ML20041B782
| ML20041B782 | |
| Person / Time | |
|---|---|
| Site: | Clinch River |
| Issue date: | 02/23/1982 |
| From: | Jacqwan Walker ARTHUR ANDERSON & CO. |
| To: | NRC |
| References | |
| NUDOCS 8202250199 | |
| Download: ML20041B782 (10) | |
Text
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WASitINGTON, D. C. 20000 (202) 6G2-3100 r abruary 23, 1982 sq l W /
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Nuclear Regulatory Commission Q
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20555 Gentlemen:
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This is to respond to the Commissi equest that I provide (1) connents I might have on the Applicants' submissions, and (2) an analysis of the increased interest costs that would be incurred as a result of a one-year delay of the Clinch River Breeder Reactor Plant Project.
'!y comments on the Applicants' submission fall within three categories of delay cost.
a.
Inflation, b.
Personnel retention, deferral of revenue and a permanent stretch-out of the construction period of one year.
c.
Interest on the present capital investment.
A.
As to Inflation l
II.fl a t i on has been reflected in the construction costs because it causes actual incurred costs to increase.
To assume no inflation would be unrealistic and would cause capital plan-ning and budgets to be unreal.
The rate of 8% per annum seems reasonable for planning purposes.
1 B.
As to Personnel Retention, l
Deferral of Revenue and Deferral of Capital Expenditures o
The parties agree that there are delay costs associated with caintaining the managerial personnel during the period of l
delay.
Applicants have calculated the cost of maintaining this b
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AHTuun ANDEHSEN & CO.
U.S.
Nuclear February 23, 1982 Regulatory Commission personnel at $41.8 million per year.
When appropriately discounted, the total cost is S38 million per year.1/
o As to the deferral of revenue, a one-year delay will cost the Project between $5.9 million and $20 million per year in 1982 dollars per the record in this case.
Intervenors base the S20 mil-lion on the avoided cost of power from coal generation.
We under-stand that, if the avoided cost were based on petroleum generation, the cost of deferral of revenue would increase by a large factor.
We have noted that the $5.9 million is understated because it is for a five-year period of time rather than for the estimated service-life of + he plant.
Because of this, the $20 million cost of deferred revenue should be a more realistic basis for measuring the cost incurred as a result of the delay.
o As to the permanent stretch-out of the construction period by one year, the Applicant s' exhibit shows that the cost would be a "saving" of $30 million on a present-worth basis and a cost of over $136 million with inflation of 85 per year.
The above three cost matters, which were developed by the Applicant, are summarised in millions of dollars.
High Low Increased cost of personnel S 38
$ 38 Lost revenue 20 20 58 58 Inflation - Gross 136 Inflation - Discounted (30)
Total cost
$194 S 28
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The discount calculations are attached as Exhibits 3, 4 and 5.
At the February 16, 1982, Commission meeting, Applicants esti-mated that the effect of discounting would be to decrease man-agement costs by about $11 million.
A more precise analysis by the Applicant shows that this effect is significantly less.
In particular, it was not necessary to discount Project Office or Stone and Webster management costs.
The costs for both of these groups were already discounted in calculating the antic-ipated savings due to delay.
Anrnun ANDEnSEN & CO.
U.S.
Huclear February 23, 1982 Regulatory Commission C.
Interest on the Present 01.1 Billion Capital Investment Interest is a cost of doing business that arises from the fact that capital must be raised and committed to each project.
It must then be serviced during each time period from its formation and commitment to the project through the completed service-life of the project.
It is often described as a real cost because it is a hard-core, unavoidable cost just like engineering, construction material, construction labor, manufactured components and configu-rations of purchased equipment and the many other elements com-prising the total cost of a new facility.
A possible delay of Clinch River has raised the question of the costs of a one-year delay.
Our experience with delays due to material shortages, labor strikes, fires, explosions, accidents and regulatory processes illustrate that the cost of interest is an inescapable part of delay costs.
In the event of a one-year delay in the construction of Clinch River, interest will be incurred for one extra year.
This is so because capital (money) is a commodity with real value.
It can be exchanged for other items of value, loaned to another parcy or invested to produce a return to its owner.
The use of capital resources over a period of time causes a cost to be in-curred.
During any period of a project delay in construction, the capital or interest costs continue to accumulate.
Such costs are measured by dollare of capital required, the timing of capi-tal requirements, the rate or cost at which the capital is avail-able and the length of the period of time to completion of the project.
In short, the cost of money is incurred from the begin-ning of construction to the time of placement of the project into continuous demonstration or revenue producing service, the purpose of the project in the first instance.
Accounting Standard No. 34 of the Finannial Accounting Standards Board states:
"The historical cost of acquiring an asset includes the costs necessarily incurred to bring it to the condition and location necessary for its inteaded us.
If an asset iequires a period of time in which to carry out the rctivitfes necessary to bring it to that condition and location, the interest cost incurred during that period as a result of expenditures for the asset is a part of the historical cost of acquiring the asset."-
(emphasis added)
s AnTuun ANDEnSEN & CO.
U.S.
Huelear February 23, 1982 Regulatory Commission The accompanying Exhibit I demonstrates the incremental cost that would be incurred as a result of a one-year increment in the time period of constructing a plant.
In the example, we assume a project in which $100 million are expended annually in each year of a 20-year construction schedule and an 11% interest rate.
In comparing the no delay and one-year delay cases, the cost of delay is measured by the capital funds spent to the time of the delay, the period of delay and the capital cost rate.
This Exhibit shows that:
o In 198m, $145 million of interest cost would be incucred while the plant activity is idle.
o 1995 is the year when extra or avoidable interest cost is paid under the delay.
o The $145 million incurred in 1982 due to the delay would be worth $563 million at the end of the con-struction period if the delay would be avoided.
In other words, that real economic saving would pay the last five to six years of construction costs.
The example which I described in my previous presenta-tion before the Commission also illustrates this concept.
The example I refer to is the person that is constructing his own home using construction financing.
He is his own general con-tractor and at 75% completion, an electrical installation approval must be secured before additional work can proceed.
The approval process is delayed for six months and construction cannot proceed.
The true economic fact to the person building his home is that his costs have increased.
He had to carry the accumulated cost on the 75% completed home because he borrowed from the bank, had already expended the funds, and had to pay interest for the six-month delay period.
Exhibit II applies this concept specifically to the Clinch River Breeder Reactor Plant Project and shows the true future cost impact upon the project.
As shown in that Exhibit, interest is accrued for an extra year in the delay case, and, thus, a one-year delay will result in additional interest on expended capital of $737.4 million.
Discounted to present value, the cost of delay in 1982 is approximately $190 million.
ARTHUH ANDERSEN & CO.
i U.S.
Iluelear February 23, 1982 Regulatory Commission Accordingly, I believe that the Applicants' conolucion is correct.
Interest on expended capital is a real and substantial cost to the project, including that interest that would result from any delay in construction.
Very truly yours, ARTHUR AIIDERSEli & CO.
LO E
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Enclosures i
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a Exhibit I i
ILLUSTRATION OF THE COST OF A ONE YEAR DELAY IN 1982 1
No Delay One Year Delay (Millions)
(Millions)
Carrying. cost Yearly Carrying Tbtal Yearly Carrying Total Increase Year Investment Cost Cost Investment Cost Cost
( De crease )
1974 S100
$ 11 Sill
$100
$ 11 S 111 S
1975 100 23 234 100 23 234 1976 100 37 371 100 37 371 1977 300 52 523 100 52 523 1978 100 68 691 100 68 691 1979 100 87 878 100 87 878 J
1980 100 108 1,086 100 108 1,086 1981 100 130 1,316 100 130 1,316 1982 100 156 1,572.
145 1,461 (11) i i
1983 100 184 1,856 100 172 1,733 (12) 1984 100 215 2,171 100 202 2,035 (13) 1985 100 250 2,521 100 235 2,370 (15) 1986 100 288 2,909 100 272 2,742 (16) 1987 100 331 3,340 100 313 3,155 (18) l' 1988 100 379 3,819 100 358 3,613 (21)
I 1989 100 431 4,350 100 408 4,121 (23) i 1990 100 490 4,940 100 464 4,685 (26) l 1991 100 554 5,594 100 526 5,311 (28) i 1992 100 626 6,320 100 595 6,006 (31) 1993 100 706 7,126 100 672 6,778 (34) 1994 100 795 8,021 100 756 7,634 (39) i 1995 100 850 8,584 850 1
Tbtal S8,021
$8,584 S563 i
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The $563 million cumulative cost that.would be incurred as a result of a one-year delay represents the f uture value of the S145 million cost during the year of delay.
It is based on the delay being a full year, the succeeding construction period being 13 years and an interest rate of 11%.
l i
Exhibit 11 INTEREST OM ACTUAL CAPITAL EEPENDITURES TO DATE 7 Millions S) wit h Compounded Interest (11%)
82 83 84 85 86 87 88 89 90 91 92 93 94 95 Mtal Cost Without the Niay :
Actual 189.9 210.8 234.0 259.7 288.3 320.0 355.2 394.3 437.6 485.8 539.2 598.5 664.3
$4977.6 Present Worth 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9
$2468.7 End of 1st Five Yea r's Operation Cost of a One Year N1ay Actual 189.9 210.8 234.0 259.7 288.3 320.0 355.2 394.3 437.6 485.8 539.2 598.5 664.3 737.4
$5715.0 Present Wort h 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9 189.9
$2658.6 Present Worth of Dif ference = S 2.658.6 - $ 2.46 8.7
= $189.9 million
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Conclusion:==
One Year's Delay Now Has A Present Worth Of Year's Interest l
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DISTRIBUTION LIST
- 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 U. S. Nuclear Regulatory Commission Washington, D. C.
20555
- Marshall E. Miller, Esquire Chairman 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
- Mr. Gustave A. Linenberger Atomic Safety & Licensing Board U. S. Nuclear Regulatory Commission Washington, D. C.
20545
- Daniel Swanson, Esquire Office of Executive Legal Director U. S. Nuclear Regulatory Commission Washington, D. C.
20545
- s
- Stuart Treby, Esquire Office of Executive Legal Director U. S. Nuclear Regulatory Commission Washington, D. C.
20545
- 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
- Docketing & Service Section Office of the Secretary U. S. Nuclear Regulatory Commission Washington, D. C.
20545 (3 copies)
William B. Hubbard, Esquire Assistant Attorney General State of Tennessee Office of the Attorney General 422 Supreme Court Building Nashville, Tennessee 37219 Oak Ridge Public Library Civic Center Oak Ridge, Tennessee 37820 Herbert S. Sanger, Jr. Esquire General Counsel Tennessee Valley Authority 400 Commerce Avenue Knoxville, Tennessee 37902 Lewis E. Wallace, Esquire W. Walter LaRoche, Esquire James F. Burger, Esquire Edward J. Vigluicci Office of the General Counsel Tennessee Valley Authority 400 Commerce Avenue Knoxville, Tennessee 37902
- Dr. Thomas Cochran Natural Resources Defense Council 1725 Eye Street, N.W.,
Suite 600 Washington, D. C.
20006
- Barbara A. Finamore, Esquire Natural Resources Defense Council, Inc.
1725 Eye Street, N.W.,
Suite 600 Washington, D. C.
20006
r
. s Mr. Joe H. Walker 401 Roane Street Harriman, Tennessee 37748 Ellyn R. Weiss Harmon & Weiss 1725 Eye Street, N.W.,
Suite 506 Washington, D. C. 20006 Lawson McGhee Public Library 500 West Church Street Knoxville, Tennessee 37902 William E. Lantrip, Esquire Attorney for the City of Oak Ridge 253 Main Street, East P. O. Box 1 Oak Ridge, Tennessee 37830
- Eldon V. C. Greenberg, Esq.
Tuttle & Taylor 1901 L Street, N.W.,
Suite 805 Washington, D. C.
20036 Commissioner James Cotham Tennessee Department of Economic and Community Development Andrew Jackson Building, Suite 1007 Nashville, Tennessee 37219 Leon Silverstrom, Esq.
Warren E. Bergholz, Jr.
U. S. Department of Energy Room 6-B-256 -- Forrestal Building 1000 Independence Avenue, S.W.
Washington, D. C. 20585
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