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l AUG 4 1983 MEMORANDUM FOR: Malcolm L. Ernst, Acting Director Division of Risk Analysis Office of Nuclear Regulatory Research FROM: Edwin G. Triner, Director Division of Budget and Analysis Office of Resource Management
SUBJECT:
REVIEW AND COMMENTS ON THE PNL DRAFT, "A HANDBOOK FOR VALUE/ IMPACT ASSESSMENT" Attached are the Cost Analysis Group's comments o'n "A Handbook for Value/ Impact Assessment."
If you have any questions concerning this review, please contact Sidney Feld on x28331.
OriginalSigned by'
, Edwin G.Triner Edwin G. Triner, Director Division of Budget and Analysis Office of Resource Management
Attachment:
As stated cc: S. Feld, RM/BMA J. Clark, RM/BMA bec w/att:
L. Barry, RM R. Scroggins, RM E. Triner, RM/B RM/B R/F (6) .
J. Clark, RM/BMA
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s, ~ f h5 AUG 4 G3 MEMORANDUM FOR: Malcolm L. Ernst, Acting Director
- Division of Risk Analysis Office of Nuclear Regulatory Research FROM: Edwin G.. Triner, Director j Division of Sudget and Analysis Office of Resource Management
SUBJECT:
REVIEW AND COMMENTS ON THE PNL DRAFT, "A HANDBOOK FOR VALUE/ IMPACT ASSESSMENT" Attached are the Cost Analysis Group's coments on "A Handbook for Value/ Impact Assessment."
If you have any questions concerning this review, please contact Sidney Feld on x28331.
Edwin G. Triner, Director Division of Budget and Analysis Office of Resource Management
Attachment:
As stated cc: S. Feld, RM/BMA J. Clark, RM/BMA N
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COMMENTS ON "A HANDBOOK FOR VALUE/ IMPACT ASSESSMENT"
- 1. Sections 1.1 and 2.1.1 (pp.1.1 to 1.3 and 2.1 to 2.4) - Definition of Values and Impacts The Handbook defines values as effects on specific NRC goals, whereas
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impacts is defined as measures e# the costs incurred by the industry and NRC, with both categories assuming either positive or negative measures.
Problems arise because, in many instances, a given effect may logically be v'iewed as either a positive "value" or a negative " impact" (or vice versa).
This distinction between values and impacts, as developed in the Handbook, has the potential of creating confusion and inconsistent treatment in per-forming value/ impact assessments.
Consider, for example, a proposed NRC action that, among other things, extends the operating life of a reactor, or improves its availability, or reduces costs through modification of safeguards or reporting requirements.
Should these be viewed as positive values under the regulatory efficiency goal or as impacts (with a negative sign) under the various industry cost impacts? From our reading of the Handbook, an analyst could easily opt for either of these categories. Although the ultimate selection will not affect the resultant net-benefit measure, it could' produce significant variation in the derived value/ impact ratio.
We view, as a far more consistent and universal treatment, the classifica-tion o'f a11 positive impacts as " values" or benefits, and all negative impacts as " impacts' or costs. Under such an arrangement, a simple
2 positive or negative determination can be made to classify an effect as a value or an impact. Such an approach will assure consistency among all value/ impact ratios whose ccmparison can serve as a major decision tool in establishing priorities for future NRC regulatory actions. Furthermore, making NRC's value/ impact analyses more consistent with standard cost-benefit methodolsg, will remove potential confusion and problems when reviewed by entities outside the NRC (e.g., OMB, Congress, courts of law, etc.).
- 2. Section 1.2.1 (p.1.5) - Principal Disadvantages of the Ratio Method Another principal disadvantage of the ratio method is that it excludes other relevant values (i.e., other benefits that may accompany a rule change) from the quantified decision frame work.
- 3. Section 2.1.2 (pp. 2.4 and 2.5) - Evaluation of Safety Improvement Attributes The safety improvement attributes of "off-site property" and "on-site property" are totally omitted from this section. It would seem appropriate to inform the reader that their quantification will require a "probabilistic weighting - i.e., the potential consequence is multiplied by its probability of occurrence" - similar to the discussion afforded the safety-improvement attributes of accident-related exposures.
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- 4. Section 2.2 (p. 2.8) - Scoping The scoping guidance appearing in the last paragraph and footnote (a) implies that actions whose potential benefits obviously and grossly outweigh potential costs are worthy of considerable attention. Yet, the conclusion or decision here is as equally clear as the situation .
characterized in footnote (a) and there would be little to gain in mounting a serious value/ impact effort.
- 5. Section 2.2 (p. 2.10), Table 2.1 - Worksheet for First Approximation of Value and Impact Routine occupational exposure has been omitted as one of the values to be assessed during a first approximation. If this is intentional because it is perceived as being minor, it should be so indicated. Also, there is no indication whether discounting should be performed at the earliest stage of estimation.
- 6. Section 3.2 (p. 3.17) - Variable T in Calculation of VpH The calculation of VpH and V pH includes the variable T which is defined as the average lifetime of affected facilities (years). This could easily be interpreted as the entire operating life of a facility, which the Handbook places at 35 years for existing teactors and 30 years for new reactors. T actually. represents the average remaining lifetime which, for already operating reactors, would be something less than 35 years.
4 (Same comment applies to definition of T appearing on pp. 3.21 and 3.27.)
- 7. Section 3.6 (p. 3.37) - On-Site Property Costs On this page, the Handbook identifies the third element of on-site property cost as the " capital costs of damaged equipment." This language attempts to place a cost on the loss of the old equipment which would be incorrect.
That equipment was lost, economically speaking, once the investment was made. The correct terminology, and what is used throughout the Handbook, is " repair and refurbishment costs." These costs are future (to-go) costs and are incremental expenses to the accident scenario.
- 8. Section 3.6.1 (p. 3.38) - Definition of Crp Crp is defined as discounted replacement power cost. Technically, this is just the replacement power cost which in the equation is subject to multiplication by a present-worth discounting factor to produce the discounted replacement power cost. -
- 9. Section 3.9.1 (p. 3.50), Table 3.7 - State and Local Sales Taxes Propose adding to footnote (b) ... Taxes can be ignored in value/ impact assessments because they are simply transfer payments which pose no real-increase in resource requirements to society in general. Its appearance in the table is for completeness.
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- 10. Section 3.9.1 (p. 3.51) - Capital Costs for Nuclear plants t
Propose adding the following footnote after the first full sentence of the p first complete paragraph on this page:
a) The NRC's Cost Analysis Group is currently developing capital cost estimates for a number of repairs and common procedures associated with modifications to steam generators. These' generic estimates should have broad application to a number of value/ impact assessments.
Results are expected by late 1983 and will be transmitted to the respective offices.
- 11. Section 3.9.1 (p. 3.51) - Scheduled Outage Time Used in Estimating l Replacement Power Cost In the last paragraph on the page, the Handbook indicates that if a repair
. . . can be completed within the scheduled outage time, then no replacement power cost should be assigned to the action."
It is unclear and ambiguous as to what is meant by the scheduled outage time. For clarity, we recommend using: . . . within a previously scheduled outage time.
- 12. Section 3.9.1 (p. 3.52) - Replacenent Power Cost Fourth line from the top, propose adding:
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6 In addition, the NRC's Cost Analysis Group is currently developing
-i replacement power cost estimates for near-term, short-duration outages of this nature. Results, on a plant-by-plant basis, are expected by late 1983 and will be transmitted to the respective offices.
- 13. Section 3.9.2 (p. 3.52) - Support in Cost Estimation Under Step 1, in the middle of the page, propose adding:
"Also, other NRC branches and the Cost Analysis Group may provide guidance
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(Same comment applies to bottom of p. 3.55.)
- 14. Section 3.9.3 (p. 3.52) - Support in Cost Estimation Under Step 1, at the bottom of the page, propose the following ending:
For this level, the analyst should definitely seek expertise, possibly guidance from NRC contractors or industry sources experienced in this area (AE fims, etc.), and the NRC's Cost Analysis Group with its on-call contractor support in the area of cost analysis.
(Same comment applies to Section 3.10.3, Step 1 on p. 3.57.)
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- 15. Section 3.10 (p. 3.54) - Industry Operating Cost It seems logical to expect that a proposed action could affect the future availability and performance (capacity factor) of nuclear units. If a unit is adversely affected, this becomes a cost element within the industry operating-cost category, and can be measured in terms of the incremental replacement energy cost penalty incurred over the unit's remaining operating life. It would seem valuable to discuss this impact in this section.
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- 16. Section 3.10 (p. 3.54) - Taxes as an Element of Industry Operating Cost After taxes, fifth line from bottom, propose adding the following footnote:
4 (A) Presented only for completeness, but not to be included in a value/
impact assessment.
j (See Comment 9.)
- 17. Section 3.10.3 (p. 3.57) - Industry O&M Costs In middle of page, after "0ak Ridge, and others," propose adding:
NRR currently maintains an on-call assistance contract with Dak Ridge to provide operating and maintenance cost estimates (OMCST computer code),
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- 18. Section 3.11 (pp. 3.58 and 3.59) - NRC Development Cost NRC development costs incurred as a part of the decision process should be excluded from the value/ impact assessment because they are sunk costs that must be borne regardless of whether the proposal is to be implemented or not. This concept is not made clear in this section and, for example, references to providing a regulatory analysis, and the cost of procuring contractors to perform tasks suggests that pre-decision expenditures are incorrectly being included here.
- 19. Appendix C (p. C.5) - Present Value Calculation l For the numerical example provided on this page, the correct answer is
$5,285, and not the $7,858 reported.
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