ML20078S939
| ML20078S939 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 12/23/1994 |
| From: | Ignatius A NEW HAMPSHIRE, STATE OF |
| To: | Patch D NEW HAMPSHIRE, STATE OF |
| References | |
| NUDOCS 9412290315 | |
| Download: ML20078S939 (19) | |
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STATE OF NEW HAMPSHIRE CHAIRMAN EXECUTIVE DIRECTOR Douglas L Patch AND SECRETARY COMMISSIONERS Sarah P. Voll Bruce B. Ellsworth TDD Access: Relay NH Susan S. Geiger 1-800-735-2964 PUBLIC UTILITIES COMMISSION 8 Old Suncook Road
[N 271 78 Concord, N.H. 03301 7319 A~ kh$ &
December 23, 1994 Douglas L. Patch, Chairman New Hampshire Public Utilities Commission 8 Old Suncook Road Concord, New Hampshire 03301 Re: NFDC 93 Nuclear Decommissionino
Dear Mr. Patch:
Enclosed is the Brief of Staff in the above referenced docket.
Copies have been forwarded to all parties.
Very truly yours,
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Amy L I atius General Counsel ALI:bj Enclosure 88 n . J 9412290315 941223 ,
s PDrt ADOCK 0500 P
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- l STATE OF NEW HAMPSHIRE
! NUCLEAR DECOMMISSIONING FINANCE COMMITTEE NDFC '93-1 l
l Brief of the New Hamoshire Public Utilities Commission Staff
! INTRODUCTION The New Hampshire Public Utilities Commission Staff (Commission Staff) participated in the Nuclear Decommissioning l
Finance Committee proceedings, NDFC 93-1, as a full party.
Though it presented no witnesses, it raised a number of concerns through questioning of other witnesses. Our comments and recommendations follow the order of issues contained in NDFC l
l Procedural Order No. 2 (August 4, 1993). l l
I. What is the anticipated energy-producing life of Seabrook? l The Committee should continue to assume Seabrook will have an energy producing life of 36 years, that is, until 2026. While no one can be certain if the length of operat ion will be shorter i
due to economic or engineering concerns, or lenger, upon receipt of an extension of the license, the evidence su,gports continuing to assume a 36-year life.
The early shutdowns at Trojan, Yankee-Rowe and San Onofre are useful to the industry in understanding the lives of different plants and the problems that can arise, but a problem at one plant does not mean that a similar problem will occur at all plants. One must evaluate the particular problems besetting other plants and determine if the potential exists for the same problems at Seabrook.
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2 Yankee-Rowe suffered significant embrittlement of its reactor vessel. As Mr. DeLoach testified, due to improved design, radiation-induced embrittlement is not a problem at Seabrook and is not expected to be of concern. In regard to the reactor pressure vessel, NAESCO asserts that it "...could, in fact, operate many years beyond licensed life without exceeding the (Nuclear Regulatory Commission's] limit." (DeLoach Direct Testimony, p. 6) Further, built into Seabrook's containment vessel are specimens for routine testing, so that the degree of embrittlement can be measured and tracked, which was not the case at Yankee-Rowe. (Transcript Day II, pp. 106-7)
Trojan suffered significant steam generator failure.
Seabrook's improved design and chemistry control programs with its four steam generators appear to be successful in reducing the type of tube degradation problems that Trojan had. As a result, Seabrook has only 24 of 22,500 tubes, or .1% of tubes, that are plugged. (Transcript Day II, p. 121)
San Onofre shut down prematurely due to poor reliability of r its generation. (Transcript Day II, pp. 127-8) By contrast, Seabrook's lifetime capacity factor has been high, suggesting a successful maintenance program which should ensure continued operations. (Transcript Day II, p. 82)
While the 40 year license life may have been established due to concerns in the financial market, Mr. LaGuardia testified that the major components at Seabrook were thereafter designed to operate for a full 40 years. (Transcript Day II, pp. 163-4)
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3 There was testimony regarding economic pressures that might 1 l l
! shorten the life of Seabrook, such as replacement of a costly l piece of equipment during the last few years of operation. A l
significant component that might require replacement, however, I would be a steam generator, as was needed in Trojan. The Committee heard testimony regarding the Joint Owners' four unused generators (which would have been used in Unit 2 had it been I completed). These generators could be sold to NAESCO at their l 1
historic book cost, which would vastly reduce the costs of replacing a steam generator if that turned out to be necessary in the future. (Transcript Day II, p. 140) 1 In addition, the uncertainty regarding the potential tax l
l consequences of using an anticipated energy-producing life which i
differs from the license life of the plant necessitates a guarded approach to altering the current practice. (Keraler Direct l
Testimony, p. 14; Transcript Day IV, p. 97) Withcut more information regarding the tax issues and any potential equipment l
problems, the Committee should be cautious and use the 36-year license life of Seabrook for the purposes of this docket.
Finally, there was discussion regarding the economics of
- nuclear power due to regulatory change, such as stricter l
l transportation standards, or regulatory approval of competition in retail electric service. Change in regulation and other risk factors are more appropriately considered in an analysis of the correct contingency factor, discussed in section VI below, and l
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4 should not be a basis for shortening the assumed operating life of the plant.
l II. Is there adequate assurance of collectibility of the i Decommissioning Fund from each Joint Owner?
It appears that for the time being, there is adequate assurance of collectibility from each Joint Owner, as evidenced by Great Bay's plan of bankruptcy being approved by the U.S.
j District Court, and the emergence from bankruptcy in recent years i by Public Service Company of New Hampshire and the New Hampshire Electric Cooperative, Inc. The remaining concern, however, is l what would happen in the future if a Joint Owner is unable to i
make payments and other Joint Owners choose not to take over l l
those payment obligations. When questions were posed regarding I l
1 the possibility of a funding shortfall, NAESCO's response was to cite RSA 162-F:24 which puts the obligation on the State to j petition the Superior Court for enforcement. (Transcript Day I, 1
pp. 67-8) Being told "The statute allows you to go to Superior l Court for relief" is hardly a guarantee of payment.
! We RECOMMEND that prior to the 1995 NDFC filing, NAESCO deliver a legal opinion to the Committee and all parties to this docket answering the following two questions raised by Mr.
l Ridder:
- 1. What is the enforceability of payments from other Joint Owners if a Joint Owner was unable, due to bankruptcy I or other reason, to make payments and no other Joint Owner volunteered to cover those obligations?
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- 2. What is the legal obligation of a parent company or affiliated entity of a Joint Owner to make payN.ents for the Joint Owner if the Joint Owner fails to do so, for i whatever reason?
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In addition to the questions of collectibility of fund l payments, the Committee heard some evidence regarding the fund's performance and whether the interest rate and earnings rate assumptions are sound. We RECOMMEND that in future filings, in order to facilitate the determination of whether the fund appears able to meet the expected increases in the cost estimate, NAESCO provide greater detail regarding funding assumptions, !
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specifically including either detailed calculations of the ;
l funding schedule or access to the funding schedule spreadsheet.
III. Should there be front-end loading of the decommissioning .
collections, either in terms of levelized' nominal annual '
I contributions or even greater than levelized nominal contributions in the early years?
It is worth noting that although the original scoping order referenced greater than levelized funding and there was testimony l regarding potential tax effects of greater than levelized funding (Transcript Day I, pp. 51-2), no one advocated use of greater than levelized funding. Tellus clarified that although it referenced greater than levelized funding in its testimony, it was not advocating anything more than levelized funding.
(Transcript Day V, p. 134) The question for the Committee, therefore, is whether to continue to use escalating funding or change to levelized funding.
We oppose use of levelized funding and encourage the l Committee to continue to use an escalating funding method. We believe that it would be unfair to impose a greater burden on the current generation of ratepayers than on future generations of ratepayers who will benefit from Seabrook operations. Further,
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we believe that levelized funding is being proposed for the q purpose of hedging against errors in the cost estimate by getting more money in the fund early on. That is not a sound method by 1
which to collect funds. If the Committee finds the assumptions regarding the cost estimate, including the contingency factor and
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the escalation factor, are unsound then it should adjust the cost i estimate rather than altering the funding method. Similarly, the
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I operating life of the plant should not be shortened for the purpose of raising the amount of money in the fund in early 2
years, contrary to ABZ's suggestion. (Transcript Day VI, p. 27) 1
< IV. What is the likeliest decommissioning scenario, prompt i
dismantlement / safe store entombment? And, if the likeliest scenario is not prompt dismantlement, what is the appropriate target cost?
1 DECON, the prompt dismantlement and decontamination method, i
- still appears to be the most reasonable option for 4
decommissioning of Seabrook. Under DECON, spent nuclear fuel u
would be stored in the fuel pool, then in dry storage for an additional period to meet federal transportation and handling
] contract requirements. DECON is the least costly scenario, is i endorsed by the Nuclear Regulatory Commission (NRC) and results I
l in the quickest removal of radioactive materials from Seabrook, I
eliminating possible long-term safety hazards or the need for long term security. (Transcript Day IV, pp. 6-8) It also allows l
1 for involvement of some employees who have direct experience of i
operations on site. (Transcript Day IV, p. 8)
DECON is a clear choice, assuming high level and low level waste disposal faci 2ities are operating and available to Seabrook i
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at the time. If this assumption is false, then a combination of i
DECON and SAFSTOR would become necessary, and the costs would )
increase.
- If in coming years there is little progress in development j of a facility for high level waste disposal (or the possibility
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that any high level waste burial facility would not be able to i
take Seabrook's spent nuclear fuel at the time of ,
I decommissioning) the potential for longer term storage of spent j j
f nuclear fuel must be evaluated. Similarly, if there is little i progress in development of sufficient storage space for low level l 4
waste (or the possibility that low level waste storage facilities will not take Seabrook's low level waste at the time of decommissioning), the potential for longer term storage of low i
I level waste, including the dismantled plant and equipment, must be explored in detail. We RECOMMEND, therefore, that the issue of high level and low level waste disposal and storage continue
] 1 j to be monitored closely by the Committee.
- V. What is the appropriate escalation rate for the current
' North Atlantic Energy Service Corporation Decommissioning l j Study?
j In determining the appropriate escalation rate, it cannot be
- stressed enough that the purpose of an escalation rate is to i
!, account for expected increases in the price of decommissioning l between the present and the time of decommissioning by using i
historical trends to develop a proxy for the future. (Transcript l Day I, pp. 191-92; Day II, p. 6; Day VI p. 82) An escalation rate is not identical to the inflation assumption applied to the l
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8 fund, for if the cost of decommissioning (or certain components of decommissioning) are expected to change at a greater or lesser
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rate than that of general inflation, the escalation rate should be something other than the inflation assumption.
- Neither is an escalation rate a contingency factor.
Although both the escalation rate and the contingency are designed to protect against " unknowns", the type of " unknown" is different for each. The escalation rate is attempting to account for the unknown but predicted price changes occurring in years 1
- leading up to decommissioning (Day VI, p. 82-3) while, as l
discussed in more detail in Section VI, the contingency factor is attempting to account for various non-price unknowns which may occur in the intervening years and at the time of l decommissioning. Confusion can result because of the 4
interrelationship between prices and some of the non-price l 4
unknowns. (Transcript Day VI, pp. 82-3) However, as Mr. Brewer testified, it is important that the escalation rate not be used "for the purpose of sort of a hidden contingency." (Transcript Day VI, p. 82)
Focusing on the proper escalation rate to apply to the cost estimate, the Committee heard through Dr. Wright and Mr. Canner NAESCO's historic analysis of changes in certain costs, resulting a
- in escalation rates of 3.5% (Exhibit PUC-5) and 3.4% (Canner l Direct Testimony, p. 9) NAESCO recommended continuing to use a q
4.25% escalation rate as being reasonable. (Transcript Day I, pp.
184-5)
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l j 9 l A comparison of the 1991 and 1994 studies must include discussion of the differences between the two studies and the I l I
! reasons for those differences. As the Committee heard, the !
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- components included in the calculation of escalation rates j l
changed between 1991 and 1994. (Transcript Day I, p. 193) The )
i 1991 calculations were based on the rate of change in labor, i materials and low level waste burial costs. The 1994 1
- calculations were based on the rate of change in labor, materials ,
l j and energy. In 1994, burial costs were omitted as a separate j line item and instead were blended into other calculations i
] (Exhibit PUC-11; Exhibit PUC-5; Transcript Day II, pp, 53-55; Day i l i III, pp. 75-6), thereby blocking any meaningful analysis of a l l
critical element of decommissioning costs. I I
In 1991 Dr. Wright assumed that burial costs would escalate for the next 6 years at 15% and then drop to the escalation rate
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] of 4.1% for labor. (Transcript Day III, p. 74) In 1994 Mr. Vance J
stated he felt 15% escalation in burial costs for the period 1991 1 through 1997 was excessively high. (Transcript Day III, p. 74)
{ And yet he conceded that the actual rate of change in burial t
i costs between 1991 and 1994, the first three years of the period estimated at 15%, has been between 18% and 19%. (Transcript Day 1
III, p. 78) However, NAESCO chose not to identify burial costs
- as a separate line item. By choosing to make burial costs "an integral part of the three components" (Transcript Day II, p. 18) l of labor, materials and energy, NAESCO is assuming burial costs have been escalating at the same rate as Labor (3.3%), Materials i
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10 (3.6%) and Energy (3.6%) (Canner Direct Testimony, p. 8) in the same proportions as the aggregate of all decommissioning costs:
Labor (65% of total), Materials (29% of total) and Energy (6% of total). (Canner Direct testimony, p. 9)
With such volatility in burial costs and with actual data outpacing projections that NAESCO asserts are excessively high to begin with, one would expect greater caution and analysis of burial costs. Instead NAESCO presents the Committee with a new
, methodology that makes analysis of burial costs difficult.
Thus, the integration of burial costs into other cost components is a major change in assumptions on the part of NAESCO. The Committee should demand more forthright documentation of NAESCO's calculations, particularly regarding a decommissioning component which has been increasing far faster than general inflation.
Alternatives to NAESCO's escalation rate were presented by the OCA's consultant, Tellus and by the Committee's consultant, ABZ. Tellus' recommendation of an escalation rate equal to "2%
above the general inflation rate" appears to have no basis in fact, but, rather, is a judgment based on analyses which resulted in much larger values. (Biewald and Dougherty Direct Testimony,
- p. 68). In addition, Mr. Biewald stated that the " general inflation rate" he was referring to could be any number of proxies, including nuclear specific indices or those calculated in a fashion similar to NAESCO's. (Transcript Day V, pp. 142-3)
Apparently, Mr, Biewald's intention was to add the 2% as a
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protection against increases due to changes other than pure price changes. (Transcript Day V, p. 142) As discussed above, it is inappropriate to use the escalation rate "for the purpose of sort
- of a hidden contingency". (Transcript Day VI, p. 82, lines 21-22)
In contrast, ABZ's escalation rate is not designed as a
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protection for contingencies, but, rather, as a reflection of "the difference between nuclear price increases and the general economy price increases. (Transcript Day VI, p. 83) ABZ's recommendation of "2% per year above inflation" is based on the results obtained by analyzing nuclear plant operating and maintenance (O&M) costs over a twenty-year period. (Abbott Direct Testimony, p. 46) ABZ reviewed other possible proxies for decommissioning costs and used its judgment to choose the nuclear plant O&M costs rather than another proxy. (Abbott Direct Testimony, p.46) As Mr. Abbott stated "You've got to look at a spectrum of things, try to decide which one is most appropriate and go with it." (Transcript Day VI, pp. 76-7)
The disparity between ABZ's recommendation of 2% over inflation (6% for the current case) and NAESCO's recommendation of 4.25% creates an uncertainty which leads to the issue of balancing the interests of current and future ratepayers.
Continuing with the 4.25% escalation rate when, in fact, the escalation rate should be higher, shifts the burden of being wrong to future ratepayers while increasing to the 6% escalation rate when, in fact, the escalation rate should be lower, shifts the burden of being wrong to the current ratepayers. As a guide
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{ to the magnitude of the possible error, Mr. Kessler estimates i
that the effect of changing to a 6% escalation rate (other
! assumptions remaining equal) would be a $1.4 billion dollar .
I 1 deficiency in the fund in the year 2026, or, alternatively, would require levelized contributions of $24.7 million per year through j
j 2026. (Kessler Direct p. 10) NAESCO has determined that an increase in the escalation rate from 4.25% to 6% would increase 1
l the 1995 contributions and the total future cost by 70%.
(Transcript Day II, pp. 27-28) i Although Staff does not advocate making a technical decision based on the anticipated results, the potential effect of making f the incorrect decision regarding the escalation rate are significant enough that the Committee should proceed cautiously 1
i in this area. Thus, although we believe the methodology used by j NAESCO in this proceeding is deficient and demonstrates a lack of
- respect for the needs and benefits of outside review, we j RECOMMEND continuing to adopt the 4.25% escalation rate until the issue of escalation rate can be more fully evaluated.
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] We RECOMMEND that the Committee require detailed i identification of the escalation of burial costs in the calculation of the overall escalation rate, in order to facilitate analysis of the burial cost component (s) in the escalation rate.
i j Finally, we RECOMMEND that the Committee accept the i recommendation of the Attorney General's consultant that the I
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I parties study the escalation rate before the next NDFC proceeding.
VI. Is the North Atlantic Energy Service Corporation updated present value estimate adequate?
It is important to remember that there is no ' absolutely
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right' number for a cost estimate. What is most important is to
) apply a good costing methodology, one which can be readily i
l understood and evaluated by others.
The Committee heard extensive discussion of the cost i
j estimate and received hundreds of pages of discovery in this proceeding. We believe that much of the discovery and extensive i
cross examination could have been avoided if NAESCO had presented in its filing a more detailed cost estimate that laid out the j assumptions contained in the review. Rather than forcing the 4
Committee and parties to hunt for the information needed to j
i evaluate the estimate, or to make assumptions which may or may j not be accurate, the burden should clearly be on NAESCO to l present a fully detailed and reviewable estimate. The Committee j will recall that NAESCO argued that ABZ should have asked more i
questions regarding the estimate, as had a previous consultant 1
who filed 150 data requests. (Transcript Day VI, p. 169) This l
l is a startling comment, and makes clear that NAESCO's approach is I
to shift the burden from itself to the parties and Committee to l search for and understand the details of the filing. Such an i
approach is a far more cumbersome and costly process than merely laying out the information from the start. We RECOMMEND that in future filings, NAESCO provide greater detail to enhance the j
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1 review of the cost estimate by other parties and the Committee, to lessen the need for those reviewing the estimate to make assumptions or engage in extensive discovery.
For this docket, the effect of NAESCO's approach is that Staff is sympathetic to ABZ's dilemma in trying to ferret out the assumptions used by NAESCO and agrees with ABZ that there appear to be deficiencies in the NAESCO estimate. In an attempt to deal with those deficiencies, ABZ adjusted NAESCO's estimate according to what ABZ considered to be the effects of those deficiencies (ABZ Direct Testimony p. 2; summary of adjustments, Exh. PUC-4)
As an alternative, ABZ produced a rough estimate of its own, using the inputs provided in this docket and its own decommissioning cost study methodology. (Transcript Day VI, p.
- 97) As Mr. Abbott conceded, the cost estimate provided by ABZ 1
was not a full estimate. (Transcript Day VI, pp. 208-9) 1 There was also extensive testimony regarding the minimum cost estimate required by the NRC. The NRC minimum apparently
- can be manipulated significantly according to one's expectations of burial costs. If one assumes the lower end of costs, excluding surcharges imposed at the Barnwell, South Carolina facility, the minimum is approximately $265 million (which is below NAESCO's estimate). (Transcript Day III, p. 60) If one assumes surcharges consistent with those at Barnwell would be 4
imposed on Seabrook's low level waste, the minimum is approximately $370 million (which is above NAESCO's estimate).
(Transcript Day III, p. 111)
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We believe, given the lack of a low level waste burial j facility and New Hampshire's failure at this point to join a 1
i compact, it is unreasonable to assume that no surcharges will be
! imposed on Seabrook's low level waste and, therefore, believe 4
l NAESCO's cost estimate of $361 million is insufficient and falls i
j below what we consider to be the properly calculated NRC minimum.
1 j We RECOMMEND, therefore, that the Committee adopt $400 million as i the cost estimate.
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] There was much testimony regarding the proper use of a contingency factor in a cost estimate. A contingency factor, if j broadly defined as advocated by OCA and ABZ, protects against I
j " unknowns" and risks in decommissioning, such as changes in j 1
regulation or the possibility that a high level waste facility is 1
3 not in operation. If narrowly defined as advocated by NAESCO, a t
i contingency factor protects against " unknowns" which are likely 1
j to occur in known operations, under existing circumstances, such j
] l as work stoppages or breakdown of tools. We believe the use of a i broader contingency factor may be appropriate in future filings i l
if, after study by the parties, it appears that the types of i
l risks included in Tellus estimate or described by Mr. Kessler can i
be quantified. We RECOMMEND, therefore, that the Committee order i
the parties to engage in a study of contingency factors which go j beyond the narrow engineering contingencies used by NAESCO.
In addition, we RECOMMEND that whatever contingency factor i
j or factors are applied in the future, they be identified l explicitly, rather than forcing those reviewing the filing to l
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16 calculate the contingency percentage by working backwards from final costs after the contingency factor has been applied or seek such information in a data request, as was done in this case.
CONCLUSION The Nuclear Decommissioning Finance Committee must establish a reasonable cost estimate and provide an appropriate funding method. The Committee is not charged to determine a low estimate or a high estimate, or an estimate which will be palatable to the parties or the public. Any suggestion that the Committee begin with a particular result and work backwards to justify that result should be rejected.
The task imposed on the Committee is too complex and too critical to the state's citizens to be handled on the basis of annual reviews. These are issues which require in-depth analysis. Cursory " updates" are not sufficient, and they lead to inefficient and costly proceedings in which the parties struggle to get to the bottom of NAESCO's assertions. As Mr. Brewer pointed out, relying primarily on annual reviews can result in a significant adjustment to funding if assumptions turn out to be incorrect. (Transcript Day IV, pp. 23-4)
The 1993 proceeding, which will not be completed until early l 1995, was a cumbersome and expensive process which no doubt l
raised more questions than it answered. To undertake this type of analysis each year is a poor use of the Committee's time and the resources of the parties, particularly when the costs of such l
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17 l a proceeding are ultimately passed on to ratepayers. Yet if the i
.: Committee were simply to accept the cost estimate and assumptions 4
of NAESCO, it would be an irresponsible dereliction of duty and could result in a serious undercollection of necessary funds if j NAESCO's assumptions are wrong or its methodologies prove 1
- unsound. There has to be a middle ground which is both efficient l
and responsible. l 1
We believe there should be a more structured process for ,
5 l j review. We RECOMMEND detailed litigation of the critical issues l every four years, with thorough updates in the intervening three l
, years. This would provide a balance between the needs for efficiency in analyzing decommissioning plans while meeting the
{ statutory requirements and ensuring sound and rigorous review.
Respectfully submitted, i December 23, 1994 Amy L. Ignatius i General Counsel l N.H. Public Utilities Commission i
f CERTIFICATE OF SERVICE j
l' I hereby certify that a copy of the Brief of the New Hampshire Public Utilities Commission Staff has been mailed, first class postage pre-paid, or hand delivered to the attached service list.
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December 23, 1994 Amy y. I@datius 1
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