Project No. Section A-Fiscal year 1964 obligations for construction projects 64-AE... Construction planning and design....... EXPLANATION OF PROJECT ABOVE 1964 $5,000,000 $5,000,000 1. Project 64-AE-Construction planning and design, $5 million This project provides for construction planning and design activities in connection with construction projects which may be proposed for authorization in subsequent years. The purpose of this project is to adequately scope and define the characteristics of proposed future construction projects and develop reliable project cost estimates. Because of the nature of the atomic energy program, many construction projects are quite unique and it is difficult to develop precise project specifications and reliable cost estimates. Proposals can be improved by the accomplishment of engineering and design including title I and title II which goes beyond the normal conceptual planning and design studies undertaken as a part of the various operating programs. This should reduce the possibilities of future project overruns. In a number of programs it is expected that there will be need for early construction of very complex and critical facilities, e.g. additional Nerva facilities for the nuclear rocket propulsion program (ROVER). Performance of advance design work will provide a reliable basis for presenting requests for authorization and appropriation of construction funds for such projects. Mr. ABBADESSA. This is a request that we certainly hope the committee will see fit to grant us. The purpose of this request, Mr. Chairman, is that we have, over the years, had to build very many complicated projects of a new nature. We have had several experiences where these projects have substantially overrun the initial cost that we estimated to the Congress. This money is to be used to prepare cost estimates for budgetary purposes, so that we can do more design work and arrive at better cost estimates for the purpose of budget submissions. It is not proposed for the purpose of supplementing our going activities or to be a cushion item of that nature. What we are hoping for here is that instead of having to come in with only conceptual designs and giving the committee estimates that later are substantially exceeded, that we will be able to utilize this money for title I and, if necessary, title II design work and come up with far better cost estimates in the future. Mr. EvINS. This is to put on another staff to prepare designs and plans that may be authorized by Congress, or may be suggested by the Commission itself? Mr. ABBADESSA. This is not to be used for additional staff. It is to be used so that at the time we prepare budget estimates, we will have done some actual design work, so that we will have more realistic cost estimates that we can present to the Congress. Mr. EVINS. Which division would this be allocated to? This is an extra lump sum of $5 million to be held in abeyance to use it wherever you might need it? Mr. ABBADESSA. The purpose of bringing this out as a separate line item is that this is the first time we have come before the committee with such a request, and we wanted to give full disclosure to it so that the committee will know what our plans are with respect to the use of these funds. Mr. EVINS. Well, now, how did you arrive at the $5 million? Could it have been $1,500,000? Mr. ABBADESSA. It is an order of magnitude estimate, that is correct, sir. If the committee saw fit to only give us $3 million we would only be able to do that much work. It is a level of effort estimate. Mr. EVINS. It is well to plan for the future, but the committee would like to know something about it. You have, you must have something back in your mind or on your board what you wanted to plan towards. Will you supply for the committee the projects that you have in mind? General LUEDECKE. Yes, we will, and these are only the highly complex technical projects that we would plan to use here. (The information requested is as follows:) TYPES OF PROJECTS WHICH MAY REQUIRE ADVANCE CONSTRUCTION PLANNING AND DESIGN It is expected that the $5 million item for construction planning and design proposed in the fiscal year 1964 budget will be used to adequately scope and define the project characteristics and develop more reliable estimates for unique and complex projects which may be proposed in future budgets. The following are examples of the types of projects for which these funds may be used: Preliminary planning estimates High level waste handling systems, Savannah River, S.C__ Millions $7.5 1.8 Fast reactor safety test reactor, fast reactor type, National Reactor Testing Station, Idaho___--. 30.0 Safety reactor test experiment (SPERT V), National Reactor Testing 6.0 SNAP-50, Power conversion unit facilities, location undetermined Storage rings for alternating gradient synchrotron at Brookhaven National Laboratory-. 6.0 60.0 Track detector for Stanford linear accelerator___. 10.8 43.0 16.0 Mr. BOLAND. Could you give us an example? General LUEDECKE. We are planning to have in the budget an advanced research reactor on which it is most difficult to make a meaningful cost estimate because there is no experience, or none has been built. We would like to carry design beyond title I, to pin the costs estimates down. So that we could feel more realistically about them. We would certainly like to do this with any new type of accelerator. Mr. BOLAND. If we provide you with no money here, would we be permitting the contractor to practically say what he requires without any basis of the AEC knowing what the costs might be? General LUEDECKE. No, sir; we would still utilize all of the information and knowledge that our own people have with respect to costs of construction and cost estimating. What it would do, though, would be to allow employment of an architect-engineer to go ahead and proceed with the design to a point where a better cost estimate could be made at a little earlier point in the process of budgeting and construction. Dr. HAWORTH. Could I speak to this for a moment? There is a very grave difficulty in trying to make really precise or anywhere near precise cost estimates for these technical facilities. Under the present situation you do not spend design money of any consequence until the project is authorized but by its very nature you ought to have spent some money in order to have an accurate estimate to be authorized; the purpose of this is to make these preliminary architectural engineering studies that will pin the thing down before it reaches the stage of being a full-fledged project, at some wrong number. Mr. BOLAND. You can save a lot of money with this. Mr. ABBADESSA. This is very true. In my auditing I have looked at projects that had substantial overruns to find out what the problem was. I have found that AEC, until they had authorization, would have to come up with their budget estimates based on what we call conceptual design. This conceptual design is not really design. Our hope here is to have the money, and to use it for design work to better prepare budget estimates on these very complex and firstof-a-kind projects. Then when we come to the Congress we will be able to give a more realistic estimate based on some actual design work which we cannot now do. Mr. EVINS. This may be all well and good and may be essential and necessary, and it may be not only in line with your wishes but the Joint Committee, but I believe the committee would like to get it on a project-by-project basis, so that we may consider the ultimate cost of individual projects on a project-by-project basis. This is the way the Corps of Engineers proceed. Mr. ABBADESSA. One of the problems here is knowing what you are going to build 18 months plus a year in advance. I think one of the things that the committee might well consider here, sir, if you decide to allow us this estimate, is to provide for some reporting on our stewardship of the funds to the staff of this committee. It is primarily a timing proposition. Mr. EVINS. These funds would be used largely for calling in an architect and saying, "You draw us a plan." It is an architectural contract fund. Mr. ABBADESSA. Yes, then at the time we have to prepare our estimate which is about 18 months in advance, we will have a better idea of the cost. We wouldn't use these funds for administration buildings, or things we have built before. However, where we come up with something like the high flux reactor, where we were building something extremely complex for the first time, I think if we had this kind of money and could invest it to come up with better designs, we would have better estimates for the Congress, and I honestly think over the long run we would save a lot of money. Dr. HAWORTH. In the so-called high flux reactor at Brookhaven, we did not have the ability to do this. We made the best estimate we could. We had our ideas about what we wanted to build. That was done without the help of an architect-engineer in any consequential amount. Then when the authorization was made and the funds were appropriated and so forth, we found that we had way underestimated the cost. We had to go back and revise all of our ideas and do a lot of cutting back of that, and we lost a year or a year and a half that we need not have lost had we spent a couple of hundred thousand dollars or something like that on the $12 million project. Of course, we had a lot of extra cost in the process. Mr. BOLAND. I want to welcome Mr. Corso as the Assistant Controller for Budgets, and I note that we have kicked Francis McCarthy upstairs. He is now the Deputy Controller and the members of this committee view him with great affection and he has been a very valued public official in this agency. We miss him being in the chair up here, but we have always found that those people who have been kicked upstairs usually move away from the hotspots so it is a lot easier to live with. Francis, I am delighted to see you here, and this committee appreciates the efforts you have expended for the AEC in the years you have been with them. Mr. McCARTHY. Thank you. TRANSFER OF FUNDS Mr. PILLION. What are your transferability rights here under these various items? How do you transfer from one to the other? Mr. ABBADESSA. Within one appropriation Mr. PILLION. From one item to the other? Suppose you didn't use $229,000 for transportation, and what would you do with the $5,000 that is left over? Mr. ABBADESSA. We would use it elsewhere within the program direction and administration total, if needed, sir. Mr. McCARTHY. Perhaps I could comment further on that point. As we come through our budget hearings each of our major programs has been considered, and this has been the control area. Now, within a program total, of course, to the extent that one item moves up or down, we have felt free to adjust the details. For each program, such as program direction and administration, we abide with the amount that you approve for the total program. In other words, in your report you usually summarize the amounts for each of the programs, and that is our control. Mr. PILLION. That is the only control you have? So that $6 million, you could pick up where you could pick that up in anyone of them? Mr. MCCARTHY. The $5 million, of course, is in construction, and we have to pick it up by either cutting out a construction project or if we had large underruns in another project. But our experience has been just the reverse, as you know, Mr. Pillion, and we have to look for funds. Mr. PILLION. You have had some pretty high construction costs. Mr. MCCARTHY. Our costs for some construction projects have been running on the high side. Mr. PILLION. Can you transfer and use money above the authorized cost of a project like Bonneville, and could you take $5 million or somewhere else and put it above the authorized costs? Mr. MCCARTHY. Our authorization act provides that for certain projects the estimated cost at the start of construction may not exceed the cost of the project as authorized plus 25 percent. For less complex projects the allowance is 10 percent. Now, the 25 percent is, in many cases, more than enough. In some cases, of course, where we are undertaking novel and complex projects, there is need for very careful review at the start of the project to determine whether the project may be started within the legislative limitations. This is why the $5 million is so important. Based on a preliminary review, we have a number of projects we know are coming up for consideration in the 1966 budget, but which of those we would want to spend money on which might or might not get into the 1966 budget because of timing, we just don't know at this time. Mr. PILLION. Thank you very much. REVENUES APPLIED PROGRAM I might make one observation here, Mr. Chairman. I note that in the revenues, total revenue we received for special nuclear materials and income for charges, for materials, and leased materials, only runs to about $10 million a year-$10 million a year income for these materials, when we are talking in terms of $1 billion or more for the cost of materials and the processing of them, seems to be an awfully small amount. Would you compare that with the cost of coal for these electric plants, and compare the large amounts that they must use? I am just wondering if your costs are realistic costs here to the people that use this material. I am not going to ask you to make an explanation, but I am going to ask you to delve into it because when you talk about reducing the cost of power to 6 or 61⁄2 mills per kilowatt-hour, you are basing this upon these costs, and I am not at all satisfied that these costs are the realistic costs to the Government. Mr. ABBADESSA. I can answer that one very briefly. There are two points I would like to make. We cannot now sell enriched uranium domestically, but we have legislation before the Congress for private ownership, so these figures do not include any domestic sale of enriched uranium or other special nuclear materials. We do lease and assess a percentage or use charge on the value of the material. But let me say with respect to most of the products that we sell, we have a full cost recovery policy at the Commission. Mr. PILLION. You are not talking about the nuclear material for these plants? Mr. ABBADESSA. In coming up with the base charge for this material we have a full-cost recovery policy, sir. It is the base charge to which we apply our 434 percent to obtain the use charge. The base charge includes full cost and this is very full cost, Mr. Pillion. It includes not only the budgetary costs, both direct costs and overhead, that are presented to this committee, but it also includes depreciation and an added factor which is made up primarily of interest on our investment because interest is a real cost to the entire Government. Mr. PILLION. It will probably take you and I 2 weeks to compare it, but it seems to me that the powerplant, using coal, would use a lot more coal than you are getting here as a use charge. |