ML19352B281

Requests to Incorporate by Ref Direct Testimony & cross- Examination of Expert Witnesses Re Facility cost-benefit Analysis,As Included in P Devlin & a Barak Brief for PSC of Mi.W/Certificate of Svc.Related Correspondence

ML19352B281
Person / Time
Site:	Midland
Issue date:	06/08/1981
From:	Sinclair M AFFILIATION NOT ASSIGNED
To:	Atomic Safety and Licensing Board Panel
Shared Package
ML19352B282	List: ML19352B281 ML19352B288
References
ISSUANCES-OL, ISSUANCES-OM, NUDOCS 8107010426
Download: ML19352B281 (11)

Text

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NUCLEAR REGULATORY CLMMISSION if j UEFORE T!!E ATOMIC SAFETY AND LICENSING U0ARV/i xs -

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In the Matter of ' . 50-329-Q P h @9 o 8 50-330-0M M11 CCNSUMERS POWER CGMPANY g "0-320-UL f~ 0-330-GL

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k,N a [. gh TESTIMONY BASED ON TIM URIII .0F# PATRICh J. DEVLIN LF T!!C ATTollNEY GENETsdrSW)FFICE OF MICHIGAN, and ALAN J . BARAK , ATTORNEY FOR MICllIGAN CITIZENS' LUUUY ON Tite COST-GENEFIT ANALYSIS OF Ti!E MIDLAND N-PLANTS TilAT IS DIRECTLY RELATED TO DATA DEVELOPED T!!US FA;; IN Tile OM-LL PROCEEDINGS ON Tite SOIL REMEDIATION ISC;ES. We want to incorporate by reference the direct testimony and cross-examination of expert witnesses on the cost-benefit analysis of the Midland n-plants which Patrick Devlin of the Attorney General's Office of the State of Michigan and Alan Barak of the Michigan Citizens' Lobby have included in their Delof for Michigan's Public Service Commission for securities case U-G360. (Brief enclosed.) Their findings as set forth and developed through expert tes-timony in the aforementioned Urief, coupled with facts alecady made part of tite record in the GM-OL proceedings on the soil settlement issue cast an important new perspecti c on the cost-benefit analysis of this nucicar facility. (U.S. NRC Practice and Procedure Digest - VI - Geneul Matters - NEPA Considerations) The Attorney General of Michigan, Frank helley, is a party to this hearing, but as his office stated, it does not have sufficient staff and funds to pursue these hearings at this tin. DS N 3 t  ! ( llowcycr, the Attorney General's office remains vigorously / [ vigilant about the costs that ratepayers and shareholders may un-necessarily incur through poor manageme.it practices of utilitics of b . . . -

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                                          .2-of this otate. To this end, his office has intervened, along with the Michigan Citizens' Lobby, in Case No. G3GO, now before the Michi-gan Public Service Commission, in which Consumers Power Co. is sock-hg approval for sale of securitics to continue construction at Mid-    ;

land. Through the work of their expert witnesses, the overn11 con-clusion of this final Urief of the Attorney General's office and the Michigan Citizens' Lobby (AG-MCL) is that, if construction is canceled at Midland at the present time and the plants are converted to coal or natural gas, Consumers Power Co. ratopayers stand to gain $707 to S1348 million. The range reflects final Midland cost, load growth and investment recovery, and length of operation. R!orcover, the Brief concludes that it would be icss expensive to ratepayers by 3484 to C1,135 million to stop Midland construction, build equivalent coal units, and even return the present sunk cost of Midland back to the Company once all additional projected costs to completion, including decommissioning, are considered for this fa-cility. This is the cost penalty of the Midland n-plants if fairly optimistic operating conditions are assumed. - llowever, if the Midland n-plants (1) operated as poorly as Palisados (also built by Bechtc1), or (2) should it shut down as Three Mile Island has, or (3) should it not run 34 years as assumed in the analysis (no nuclear plart has), but only 15-20 years, or (4) should there be high interim retirement of the plants' components because of metal fatigue due to radioactivity, these plants would be an unbearabic disaster financially. The Midland n-plant cost is larger than the whole existing not utility plant of Consumers Power Co. While these plants will increase net utility plant--which includes transmission and distri-

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                                        -3 bution--by over 100%, they will only increase not system generating capability by 1RN.

The impact on rates of placing an increase of more than 100% in the rate base of net plant utility, if Midland goes into commer-cial operation, will be staggering. , To develop their case, the Attorney General's office and Nichi-gan Citizens' Lobby produced three witnesses who were experts in their respective fields. They included (1) Dr. Ilichard ilosen, a physicist from Boston, Massachusetts, who modeled the joint CPCO-DECO (Consumers Power-Deterit Edison Company) system year by year to 1995 and then to 2020; (2) Dr. William Belmont, an economist from Wash-ingtcu, D.C.,who testified to the annual inflation r, ate and discount rate to be used and the additional risk premium for additional nu-cicar generating capacity; and (3) Mr. Jatinder humur, an engineer, who testified on the overall cost for Midland (based on historical project cost and Bechtel's lack of cost control measures on the Mid-land project), and proper inputs to use on any economic comparison of nucicar fixed and variable expenses with. coal. As a result of the combined findings of these experts, whose work was upheld through cross-examination, a number of startling and significant facts were brought to light on the real costa of the and Midland n-plants /on new data regarding the dec.ining demand for power and therefore, the need for the facility. Some very important conclusions about what must be done to pro-tect Consumers Power Company ratepayers and shareholders,the economy of the State of Michigan and the viability of Consumers Power Co. as a public utility were reached. These facts must become part of the record of the OM-CL li-censing proceedings for these plants. These facts have aircady been raised in 1  ! c d-

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ings--but without the detailed background provided by the AG-NCL , Brief--in the affidavit of James Cook, attached to Applicant's seismic deferral motion.-(3/18/81) the Initially, /AG-NCL Urief 'trges the Midland Public Service Com-mission to recognize the changed circumstances from where this plant

         -was conceived some 17-18 years before it is now planned to operate.

Not only is the power from this plant no longer needed for a number of years, because expansion in Michigan's economy of the 19GO's andearlyN0'sisnolongerpresent, but the facility that was 3256 million has had a 1,100% cost overrun ana i s no longer the same plant for which securitics were initially approved. The US NRC Practice and Procedure Digest---Supplement I to Digest No. 2---NUREG 0386 (Feb., 1980) states that "considerabic weight should be accorded the cicetrical demand forecast of the state's utilities commission that is responsible by law for providing i current analysis of probable ciectrical demand growth and which has conducted public hearings on the subject."

                 "A party may have the opportunity to challenge the analysis of such copmissions. Nevertheless, where the evidence does not show-such analysis is seriously defective or rests on a fatally flawed foundation, no abdication of NRC responsibilities under NEPA results from according conclusive effect to such a forecast."           Carolina Power and Licht, (Shearon darris Nuclear Power Plant, Units 1-4) ALAB-490, 8 NRC 234, 240-41 (1978),

3 As for the need for steam and power for Dow, that Company has already stated that they plan to build a power plant using their i newly developed coal gasification process if the Midland n-plants' don't come on line according to their contract with Consumers Power Co. This alternative power source for the needs of the Dow Chemical

 .                                              7 Co. would meet the NEPA considerations which state that unless a " pro-posed nuclear unit has environmental disadvantages when compared to alternatives, differences in Cinancial costs are of littic concern."

(Ibid, VI-Gen. Matters - NEPA 12.2.6) Public Service Co. of Oklahoma et al. (Black Fox Station Units 1 and 2,.LBP, 78-26 8 NRC 102, 161 1978.) Coal gasification power plants have definito environmental advantages, especially in a populated area. Dr. Rosen, expert witness and physicist, determined that the trend of cost overruns is almost without comparisan at Midland and that they relate quite specifically to the nature of Consumers Power Co.'s management of the project. The soil settlement probica, which is the main reason for this OM-OL proceeding, has become a significant additional cost which must be added to the calculations of this AG-MCL Brief to further skew the cost-benefit analysis against those n-plants. It has al-

ready been identified that the soil settlement probicm is a major and recent quality control problem--one out of a long and alarming his'.:ry of such problems--that is a part of the record of this plant's cora cruc tio n. (Memo to H.D. Thornburg, from James E. Koppler, Di-rector, Region III, Fidland Summary Report, February 15, 1979.)

The increased costs that have aircady been identified and made a part of the record of this hearing, must be added to the discovery and research of cost data that the AG-MCL Srief supplies in order to make a more complete record for this proceeding. For example, Barbara Stamiris, a party to these proceedings, had as one of her interrogatories a question specifically directed to getting the cost of the soil settlement remediation pro-  : cedures so far. She roccived a response dated Fearuary'21, 1981 1 l l

   .'                                    -6 wriich says that as of tilat date, thc_ cost was $16,920,000. Consumers Power Co. expects to keep ypdating this information.

There are more costly remediation~ effects still being planned. For example, instead of putting caissons under one end of the aux-iliary building which would give that structure a bridged effect and place unusual stress on a control tower at the other end, it is - now planned to have a concrete structure extending down to the glacial till and extended under most of the structure instead of plac-ing just the caissons at one end. This is a costly addition to the n-plant in Consumers Power Co. 's efforts to overcome the defects of the poor soil compaction on which this and other buildings of the plant were built, as well as part of the dike of the cooling pond. Another conclusion of the AG-CML Drief was that data for the nuclear industry as a whole show that Midland is already projected to be at least S~00 to 5800 million over the average predicted cost independent of TMI-related costs. The AG-MCL Drief further concludes that Midland cost overruns are due to company mismanagement and regulatory imperatives. , Mr. !(umar, the engineer expert witness, determined that the principal reasons for Midland cost overruns are: (1) Costs and delays associated with guvernment regulations and requirements; (2) changes in design independent of government regulations (such as soil settle-ment remediation costs, correcting other quality . control failures, etc.); (3) Consumers Puser Co. and Dechtel's tendency to make un-reasonably low forecasts; (4) Cost plus contracts with the contractors; and (5) deficient cost control mechanisms. The Brief points out that the Midland construction contract is on a cost-plus contract, passing /into the total cost of the project all l l

A e wage escalations, certain sub-contract costs, and all I!cchtel costs. Bechtel, the contractor, operates on both cost-plus and fixed fce basis. There should be careful external controls on cost-plus items, but Bechtel lacks such controls, according to the Drief. Uechtel never checks its San Francisco National extdation estimates against Midland experience, never compares budget and actual allocated item expenses periodically and in writing, fails to investigate the rea-sons for overruns, and no one at Cochtel has ever estimated the num-bor of subcontracts or their dollar amounts tied to escalation in-dices. These facts are all documented in the Orief. Furthermore, Consumers Power Co. through Bechtel, has paid for shoddy and unsatisfactory work, such as the Zack construction and heating work, and other quality control failures. Consumers Power Co. has not responded to Dechtel cost forecasts There was no record made in writing.jby the participants of the important June 25, 1980, meeting where Consumers Power Co. convinced Ucchtel to change its projcctedi fuc1 load dates to a schedule which would meet the Dow steam contract. In fact, the June 25 schedule change meeting incorporated no discus-sion of project cost, in spite of the additionn1 labor that would be involved. This AG-MCL Brief states that Consumers Power Co. 's direction to accelerate the construction schedule by 8 months to meet the Dow steam contract will produce 580 to S160 million more in costs. Bechtel now estimates its portion of the project at 31.884 bil-lion, taking the project to a total cost icvel even higher than that officially predicted. The Brief concludes that Midland cost trends will resu1*, in a

    .                                    -M-total'-project cost of i~.5 to Lt.5 billion.

Besides the facts about cost escalations that this Brief re-veals,there is additional evidence of further unusual cost increases that have aircady been made a part of the record in these OM-OL pro-ceedings, beyond those alreply discussed that arc specific to soil i compaction remediation efforts. For example, with such a bleak history of quality control problems to overcome (the. soil settlement issue among them), Consumers . Power Co. has come up with an elaborate and costly plan for improvis-ing future QA performance at inc plant. Consumers Power Co. outlined this new plan for the NRC at the Region III Cffice in Glen Ellyn, Illinois,on March 15, 1981. These plans call for hiring some of the country's most prestigious (and costly) management atalysis personnel primarily to assess the that which is hardware already in place rad'to be added, and to improve management attitude. Although this will again add greatly to the cost of the Midland units, and in a way not foreseen by the AG-MCL Brief, it can hardly be as effective as Consumers Power Co. claims._ llow can hard-I ware that is in place be ovaluated Ghen much of it is built in or covered with concrete, now that the plants are 70% completed? What improvements in attitude at this late date will overcome the work done under,the financial and time schedule pressures that Consumers has been experiencing that have resulted in poor quality control in various waysy and particularly in their handling of rem-ediation of the soil settlement problems? This course of action has directly violated the NiiC's Standard Revicw Plan - Soc. 17.1 on Q.A.- which refers to the accessity to maintain QA independence from cost schedules in Q.A. positions.

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o llow can Consumers Power Co. and their QA gain from hiring management QA consultants who may, indeed, if they do their job, re-quire re-working certain parts of the plants, require time with key construction management personnel to achieve their QA goals, as well

          .as institute other courses of action which will be in conflict with the severe financial and time schedule pressure which will continue to be present at this facility as long as the Dow contract expira-tion dato remains an essential goal to meet for Consumers Power Co.?

In comparing the costs of the nucicar plant with coal, the Brief points out that Consumers Power Co.'s Campbell 3 coal-fired plant was started 5 years later than Midland (1971) and finished in 1980. It is 770 Mh', and the total project cost is approximately 3G00 mil-lion. Thus, had Midland been coal fired, even starting it 5 years later (which would increase costs due to inflation) two coal units the size of Campbell 3 could have bcon built for not more than 1.2 billion, and it would have provided an additional 200 plus megawatts. As It now stands, the cost for Midland is at least $2,000 per KhE, while the cost of Campbell 3 is less than 3800 por Kh'. CONCLUSION The importance of the data on the cost-bonefit analysis of the Midland n-plant that,has been developed by the Attorney General and Michigan Citizens' Lobby for their Brief for Securities Case '.'o. U-6360 combined with the facts on costs and quality control problems that have aircady been made a part of the record of these CM-CL

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on soil settlement hearings cicarly point to the fact that it is essential to the economy of Michigan and the protection of Consumers Power Co. ratepayers and shareholders to cancel the Midland n-plants,

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build coal or gas fired units in their place, and restore sunk costs of the Midland n-plants to_ Consumers Power Co. At the annual shareholders' meeting of Consumers Power Co., John Selby, President of Consumers Power Co., stated that the company is pouring all of its resources into Midland, because it is essential to try to complete the project before the Dow Steam Contract expira-tion dato. The annual report states, "In the long run, the company's liquidity depends on its ability to finance and complete the Midland plant as scheduled, and upon the timely recognition of the invest-ment in the completed plant in the company's electric rates." John Selby himself referred-to this situation as a " Catch-22" since Consumers Power Co. must finish the plant in order to recover its investment. In such a climate of financial desperation, pri. nary considera-tion such as public health and safety, realistic electrical demand forecasts and pret: dent management that would protect the ratepayer are relegated to secondary importance. Thi.9 Licensing Board cannot ignore these unusual and devas-tating circumstances under which the Midland n-plants are now being constructed.

   ,o UNITED STATES OF AMERICA                                      .-

NUCLEAR HEGULATORY COMMISSION In the Matter of. Docket Nos. 50-329-0M 50-330-0M CONSUMERS POWER CCMPANY 50-329-LL 50-330-OL (Midland Plant, Units 1 and 2)

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CERTIFICATE 0F SER*iICE I hereby certify that copies of TESTIMONY BASED ON THE BRIEF OF PATRICK J. DEVLIN O'F Tl!E ATTORNEY GENERAL'S OFFICE OF MICllIGA.], AND ALAN J. BARAK, ATTORNEY FOR MICl!1GAN CITIZENS' LOBBY ON Tile COST-BENEFIT ANALYSIS OF Tile MIDLAND N-PLANTS TilAT IS DIRECTLY RELATED TO DAT% DEVELOPED TIIUS FAR IN Tile OM-OL PRCCEEDINGS ON TiiE SOIL REMEDI-ATION ISSUES, Ti!E SUBJECT OF TI!ESE PROCEEDINGS, were served upon the following persons by depositing copies thereof in the United States Mail, first class postage, on this '$th day of June, 1981. Frank J. Kelley, Esq. William D. Paton, Esq. Attorney General of the Counsel for the NRC Staff State of Michigan U.S. Nuclear Regulatory Commission 720 Law Building liashington , D.C. 20555 Lansing, Michigan 48913 - Charles Dechhoefer, Esq. /'y,' ' Atomic Safety and Licensin~ a'd Board Panel i;/ , U.S. Nuclear Regulatory Co nmission i-'

                                                              "Q .v u, j '.J oc     ,.i Mr..C. R. Stephens, Chief                               ' g' .

Docketing and Service Section 's. ' Office of the Secretary U.S. Nuclear Regulatory Commission l'/ N57g %, , ,> 20555 liashington , D.C . 5 Michael Miller, Esq. ( ' Isham, Lincoln and Deale L'W A sl, e' _ dO One First Natic nal Plaza MARY P. blXvLAIR Suite 4200 5711 Summd/ set Drive Chicago, Illinois 60603 _ Midland, Michigan 48G40

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