ML20058E492
| ML20058E492 | |
| Person / Time | |
|---|---|
| Site: | Clinch River |
| Issue date: | 07/20/1982 |
| From: | Remick F NRC |
| To: | Gilinsky V NRC COMMISSION (OCM) |
| Shared Package | |
| ML20058E490 | List: |
| References | |
| NUDOCS 8207280255 | |
| Download: ML20058E492 (5) | |
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k' NUCLEAR REGULATORY COMMISSION USHRC
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E WASHINGTON, D. C. 20565
'b2 E 2 July 20, 1982 LECREII C k'OC bg G& SlhVICE BRANCH MEMORANDUM FOR: Commissioner ilins y gyE0 tlUL 271982 FROM:
For
SUBJECT:
C ANALYSIS OF CRBR PROPOSAL
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v As jau requested in your memo of 12 July 1982, we have evaluated the applicants' cost of delay estimate on the basis of a 10 percent real discount rate.
It should be noted that the. Presidential Task Force on Regulatory Relief recommended in its Interim Regulatory 1mpact Analysis etidance of June 13, 1981 that_an r
annual discount rate of.i0 percent shoula be used for both benefit and co~st'
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estimates.
Because tMs guidance also states that all costs and benefits be expressed in constant dollars, the 10 percent discount rate is, therefore, a f
real discount rate.
Some may challenge the applicability of this discount rate to evaluation of cost of delay in the N.h River Breeder Reactor exemption request since, as you indicate, the guidt
-ears to be aimed at appraising the usefulness of adding new requirements
.a backfitting.
Further, it is df interest to note that the 3 percent real discount rate used by the applicant in.its submissions was proposed as appropriate for CRBR delay cost estima. tion by Dr. Komanoff on behalf of NRDC (Tab A of NRDC submission; January 18, 1982).
Dr. Komanoff's position is that the long-term cost of borrowing by.the Treasury generally exceeds the anticipated long-term inflation rate by 3 percent.
Moreover, he contends that even,if the project were to be funded 1
primarily from current government tax receipts, a 3 percent real discount rate
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wou.ld best represent the opportunity costs to the gove.rnment for this type project.
From asstrict cost perspective (i.e., not taking into account the effect on t
project benefits) it should be noted that as a genera) proposition it will cost less in'real economic terms to defer construction expenditures for a project.
This is because the rate at which a project increases in cost is less than the rate at which the future cash expenditures are discounted.
j In some circumstances, the cost escalation rate may ' exceed the rate of discount.
For instance, if one, expected the rate of cost, escalation of a project like i
I CRBR to increase at, for example, 20 percent per year and one chose a 10 percent discount rate, there would be a real economic cost to defer construction of Contacts:
s Dennis.Rathbun, OPE g
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Sidney Feld, NRR 49-24904 s
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.Comissioner Gilinsky _
/r the project.
However, because the CRBR is a research and 6evelopment pecJect the true impact of delay for CRBR is represented by the deferral of the research and informational benefits stemming from the proje:t. Although these benefits can not bee easily quantified, they are nevertheless an esser.tial element of effect of delay on the public interest.
Th'e applicants' June,1982 Site Preparation Activities Repcrt (SPAR) contains an analysis of Monetary Cost of Delay (Section 7.3) which discusses these costs from an appropriations, economic, and financial pers;ective. The SPAR relies on the cost analysis provided to the.Comission in a February 25,.1982 letter from W. Kenneth Davis, Deputy Secretary, DOE.
Your request asked the Office of Policy Evaluation to perform a cost analysis of the $28 million estimated delay cost based on a 10 percent real annual discount rate.
Since
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the 528 million is the delay cost from the economic perspe'ctive, the following analysis will focus ext.lusively ~cn,the economic perst.,ective.
To facilitate
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comparison of effects of discounting at a 10 percent real rate vis-a-vis the 3.
percent real rate used by the applicants'we have used Chart A on future project expenditure taken from the applicants' response of January 28, 1982. Added to Chart A (attached) is our calculation based upon a 10 perce.t real discount rate.
The added data are underlined to distinguish them from the applicants' cost estimates.
The following table provides in sumary form estimates of total quantifiable economic cost from the economic perspective of a one year delay of the CRBR project.
The applicants' estimate is on e 1982 present worth basis assum'ing an 11 percent discount rate which is roughly equivalent to a 3 parcent real discount rate since they estimate an 8 percent escalation in project costs.
As you requested, the staff summary costs are based upon a 10 percent real discount rate.
COST OF ONE YEAR DELAY -- FROM AN ECONOMIC PERSPECTIVE APPLICANTS NRC STAFF 1982 PRESENT 1982 PRESENT WORTH'- 3%
WORTH - 10%
REAL DISCOUNT REAL DISCOUNT RATE RATE FUTURE EXPENDITORES (530 million)
(581 million)
$20 million 510 million REVENUES MANAGEMENT OVERHEAD
$38 million
- S29 million m
TOTAL QUANTIFIABLE COST S28 million (542 million)
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Commissioner Gilinsky -
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. The applicants' estimate that a cost penalty of $28 million will result if the project is delayed one year from an economic perspective.
This estimate y
consists of $38 million in increased management costs and $20 million in deferred revenues, and savings (i.e., benefit of delay) of $30 million on future project expenditures.
Applying a 10 percent real discount rate to the three cost elements contributing to delay costs changes the cost to a net benefit of delay of $42 million assuming the project was delayed one year.
The discussi3r. below focuses on each major element of the delay cost.
Effect on Future Expenditures Chart A from DOE's January 28, 1982 filing (attached) shows the effect on future outlays of a one year delay in the project.
By the applicants' calculations, which uses a 3 percent real discount rate a delay would save S30.2 million.
If a 10 percent real discount rate is assumed, the benefit-of 4
delay would increase to approximately $81 million.
Effect on Defer'ed Revenues r
The applicants' adopted intervenor's estimate of S20 million for the revenue deferral component of cost of delay which was provided in NPDC's filing of.
January 18, 1982 (Tab A, pp. 6-7). This cost element was based upon NRDC's estimate of the net replacement energy cost; i.e., coal minus nuclear pro-duction cost.
In effect, NRDC assumed escalation of the production cost -
differential in money terms at 11 percent, and discounted also at 11 percent; i.e., net 0 percen.t real discount rate.
In the staff calculation, discounting at a 10 percent real rate would reduce the revenue deferral entry to roughly
$10 million.
Effect on Management Costs t
The applicants' estimate of management cost consists of five components. The applicant's February 24, 1982 submission shows the annual cash flow for three of these five management teams:
these are Westinghouse lead reactor manufacturer (Exhibit 3), other reactor manuf acturers (Exhibit 4), and Burns and Roe (Exhibit 5).
Based upon a 3 percent real discount rate, the applicants' estimate a cost of delay of roughly $23.6 million associated with these three management teams.
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The annual cash flow data for-the other two components (i.e., project office and Stone and Webster management teams) was not provided in the applicants' February 24 submission; however, the applicants did provide the results of their discounting analysis and that portion of management cost is $14.9 million.
As you requested, we have re-evaluated at a 10 percent real discount rate the O
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~' Commissioner Gilinsky
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l delay costs for the three management teams for which annual data are available.
On this basis, the $23.6 million cost estimate at a 3 percent real discount rate would become $14 million at.a 10 percent real discount rate. When combined with the $14.9 million, the total management cost becomes approximately $29 million.
(Note.that for purposes of this estimate we combined the portion of management cost which could be re-evaluated at a 10 percent discount rate, $14 million, with the $14.9 million component from the applicant which was not re-evaluated because annual cash flows were not available.
cc:
Chairman Palladino Commissioner Ahearne Commissioner Roberts Commissioner Asselstine Samuel Chilk Leonard Bickwit
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NRC staff calculations at 10 perc u t response.
OIART A real discount rate are underlined to dis-tinguish from Applicant's calculati::ns.
4 PRESDir NOR111 NIALYSIS OF MTrICIPKED PRNECT EXPENDTIURES (In Hillions V)
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82 83 84 85 86 87 88 89 90 91 92 93 94 95
'IUrAL Anticipoted 1702.3 Expenditures YOE
.70.7 165.8 201.6 323.4 324.2. 170.9, 89.0 75.5 76.6 73.2 50.0 51.5 29.9 Present Wrth Tactor */
1.00
.900
.812
.731
.659
.593
.535
.482
.434
.391
.352
.317
.286.258 Present Wrth If Expenditure 70.7 149.2 163.7 236.4 213.6. 101.3-47.6 36.4 33.2 28.6 17 6 - 16.3 8.55 1123.2 NRC Staff **
70.7 139.6 142.8 192.9 162.8 72.2 31.7 22.6 19.3 15.5 8.9 7.7 3.8 890.5 IH AY Anticipated-
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Expenditures (Inflated at 87.)
76.4 179.1 217.7 349.3 350.1 184.6 96.1 81.5 82.7 79.1 54.0
'55.6 32.3 1838.5 Present Wrth of Expcnditure 68.8 145.4 159.1 230.2 207.6 98.8 46'.3 35.4 32.3 27.8 17.1 15.9 8.33 1093.0 NRC Staff **
64.3 126.9' 129.8 175.4 147.9 65.7 28.8
,20.5 17.6 14.1 18.1
, 7.0 3.4 809.5 ADDED EXPENDTIURE DUE 'IO INFLATION:
1838.5 - 1702.3 - $136.2 million PRESDTP HOR 1110F ADDED EXPENDI*IURE:
1093.0 - 1123.2 = ($30.2 million)
'809.5 - 890.5 - ($81.0 million)
NRC STAFF ESTIMATE OF PRESENT WORTE OF ADUEU'tXPENUllURL g
' ASSUMING 10 PERECENT REAL DISCOUNT RATE
- / 'Iln present wrth factor used in this analysis asstines an 11 percent discoun rate ar surgested by NREC.
j NRC staff calculation of present worth of anticipated expenditures based on 10 percent real discount rate.
Note: Applicant's 11 percent discount rate corresponds to approximately:a 3 percent real discount rate.
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