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ship be increased let us say, to pass 24 knots and up into the 30-knot range, doesn't the productivity of the ship increase at the same time? Mr. DAVIS. The productivity of a ship is the capacity and speed, that is right. It is a combination of the speed, the days in port and the capacity of the ship.
Mr. MURPHY. Therefore, if the Savannah can be speeded up, as Admiral Will stated, to the point of 23 or 24 knots and if some of either the gears or the turbine or maybe some of the piping which limit the speed could be improved couldn't we have a much more productive ship than we have been operating at the Maritime level of 21 knots ?
Mr. DAVIS. Anything that will improve turnaround, increase your number of voyages, is going to increase your productivity assuming cargo is available.
Mr. MURPHY. The figures that you testified to that the Savannah is a deficit operating ship wouldn't necessarily be so.
Mr. DAVIS. No; I would not endorse that. I think it would be so. I just do not think that running this ship at full 100-percent capacity will make it an economical operation. It is going to be a losing operation. The figures are there.
Mr. MURPHY. Mr. Chairman, I have no other questions at this time, but I think we should speak to the Atomic Energy people who participated so significantly in the development of the ship and see what their future plans and their opinions are particularly in light of the fact that Maritime didn't solicit their views as far as the future of nuclear propulsion of our merchant fleet is concerned.
The CHAIRMAN. Mr. Lennon.
Mr. LENNON. Mr. Davis, I would like to return briefly to your exhibit A. I note that the Maritime Administration accepted the vessel on May 1, 1962, and at that time turned it over to States Marine Lines. When it was turned over to the Maritime Administration, you had a total cost involved of $55 million; $20,319,000 by the Maritime Administration and $34,681,000 by the AEC, or a total invested cost of $55 million.
She was then ready to go. In August of that same year, the AEC approved operating authorization and during that month the vessel started its visitation. When we move down to the next category of figures, we notice the first core fuel, which was supposed to last, and according to your figures, the Atomic Energy Commission put $1,600,000 into that.
Assuming that this was done in 1962, do we still have that same core fuel in there?
Mr. DAVIS. Yes; we do, Mr. Lennon. Now, let me make a few observations in that regard, if I may.
For the period of time up to the time that this vessel was turned over to FAST it wasn't operated like it has been operated since it was turned over to FAST. It was on an exhibition basis. It went into port. It sat there. We invited people aboard. Of course, it was involved in a strike for a little over a year, during which time she was stationary.
Now, that is an entirely different operation than as FAST is running it now where they keep the ship moving.
Mr. LENNON. When was it that you made the contract with FAST? Mr. DAVIS. August 20, 1965.
Mr. LENNON. 1965. Now, at that time and before you entered into that contract, the Maritime Administration spent $1,749,000 for general research and development, design studies and evaluation and reactor and equipment improvement, right? I am just reading from your exhibit A.
Mr. SULLIVAN. As to the design studies and evaluation, reactor and equipment and improvement, most of this money as you see, was spent by the Atomic Energy Commission.
Mr. LENNON. For what was the $1,749,000 spent by the Maritime Administration before you delivered the vessel to FAST?
Mr. SULLIVAN, I attempted to get a rundown of this during lunch, but I haven't received the specific breakdown yet.
Mr. LENNON, Will you supply that for the record?
Mr. SULLIVAN. Yes, sir.
(Chronological cost estimates will be developed as soon as AEC figures are received.)
Mr. LENNON. In that same time frame the AEC in 1965 spent $7,818,000. What was the sum spent by the Atomic Energy Commission just before you signed your contract with FAST?
Mr. SULLIVAN. On both of those numbers I have asked for the information, sir, and I haven't gotten the breakdown yet.
Mr. LENNON. I notice that you put in a second core and that cost is $722,000, and in the same time frame the Atomic Energy Commission spent another $6.418,000. What was that for?
Mr. SULLIVAN. The $6,418,000 is actually the procurement of the core on the one hand and the development and production of these spare control rod drives which I mentioned earlier.
Mr. LENNON. What was the $7.818.000?
Mr. SULLIVAN. That is just $722,000.
Mr. LENNON. I have $7,818,000 on my item under "General research and development," "Design studies and evaluation," by the Atomic Energy Commission.
Mr. SULLIVAN. Yes, sir. That is broken down by these numbers directly under it; $6,418.000 was for the core and rod drive system that I just mentioned and the $1,024,000 is for their support of American Export operation and so forth.
Mr. LENNON. I understand those figures, but what I don't understand is why it was necessary or what explanation you have as to the necessity for the Atomic Energy Commission spending in round figures about $14 million in addition, if this vessel was in good operating condition so far as its nuclear powerplant was concerned?
I would just assume that with the expenditure of those funds, the ship would have been about as modern as you possibly could have gotten her before you turned her over to FASŤ.
Mr. SULLLIVAN. These dollars are not used to update the Savannah equipment as it is now in the ship. They were for the types of things I just mentioned, the design and improvement which could be made. Mr. LENNON. But you told me that when the vessel was accepted by the Maritime Administration with a total investment of $55 million in May of 1962, and your contract was signed in August of 1962, you
were operational except for fuel. Then you show in your next item, $1,600,000 for fuel for 4 to 5 years. I do not understand these figures below that except for the operational contract with FAST, which is $5,333,000 for the Maritime Administration and $1,024,000 for the Atomic Energy Commission.
I just can't understand the necessity for $7,818,000 for design studies and evaluation, reactor and equipment improvement, unless something was done to improve it.
This money was spent by the Atomic Energy Commission in that interim period from 1965 up until today.
Mr. SULLIVAN. I haven't got your complete answer here and I will have to get the answer for the record, but I do recall that this $7,818,000 spent by the Atomic Energy Commission was not all spent after the ship was completed. It was for work to improve or to use such a ship, but not a part of its construction costs.
Mr. LENNON. But this was spent after your contract expired with States Marine according to this schedule.
Mr. SULLIVAN. As I stated. This is not a chronological schedule. That is what I tried to say this morning, that the fact that it was in the schedule here does not mean that it was spent after the ship was delivered. It is just not part of a ship cost. I don't have the specifics, but it was not done after delivery.
Mr. LENNON. But the statement is a flat statement that the vessel was turned over to the Maritime Administration and accepted by them in May 1962. You accepted it and in August of that year you entered into the contract with the States Marine Lines and they started operation of it. That is what your statement says.
Mr. SULLIVAN. And the statement is true, sir. All I am trying to say is that on May 1, 1962, when the Savannah was completed and the Government took it over from the shipyard and turned it over to States Marine Lines, we had spent what we estimated to be $55 million that was germane to the building of that ship, the design and building of the ship.
At the same time, all during that period of time, research was being undertaken to back up the design to determine what needs to be done to improve it. It didn't mean that this was done after May 1962. Most of it was before that time. It is not a part of the building of the ship but research and development.
Mr. LENNON. It is difficult to have a realistic evaluation of anything unless it is done in reasonably chronological order with respect to expenditures. Any layman would get the impression, and we are just ordinary laymen, that you say the vessel was delivered and accepted and that 4 months later the contract was signed and it went to sea.
Then you have a chain of figures with no dates and no indication of what they are for, and any reasonably prudent person would assume that these are the expenses that had accrued subsequent to operation. When you are talking about improvement of design, I would assume that maybe this vessel had been improved and redesigned including her nuclear powerplant.
Mr. SULLIVAN. I can see why you would assume that. I think the best way to satisfy you, however, is to get a breakdown and give it to you for the record, which we can do quickly.
Mr. LENNON. I hope you will, for the record, so that we can understand it a little bit better.
(The following was received in response to the above:)
Cost figures based on a chronological order are being audited and developed in final form; the committee will be furnished the report when the review is completed.
The CHAIRMAN. I have just one or two questions. The figure of $5 million was mentioned this morning to dispose of the present nuclear core. Will you elaborate on that figure, the amount of $5 million, and if so why does it cost that much and does the $5 million include the disposal and removal of the core in its entirety?
Mr. DAVIS. This is one of the aspects, Mr. Chairman, that is unique to a nuclear powered vessel. When the core has been spent, you can't just discard that core. You have problems with radiation, the full import of which I am not versed in. I am not sure whether Mr. Sullivan is or not. But you still have an expensive thing on your hands even though insofar as its powerplant is concerned it is at an end. At an end, but you just can't throw it away.
The CHAIRMAN. Am I correct on the $5 million?
Mr. DAVIS. Yes, that is the figure. I think Mr. Sullivan can enlarge on what is encompassed in this $5 million figure.
Mr. SULLIVAN. When any nuclear ship reaches the end of the line and the fuel is burned out, and whether you want to renew it or lay up the ship, one must remove the radioactive elements first in the ship, and this is done on a very carefully planned basis.
Once they are removed and stored until the radioactivity has decreased to the point where they can be handled safely and practically, they must be shipped back to a nuclear facility where the fuel would be reprocessed. The fuel in the core is actually on loan. It is never sold. It belongs to the Atomic Energy Commission which has sole ownership. You pay rental for this fuel, and it must be reprocessed. This is an expensive thing. In addition, included in this $5 million are the remaining steps, which would be to decontaminate the parts of the ship that are so radioactive in being close to the core that no one could get close to them.
So it is the removal and decontamination of equipment and the removal of the core and its reprocessing. These are very time consuming and must be very carefully done. That is what adds up to about $5 million.
We have never done this so we don't know whether the $5 million is as accurate as some of our other figures, but it is the best estimate we can make.
The CHAIRMAN. Mr. Mailliard.
Mr. MAILLIARD. Mr. Chairman, this raises a question that I don't think we have on the record. When you talk about total operating expenses for a year, let us say, on the Savannah did you include any
charge for fuel?
Mr. SULLIVAN. No, sir.
Mr. MAILLIARD. You mentioned that there is a rental.
Mr. SULLIVAN. Not to another Government agency. In this case the fuel belonged to AEC and they merely transferred it over to us when the ship was licensed, but if we were a private owner and were going
to build a nuclear ship we would in fact rent the fuel from the Atomic Energy Commission and when we return it to them we would get a refund for that portion which is not used and have to pay for the processing on that which was.
Mr. MAILLIARD. In this case what would normally be an operating expense, namely fuel, is actually picked up by the AEC?
Mr. SULLIVAN. That is right, yes, sir.
Mr. MAILLIARD. There is one other item in your contract with FAST that somewhat intrigues me, and I would like to ask what the rationale was. If I have the correct figures here, there was an agreed amount of overhead that was granted. Is there any particular reason why that should not have been offset against the so-called profit?
Mr. SULLIVAN. Well, the reason was that with respect to the overhead that was assigned to this ship, it would be very difficult to account dollar by dollar what was done for the Savannah as compared to the other 50 or so ships in the fleet, so it was decided that a flat amount prorated over their audited overhead for the previous year would be assigned and another audit then would not be necessary or in fact be worthwhile.
Mr. MAILLIARD. But even taking that figure I am just trying to get the rationale as to why the contract was written that way, and why that wouldn't be deducted before there would be a profit to the operating company.
Mr. SULLIVAN. Well, it was an expense to the company. It is actually part of their normal operating business expenses.
Mr. MAILLIARD. But the Government paid it.
Mr. SULLIVAN. The Government paid their portion of it, yes, sir. In other words, it was a part of the costs which we really couldn't expect AEIL through any particular management theory to improve upon whereas we had hoped, having a fixed number, that AEIL would exert sound management practice.
Mr. MAILLIARD. Looking at that composition of the figure, it appears to me that under the item that you referred to as shore staff the Government has presumably picked up by reimbursement to the operating company the core personnel that are required to handle the Savannah and then the other figure of $197,000-odd is a prorated share, I presume, of the overhead of the parent company.
I find it rather hard to believe by adding one ship to a large fleet that the ship really incurs that kind of additional expense. It would seem to me that you would have had this reimbursed before you would consider yourself in a position of splitting profits.
Mr. SULLIVAN. We could take this approach. However, if we took it to extremes, somewhere along the line, if you add work, you have to add people, and I am sure that American Export Lines is adding and changing their personnel with their workload.
In this case we were adding to their workload of their shipping department, of their accounting department, of their normal overhead, legal services, and these things we weren't paying for separately. The only thing we paid for separately was some people that they had to hire just for the Savannah.
Mr. MAILLIARD. I just was raising the question as to whether you really believed if you add one ship to a large fleet, the overhead ex