregoes the opportunity to invest those funds in alternative projects which will earn an equal or greater return on investment or --~

to pay off debt on which the capital costs are being incurred. In short, the organization " ties-up" capital and incurs an opportunity cost. Although certain components of the cost may be difficult to measure, it is, in an economic sense,

. a real cost . . . .(Applicants' Answers,

p. 45.)

1/ There may, of course, as acknowledged in my earlier statement, be a separate cost of delay: the postponement of the substitution of fossil generation by nuclear generation with lower running costs.

Applicants are correct, but on the wrong point. It is true that in expending capital funds the U.S. Government foregoes the benefits from alternative capital projects.

Indeed, this is precisely why the deferral of expenditures on CRBRP produces benefits that offset -- indeed, more than offset, given interest rates above the inflation rate -- the inflationary costs of delay. Applicants' statement corroborates Intervenors' contention that, in the realm of

" inflation", there is no net cost, but a net benefit, to any deferral of expenditures at this stage of the CRBRP.

However, the statement does not serve Applicants' intent. Contrary to Applicants' wishes, the future rate and level of expenditures on CRBRP have no bearing on the costs of past expenditures on CRBRP. Any future delay in project-schedule will not result in additional cost on expended capital. Payments from the U.S. Treasury to holders of federal bonds'or notes issued to pay for past expenditures on CRBRP will continue at the rates stipulated in those bonds or notes, regardless of the future fate of CRBRP. There is no linkage whatsoever between the progress of CRBRP and the Government's obligation to pay the fixed costs of financing past expenditures. Applicants' very correct observations concerning opportunity costs of capital refer entirely and only to future, avoidable expenditures. They have no

relevance to expenditures already made. 2/

/s/ Charles Komanoff Charles Komanoff-Komanoff Energy Associates 333 West End Avenue New York, New York 10023 1/ Applicants' citation (p. 45) of Cost Accounting Standard 417 also has no relevance to past expenditures. That standard specifies that interest costs may be included in the computation of capital costs for rate-making purposes. It has no bearing except in a rate-making context. In any case, although inclusion of interest costs does add to a project's calculated capital cost, it does not add to the net societal costs of a project.

Interest costs are society's means of placing the responsibility for costs during construction upon the t

contractor. At completion the ratepayer bears the higher project cost due to interest, but this is offset by the ratepayer's avoidance of cost responsibility during l construction. The offset exactly equals the cost if ratepayers' and contractor's interest costs are equal, and it exceeds the cost (i.e., delay is beneficial to ratepayers) if ratepayers' interest costs are greater.

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MEMORANDUM DATE: January 27, 1982 TO: John D. Dingell, Chairman, Subcommittee on Oversight and Investigations FROM: A. E. Fitzgerald

SUBJECT:

Comments on Applicants Answers to Questions Set Forth in Attachment A to the Commission's December 24, 1981 Order This responds to your request of January 22, 1982, to comment on a portion (pgs. 48 to 77) of subject report.

The authors of the report claim that the proj ect wi.11 incur -

increased management costs of $42.3M in the event of a one-year delay. This figure includes approximately $.5M for continuing interim storage costs by Stone & Webster, leaving a net of $41,8M for continuing management activities during the hiatus, According to my addition of the separate project management staffing projections, the $41.8M would be expected to pay for 654 people. Most of the man-power charts indicate that the staffing projections refer to equi-valent direct manyears which would mean that the actual number of people supported would be much larger. In any event, there is no justification beyond mere assertion that such a level of manpower is required for project management activities during a time when there should be relatively little to manage.

As an example of how this seemingly high level of staffing is "j us tified" , the. authors of the report state at the top of page 77:

"As the staffing levels on the graph demonstrate, Burns &

Roe must maintain a staffing level of 102 during the' period of delay." (Emphasis added).

The graph " demonstrates" nothing of the sort. It is just a graphic assertion.

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1 A rationale for keeping the large numbers of program management people aboard during the delay is stated on page 62 of the report in which the authors claim that the loss of continuity in management would have a significant adverse impact on the program. At the risk of being unkind, I suggest that a loss of " continuity" of past manage-ment of the Clinch River Breeder Reactor (CRBR) project might be the best-thing that could happen to the taxpayers.

I suggest that the necessary workload giving rise to the need for project management people during any proj ected delay be quanti-fled by an objective outside group and that interim staffing be balanced to that figure.

I further suggest that the direct manyear rates be examined.

4 The two Westinghouse estimates are given as $110,500 and $101,600 per equivalent direct manyear for fiscal year 1982. This seems high even for people working on the fringes of man's knowledge.

Appendices B and C (pgs 78 and 79) contain 'the authors' estimates of $125.4M for the inflationary impact of a 17-month delay (not one year as in the case of the manyear stretch-out), and $43,9M for interest on hardware expected to be bought through October of 1982. Presumably, both of these appendices were prepared to support arguments against delay. Quite aside from the assumptions and calculations used in these two appendices, which are questionable, any argument against delay would seem to indicate that DOE has learned absolutely nothing from past experience on' the CRBR Project. If last year's staff review and hearings demonstrated anything, they showed the absolute folly of turning on the taxpayers' money and letting it run while government t

and contractor officials tried to define the project. With or without any delay which might be occasioned by licensing requirements, the CRBR Proj ect needs a delay to avoid repetition of past fiascos. In this regard, I should like to repeat the recommendations which Mr.

Stockton and I made in our report of July 16, 1981, a copy of which is attached. Recommendations 1,2,3,4 and 6 (pgs 4 and 5) are par-ticularly pertinent to this discussion.

Thank you for the opportunity to comment bn the subj ect report,

, C A_r-r9 7d Attachment A. E. FIT $E LD

CERTIFICATE OF SERVICE

'82 J"' 21 d 53 I hereby certify that copies of the foregoing Supplemental Comments of the Natural Resources Defense' Council, Inc. and the Sierra Club in Opposition to Applicants' Exemption Request under 10 CFR S50.12 were delivered by hand this 28th day of January, 1982, to the following:

The Honorable Nunzio J. Palladino Chairman U.S. Nuclear Regulatory Commission Washington, D.C. 20555 The Honorable Peter Bradford Commissioner U.S. Nuclear Regulatory Commission Washington, D.C. 20555 The Honorable Victor Gilinsky Commissioner U.S. Nuclear Regulatory Commission Washington, D.C. 20555 The Honorable John F. Ahearne Commissioner U.S.' Nuclear Regulatory Commission Washington, D.C. 20555 The Honorable Thomas F. Roberts Commissioner 4 U.S. Nuclear Regulatory Commission Washington, D.C. 20555 Leonard Bickwit, Esquire Office of General Counsel U.S. Nuclear Regulatory Coamission Washington, D.C. 20545 Daniel Swanson, Esquire Office of Executive Legal Director U.S. Nuclear Regulatory Commission Washington, D.C. 20545

Stuart Trebey, Esquire Office of Executive Legal Director U.S. Nuclear Regulatory Commission Washington, D.C. 20545 Docketing & Service Section Office of the Secretary U.S. Nuclear Regulatory Commission Washington, D.C. 20545 (3 copies)

R. Tenney Johnson, Esquire Leon Silverstrom, Esquire Michael D. Oldak, Esquire L. Dow Davis, Esquire Office of General Counsel U.S. Department of Energy Washington, D.C. 20585 George L. Edgar, Esquire Morgan, Lewis & Bockius 1800 M Street, N.W.

Washington, D.C. 20036 and by mail, postage prepaid, to:

Marshall E. Miller, Esquire Chairman Atomic Safety & Licensing Board U.S. Nuclear Regulatory Commission Washington, D.C. 20545 Mr. Gustave A. Linenberger Atomic Safety & Licensing Board U.S. Nuclear Regulatory Commission Washington, D.C. 20545 Dr. Cadet H. Hand, Jr.

Director Bodega Marine Laboratory University of California P. O. Box 247 Bodega Bay, California 94923 I

Atomic Safety & Licensing Appeal Board U.S. Nuclear Regulatory Commission Washington, D.C. 20545 Atomic Safety & Licensing Board Panel U.S. Nuclear Regulatory Commission Washington, D.C. 20545 Herbert S. Sanger, Jr., Esquire General Counsel Tennessee Valley Authority Knoxville, Tennessee 37902 Lewis E. Wallace, Esquire Division of Law

< Tennessee Valley Authority i Knoxville, Tennessee 37902 William B. Hubbard, Esquire Assistant Attorney General State of Tennessee Office of the Attorney General 422 Supreme Court Building Nashville, Tennessee 37219

. Lawson McGhee Public Library 500 West Church Street Knoxville, Tennessee 37902 William E. Lantrip, Esquire City Attorney Municipal Building P.O. Box 1 Oak Ridge, Tennessee 37830 Oak Ridge Public Library Civic Center Oak Ridge, Tennessee 37820 4

Mr. Joe H. Walker 401 Roane Street Harriman, Tennessee 37748 Mr. James Cotham Tennessee Department of Economic and Community Development Andrew Jackson Building Suite 1007 Nashville, Tennessee 37219 0

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Eldon V. C. Greenberg

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