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(ii) any amounts due under subparagraph A(2) and A(3) of Article VI for the actual cost of construction and installation of waste storage tanks, not yet paid for as provided in such subparagraphs, provided that in the event the Contractor utilizes such tanks for the storage of wastes of others it shall repay the Commission the amounts, and in accordance with the formulas, set forth in such subparagraphs.

(4) In the event of termination of part of the work hereunder, by reduction in the number of revenue units to be delivered to the Contractor for chemical processing, the Commission shall pay to the Contractor in full satisfaction for the whole amount due the Contractor by reason of such termination, an amount determined by multiplying $18,000 by the number of revenue units which the Commission determines not to so deliver.

(5) Amounts due the Contractor under paragraph B. of this Article XXII shall be paid in equal annual installments, beginning on the last day of the processing year in which termination is effective and ending on the last day of the fifth precessing year had the contract not been terminated by the Commission. The Commission and the Contractor may agree upon other methods of payment, taking into account the discounted value of the annual payments due the Contractor as provided in the preceding sentence. c. Repayment of Amounts to Commission in the Event of Increased Load in

the Plant In the event of termination of this contract, in whole, or in part, by the Commission as provided in paragraphs A or B of this Article XXII, the Contractor shall promptly repay to the Commission $18,000 for every revenue unit in excess of 1,500 which is chemically processed in Plant for all customers (including the Commission), and which is deemed to have been chemically processed therein as provided below, during the period which would have been the term of this contract, had the Commission not terminated the contract, provided, however, that such 1,500 revenue unit base shall be determined and adjusted upward or downward as provided in Article II (B). In the event of termination pursuant to paragraph B of this Article XXII, the Contractor shall be deemed to have chemically processed in the Plant the number of revenue units for which the Commission has paid the Contractor under paragraph B, of this Article XXII. If this contract is terminated pursuant to paragraph A of this Article XXII, the Contractor shall be deemed to have chemically processed in the Plant a number of revenue units determined by the following formula :

T

$18,000

T, as used in this formula shall equal the amount paid to the Contractor under paragraph A(5), A (6) or A(7) of this Article XXII.

D. If all work under this contract has been terminated pursuant to this Article XXII, the Contractor shall continue to store any specification material located at the Plant until the effective date of termination, unless otherwise agreed. During such storage period the Contractor shall, in accordance with mutually agreeable delivery schedules, deliver such specification material to the Commission f.ob. commercial conveyance at the Plant. All specification material stored at the Plant in accordance with paragraph D. of this Article XXII, shall be subject to the provisions of Article XXXI until delivery to the Commission as provided above.

E, Any disagreement between the parties with respect to this Article XXII, including any disagreement with respect to amounts due under subparagraphs A(6) and A(7), shall be subject to the provisions of Article XLIX.

F. Unless otherwise provided for in this contract, or by applicable statute, the Contractor, from the effective date of termination under this Article XXII, and for a period of three years after final settlement under this contract, shall preserve and make available to the Government at all reasonable times at the office of the Contractor, but without direct charge to the Government, all his books, records, documents, and other evidence bearing on the costs and expenses of the Contractor under this contract and relating to the termination of this contract, or, to the extent approved by the Contracting Officer, photographs, microphotographs, or other authentic reproductions thereof.

APPENDIX 2

REPORT FURNISHED BY THE GENERAL ACCOUNTING OFFICE

CONGRESS OF THE UNITED STATES,
JOINT COMMITTEE ON ATOMIC ENERGY,

May 1, 1963.
Hon. JOSEPH CAMPBELL,
The Comptroller General of the United States,
Washington, D.O.

DEAR MR. CAMPBELL: The Atomic Energy Commission plans to enter into a contract with Nuclear Fuel Services, Inc. (NFS) under which the AEC would provide a substantial baseload for the operation of a chemical reprocessing plant to be constructed in New York State by NFS in association with the New York State Atomic Research and Development Authority,

In view of the fact that this contract is unique in important respects and involves some major Government commitments which will affect the future of the atomic power reactor program, I would like the General Accounting Office to review the proposed contract between AEC and NFS in detail.

I understand that AEC and NFS propose to execute the contract on or about June 1, 1963. The Joint Committee tentatively plans to hold hearings on this project on May 14. In view of the shortness of time, I would appreciate preliminary comments and information in letter form from your office on this contract by May 10, 1963.

Among the matters of interest to the committee are the following:

1. What are the Government's maximum potential commitments under the contract?

A. How much Government reprocessing business would be committed to the NFS plant under the proposed contract?

B. After the expiration of the initial 5-year contract, will there be sufficient private business to permit the plant to operate without a further Government contract?

C. Does the Government have any obligation with respect to providing research and development support for the project? 2. Will the Government incur additional costs as a result of the chemical reprocessing of its fuels at the NFS plant? If so, what is the estimated additional cost which the Government might incur?

3. Has NFS provided a sufficient contingency fund to cover an extensive delay in startup of the plant? We understand, for instance, that NFS has provided a contingency fund to cover a 1-month startup period, while the evaluation of AEC consultants indicates a considerably longer period should be allowed. What are the differences in estimated startup times and what are the implications of these differences on the economic feasibility of the project?

4. Does the proposed project have any significant implications for the development of an alternate commercial competitive source for such services? We understand that the Commission will consider an additional proposal from industry for the performance of chemical reprocessing work and will attempt to provide such a facility with an equivalent baseload of G ernment bus Can an additional facility be provided with necessary Government support?

We would sincerely appreciate your review of these and other matters related to the NFS contract. Your cooperation will be greatly appreciated. Sincerely yours,

John O. PASTORE, Chairman.

ess. REPORT TO THE JOINT COMMITTEE ON ATOMIC ENERGY, CONGRESS OF THE UNITED

STATES

REVIEW OF PROPOSED ATOMIC ENERGY COMMISSION CONTRACT

WITH NUCLEAR FUEL SERVICES, INC., FOR CHEMICAL PROCESS-
ING OF IRRADIATED FUEL ELEMENTS

(By the Comptroller General of the United States, May 1963)

COMPTROLLER GENERAL OF THE UNITED STATES,

Washington, May 14, 1963.
Hon. JOHN O. PASTORE,
Chairman, Joint Committee on Atomic Energy,
Congress of the United States.

DEAR MR. CHAIRMAN: Herewith for the use of your committee is a copy of
our report to the Congress on review of the proposed contract between the Atomic
Energy Commission and Nuclear Fuel Services, Inc., under which the Commis-
sion will provide a substantial baseload for the operation of a plant to be con-
structed in the State of New York for the chemical processing of irradiated
fuel. Our review was made pursuant to the request contained in your letter
dated May 1, 1963.

By letter dated May 3, 1963, the General Manager of the Atomic Energy Com-

mission transmitted to the Executive Director, Joint Committee on Atomic

Energy, a report on the proposal of the Nuclear Fuel Services, Inc., to construct

the plant, which contains background information on the project and a draft

of the proposed contract.

Our report contains comments relating to the specific questions contained in

your letter and to other matters disclosed in our review which may be of interest

to your committee. The comments are based on the assumption that the final

form of the Commission's contract with Nuclear Fuel Services, Inc., and the

agreements between the Nuclear Fuel Services, Inc., and other parties will be

in substantial conformance with the draft documents made available by the

Commission for our review.

We did not make any evaluation of the various estimates referred to in the

report mainly because of the technical nature of the arrangements and the limited

time available for making the review. Also, we are not in a position to evaluate

the highly technical question of whether the technology has advanced to a point

sufficient to justify the Commission's entering, at this time, into a contractual

arrangement with the Nuclear Fuel Services, Inc., on the proposed basis.

Sincerely yours,

JOSEPH CAMPBELL,

Comptroller General of the United States.

[graphic]

Our review of the proposed contract included a review of related supporting documentation made available to us by AEC and discussions with the AEC officials responsible for analysis of the proposed project and negotiation of the contract. However, we were unable to evaluate the appropriateness of the support for the various estimates because of the technical nature of the arrangements and the limited time for making the review.

GENERAL COMMENTS

The Nuclear Fuel Services, Inc., was organized by the W. R. Grace & Co. and. the American Machine & Foundry Co., with a capital stock of $8 million for the purpose of chemically processing certain quantities of spent fuels discharged from industrial reactors and Government-owned nonproduction reactors.

The purpose of the chemical processing operation is to separate and recover the valuable unburned source and special nuclear material from irradiated fuel elements. Under a policy announcement in March 1957, AEC offered to accept from licensees irradiated fuel elements for chemical processing. In announcing this policy AEC expressed its continued desire to encourage the development of a commercial capability for irradiated fuel processing by stating contractual arrangements between AEC and licensees which implemented the policy would expire June 30, 1967, or earlier if AEC determined that the required processing services would be commercially available at reasonable prices.

NFS' proposal to construct a facility in Cattaraugus County, N.Y., is an outgrowth of a plan outlined to the AEC in January 1962 by the Davison Chemical Co., a division of W. R. Grace & Co., under which it would accept fuels from Government and non-Government nuclear reactors for chemical processing. NFS has an arrangement with the Bechtel Corp. for construction of the major portion of the facility at a fixed price of $21,600,000. Plant operation is estimated to begin in July 1965. The estimated fund requirements amount to about $32 million. The proposal provides for the financing of the facility in the following manner : Equity capital by W. R. Grace & Co. (78 percent) and American Machine & Foundry Co. (22 percent)

$8,000,000 A grant by a group of utilities identified as the Enpire State Development Associates, Inc..

2,000,000 Funding of the construction of storage and other facilities and the

lease of the site for the entire facility under a 15-year lease by the

Atomic Research and Development Authority, State of New York.-- 8,500,000 Bank loans, including $3,500,000 to be available on a standby credit basis on Jan. 1, 1965

13,500,000

Total.

32,000,000 The proposal indicates that the facility is designed for the processing of 1 metric ton of low-enriched uranium oxide fuel a day and that a processing workload of 1,500 revenue units is contemplated over a 5-year period, including a workload to be furnished by AEC. A revenue unit is defined as the equivalent of approximately 1 day's processing at design capacity or 1 day's time for cleanout of the plant between processing batches.

COMMENTS ON THE NFS PROPOSAL

THE GOVERNMENT'S COMMITMENTS UNDER THE CONTRACT

Under the terms of the proposed contract, AEC presently estimates that it will be obligated to furnish a workload of about 748 revenue units of fuel processing over a 5-year period, including about 625 revenue units of processing Government fuel elements and about 123 revenue units of processing fuel elements which AEC will accept from licensees for financial settlement prior to July 1, 1965, and will reserve for processing by NFS. With regard to the fuel to be received from licensees, AEC plans to permit the licensees, at their option, to reclaim such fuel from AEC and submit it directly to NFS for processing. AEC's obligation to NFS will be reduced by that amount of fuel reclaimed by licensees. It appears that NFS's successful continuation of the plant operations after the expiration of the 5-year contract period will require AEC to continue furnishing some part of the processing load. However, the proposed contract contains no provision requiring AEC to furnish any part of such processing load.

1 Successful operation of the plant as used in this report is based on an assertion made by NFS that it would require 300 revenue units annually to earn a normal profit.

21-261-64- -13

The proposed contract does not definitely commit AEC to provide research and development support to NFS. However, the contract does provide that AEC may request NFS to perform other services, including research and development related to chemical processing, in lieu of chemical processing of irradiated material. To the extent that NFS does perform such services, AEC's baseload requirement will be reduced. AEC also will consider requests by NFS for specific research and development support related to the NFS plant. AEC has already received one such request from NFS. Extent of processing of Government fuels under the proposed contract

The amount of fuel processing which AEC agrees to furnish from Governmentowned reactors may vary from a low of 622 revenue units, and at AEC's option, to a high of 650 units. Also, the revenue units of fuel processing furnished by AEC can be reduced to the extent that fuel processing by NFS for all customers over the 5-year period of the contract exceeds 1,500 revenue units. However, on the basis of AEC estimates, it appears unlikely that NFS will attain å workload of 1,500 revenue units during the contract period, and consequently it does not appear that there will be any reduction of the 625 revenue units of fuel processing guaranteed by AEC.

Under the proposed contract, AEC will incur a fixed basic processing cost of $23,500 a revenue unit for low-enriched fuels, plus incremental costs, up to $781 à revenue unit, for processing certain types of fuels. AEC will incur additional costs for construction and installation of special waste storage tanks if AEC furnishes certain types of fuels as part of its baseload commitment. AEC currently plans to furnish approximately 485 of its commitment of 625 revenue units of fuel that will require such waste storage tanks.

The cost estimated by AEC for the 625 revenue units of fuel processing to be furnished from Government reactors is shown below, by category of estimated cost.

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AEC estimates that the payments to NFS for chemical processing of the AEC baseload commitment will amount to about $21.2 million-about $18.3 million for processing 625 revenue units of Government fuel and about $2.9 million for processing 123 revenue units of non-Government fuel to be reserved for NFS processing. AEC will recover a large part of the $2.9 million through payments by licensees in financial settlements.

We were advised that the contract will contain a provision for AEC to pay in addition to the above amounts, an amount to be agreed upon before execution of the contract, for perpetual care of stored waste.

The proposed contract provides also that, if in the future AEC should desire to have processed certain additional reactor fuels beyond the capabilities of the presently conceived plant, NFS shall install the necessary additional facilities and equipment, provided that AEC and NFS can agree on terms and conditions, charges, and amount to be reimbursed to NFS for the cost of such facilities and equipment, or the portion thereof which is properly allocable to AEO. To the extent that such fuels are furnished by AEC they would represent part of the baseload. Need for continued Government support after expiration of the contract

On the basis of AEC estimates, it appears that NFS's successful (as previously defined) continuation of processing operations after the expiration of the 5-year contract period will require AEC to continue to furnish some part of the proc.

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