organization participating in the hearing or review body and also assisting PMC in applying for project permits and licenses. We stated that such assistance by the regulatory organization might be inconsistent with AEC's responsibility to independently review license applications to insure the health and safety of the public. In commenting on this matter, AEC indicated to the Joint Committee that it would not consider providing PMC and TVA with any assistance which could jeopardize AEC's independence in reviewing license applications. While we do not question AEC's intentions in this regard, we feel that it would be preferable to substitute more specific language for "as appropriate." AEC'S RESPONSIBILITIES FOR DISPOSING OF DEMONSTRATION PLANT UPON PROJECT TERMINATION The Joint Committee expressed concern as to whether the language in the proposed contract insures that the parties to the contract could not require AEC to remove the entire plant if the project is terminated and the plant is decommissioned. Section 10.2.2 of the proposed contract provides that: "'*** AEC shall, except as AEC and TVA other- Subject to these criteria, removal of the plant would require AEC agreement. Although AEC and TVA could agree that AEC would remove the entire plant at AEC expense, it would not appear that AEC would be required to do so directly by this provision. PROJECT FINANCING The Joint Committee expressed concern over why it was necessary for AEC to make the entire $92 million of authorized assistance available at the outset of the project when the utilities will be contributing their share of the costs at the rate of about $25 million per year, with the first installment to be made available for use upon the execution of the project contracts. In response to this concern, the AEC Chairman, in a letter dated April 9, 1973, to the Joint Committee stated that: "The plan for financing the Project contemplates AEC had only three utility contribution agreements available for our review. Our review of these agreements showed that one of the conditions set forth in the agreements between BRC and the electric utilities is that the utilities will make their annual installment payments only after BRC has certified to them that the project agreements have been executed obligating AEC to put its funds into the project. In addition, section 7.4 of the proposed contract among AEC, PMC, TVA, and Commonwealth states that the funds to be provided by AEC pursuant to section 4.1.1 ($92 million) will promptly be provided by the Commission either by 1. Issuing a letter of credit for withdrawals by PMC as required for current needs for allowable costs; or 2. Furnishing PMC in advance of its need therefor, portions or all of such amount, for PMC's utilization for allowable costs. We interpret these provisions to mean that AEC may have to make available to PMC the entire $92 million at the outset. Therefore, if AEC does not make the entire $92 million unconditionally available to PMC at the outset for PMC's use in carrying out its activities under the terms of the proposed contract, it appears that the electric utilities might not be obligated to make their payments. It should also be pointed out that, in accordance with the proposed contract between PMC and BRC, PMC cannot use the utility contribution agreements as security or collateral for loans, lines of credit, or other forms of financing until, among other things, the following conditions have been met. 1. AEC shall have paid or made available at least 2. Construction of the liquid metal fast breeder If termination occurs before the start of construction, it is possible that the amount of funds contributed by the utilities at that time would not be sufficient to cover their share of the project costs pursuant to section 11.5 of the proposed contract among AEC, PMC, TVA, and Commonwealth. If such a situation occurs, PMC could not use the utility contribution agreements as collateral to secure loans to satisfy their obligations for sharing project costs. Therefore, we believe AEC should consider the desirability of either (1) requesting BRC to negotiate a change to the utility contribution agreements to provide for acceleration of any future payments the electric utilities may be obligated to make under their contribution agreements to satisfy their obligation under section 11.5 or (2) modify ing the proposed contract among AEC, PMC, TVA, and Commonwealth to allow the use of utility contributions to reimburse AEC if AEC assumes the utilities' share of costs at termination. [EXTRACT: PART 4, ERDA AUTHORIZING LEGISLATION, FISCAL YEAR 1976; PAGES 2275-2287] U.S. ENERGY RESEARCH AND DEVELOPMENT ADMINISTRATION, Hon. JOHN PASTORE, Chairman, Joint Committee on Atomic Energy, Washington, D.C., March 10, 1975. DEAR MR. PASTORE: On February 4, 1975, we transmitted to the Congress our proposed authorization bill for fiscal year 1976 and the Transition Period July 1, 1976 through September 30, 1976. Included therein as Section 103 (d) was a proposed revision to the authorization for the Clinch River Breeder Reactor Demonstration Plant Project, originally authorized by Public Law 91-273. We are herewith submitting some refinements to the previously proposed revised authorization for this program, which we believe are necessary to clearly delineate the manner in which the Project will be managed in the future, in recognition of the major increase in governmental financial involvement and the need to establish a single-line, integrated project management organization, Essentially, what we are now presenting is a "one-line cooperative project item" with a request for the authorization of appropriations for fiscal year 1976 and the transition period in the amount of $181,500,000. An accompanying explanatory bill analysis and the most recent cost estimate for the Project are also included. The major purposes of this proposed revised legislation are to enable the ERDA to structure the Project into a single, integrated Government-utility staffed organization, with the capability to utilize all project resources, including both Government and industry personnel, facilities, and funds in the interests of demonstrating the commercial feasibility and viability of this vital energy concept as expeditiously as possible without inhibiting constrictions inimical to the accomplishment of such objectives. Since some of the newer Committee members may not be as familiar with this Project as others, perhaps a brief review of the history of this Project may be helpful for perspective. Public Law 91-44 (AEC Authorization Act for fiscal year 1970), Section 106, authorized $7 million for the Project Definition Phase of a Liquid Metal Fast Breeder Reactor Demonstration Program under cooperative arrangements with reactor manufacturers and others in accordance with criteria that had been previously submitted to the JCAE. These criteria, entitled "Statutory Criteria for Fourth Round Arrangements Under the Commission's Power Reactor Demonstration Program," outlined a two-phase program. Under the first or Project Definition Phase the AEC planned to enter into a limited number of contracts with reactor manufacturers with the objective of determining whether "a sufficiently well identified and realistically assessed basis" existed for a definitive cooperative arrangement. The second phase of the program contemplated the negotiation, with reactor manufacturers and utilities participating in Phase I, of one or more contracts to construct and operate an LMFBR demonstration plant. The criteria listed several types of limited financial assistance that the Government was prepared to consider providing to such demonstration projects. In general, such types of assistance corresponded to that furnished under earlier cooperative projects where it was contemplated that the demonstration plant would be financed and owned by the utility; that governmental assistance wou'd be strictly limited as to type and amount; and without any open-end financial commitment by the Government for overruns on the project. In June 1970 (Public Law 91-273), Congress authorized AEC to enter into a definitive cooperative arrangement for an LMFBR Cooperative Demonstration Plant and provide financial assistance totaling $50,000,000 less the costs of the PDP. plus $10,000,000 of waiver of fuel use charge. It also provided for assistance up to $20,000,000 in the form of Commission furnished services, facilities or equipment, otherwise available to or planned by the Commission under its civilian base program. Thus, the authorizing legislation continued to contemplate strictly defined and limited Government assistance to the Proiect. Extensive consultation with the nuclear industry thereafter led to the informal conclusion that no reactor manufacturer was prepared to submit a proposal for a definitive cooperative arrangement based on receiving only this limited amount of Government assistance. Accordingly, in April of 1971, the AEC established a Senior Utility Steering Committee and Technical Advisory Panel to assist in developing mutually ac ceptable arrangements for a cooperative Demonstration Plant. This resulted, in the summer of 1971, in AEC's requesting and Congress' amending the project authorization (Public Law 92-84) to increase the Government's total direct assistance to $100,000,000 and provision for indirect governmental assistance from base program funds up to 50 percent of the estimated capital cost of the Demonstration Plant subject to general prohibition against use of such indirect assistance for end capital items for the plant. During 1971 the utility industry organized a fund-raising campaign with pledge goals approximating $250,000,000 and, at AEC request, EEI (Edison Electric Institute), APPA (American Public Power Association), and NRECA (National Rural Electric Cooperatives Association) surveyed member utilities as to their interest in managing and owning such a LMFBR demonstration plant. In January 1972, the AEC accepted the proposal from Commonwealth Edison-Tennessee Valley Authority (CE-TVA) as the basis for negotiation of a definitive arrangement. As these negotiations progressed, several key aspects of the proposal emerged as conditions precedent to consummation of a definitive cooperative arrangement. These included: 1. The utility financial contributions, both of the utility industry as a whole and those of TVA and CE, were to be limited in amount. 2. Neither TVA nor CE, nor the utility industry was willing to underwrite any additional risk of financial contribution or liability. 3. The AEC was to expressly assume the "open-end" risk of all project overruns and other financial risks. After considerable discussion between members of the JCAE, its staff, the Commission, its staff, and key management officials of CE and TVA, and several public and executive hearings, these basic conditions were accepted and definitive contracts for the project were executed. However, neither the authorization nor the Statutory Criteria was changed to recognize these very basic changes from the ground rules on government assistance incorporated in the legislation and criteria authorizing the project. Experience since has brought to light several problems in operating under such legislative ground rules which are not wholly compatible with the basis of the contractual arrangement as executed. Specifically, the specified forms of financial assistance set forth in the authorization legislation and the Statutory Criteria were intended, in general, to preclude use of government dollars for end capital items in the plant. This is not compatible with the contract arrangement under which the Government has the responsibility for seeking funding for project needs beyond the utility and Reactor Manufacturers' fixed contributions of whatever nature, e.g., capital R&D, engineering or operating costs. Despite valiant efforts by all participants, it has become increasingly clear that continued viability of the project cannot be maintained without modifying the basic authorization so that it will be more attuned to the basic nature of the contract arrangements as they in fact exist. The enclosed estimate clearly shows that additional Federal funds will be required to proceed with the project, and flexibility in their expenditure is also vital; thus, in our view, it is imperative that the limitations precluding use of government funds for end capital items for the plant must be eliminated. As indicated above, we believe the enclosed Revised Program Justification Data and Statutory Criteria and the proposed legislative revisions, will accomplish these purposes and, at the Committee's convenience, we will be pleased to discuss them in whatever depth the Committee may desire. Please note that the Revised Program Justification Data and Statutory Criteria preserve the basis and continuity upon which previous actions and relationships were undertaken and established and the technological transfer to the industry. With particular reference to the cost estimate, you will recall that the presentation of prior cost estimates emphasized the total cost related to the project, including relevant R&D and operations. This emphasis has resulted in utilities and others mistakenly identifying the total estimated project cost as the estimated plant cost. In order to correct this misinterpretation, the current estimate has been recast to clearly separate the plant cost from research and development and operating costs. We will continue to keep the Committee informed as the definitive arrangements concerning the streamlining and realignment of project organizational responsibilities and authorities evolve. Sincerely, ROBERT C. SEAMANS, Jr., |