The Empire State Atomic Development Associates, a group of seven New York utilities, has provided a grant of $2 million for the project. 3. The utility load contracts: Agreement has been reached with five utilities on contracts to reprocess their loads. Each of these contracts lasts for 15 years, with the right of the utilities to terminate the contracts after 5 years in case NFS fails to meet a competing offer. NFS has not yet concluded agreements with any other utilities largely because its staff has been fully occupied with the other negotiations. We have provided draft contracts to all of the utilities with anticipated loads and propose to enter into detailed negotiations in the near future. The basic charge of $23,500 per ton for low enriched fuels includes the cost of perpetual waste care established by ARDA. A turnaround charge at the same rate is also applied. Incremental charges apply to more complex fuels. The margin of our profit is thin and it will not be easy for NFS to realize a fair return on its investment. The Atomic Energy Commission has secured the benefit of the utility negotiations and is subject to the same charge schedule as the utilities. By the same token, the utilities have in turn benefited from the AEC negotiations. 4. The AEC load contract: While preliminary discussions of an AEC fuel load contract commenced as far back as May 1962, the Commission declined to enter into detailed negotiations until NFS had reached substantial agreement with a number of utilities. This in turn was not possible until the negotiations with ARDA and with Bechtel, as well as the banks, had progressed to a point where NFS could determine with reasonable accuracy its most important costs and therefore its charges to the utilities. The basic terms of an AEC contract were finally communicated to NFS in a letter from the Chairman of the AEC dated December 26, 1962. Thereafter the Commission staff and the representatives of NFS have worked expeditiously to solve the many technical details of the contract. The charges and general conditions are the same as those provided in the utility contracts except that the Commission has provided maximum flexibility in scheduling its loads so as to permit optimum operation of the plant. The Commission, however, in accordance with its previous policy pronouncements, is providing NFS a fuel load of 125 days per year for a period of 5 years, together with the backlog of utility loads which will be turned over to the Commission prior to the commencement of operations of the NFS plant. The commitment represented by the AEC load contract for 500 days would be $11,687,500 plus turnaround charges. This excludes any backlog generated by private power reactors such as Yankee or Commonwealth Edison. For more complex fuels additional charges related to the actual costs of specialized waste tanks and waste care charged to ARDA would be added. As of this point, NFS has not been definitely advised which fuels the Commission may choose to have processed. The Commission load excluding the backlog of any fuels from commercial reactors during the first 5 years of operation would represent approximately 34 percent of the anticipated plant capacity. 5. Licensing: In July 1962 NFS applied for a construction permit and operating license for the facility and after a public hearing held in Olean, N. Y., and Washington, D.C., has obtained a provisional construction permit effective April 30, 1963. NFS furnished much more material concerning the details of the plant than is ordinarily furnished initially in applications, for example for power reactors of advanced design. The licensing procedures of the Commission are of necessity time consuming and expensive and require much study and effort both by the Commission and by the applicant. It is a tribute to the Licensing Division that we have been able to hold to our target schedule which enables us to proceed promptly with construction at the site and be far advanced when winter weather seriously inhibits construction in the Buffalo area. FINANCIAL ARRANGEMENTS Our financial arrangements stem from the negotiations indicated above. At this point I shall summarize certain main features of our financing. The most pertinent financial data in our license application is submitted herewith. The stockholders of NFS-W. R. Grace & Co., and American Machine & Foundry Co.-are furnishing to NFS $8 million in cash ($6 million by Grace; $2 million by AMF). In addition Grace is turning over to NFS its cold uranium processing operation conducted at Erwin, Tenn., valued at $2.5 million and AMF is turning over to NFS its fuel fabricating facility located at Port Hope, Canada, valued at $715,000. Parenthetically, I would like to state at that point that both of those figures are actual book value figures and are not intended to imply that is the value of the business, which is somewhat larger since both are operating profitably. The advantages to NFS of having these additional operations are several: Both the Erwin and Port Hope operations have in the past been consistently profitable and should furnish during the early years of operation of NFS a supporting cash flow which, if necessary, could be utilized in the processing operation. Likewise the staffs of the Erwin and Port Hope operations, while not completely interchangeable with those of the chemical processing operation, have sufficient experience in the handling of nuclear fuels so that they could be utilized if needed. This permits the NFS chemical processing operation to proceed with less overhead for day-to-day operations than would otherwise be necessary. NFS has arranged for loans from the Manufacturers & Traders Trust Co. of Buffalo and Morgan Guaranty Trust Co. amounting to $13,500,000. ARDA is providing the land valued at $500,000 and leasing to NFS fuel receiving and waste storage facilities worth $8 million. ESADA is providing $2 million as a grant to NFS. The total funds available of $31,800,000 should be adequate to construct the plant, to provide working capital, and to cover reasonable contingencies such as delays in startup. On the basis of the anticipated load both derived from commercial sources and from the AEC, we anticipate 300 days of annual operations which would permit us to realize some 3.6 percent after taxes on the total capital employed. We estimate that the breakeven point would require somewhere between 230 and 240 days of operation annually. We believe that our financial situation is favorable and that only under entirely unforeseen conditions would further equity capital be required to insure the continued operation of the plant. NFS and the equity owners are not unaware that business risks of considerable magnitude are faced. The anticipated return even in the event of 300 days of operation is less than that usually anticipated in the chemical industry for projects of this size and risk. I am informed that the same holds true for this project in comparison to the expansion programs of AMF. Furthermore, we can achieve this return only through continuous vigilance both as to our operations and our costs; only if we can avoid extended shutdowns and if the fuel load which we anticipate actually comes into being. If the available fuel load would permit operations exceeding 300 days a year a large part of our profit under our load contracts is rebated to our customers: both the utilities and the Commission. In other words, any measure of profitability depends a great deal on our vigilance. One may logically ask why two large business corporations interested in profits have embarked upon a venture where profits are limited and hazardous, and where there are strong elements of risk. We believe that the reality of these risks is underlined by the fact that the NFS project is the only response in 7 years to the Commission's constant encouragement of the commercial processing of nuclear fuels. I should explain it is the only response that we know of. I believe that the general philosophy of NFS and its parent companies rather than any detailed mathematics furnished the chief motivation of NFS. The managements of both Grace and AMF have at all times realized that we are engaged in a cooperative pioneering venture with the utilities and with the Atomic Energy Commission. We expect to make a modest profit through an efficient and alert management. We shall be gratified if we advance the day when nuclear power becomes fully competitive in price with ordinary power. Finally, it is always possible, when we explore frontiers in technology, that we may acquire knowledge and know-how which would help to earn a normal profit necessary if a private enterprise is to grow and expand in pace with the development of our country. Thank you. AEC'S COMMITMENT UNDER PROPOSED CONTRACT Representative PRICE. Thank you, Mr. Runion. I think you presented your position very well in a fine and precise statement. Is your figure of the commitment represented by an AEC load contract of $11,687,500, plus turnaround charges as shown on page 8 of your statement (see p. 80) consistent with the $21,200,000 figure given us this morning by the Commission? Mr. RUNION. That is right; insofar as it goes it is consistent. Representative PRICE. Would you explain for the purpose of the record just what is involved in turnaround charges? Mr. RUNION. Yes, as you may recall, in the conceptual plant, the Commission had allowed for the cleanout and maintenance of a plant between processing for different customers. They had a definitive formula for that and that turnaround charge is an added cost to the processing to the customer. You start the processing with a clean plant and you end up with a clean plant. Representative PRICE. In the $21.2 million commitment by AEC, about half the cost is for turnaround charges and the other half is for reprocessing the load. Is that a normal ratio? Mr. RUNION. Are you speaking as to the amount of time we have allowed? Representative PRICE. Your turnaround charges are almost equal to the reprocessing cost. Mr. RUNION. Yes. That is because the standby costs of this plant are very large. Representative PRICE. I ask only for the purposes of the record to explain the difference between the $11 million figure and the $21 million figure. Mr. RUNION. Yes, I will come back to that. As to the turnaround charge itself, even though you are not processing fuel, the plant maintains its full staff and operating almost as though it were processing fuel. As to how we arrived at the $11 million figure, that is simply by taking the 100 days a year times 5 years times the basic charge of $23,500 a day. Representative PRICE. Dr. Wilson, do you have any comment on that point? Dr. WILSON. The difference is primarily that the $19 million assumes that all the other private fuel will come to AEC and will pay them a profitable rate for processing, which is not assured. We are under obligation to take it, but they are under no obligation to give it to us. Representative PRICE. Does that explain the turnaround then? Dr. WILSON. That doesn't explain the turnaround. That explains the difference between the $12 million and $19 million. Mr. RUNION. The full charges that the Commission will incure can vary, depending on how they group or batch or lot their fuels together for a given quantity of fuel processed. Their obligation is again for a certain number of revenue days and they can use those days for processing fuel, for turning the plant around, or for research and development, or any other purpose they might choose to pay us for. Our purpose was to have 125 days of the plant reimbursed. Representative PRICE. But the manner in which you state the Commission's commitment on the load contract in your statement is not inconsistent with the $21.2 million figure which the Commission gave to us. Mr. RUNION. That is my understanding. It is consistent insofar as I have gone. (Additional material submitted for the record by Mr. Runion follows:) RECONCILIATION OF NFS STATEMENT OF AEC FINANCIAL COMMITMENT RESULTING FROM THE LOAD CONTRACT AND AEC ESTIMATES The NFS statement to the committee contains the following figure: "The commitment represented by the AEC load contract would be $11,687,500 plus turnaround charges. This excludes any backlog generated by private power reactors such as Yankee or Commonwealth Edison. For more complex fuels additional charges related to the actual costs of specialized waste tanks and waste care charged to ARDA would be added. As of this point, NFS has not been definitely advised which fuels the Commission may choose to have processed." The figure of $11,687,500 is calculated through multiplying the basic NFS charge per day by 500 days. However, the figure should have been $11,750,000. This is the only figure that we can ascertain in advance with absolute certainty. This figure will be increased by the following types of charges: (a) The AEC has guaranteed a total load (excluding the backlog of fuels generated by private power reactors) of 625 days. However, because of certain provisions in the fuel load contract, the charge for 125 days out of the 625 could be substantially less than $23,500 per day. In the NFS statement the charge for the additional 125 days was not included in the figure of $11,687,500. (b) As indicated in the NFS statement to the committee, the AEC will be charged for the backlog generated by private power reactors. However, the AEC will credit against such charges the amounts received in settlement from the private power reactors which would be the cost of processing at the rates offered by the Commission. (c) As pointed out in the NFS statement to the committee additional charges would accrue to AEC if AEC determined to furnish more complex fuels. Since NFS has not been advised of fuels which the Commission chooses to have processed, NFS cannot ascertain the extent of those additional charges. (d) To the basic charges must also be added escalation which would depend upon the time when the AEC fuels are processed, and anticipated escalation at these times. The report to the Joint Committee from the General Accounting Office, based on AEC figures, covers all these additional factors. The GAO estimated payments to NFS for chemical processing are as follows: Fuel furnished from Government reactors (625 revenue units). Total payments__- $18, 300, 000 2, 900, 000 21, 200, 000 NFS has checked these figures and finds that they are consistent with the NFS figures, on the basis of the assumptions made in reaching these figures, that: (a) The fuel from the Government reactors will be as hypothesized by AEC; (b) The time of the shipments and, therefore, charges for escalation will be as hypothesized; and (c) The charges for processing the backlog of non-Government fuels will be as hypothesized. STAFFING OF PROPOSED PLANT Representative PRICE. The Atomic Energy Commission's committee of technical consultants said in December 1962 that the estimate of the 129 employees, made by Nuclear Fuel Services, should be at least doubled. Mr. RUNION. The staffing of any plant involves a judgment. It is our judgment that what we have provided is adequate. In my own opinion, I believe the technical committee did not fully appreciate the rather rigid concept of this plant as a production plant as opposed to a developmental type of facility with which the Commission or with which these people may have been familiar. To the extent that we were to take on a substantial research and development program or process development or equipment development, our staff would be inadequate and would have to be increased. Also to the extent that we were to have emergencies possibly during the startup we may have to bring personnel in from our other plants for short periods of time. But it is our judgment that the staff we have projected for the 5-year period would be adequate to sustain our normal operations. Representative PRICE. You still stand by your figure of 129 employees, is that right? |