ML20065Q410

Provides Info Re Verification of Reasonableness of Applicant Cost Estimates for Crbr.Applicant Cost Estimate May Be Low Due to Low Escalation Rate & Inadequate Contingency Allowance for Design & Regulatory Evolution

ML20065Q410
Person / Time
Site:	Clinch River
Issue date:	06/15/1982
From:	Bowers H OAK RIDGE NATIONAL LABORATORY
To:	Toalston A Office of Nuclear Reactor Regulation
Shared Package
ML20065Q355	List: ML20065Q357 ML20065Q363 ML20065Q368 ML20065Q374 ML20065Q391 ML20065Q396 ML20065Q399 ML20065Q410
References
CON-FIN-B-0741, CON-FIN-B-741 NUDOCS 8210270068
Download: ML20065Q410 (7)

Text

. .

v' g

OAK RIDGE NATIONAL LABORATORY OPERATED Sv UNION CARBIDE CORPORATION NUCLEAR DiVIS:0N POST OFFICE Sox Y -' I e OAK AloCE. TENNESSEE 37830 , , { I June 15, 1982 ft/ .ef

?

,- ) /

Mr. Argil Toalston, Acting Chief Antitrust and Economic Analysis Branch Division of Engineering j Nuclear Regulatory Commission Washington, D. C. 20555

Dear Mr. Toalston:

Clinch River Sreeder Reactor (CRBR) Project 30741 -- On-Call Assistance for Power Plant Cost Studies In accordance with your 1beter of May 18, 1982, requesting assistance in verifying the reasonableness of applicant's cost estimates for the Clinch River Breeder Reactor (CRBR) Project and my letter of Eby 28, 1982, I am providing the following information that we have developed.

The approximate cost for this work is as follows:

Manpower S3,000 Computer services 50 Travel 0 Other 0 l

Total S3,050 Verification of the reasonableness of applicant's cost estimate at the existing Oak Ridge site According to the attach =ent to your letter of May 18, the applicant's estimate of direct and indirect costs for construction of the plant for operatton in 1989 is Base cost (without escalation) 51,055.8 million Escalation 9 8%/ year compound 985.4 Contingency allowance (including escalation) 153.8 l Total S2,195.0 million The base cost is in 1974 dollars; the escalation at 8%/ year is applied to annual cash flews; and the contingency allowance a=ounts to 7.5% of the subtotal of base cost and escalation. There is no allowance for

interest on funds used during construction.

l (1210270068 821022 PDR ADOCK 05000537 Q PDR

Mr. Argil Toalston 2 June 15, 1982

1. The CONCEPT capital investment cost computer code was used to estimate the cost for a 1200-MW(e) PWR for the Atlanta area. The total cost is $691 million in 1974 dollars for the total of the direct and indirect costs without contingency allowance and with a craft labor content of 20 million manhours.

For a 400-MW(e) PWR, the CONCEPT estimate is $405 million in 1974 dollars with 11.2 million =anhours. On a comparison basis, the CRBR nuclear stec2 supply system should be expected to cost as much or more than a 1200-MW(e)

PWR since containment diameters, vessel sizes, and heat exchanger surfaces are comparable or greater, design temperatures are higher, and the CRBR is a prototype with first-of-a-kind costs for the nuclear components. On the other hand the CRER balance of plant should cost no more than sbnilar equipment for a conventional plant of equivalent electric output.

2. The applicant has developed all costs in 1974 dollars and then escalated the annual cash flows at 8%/ year to obtain total costs. The 8%/ year escalation rate is low for the 1974-1982 time period in comparison with the Handy-Whitman index of power plant construction costs, which has increased at 9.8%/ year for nuclear plants and 10.4%/ year for fossil-fired plants since 1974. It would be better practice to tabulate past costs in year-of-expenditure dollars, e.g. 1974 costs in 1974 dollars, 1975 costs in 1975 dollars, ....., and 1981 costs in 1981 dollars, since there should be an accurate accounting of these costs, and then provide projected costs in today's dollars with allowances'for future escalation. A justification for the projected escalation rate should be provided, and the sensitivity of ccmpleted plant costs to the assu=ed escalation rates can be determined.

Three sources (see Table 1) indicate that nuclear power plant construction costs have increased at a real escalation rate of 1.5-2.4%/ year greater than the general inflation rate as measured by the Cross National Product Implicit Price Deflator. The applicants 8%/ year is consistent with a general inflation rate of 6%/ year. Some estimates 'of the overall inflation rate (IPD) for the 1980s and 1990s are (1) the Calif 1980s and 6.6%/ year in the 1990s,grnia(2) BlueEnergy C;mmission Chip Econgmic with 8%/

Indicators with year in the a%/ year to 1985 and 6.1%/ year thereafter through 1990 3and (3) DRI, Inc.

with 8.S%/ year in the 1980s and 6.0%/ year in the 1990s . Based on these projections it appears that 8%/ year for power plant construction costs for 1982 through the completion of construction of the CRBR Project is somewhat optimistic.

I California Energy Prices, Staff Report, California Energy Cocmission, (July 1981).

Blue Chip Econc=ic Indicators, Eggert Enterprises of Sedona, Arizona (Nov. 1981) as referenced by W. W. Brandfon in Cost Impacts of Nuclear Project Durations, Atomic Industrial Forum. Inc., Workshop on Nuclear Power Financing, Las Vegas, NY (Feb. 9, 1982).

3 Energy Review, DRI Inc. , Autumn 1981, p.178.

i

• \

I lir. Argil Toalston 3 June 15, 1982 Table 1. Comparison of power plant construction cost indexes 1967-1980 Compound average a nnual ra te s

(%/ year)

Coal Nucient IPD Eba s co 8.7 8.9 6.4 Ha ndy-Whi tman 8.5 7.9 6 .4 CONCEPI 8.4 8.0 6.4 Gross Nations 1 Product Implici t Price Deflator, b

Ebasco Cost / Schedule Newsletter, Issue No. 81-1, April 1, 1981.

North Atlantic Region, The Handy-Yhitman Index of Public Utility Construc-tion Costs. Whi tman, Requardt and Associ-atos, 1304 Saint Paul Street; Baltimore, Maryland 21202.

d C. R. Huds on II, CONCIPT-5 Uae. 's Nanua!, ORSL-5470,, January 197 9, with cost-indez da ta upda ted to July 1981.

0

Mr. Argil Tealston 4 June 15, 1982

3. Applicant's estimate of initial nonfuel operation and maintenance (0&M) costs in 1988 is $11.3 =illion/ year in 1974 dollars. The updated OMCOST estimate is approximately $28 million/ year in 1982 dollars, not including insurance ecsts and administrative and general expenses (see Table 2). The OMCOST estimate de-es

$15 million/ year 1528 million/(1.08)galated

= $15to 1974 at million]. 8%/

The year is estimate OMCOST approximately de-escalated to 1974 at 10%/ year is S13 million/ year. Since the CRBR is a prototype, the annual 0&M costs should be no lower than for a comparable PWR, and probably higher.

4. The contingency allowance of 7.5% includes the base plant direct and indirect costs and the escalation allowance. This allows for some uncertainty in the 8%/ year escalation rate and allows for normal estimating errors for a well-defined scope of supply. However, it does not adequately provide for design and regulatory evolution such as that experienced by light-water reactors during licensing and construction. A separate contingency allowance should be established for this purpose.

Verification of the reasonableness of applicant's increase in labor costs due to different labor rates at alternative sites Our analysis of labor cost increases for the alternative sites and completion of construction in 1993 is sensa,rized in Table 3. The alternative TVA sites, Phipps Bend, Yellow Creek, Murphy Hill, and Hartsville, are proxy sites selected to develop a range of costs applicable throughout the TVA service area.

The composite hourly rates were. developed by obtaining the distribution of craf ts f rem Attachment A to a -memo dated May 28, 1982, from Richard A.

Chidlow, Assistant Director for Construction, CRBR Project, to Ray Copeland, Public Safety, and frem Appendis A of "A Report to the Nuclear Regulatory Co==ission Re/ Contract NRC-03-79-125", dated March 1982, prepared by Construction Labor De=and System, Employ =ent Standards Administration, U.S.

Department of Labor. Hourly rates for the varicus crafts and sites were obtained from Mr. L. E. Karter of Mr. Chidlow's staff. The hourly rates were confirmed by spot-checking principal crafts with those published in "The Richardson Construction Cost Trend Reporter," Richard Engineering Services, Inc., January 1982, for cities nearest the various plant sites.

The hourly rates obtained from the CRER Project Office and from Richardson include fringe benefits, but do not include travel and subsistence allow-ances that =ay apply to remote sites. Cc=posite hourly rates were then calculated and adjusted to 1982 basis. Increases in total manual labor costs were calculated based on a total canual labor centent of 23,014,000 manhours for all sites. Costs in year-of-espenditure (Y0E) dollars were calculated using 8%/ year escalation rate and an approximate cash flow curve for 1993 startup.

e Mr. Argil Toalston 5 June 15, 1982 Table 2

SUMMARY

OF ANNUAL NCNFUEL OPERATION AND MAINTENA'4CE COSTS FOR BASE-LOAD STEAM-ELECTRIC POWER PLANTS IN 1984.0 USING OMCOS T VERSICN 3-29-e2 PL ANT TYPE IS PWR NUMBER OF UNITS PER PLANT 1 THERMAL INPUT PER UNIT IS 1254. MWT PLANT NET HEAT RATE 10700.

PLANT NET EFFICIENCY, PERCENT 31.89 EACH UNIT IS 400. MkE NET dAT!;.G ANNUAL NET GEP.ERATION, MILLION NWh 2279.

wlTH BASE LOAD CAPACITY FACTOR UF 0.63 DIRECT CUSTS 51000/ YEAR STAFF ONSITE 14626.

(401 PERSCNS AT s 36973.)

M AIN TENANCE MA TERI AL 4299.

FIXEC 33n3.

VARIABLE 9L6.

SUPPLIES AND EXPENSh5 5028.

FIXEC 4d00.

VARIABLE -

228.

FEES. INSPECTICNS, REVIEWS 488.

OFFS ITE SU PPORT SERV.!CES 3697.

INDIRECT COSTS ADMINISTR ATIVE AND GENER AL t*o16.

COMMERCI AL LIAd!LITY laS. 4u l.

RETRCSPECT IVE PREMlUM 6.

GOVERNMENT LIABILITY INS. 8.

PROPERTY INS. (PRIMARY) 20C0.

PROPERTY INS. (EXCESS) 16v0.

REPLACEMENT PChER INS. 2 0 r. 0 .

OTHER ACG d5u2.

COSTS 510uo/ YEAR TOTAL FIXEC DIRECTS AND INDIRECTS 41710.

TO TAL VARI A6LE DIREC TS AND INDIntCTS 114*.

TOTAL ANNU AL NCN FUEL OCM 42855.

i UNIT COSTS MILLS /KWH(c)

FIXED CIRECTS AND INDIRECTS L6.30 V AR I ABLE DIRECTS AND INDIRECTS 0.30 TOTAL NONFUEL OEM 18.80 TOTAL NONFUEL CCM LESS 'CTMER A&G' 15.07 TO T AL NONFUEL DEM LESS ACG 12.43 l

Mr. Argil Toalston 6 Juns 15, 1982 Table 3. Increases in manual labor costs at alternative sites Composite Increase, Increase, Increase,*'

Hourly Rate, 1982 S/hr 1982 S millions YOE 1982 S/hr S millions Oak Ridge 13.17 base base base Phipps Bend 13.17 0 0 0 Yellow Creek 14.94 1.77 41 70 Murphy Hill 14.94 1.77 41 70 Hartsville 14.28 1.11 26 45 Hanford 20.32 7.15 165 282 Savannah River 15.72 2.55 59 101 Idaho 21.11 7.94 183 313 "For 1993 operation.

b Add $121 million to each value to include escalation of Oak Ridge base manual labor costs from 1989 to 1993 plant startup.

~

d

, Juns 15, 1982 7

a Mr. Argil Toalston This analysis indicates that cost increases due to differences in manual i hourly rates alone will range from zero to $41 millionh for hr alternat ve ,,

sites in the TVA service area and from $59-183 million for t e ot e alternativeincreasessites.due to differences in manual hourly rates will range from illion cost zero to $70 million for the TVA service-area sites and $101-31 for the other sites. l U To include non-manual labor increases, we suggest increasing the manua This results in total manual and non-manual labor increases by 25%. labor increases of zero to $88 million for the TVA million for the other sites.

include escalation of the Oak Ridge site base This analysis does not labor costs for the 43-month delay, which the applicant estimates forWe moving the CRBR to an alternative site. $30 million for non-manual S121 million for manual labor costs and about labor costs.

Comments the existing Oak Ridge site may be The applicant's cost estimate at is too low and (2) inadequate h licensing low because of (1) an escalation rate that i

contingency allowance for design and regulatory evolution during t and construction process. '

for interest on funds used during construction, which, if included, will in the estimate by several hundred million dollars.

ites The applicant's esttmates for a'dditional labor costs at alternative ssites, H appear to be reasonable for the higher labor costThis might be due to our use of although our estimates are slightly lower.Our estimates are approximately $50 million i an approximated cash flow curve. lower than thenot We have applicant'sdetermined estimates the fo S50 million higher for the Savannah River site.

f *easons for these variances.

! this analysis, please contact me.

l If you have any questions about i Yours very truly, l e

// n h7: h / E A.A 2 #

H. I. Bod'ers, Manager Engineering Evaluations Group Engineering Technology Division HIB:sf cc: J. L. Anderson I A. L. Lotts M. L. Myers I. Spiewak Director, Div. of Eng., ATTN: C. Poslusny, NRR, NRC D. Muller, DE, NRR, NRC E#

B. L. Grenier, NRR, NRC

- _ _ _ -- _ -__-___-_- - - - - _ - _ - _ _ _ _ _ _ _ _ . -