ML20055B294
| ML20055B294 | |
| Person / Time | |
|---|---|
| Site: | Clinch River |
| Issue date: | 01/22/1982 |
| From: | Feld S Office of Nuclear Reactor Regulation |
| To: | Rathburn D NRC OFFICE OF POLICY EVALUATIONS (OPE) |
| Shared Package | |
| ML20049H240 | List: |
| References | |
| FOIA-82-272 NUDOCS 8207210206 | |
| Download: ML20055B294 (2) | |
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Dennis Rathbun, OPE FROM:
Sidney Feld, AEAB
SUBJECT:
CLINCH RIVER COST OF DELAY 1
AEAB has reviewed DOE's response to Question 9 concerning its estimate of the cost of delay.
From an appropriations perspective there will be an increase in the monetary cost of the CR project, although not as great as DOE sugaests.2 However, certain resource costs are excluded in the accounting scheme DCE used.
Consideration of these factors suggests that from a real economic persoective, the costs of delay are minimal at most and, depending on one's assumption on the time preference of money, the total real cost of CR could actually increase if early site preparation is allowed.
The DCE cost analysis considers three major cost elements:
a) increases dite to inflation; b) additional manpower, and storage, maintenance, and inspection costs; and c) incremental interest char 4es on hardware already purchased.
In general, the DOE calculations show inflation accountino for approximately 50!'
of the cost of delay and the other two elements accounting for about 257. each.
AEAB's evaluation of these cost elements follows.
a) The increase due to inflation is nominal and would be more than negated when the time preference of money is considered.
(see note fron Feld to Rathbun of January 15,1982-attached).
b) The additional monies expended for manpower, and for storage, maintenance, and inspection represent real cost increases as additional real resources will be connitted if construction is delayed. However, the applicant's estimate is overstated because no weight was given to the timing of the incremental expenditures and the time preference of money.
In actuality, the early schedule will result in a greater outlay for manpower during the initial years while savings will be realized only towards the end of the construction period. The applicant's analysis treats the savings as if IV.S. D.0.E., Applicants' Answers to Questions Set Forth in Attachment A To the Commission's December 24, 1981 Order, January 18, 1982.
2Fron an appropriations perspective, interest on CR expenditures has system-
' atically not been charged to the CR account. Therefore, no additional appropriations would be necessary to account for the purported increase in interest charges.
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they occur in the first year.
Recognition of the timing of these costs and benefits results in a somewhat lower estimate.
For examole, assuming a 57, real (after inflation) time preference of money, the Project Panagement Corp.
estimate of $6.2 million is reduced to about $4.1 million.
Similar reductions for the other management teams would also be expected.
c) There is no economic rationale for cour, ting additional interest on hard-ware already purchased as a cost of delay, l'anies already expended will incur interest (imputed or otherwise) whether construction is accelerated or not. These are sunk costs that cannot be influenced by future actions.
However, the interest on future outlays can be affected by the timing of those future expenditures. The earlier in time they are nade, the more interest will accumulate. Thus, any effort to speed-up the construction schedule will result in additional interest costs to the U.S.
This con-cept is another way of looking at the time preference of money and has already been accounted for in our response to part a).
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Sidney Feld Antitrust and Economic Analysis Branch Division of Engineering DISTRIBUTION:
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