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WPPSS and BPA attorneys have been in 'progress in developing plans for the financing of the project by WPPSS.
SUMMARY OF FEASIBILITY STUDY
The installation of the electric generating facilities at the NPR by WPPSS would be accomplished through the issurance of WPPSS electric revenue bonds secured solely from the revenues derived by WPPSS from the operation of the NPR projects. As stated, this financing is tied in with the two agreements summarized above, the one between BPA, WPPSS, and certain utility participants within the region, and the other between WPPSS and AỆC.
In preparing the preliminary analyses and studies of the economic feasibility of WPPSS construction of the project, it has been necessary to adopt certain assumptions and criteria whose final determination will be the subject of negotiations between the parties. Accordingly, this analysis of economic feasibility is of necessity preliminary in nature.
Project equipment and construction costs, including an allowance for contingencies, escalation, engineering, and supervision of construction and expenses by AEC and its contractors, were prepared by Burns & Roe, Inc. Detailed studies and estimates prepared by Burns & Roe, Inc., pursuant to the contract with AEC in 1961, were reviewed in February 1962 to reflect changes in costs to that date.
Estimates of the substation, switching, and transmission facilities, required to deliver the project output to the BPA system at the BPA switching station adjacent to Wanapum, were prepared by BPA.
Estimates of capital requirements for Washington State sales tax, net interest during construction, administrative, legal, and financing expenses, and the necessary reserve requirements and working capital, normally required for revenue bond financing, were prepared by R. W. Beck & Associates. The computation of interest during construction and of debt service were predicated upon the issuance of revenue bonds bearing an interest rate of 4% percent per annum, with the reinvestment of surplus funds during the construction period at 3 percent per annum.
Following is a summary of the estimated construction and other capital requirements and the total amount of revenue bonds which will be required to be issued to finance the proposed construction. The capital requirements reflect the amount of bonds which will be required initially to construct the facilities which will be operated during the dual-purpose period, when the reactor is operated for its primary function of producing weapons-grade plutonium, and the additional capital investment which will be required to convert the reactor and electric generating facilities to power-only operation.
New production réactor electric power facilities-Capital costs and total bond issue
In computing annual costs associated with the project, two primary periods have been considered: (1) The dual-purpose period, and (2) the power-only period. Of primary consideration in the overall economic feasibility of the project is the duration of the dual-purpose period, when the power output of the project may be considered as a byproduct of plutonium production. During this period the reactor will be operated by AEC and all costs associated with the reactor operation will be chargeable to plutonium production; thus, the total cost assignable to electric power production will be operation and maintenance of the power facilities. At the time of conversion to power-only operation, it is anticipated that WPPSS will lease the reactor and assume the operation thereof. During the remaining life of the project, the cost of operating and maintaining the reactor must be borne by the electric power output, unless AEC exercises its option to reactivate the reactor for plutonium production, which is not anticipated in these studies.
These studies have analyzed the effect of a varying dual-purpose operating period; however, consistent with prior studies prepared by AEC, FPC, and others, a dual-purpose period of operation to extend to October 1, 1972, and power-only operation thereafter for the remaining thermal life of the reactor has been assumed as the primary basis of analysis.
The detailed estimates of annual operating and maintenance costs prepared by Burns & Roe, Inc., for AEC were adopted in this analysis, except to the extent that changes in operating criteria or conditions agreed upon between WPPSS and BPA necessitated modification thereof. Nuclear fuel costs have been modified to reflect the latest published fuel prices of AEC and to reflect 472-percent interest on fuel fabrication charges in lieu of the 4-percent interest charges assumed in the AEC analyses of fuel costs. The current published fuel price is based upon a net charge of $11.42 per tmw-d (thermal megawatt-day).
In this preliminary analysis, no charge for byproduct steam during the dual-purpose period is included. The measure of value of byproduct steam will be established through joint study between AEC, BPA, and WPPSS. Such joint studies have not as yet been initiated. It is the position of WPPSS that the negotiations, when initiated, should take into account the fact that the discharge of substantial amounts of heat into the Columbia River represents a loss of a Federal resource and that the construction of the new production reactor (NPR) power facilities will not only recover such loss but will result in other significant benefits to AEC and the region. Accordingly, this study does not include any dollar amount for this item, it being understood that the final determination of such charge, if any, is a matter yet to be determined.
On the basis of preliminary analyses, and assuming the issuance of WPPSS electric revenue bonds in the amount of $130 million to finance the initial construction, bearing interest at the rate of 4% percent per annum and maturing over a 30-year period from the date of commercial peration with provisions for 15-percent coverage on total annual debt service to be applied in part to the payment for extraordinary maintenance requirements, renewals, replacements, and extensions to plant, and the balance to be applied to the accelerated retirement of debt, and upon the estimates of annual operation and maintenance as herein before discussed, the average cost of power from NPR is estimated to be $11.61 per kilowatt-year during the dualpurpose period, and $24.96 per kilowatt-year during the power-only period, assumed herein to extend from October 1, 1972, to October 1, 1997, delivered to the BPA transmission system at the BPA Vantage switching adjacent to Wanapum.
The measure of economic feasibility for this or any project is generally assumed to be the lowest cost alternative source which could be developed to supply a similar load. In determining the economic feasibility of WPPŠS construction of the new production reactor power facilities, it is assumed that such alternative source will be hydroelectric resources for the period to October 1, 1972, and thereafter the alternative source to be fossil-fuel fired, steam-electric plants. The FPC, in its February 1, 1960, report, "New Production Reactor Power Plant Economic Feasibility Study,”and in its February 1961 supplemental report, prepared estimates of such alternative
In this study, the values developed by FPC for the period through 1972 (alternative hydroelectric sources) have been adopted. For the period 1972 throughout the remaining life of the reactor, the alternative steam-electric sources developed by FPC have been adopted with modifications to reflect 4%
percent interest rates in lieu of interest rates assumed by FPC for Federal financing of the alternative steamelectric sources. A second comparison of alternative source value
adopts the FPC data, adjusted to 44 percent present interest rate for the period to 1986. Thereafter, the FPC data have been adjusted to reflect conditions and costs which it is felt may more reasonably represent the actual costs or conditions applicable to such alternative source after approximately 1986. It is felt that by that time, low-cost fuel sources in western Washington will have been fully utilized and additional sources must rely upon higher cost fuels or upon transmitting the power long distances.
On the basis of the foregoing alternative sources and the annual costs as hereinabove discussed, the estimated total benefits and costs of the WPPSS construction of new production reactor for a varying period of dual-purpose operation have been prepared. Attached hereto is a curve depicting the cumulative benefit-to-cost ratio at varying periods of dual operation.
Inasmuch as the estimated cost of alternative source is probably the largest single factor influencing the degree of economic feasibility of the project, two curves: (1) Reflecting the costs of the alternative sources as hereinabove discussed; and (2) reflecting the cost of the alternative sources as developed by FPC without modification, except for adjustment to reflect a 472 percent interest rate—have been prepared. These curves demonstrate that the construction of new production reactor facilities by WPPSS is feasible for any period of dual-purpose operation, and that for extended periods of dual-purpose operation, particularly if extended beyond the October 1, 1972, date assumed by AEC, FPC and others in prior studies, the project demonstrates a high degree of feasibility when compared to the alternative sources assumed herein to be available to WPPSS.
INCENTIVES FOR COMPLETING NEW PRODUCTION REACTOR POWER
FACILITIES ON BASIS OF WPPSS PROPOSAL
The WPPSS proposal for the financing, construction, and operation of the new production reactor power facilities seeks to accomplish the same beneficial objectives as anticipated by financing the project construction with funds appropriated by Congress. Providing the required funds for construction through the sale of WPPSS revenue bonds and payment of all annual costs from revenues derived from the sale of power produced by the new production reactor should answer the objections of those who are opposed to the Federal plan to utilize this energy resource.
The incentive to power users of the Northwest, the contracting parties and the Nation as a whole are very substantial and include The following:
(1) The expected low cost of power during the early years of dualpurpose operation will add maximum Bonneville Power Administration revenue benefits at a time of greatest need to offset present Bonneville Power Administration deficits. The favorable anticipated costs during power-only periods will be a plus factor in keeping Bonneville Power Administration wholseale power rates as low as possible.
(2) Power from the new production reactor will be available at a time which would offset the expected regional deficit of firm power in 1965–66. Power that might be available through Canadian water storage cannot be relied upon in plans to meet this deficit.
(3) Energy from the new production reactor can be integrated with unsaleable secondary energy and capacity from existing Columbia River projects for which there is presently no market and make available by such combination saleable firm power.
(4) Money demands on the U.S. Treasury are eliminated.
(5) As recognized from the outset of plans for the new production reactor, the addition of power facilities as proposed will make possible the utilization of an energy source that would otherwise be unused. Failure to provide such facilities would amount to an unexcusable failure to make maximum utilization of the investment in facilities already made or committed in the new production reactor.
(6) The proposal provides a tangible and practical plan to implement the universal desire to put atomic energy to work for peaceful purposes.
(7) The use and integration of new production reactor power with other resources will be an important first step in the inevitable and approaching transition in the Northwest from an all-hydro system to a hydrothermal resource to meet the region's future power needs. The experience gained will make a valuable contribution in knowledge and information which will aid in the planning and execution of the orderly and economic addition of future thermal resources to the region's power supply:
(8) The reduction in the amount of heat which would otherwise be dissipated in the Columbia River during periods of dual-purpose operation will enhance the fishery environment and provide some degree of protection to the fishery resource.
(1) The apparent economic feasibility of the new production reactor power facilities based on previous studies and other substantial benefits, as well as the unsuccessful efforts to obtain Federal appropriations for the Federal construction, create compelling incentives to diligently continue efforts by every means available to bring favorable consideration by all parties concerned and result in the installation of the new production reactor power facilities with a minimum of delay.
(2) The proposal by WPPSS and the present plans for its implementation appear to be a satisfactory alternate to Federal financing of the new production reactor facilities and will result in substantial benefits to all parties to the arrangement as well as others.
(3) The economic feasibility studies summarized herein have been based on 4%-percent financing, whereas the recent successful financing by WPPSS of $10,500,000 of Packwood project revenue bonds at 3% percent interest indicates that the interest rate assumed herein may be unduly conservative if bond market conditions continue to be favorable at the time of financing. It must be pointed out, however, that while current WPPSS studies, as well as previous studies, indicate that the installation of the new production reactor power facilities are economically feasible, the studies of feasibility using criteria which Bonneville Power Administration must satisfy in order to enter into the agreements now contemplated have not been completed and final