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net effect will be to make them inapplicable to the project as a whole. To the extent that additional funds are required to complete the project, AEC might, in effect, assume costs incurred by PMC that were considered unallowable under the proposed contract.

We believe consideration should be given to the desirability of adopting AEC's cost principles and making them applicable to all funds received and expended for the project. (See p. 26.)

We have discussed the report with AEC representatives, and have considered AEC's comments in finalizing the report. As agreed with your office, we have not obtained comments from PMC, TVA, Commonwealth, and BRC.

We are sending a copy of this report today to the Vice Chairman of your Committee. As agreed with your office, we are sending copies to the Chairman, Atomic Energy Commission. We do not plan to distribute this report further unless you agree or publicly announce its contents.

Sincerely yours,

Elmer A. Atacts

Comptroller General
of the United States

APPENDIX

ANALYSIS OF PROPOSED CHANGES TO THE

ATOMIC ENERGY COMMISSION'S COOPERATIVE ARRANGEMENT

FOR CARRYING OUT TIJE

LIQUID METAL FAST BREEDER REACTOR

DEMONSTRATION PROJECT

BACKGROUND

The Atomic Energy Commission (AEC) plans to enter into a cooperative agreement with certain electric utilities and othe organizations for the design, construction, and operation of the Nation's first liquid metal fast breeder reactor demonstration plant. On June 4, 1971, the President announced the adoption of a national energy policy which included a goal for the commercial demonstration of a breeder reactor concept and stated that:

Our best hope today for meeting the Nation's
growing demand for economical clean energy lies
with the fast breeder reactor. Because of its
highly efficient use of nuclear fuel, the breeder
reactor could extend the life of our natural ura-
nium fuel supply from decades to centuries, with
far less impact on the environment than the power
plants which are operating today.

Section 106(b) of Public Law 91-273, as amended, provides that, before AEC enters into any arrangement or amendment thereto for participating in the research and development, design, construction, and operation of a liquid metal fast breeder reactor demonstration plant, AEC must submit the basis for such an arrangement to the Joint Committee on Atomic Energy. The law further provides that the basis for such an arrangement must lie before the Joint Committee for 45 days while the Congress is in session unless the Joint Committee waives the period.

On August 11, 1972, AEC submitted to the Joint Committee a Memorandum of Understanding describing the basis for a cooperative arrangement among AEC, the Tennessee Valley Allthority (TVA), the Commonwealth Edison Company, the Project I'lanagement Corporation (PMC), and the Breeder Reactor Corporation (BRC). PMC was created in March 1972 to administer the contracts for the design, construction, and operation of the plant, BRC was created at the same time to collect contributions from various electric utilities and to remit the collected funds to PMC to carry out the project.

The memorandum set forth the principal features of a cooperative arrangement and the conditions under which a breeder reactor demonstration power plant would be designed, developed, constructed, tested, and operated on an electric utility system. The parties to the proposed cooperative arrangement intended the memorandum to be a basis for negotiating contracts among the parties. The Joint Committee held hearings on the proposed arrangement on September 7, 8, and 12, 1972, and concluded that the basis for the arrangement was in accordance with the law.

The memorandum showed that the demonstration plant was to cost an estimated $699 million. Under the memorandum, AEC will contribute about $92 million in direct assistance and will provide assistance estimated at about $ 330 million in research and development, services, facilities, equipment, and special nuclear materials. The utility companies are expected to contribute about $ 254 million and reactor manufacturers are expected to contribute about $20 to $40 million. In addition, TVA will make available some of its land on the Clinch River, near Oak Ridge, Tennessee, available for constructing and operating the plant and for the necessary transmission links to the plant switchyard.

According to AEC the utilities, as of January 31, 1973, had made legally enforceable 'pledges to the project totaling about $237 million.

On January 26, 1973, AEC submitted to the Joint Committee an amendment to the memorandum and two proposed contracts, one between PMC and BRC and the other among AEC, PMC, TVA, and Commonwealth. The amendment to the memorandum concerned:

--The number of contracts among the parties.
.-The management structure and responsibilities of the

parties carrying out the project, including assign-
ment of AEC employees to serve on the PMC staff.

--The prerequisites for the start of construction.

--The responsibility for technical supervision of the

nuclear steam supply system.

--AEC's responsibility for indemnification of PMC, TVA,

and Commonwealth.

to

-- Arbitration procedures if the parties disagree as

whether termination criteria have been met.

to

As part of the proposed cooperative arrangement submitted to the Committee on January 26, 1973, AEC will seek legislative authorization to (1) permit two AEC officials or employees to serve on the PMC Board of Directors and to permit up to five AEC employees to serve on the PMC staff, (2) provide for arbitration if the parties disagree as whether project termination criteria have been met, (3) permit AEC to indemnify PMC, TVA, and Commonwealth, and (4) assume custody and ownership of the facility if TVA decides not to purchase the plant at the end of the term or upon earlier termination and assume the costs of decommissioning, removing, and dismantling and other plant disposal

If at any time it appears that additional resources will be required to effectively continue the project, AEC will seek the necessary legislative authorization and funds.

measures.

The following sections present our analysis and views on the amendment to the memorandum and other matters relating to the proposed cooperative arrangement which may be of interest to the Joint Committee.

CONSOLIDATION OF CONTRACTS

The original memorandum called for PMC and BRC to enter into a contract setting forth the terms and conditions under which the electric utilities' contributions to the project would be collected by BRC and remitted to PMC. It also called for AEC to enter into separate contracts with PMC, TVA, Commonwealth, and BRC for carrying out the design, construction, and operation of the demonstration plant.

Subsequently, the parties decided to consolidate the contracts into only two contracts: one contract among AEC, PMC, TVA, and Commonwealth and the other between PMC and BRC. According to AEC officials, this consolidation was made for ease in administering the contracts. When the two proposed contracts are concurrently executed, each party will have the direct contractual obligation called for by the original memorandum, except that there will not be any direct contractual obligation between AEC and BRC.

The original memorandum provided that AEC and BRC would enter into a contract whereby BRC would:

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2.

Give AEC reasonable notice of its board of directors' meetings and the opportunity to attend them as an observer and otherwise keep AEC generally informed of its activities.

3.

Afford AEC reasonable opportunities to consult
with BRC.

The proposed contract between BRC and PMC has the same provisions except for item 1 above. Under the original memorandum, AEC would have had direct legal recourse against BRC if BRC breached its contract with AEC. We understand AEC's position to be that, under the proposed contractual arrangement, its legal rights would have to be exercised under its proposed contract with PMC, TVA, and Commonwealth. Under this arrangement, therefore, it appears that AEC may not have any directly enforceable legal rights against BRC.

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