Mr. WAGNER. Yes, sir.

Representative HOLIFIELD. Now I want to address the indemnity area of the contract.

This committee has accepted, as we have accepted in other projects, the responsibility for indemnity. It has narrowed that area to some extent. But we want to have some assurance as to any permission that might be involved for the Project Management Corp. to incur cost overruns in a negligent way on this project.

Mr. AYERS. We certainly don't have any intention of doing this. We think the safeguards that we have built into the audit and reporting which Mr. Shaw described will protect us from any surprise in that area. We expect to run a tight ship and to keep the AEC regularly informed as to where we are on cost and we intend to have the highest standards of performance on the part of the people who are in charge of the project.

Representative HOLIFIELD. Now, including the Government in this partnership, which has been brought about by the decision on the part of the administration that private enterprise shall contribute what amounts to about $250 million to this project, has brought, as we know, many problems.

Is it conceivable that the PMC, the Commonwealth Edison or the Tennessee Valley Authority could under the indemnity bind the AEC and the Congress to reimburse the parties for cost overruns in excess of the $92 million of direct Government assistance? This is to reimburse them.

We understand that they will put in a stated amount as their contribution towards getting this on the road. We recognize that the AEC will pick up overruns that are technologically necessary. We realize the impossibility of setting a set sum to do this job. We have never been able to do this under any research and development project.

Now, the question I am asking is: Can we become liable for cost overruns as a result of the PMC members, Commonwealth Edison Co. or the Tennessee Valley Authority, deciding to proceed with expenditures over and beyond the estimate?

STATEMENT OF JOHN A. ERLEWINE, DEPUTY GENERAL
MANAGER, ATOMIC ENERGY COMMISSION

Mr. ERLEWINE. I think, Mr. Holifield, if I understand what you are asking, this could come about through some third party claim for liability through a lawsuit. If there were not sufficient project funds remaining to cover the claim the parties indemnified could go to the courts to seek protection of their indemnification.

In that eventuality, you could have moneys that are not project moneys being required to pay it.

Representative HOSMER. Now that is true of any activity of the

AEC.

Mr. ERLEWINE. It is true of any indemnity that we give; yes, sir. Representative HOLIFIELD. I wanted to establish that this was not an unusual arrangement that goes beyond present Government practice in a research and development effort. I am not talking about a

fixed-cost contract or a competitive-bid contract. I am talking about an open-end research and development project regardless of what it is, that the Government conceives to be a matter of national priority. That is what I am alluding to.

Mr. ERLEWINE. I think that is correct, Mr. Holifield.

Senator BAKER. I was going to ask if this is not the usual form of arrangement in projects of this kind. You have covered that very adequately.

Mr. RAMEY. It has the additional advantage in this sense of funding, of course, that there is the $250 million from the utility contributors that goes into the project funds.

Representative HOLIFIELD. I understand that.

I am trying to ask questions that will lay the facts on the table. Now, the GAO raised the point concerning the independence of the AEC regulatory staff in performing the licensing review for the proposed LMFBR demonstration plant. We have discussed this

matter.

In this regard, we note that the proposed contract provides the arrangement could be terminated if the parties failed to obtain a construction permit or operating license within 6 months from the time appearing in the Project Steering Committee's approved schedule.

Now, will you please explain why that 6 months was put in there, what the meaning of it is and if this does endanger the project in any way?

I am going to direct that to Mr. Erlewine.

Mr. ERLEWINE. The provision referred to is in the termination article. It is in several of the termination criteria.

The purpose of the 6-month period was to put a time limit over and above what the parties had scheduled for the actions necessary to carry out this project. If a delay occurs it should be looked into to see whether, in fact, it is a delay that is going to go on and on and significantly delay the project.

The 6 months is on top of the schedule.

In other words, the schedule will specify dates for the construction permit or other licensing activities which should be realistic in time for what those requirements call for. It is 6 months on top of that before the condition would apply.

Representative HOLIFIELD. This is, in effect, an additional 6 months over and above your schedule of operations, construction, and so forth?

Mr. ERLEWINE. Yes, sir.

Representative HOLIFIELD. Now, in the event of an intervenor action which through the complication of the legal processes carried it beyond the 6 months cushion period, what would be the procedure of the parties involved? This would be something, let us say, that you had no control over.

I would like to have an answer from each one of the parties. Would it be your disposition to do, as you have done in other times when there were time limits set in the contract, agree to an extension of that time, or would you resort to termination?

I think I should ask the parties to answer that.

20-233 0-73-8

Mr. Shaw?

Mr. SHAW. May I make a statement before each of the parties comment because all of us are involved with nuclear power projects to date. This is the schedule I have used before the committee many times that shows that the usual civilian power project takes a period of approximately 9 years. We have all committed ourselves to try to get this plant in operation so that we can demonstrate by the 1980 date.

Mr. SHAW. Consequently, we are going to schedule this project very tightly. We all know that that is the only hope of achieving an early date.

Speaking for myself, I certainly realize that we are doing it with our eyes wide open because all of us are living in this environment of trying to do a tough, most complex job. Our current plans call for a compressed schedule, hence I see no problem at all from where I sit if we encounter problems of the type that we are anticipating, because we are talking about getting the capability to solve such problems. There will be no problem in rescheduling-we believe this is the key word here to be able to reschedule in order to let that 6 months take care of a situtaion other than the kind we anticipate running into under this project.

Representative HOLIFIELD. Now I must ask for an answer to this question.

Mr. AYERS. The answer is yes; we would extend the time as far as we are concerned.

Mr. WAGNER. Yes, sir.

Representative HOLIFIELD. In other words, I am thinking without some of the delays in construction that we have had not only for nuclear plants but for fossil fuel plants as well. This would be a

contingency that would not be brought about by deliberate action on the part of the parties.

I could not conceive of you making this cushion, this 6 months; if it was necessary to go 7 or 8, I can't conceive of your terminating a project under those conditions.

Mr. AYERS. No, sir.

Representative HOLIFIELD. I think you have already explained the ownership.

In the Commission's letter of April 27, 1973, Chairman Ray indicated that both TVA and CE have indicated that the option was acceptable and their preference that it be exercised at the proper time.

There would be no point in really pressing this at this time but there is a general understanding, I gather, that in the event, after the 5 years of operation the AEC wanted to continue that operation from the standpoint of obtaining additional research or testing of fuels or something like that, that there would be an opportunity for the AEC to go ahead and do that.

On the other hand, there would be no compulsion for the TVA to purchase the plant at the end of that 5-year operation; it would be a matter of negotiation between the TVA and the AEC as to the disposal, the dismantling, the safety precautions and that sort of thing. That would be a matter of negotiation and not of mandate.

Mr. WAGNER. As I understand the contract, Mr. Holifield, if at the end of the demonstration period the plant appears to have value as a power producer we would buy it at its value to us for that purpose but there is no compulsion on us to buy it. If we elect not to buy it and if the plant is to be dismantled it becomes AEC's responsibility. to dismantle.

Mr. RAMEY. AEC does have the option of running the plant for its research and development purposes if it so chooses at that point. Representative HOLIFIELD. I was anxious to establish that point in the hearing record because we remember how long ago it was that we built the Shippingport plant and we have found it to be one of the most valuable contributors to technology of any device that we have ever had.

Mr. RAMEY. That is certainly true.

Representative HOLIFIELD. There would be no obligation on the part of the AEC to furnish power to the TVA at a loss in operating expenses after that 5 years?

Mr. RAMEY. I believe that is correct.

Mr. WAGNER. No, sir.

Representative HOLIFIELD. Such power as might be available during the 5-year period would be available on a fair cost basis.

Mr. WAGNER. It depends on what you mean by cost.

If AEC elected to continue to operate the plant we have committed ourselves to operate for them on a contract basis, I presume, but we would not agree to pay for the power at the actual cost of producing the experimental power. If we bought it, we would buy

it

Representative HOLIFIELD. On a fair market price?
Mr. WAGNER. Yes.

Representative HOLIFIELD. The reason I ask that is that we did get into trouble at one time on the provisions of a contract where I think the Government made a mistake in approving a contract where we agreed to furnish substitute power to a participant in one of the demonstration projects.

Mr. RAMEY. That was a small co-op.

Representative HOLIFIELD. It was a very small one, I recognize that. It was the principle involved and not necessarily the cost involved.

Now, I want to be sure that the independence of the licensing agency is not compromised in any way by any type of service that they might give on this contract.

Mr. RAMEY. The AEC licensing branch will operate entirely separate and exercise its role under section 104, I believe, in licensing a demonstration plant.

In the past, the licensing group has handled the review and safety, et cetera, for many previous demonstration plants entirely independent of the development arm of the Commission.

Representative HOLIFIELD. Thank you.

The final question is that I recognize that the AEC could take title to this plant prior to constrution.

Mr. RAMEY. Yes, sir. We would explore the advantages and disadvantages of that arrangement.

Chairman PRICE. Senator Baker?

Senator BAKER. Mr. Chairman, I thank you.

I have no questions.

I think Mr. Holifield has done a characteristically thorough job and has illuminated many of the points that are not covered specifically but are suggested by implication in the arrangements we have had heretofore. I think this is helpful.

I gather by the responses from the representatives of the three agencies involved that we have a general accord and agreement. If that can be formalized now, I believe that we have moved a good distance toward final arrangement for this project.

I have no further questions.

Chairman PRICE. Mr. Hosmer?

Mr. Roncalio?

Mr. RONCALIO. I have no questions; thank you.
Chairman PRICE. Mr. Aiken, do you have any questions?
Senator AIKEN. No more.

Chairman PRICE. Mr. McCormack?

Mr. McCORMACK. I have no questions.

I would like to congratulate all the persons who have been involved in working on this contract; Chairman Ray, members of the AEC, Mr. Wagner of TVA, and Mr. Ayers of Commonwealth Edison. I think they have all done an outstanding job on a very difficult problem. I particularly want to congratulate Congressman Chet Holifield for his work on this problem. I think it has been tremendous. I have been sitting here as a spectator, looking and listening. I think the work that Chet Holifield has done is outstanding.

Chairman PRICE. I, too, want to commend the Commission and the parties involved. I think everybody has put in a lot of effort in