Senator MONTOYA. Have there been any other amendments to the criteria since then?

Mr. PARLER. To the best of my knowledge, no, sir.

Representative Moss. I have no statement. I think we should hear from our colleague and then I think we should hear from the General Accounting Office.

Senator MONTOYA. Congressman Coughlin, we are very pleased to have you here today. I understand that you have a statement.

STATEMENT OF HON. LAWRENCE COUGHLIN A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA

Representative COUGHLIN. Thank you very much, Mr. Chairman and gentlemen of the committee. I certainly appreciate the opportunity to appear before you this morning.

I have a prepared statement which I would ask be inserted in the record. I would like to summarize it.

Senator MONTOYA. Without objection, it will be made part of the record at this time and you may proceed to summarize it, sir. [Prepared statement of the Honorable Lawrence Coughlin follows:]

PREPARED STATEMENT OF REPRESENTATIVE LAWRENCE COUGHLIN

Mr. Chairman and members of the Joint Committee, I very much appreciate the opportunity to appear before you this morning to express my concern about the present contractual arrangement for the Clinch River Breeder Reactor project. I share Congressman Moss' view that the contract negotiated between private industry and the Energy Research and Development Administration shows too little financial participation by the private sector compared to its management role and at the expense of the Federal Government-in actuality, at the expense of the American taxpayers-along with an unfortunate and dangerous potential for built-in conflicts of interest.

If private interest, and investment, is wanting, then it would seem that the whole breeder project is estimated by the private sector to be an inefficient and unproductive source of energy. And I happen to believe that the private sector relies on hard analysis.

Specifically, my opposition stems from the fact that last year's authorization bill deleted language contained in section 106(a) of the authorizing legislation for Clinch River, P.L. 91-273-language which stipulated that "assistance which the Government undertakes specifically for this demonstration plant shall not exceed 50 per centum of the estimated capital cost of such plant . . ." It is my understanding that this language originally had been included at the request of the esteemed former member of this Committee, Mr. Hosmer.

In an effort to restore the intent of this deleted language and to require that industry assume its reasonable burden of financial risk of the CRBR, I have proposed to the Committee that language be included in the FY 77 authorization bill to obligate private industry to pay at least 50 percent of all total cost increases in the CRBR over $2 billion. This would allow for an additional $50 million escalation in the project, now estimated at $1.95 billion.

I was privileged to present this proposal, in the form of a letter to Chairman Pastore, which was signed by Congressman William S. Moorhead and me. Including this language, I believe, would have a concerted and beneficial effect on controlling costs of the CRBR. Furthermore, requiring the utilities to assume an equal share of any future overruns would demonstrate clearly how strong is their commitment to the project and their confidence that it is a cost-effective means of generating electricity.

As we all are well aware, the proportion of industry's contribution to the total project has rapidly dwindled. At the outset of negotiations, the share to have been borne by the utilities and reactor manufacturers was set at 39 percent. It now has declined by 300 percent to only 13 percent. Moreover, in last year's debate on the ERDA authorization, Mr. Roncalio stated that he and the Joint

Committee had tried unsuccessfully to get the utilities to commit more of their own funds to the project.

Of course, inflation was an important factor in escalating Clinch River costs, thus decreasing the proportion of utility contributions. I think we also must note, however, that only about half the increase of the CRBR can be attributed to inflation.

In fact, a General Accounting Office review found that major Federal civilian construction projects averaged 81 percent above original cost estimates while Clinch River climbed to 179 percent above the 1972 cost projection. Given these facts, I feel the case is solid for tighter fiscal mechanisms to be placed in force. In analyzing various factors which could contribute to further increases, I am concerned that poor management relations at the CRBR could have substantial impact. As the GAO stated in its April 4, 1975, report on the CRBR arrangement: "In our opinion, the various documents submitted to the Joint Committee do not clearly delineate the manner in which the project will be managed, but rather contain ambiguous and seemingly inconsistent language regarding responsibilities and authorization for management." (Page 4)

The recent GAO letter to Mr. Moss makes clear that in spite of renegotiation of the contract, effective and efficient management relationships have not been developed. As the letter pointed out:

"It seems that the energy agency's inability to obtain, during the negotiation process, the corporation's agreement (1) on more specific language defining the role that the corporation's board of directors will have in managing the project ... foreshadows even more serious problems if the energy agency attempts to exercise its management prerogative during performance of the contract." (Page 2)

In sum, a substantial cost overrun potential remains at Clinch River because of project uncertainties and unclear management relationships. Responsible and prudent judgment dictates that steps must be taken to insure that participants in the project have strong and sufficient incentives to keep costs at a minimum. Thus, the language I submit has the single purpose of providing a strong fiscal incentive to hold costs at the CRBR to a minimum without imposing a cost ceiling on the project. Because the present contract places all the open-ended financial risk on the Federal Government, my approach would more equitably spread the risk burden by requiring private enterprise to exercise greater fiscal responsibility and restraint.

ERDA has acknowledged that cost consciousness of private industry is an important benefit of financial participation by the industry in demonstration projects on energy.

In fact, the revised Program Justification has stated that one of the major objectives of the Clinch River project will be to "(1) demonstrate . . . the economic feasibility in a utility environment of a LMFBR central electric power station."

As ERDA has stated in response to questions from the House Science and Technology Committee:

"We believe cost sharing is a particularly effective means of implementing this philosophy of joint participation. Cost sharing serves as a pragmatic indication that a project has credibility by the standards of the private sector."

In advocating that the private sector share in the overruns, I am not espousing a new approach. In fact, the President's energy message to the Congress in June 1971, stated:

"Industry should play the major role in (demonstration projects) . . ., but government can help by providing technical leadership and by sharing a portion of the risk for costly demonstration plants."

In addition, ERDA told the Senate Interior Committee that present ERDA policy for fossil programs is to require 50 percent non-Federal funding in demonstration plants in the construction and operating phases. If it is fair to require 50 percent private funding of the capital and operating costs of fossil projects, it certainly is fair that the private participants be required to contribute 50 percent of the cost overruns for Clinch River. This is the position of the Office of Management and Budget as well.

Most important, I believe the utilities should contribute a greater share than under the present contract since they retain a substantial measure of managerial control and will be in a position to affect the total outlays. Potential conflicts of interest would tend to be minimized if the utilities had to share the overrun

burden on an equal basis with the Federal Government. To buttress by contentions, I cite the following:

1. Eight of the 19 top management positions and 130 of the 200 project organization positions will be staffed by private industry personnel.

2. The contract requires that ERDA manage the project through the integrated management structure (4.1.12). This means that the decisions ERDA makes will be implemented to a significant degree by non-ERDA personnel. Likewise, if ERDA is required to manage the project through the private participants, the private participants are thereby given a great amount of control over the project.

3. The General Accounting Office reports of April 4, 1975 and March 26, 1976 also make clear that ERDA, even though it officially controls the project, would not be able to exercise the usual management prerogatives:

(1) The revised contract places ERDA program funds under a complicated tripartite decision system. Under the present contract, they are under ERDA's sole control.

(2) The contract grants the private parties the right to end their participation in the project if a major design change is adopted to which they object.

(3) Since the primary purpose of the CRBR is demonstration, and the private parties should withdraw, the project would lose its rationale. This would be an extreme embarassment to ERDA. Therefore, it is possible that the private participants could use threats of withdrawal in order to force ERDA not to exercise their normal management prerogatives.

In concluding my remarks, I again would like to emphasize that my concern with the CRBR-and the LMFBR in general-is that our Federal dollars are invested wisely. My interest in this project originated with my service in the 92nd Congress on the House Science and Astronautics Task Force on Energy. It was then that I began to question the projected cost/benefits of the LMFBR. Much controversy has been raised about the ultimate viability of this project and its likelihood of eventual commercialization. Because of the large portion of the total energy R&D budget which the LMFBR now consumes-to the detriment of other possible alternatives-I think it is vital that our judgment on this matter be sound. It is our responsibility to provide this country with the energy for future generations.

Furthermore, I do not believe that we are being unfair to private industry in proposing that they bear a greater share of the project costs. After all, if the LMFBR is a success and commercialization does, in fact, result, the utilities are the ones who will reap the benefit. Therefore, if we are to get a true picture of the industry's real interest in this project, I can think of no better way to measure their commitment than to require them to bear an equal share of any future overruns.

Representative COUGHLIN. I share Congressman Moss' view that the contract negotiated between private industry and the Energy Research and Development Administration shows too little financial participation by the private sector compared to its management role and at the expense of the Federal Government-in actuality, at the expense of the American taxpayers-along with an unfortunate and dangerous potential for built-in conflicts of interest.

If private interest, and investment, is wanting, then it would seem that the whole breeder project is estimated by the private sector to be an inefficient and unproductive source of energy. And I happen to believe that the private sector relies on hard analysis.

Specifically, my opposition stems from the fact that last year's authorization bill deleted language contained in section 106 (a) of the authorizing legislation for Clinch River, Public Law 91-273-language which stipulated that "assistance which the Government undertakes specifically for this demonstration plant shall not exceed 50 per centum of the estimated capital cost of such plant ***." It is my understanding that this language originally had been included at the request of the esteemed formed member of this comittee, Mr. Hosmer.

In an effort to restore the intent of this deleted language and to require that industry assume its reasonable burden of financial risk of the CRBR, I have proposed to the committee that language be included in the fiscal year 1977 authorization bill to obligate private industry to pay at least 50 percent of all total cost increases in the CRBR over $2 billion. This would allow for an additional $50 million. escalation in the project, now estimated at $1.95 billion.

I was privileged to present this proposal, in the form of a letter to Chairman Pastore, which was signed by Congressman William S. Moorhead and me.

Including this language, I believe, would have a concerted and beneficial effect on controlling costs of the CRBR. Furthermore, requiring the utilities to assume an equal share of any future overruns would demonstrate clearly how strong is their commitment to the project and their confidence that it is a cost-effective means of generating electricity.

As we all are well aware, the proportion of industry's contribution to the total project has rapidly dwindled. At the outset of negotiations, the share to have been borne by the utilities and reactor manufacturers was set at 39 percent. It now has declined by 300 percent to only 13 percent. Moreover, in last year's debate on the ERDA authorization, Mr. Roncalio stated that he and the Joint Committee had tried unsuccessfully to get the ultilities to commit more of their own funds to the project.

I cite in my testimony the statement from the General Accounting Office and from the letter to Mr. Moss which makes clear that in spite of the renegotiation of the contract, effective and efficient management relationships have not been developed.

In sum, a substantial cost overrun potential remains at Clinch River because of project uncertainties and unclear management relationships. Responsible and prudent judgment dictates that steps must be taken to insure that participants in the project have strong and sufficient incentives to keep costs at a minimum.

Thus, the language I submit has the single purpose of providing a strong fiscal incentive to hold costs at the CRBR to a minimum without imposing a cost ceiling on the project. Because the present contract places all the open-ended financial risk on the Federal Government, my approach would more equitably spread the risk burden by requiring private enterprise to exercise greater fiscal responsibility and restraint.

ERDA has acknowledged that cost consciousness of private industry is an important benefit of financial participation by the industry in demonstration projects on energy.

I then cite in my prepared statement some remarks which ERDA made in response to questions from the House Science and Technology Committee.

Most important, I believe the utilities should contribute a greater share than under the present contract since they retain a substantial measure of managerial control and will be in a position to affect the total outlays. Potential conflicts of interest would tend to be minimized if the utilities had to share the overrun burden on an equal basis with the Federal Government. To buttress my contentions, I cite the following:

1. A total of 8 of the 19 top management positions and 130 of the 200 project organization positions will be staffed by private industry personnel.

2. The contract requires that ERDA manage the project through the integrated management structure (4.1.12). This means that the decisions ERDA makes will be implemented to a significant degree by non-ERDA personnel. Likewise, if ERDA is required to manage the project through the private participants, the private participants are thereby given a great amount of control over the project.

3. The General Accounting Office reports of April 4, 1975, and March 26, 1976, also make clear that ERDA, even though it officially controls the project, would not be able to exercise the usual management prerogatives:

(1) The revised contract places ERDA program funds under a complicated tripartite decision system. Under the present contract, they are under ERDA's sole control.

(2) The contract grants the private parties the right to end their participation in the project if a major decision change is adopted to which they object.

(3) Since the primary purpose of the CFBR is demonstration, and the private parties should withdraw, the project would lose its rationale. This would be an extreme embarrassment to ERDA. Therefore, it is possible that the private participants could use threats of withdrawal in order to force ERDA not to exercise their normal management prerogatives.

Finally, and this is not included in my formal statement because it just came to my attention, the modified contract before the committee does not meet the statutory criteria adopted for the contract by the committee. Section 106 of last year's authorization legislation authorized ERDA to enter into a cooperative arrangement for the construction and operation of the LMFBR, and it says, "In accordance with criteria approved by the Joint Committee on Atomic Energy."

The criteria then says in section 3(b) of the amended section, the criteria calls for a definitive contract for development, design, construction, test operation, and operation of an LMFBR demonstration plant. The amended contract is not in accordance with the statutory criteria because the amended criteria do not contain a definitive commitment by the Tennessee Valley Authority to operate the CRBR.

Section 3.0 of the modified contract admits this plainly when it says TVA and ERDA will enter into an agreement for the operation of a demonstration plant which operating agreement will be effective when concurred in by Project Management Corporation.

Dr. Seamans' letter to Senator Pastore, transmitted to the Joint Committee, flatly states that a contract will be negotiated with TVA. The phrase "will be" makes it clear that a definitive arrangement for the operation of the CRBR does not now exist. This is buttressed by Dr. Seamans' letter to Senator Pastore mentioned above and the language in the contract cited above.

In concluding my remarks, I again would like to emphasize that my concern with the CRBR-and the LMFBR in general-is that our Federal dollars are invested wisely. My interest in this project originated with my service in the 92d Congress on the House Science and Astronautics Task Force on Energy. It was then that I began to ques