Mr. SCHWARTZ. The $13.3 million is the incremental AEC cost of processing 1,200 days of fuel, which is composed of 625 days of our baseload, 450 days of private fuels, and 125 days of prior year's accumulation. The $9.5 million revenue differential is just for the private fuel. That is, only the 450 days of private fuel for which AEC would receive revenues. It corresponds to our $20,000 a day conceptual plant charge. I think that clarifies what that number is.

All this analysis purports to answer is this question: How much more money will AEC have to come to Congress for during this 5year period? We submit that $19.9 million is a correct answer to that question. The analysis does not, however, answer the question: What are our full costs? It does not have depreciation in it; it only has incremental labor, incremental chemicals, incremental waste storage costs-all incremental costs. As a result it is not a true reflection of what the full cost to industry would be to do a comparable job. It does not include all the costs that NFS has to pay. For example, it does not include interest, rent, revenue, depreciation, et cetera.

Representative PRICE. How would those costs affect the figure of $19.9 million?

Mr. SCHWARTZ. How would these costs affect the $19.9 million figure?

Representative PRICE. That is right.

Mr. SCHWARTZ. Those costs have already affected the figure by appearing in the $21.2 million cost to us of providing our fuel to NFS. They appear in NFS's charges.

Mr. MCGUIRK. I think it is an interesting point that is brought out by this discussion, namely, that the estimated incremental cost is something like $10,000 for 1 day of processing. According to this hypothetical plant, the charge to the utilities would be something like $20,000. The balance, if these incremental costs are true, really is a profit to the Government, which incidentally I very much doubt. Representative PRICE. The more the Government puts out the more profit they make.

Mr. McGUIRK. There is some element of that type of accounting in this, I am afraid. That $10,000 profit, then, which the Government would theoretically make by processing the utility fuel is being used as an incremental cost against the NFS proposal. In other words, it is foregoing a nonexisting profit of $10,000.

Representative PRICE. Actually there is no argument over these figures on page 16. It is a difference in the way you interpret the figures and what they actually mean?

Mr. MCGUIRK. There is a little more than that, I think, Mr. Price. I submit it is somewhat similar to every time my company finds a simpler way of doing an accounting job or making a piece of machinery, the staff tends to maintain there is no point in putting that reform into being because we will only save half a man and we can't do without a half a man. I think you have-I think I would call half a man accounting in this $13.3 million. We have the men, we have the plant, we can't reduce them. We only need half a man to do this job. So there is no real opportunity for us to save any money. So we might just as well do this job. It really only costs us $13 million.

Mr. CONWAY. I don't think it is a question of saving money. It is a question of possible additional appropriations being required by the Atomic Energy Commission.

Mr. MCGUIRK. This is assuming that the projects that this can be done on an incremental basis without adding to everything in a substantial way, including the people, is a valid assumption. I very much would like to suggest that hypothesis be tested.

Dr. WILSON. It also assumes that we will get all this private fuel for the entire period of the contract which we are not assured of; that the Government would get that to process.

Mr. SCHWARTZ. One other point, Mr. Conway, in partial support of what Mr. McGuirk is saying. If you look at the gross cost figure, it is $140 million. If we had not asked for that $140 million to run the plants to start with, we wouldn't be able to do the incremental job for such a small amount.

Mr. MCGUIRK. Believe me I don't want to get involved in all the normal points that we pay taxes and so forth which amount to a substantial amount of money over the period of the contract. I am merely questioning as an engineer the hypothesis that this kind of plant can be run on an incremental basis. I think it is a faulty assumption made by an accountant that is not sound from an engineering and operating point of view.

Mr. ABBADESSA. I have two points, Mr. McGuirk. My first point is that the basic assumptions in this computation were made by engineers, not accountants. Number two, we are not here trying to come up with the incremental cost of running your plant. We are here trying to come up with what the additional amount of money is that we will need over the next 5-year period in our budget in answer to that question. This is what this computation purports to be and we believe it is an accurate computation.

It in no way involves a comparison between the full cost of our operation and the cost of the operation of NFS. I spent a fair amount of time this morning trying to explain that point to the committee.

Mr. RUNION. In no case are we representing that we know what the Commission's costs are for chemical processing. We have not studied them and we do not have their figures. We were speaking as an observation from the outside.

Representative PRICE. I suppose it takes the actual operation of the plant to prove who is right or wrong.

Mr. MCGUIRK. That is why the plant should be built, Mr. Price. Mr. ABBADESSA. We concur with that statement.

Representative PRICE. Thank you, Dr. Runion. We appreciate your testimony and you have done a fine job. The next witness will be Mr. Oliver Townsend, chairman, New York State Atomic Research and Development Authority.

STATEMENT OF OLIVER TOWNSEND, CHAIRMAN, NEW YORK STATE ATOMIC RESEARCH AND DEVELOPMENT AUTHORITY

Mr. TOWNSEND. Thank you, Mr. Chairman.

My name is Oliver Townsend. I am the chairman of the New York State Atomic Research and Development Authority and director of the State's office of atomic development, positions which, under the laws of the State, are occupied by the same individual.

Both of these agencies are involved directly in the project which is the subject of this hearing the authority primarily as the landlord and the office primarily as the initiator of the State's participation in the project and also as the potential ultimate custodian, on behalf of the State of the project's radioactive residues.

In the interest of orientation, I would like to describe briefly the nature and duties of those two agencies.

The New York State Atomic Research and Development Authority is a public benefit corporation created in 1962 to engage in atomic research and development activity and to provide services in the field of atomic energy not otherwise available within the State. The authority's resources include $9,300,000 of appropriated funds, which must be repaid to the State, and statutory authorization to borrow up to $30 million through the issuance of notes and/or revenue bonds. The authority also has possession on behalf of the State of the 3,300acre site in Cattaraugus County, New York, upon which the project being reviewed by this hearing will be constructed and operated.

The office of atomic development is an independent agency within the executive department of the government of the State of New York. It was created in 1959 to coordinate the atomic energy activities of the agencies of the State and its political subdivisions and to engage directly in certain expressly defined developmental functions. In accordance with this latter category of responsibility, the office of atomic development carried out the search for the site of the project being reviewed in this hearing, acquired the site in June of 1961, and accumulated the detailed information regarding the site which was required for the construction permit issued by the U.S. Atomic Energy Commission on April 30 of this year. The office relinquished custody of the site to the atomic research and development authority on May 1, 1963, but by agreement between the office and the authority of March 21, 1963, will reassume custody on behalf of the State, including any radioactive materials then situated upon the site, if and when the authority ceases to exist.

As custodian of the site on behalf of the State, now and for the foreseeable future, it is the authority which will enter into the contractual arrangements, now negotiated in principle but not yet executed in final form, governing the use of the site by Nuclear Fuel Services, Inc., for nuclear fuel reprocessing and waste storage purposes. These arrangements are in three parts: a facilities contract, a lease, and a waste storage agreement.

FACILITIES CONTRACT

Under the facilities contract between the authority and Nuclear Fuel Services, Inc., the company will construct for the account of the authority, primarily through a subcontract with the Bechtel Corp., $8 million worth of irradiated fuel and waste storage facilities and other site improvements, including transportation and utility service facilities of the type usually provided by a landlord for the use of a

tenant.

The $8 million required for this purpose will be expended by the authority from the funds that have been appropriated to it. The authority will provide these facilities and improvements through the

facilities contract with Nuclear Fuel Services, Inc. This will be done through that company so as to assure that the facilities will be compatible with the requirements of the reprocessing plant, and further to assure that the team of organizations and people which has guided this project for more than 5 years, and which has made it possible, will be preserved during the critical period of construction immediately ahead.

(Press release relating to the above matter follows:)

[Press Release of New York State Atomic Research and Development Authority, May 23, 1963]

STATE AGENCY AUTHORIZES START OF CONSTRUCTION OF NUCLEAR FUEL REPROCESSING PROJECT

The New York State Atomic Research and Development Authority announced today that it had authorized Nuclear Fuel Services, Inc., to commence construction at the Western New York Nuclear Service Center in Cattaraugus County, N.Y., of a privately owned nuclear fuel reprocessing plant and related authorityowned fuel and waste storage facilities.

Oliver Townsend, chairman of the Authority, said that the authorization action was taken in anticipation of the execution, by the end of the month, of final contractual documents between the Authority and Nuclear Fuel Services, Inc. He said that the Authority had authorized the company to proceed under an interim letter agreement in order to keep the project on a schedule calling for completion in 1965.

The construction to be undertaken is expected ultimately to cost approximately $28 million, approximately $20 million of which will be for the privately owned reprocessing plant, and approximately $8 million of which will be Authorityowned facilities.

The construction work will be carried out primarily by the Bechtel Corp. of San Francisco, which has performed the design and engineering work for the project over the past 3 years. Certain supporting facilities, including a railroad spur and a water supply system, will be carried out by Earl W. Ek P.E. & Associates of Olean, N.Y. The Ek firm was selected on the basis of competitive bids received earlier this month.

Nuclear Fuel Services, Inc., is a subsidiary of W. R. Grace & Co., in which American Machine & Foundry Co. also has an interest. The Cattaraugus County project was issued a construction permit by the U.S. Atomic Energy Commission on April 30, 1963. The plant will be the first privately owned such facility in the world and the first in the United States capable of processing atomic powerplant fuels.

LEASE

So far as the lease between Nuclear Fuel Services, Inc., and the Authority is concerned, it applies to the entire 3,300-acre site in western New York, including all Authority-owned improvements. Portions of the site, however, may be reclaimed by the Authority under certain specified conditions with the approval of the U.S. Atomic Energy Commission licensing authorities.

The lease in its present form would extend to June 30, 1980, with rental until June 1, 1965, to be at a rate of $1 per annum and thereafter at a rate of $660,000 per annum. The lease will be renewable for 10 years at the same rate of $660,000 per annum, and thereafter at 6 percent of the then fair value of land and facilities leased.

I would like to explain at this point that this describes the lease in its present form. We have agreed to modify the lease to extend the period through the end of 1980 and have it begin on January 1, 1966, or if the plant commences commercial operation prior to that, to begin at that time.

Under the terms of the lease, the Authority-owned facilities at the site will be reasonably available for the use of others, including particularly, at the outset, the facilities to accommodate the burial of lowlevel, radioactive solid waste products. This service will be provided by Nuclear Fuel Services, Inc., at charges to the public which are approved by the Authority.

WASTE STORAGE AGREEMENT

With respect to the waste storage agreement between Nuclear Fuel Services, Inc., and the Authority, this provides that the company will pay to the Authority, in addition to its annual rental payments, sums calculated to be sufficient to cover the costs that the Authority may reasonably be expected to incur in looking after the wastes generated by the reprocessing operation.

The revenues from these waste care charges will be utilized by the Authority to establish funds calculated at 4-percent interest to provide reasonably for the following:

1. Perpetual replacement of the liquid waste storage facilities. 2. Financial protection against first person property damage. 3. Financial protection against liability.

4. Human surveillance and maintenance of all facilities in perpetuity.

The formulas under which the waste care charges will be applied are rather complex and relate to the cost and character of the facilities involved and to the point in time at which they are installed. However, in order to provide a rough indication of the magnitude of the funds to be established, it can be pointed out that a $4 million waste storage installation, constructed over a 15-year period, would produce a total fund, including interest, at the end of the period of on the order of $4 to $4.5 million for perpetual care. If the waste storage installation were to involve a total capital investment of $6 million, then the perpetual care fund would be on the order of $5 to $5.5 million.

In conclusion, I would like to say that the government of the State of New York is pleased and gratified to play an important role in the pioneering and significant project which is the subject of this hearing.

That is the end of the statement.

THE NEW YORK STATE ATOMIC RESEARCH AND DEVELOPMENT AUTHORITY'S ROLE IN THE PROPOSED PROJECT

Representative PRICE. Would you explain the interest of New York State Atomic Research and Development Authority in the project? Why is it interested?

Mr. TOWNSEND. We have a developmental interest that I think is probably similar to that of many other States in this Nation. A part of the rationale for the creation of the Office of Atomic Development, in addition to coordinating certain regulatory functions within the State back in 1959, was to foster the development of atomic energy within the State as a means of enhancing the economic welfare of the State. This is certainly a part of the rationale.