essing load. However, the proposed contract contains no provision requiring AEC to furnish any part of such processing load. AEC, in a letter to W. R. Grace & Co. dated March 12, 1962, and in its outline of the project to the Bureau of the Budget, has stated that it is not guaranteeing the technical or economic success of the processing operation.

As previously stated, the NFS plant is designed to have a capability of processing 1 metric ton of low-enriched uranium (UO,) fuel a day and of handling fuel of higher uranium enrichments; however, the plant capacity decreases as fuels of higher enrichment are processed.

The documentation examined indicates that, since there is not a sufficient quantity of non-Goverment fuel available at this time to support a private chemical processing plant, AEC will furnish a baseload of Government fuels for a period of 5 years, in order that an industrial capability may develop which would permit AEC to withdraw, in whole or in part, its offer to accept fuels of non-Government reactors for processing.

NFS has estimated that, including the Government baseload, 1,500 revenue units will be available for processing during the 5-year period of the proposed contract. However, AEC has estimated that only about 1,200 revenue units will be available to NFS for processing during the 5-year period as indicated below:

NFS estimates that, on the basis of 300 days of operation a year, its initial financial "break-even point” will require the processing of about 242 revenue units a year.

In considering the feasibility of the NFS project, AEC prepared the following estimate of non-Government fuel available for commercial processing.

AEC has indicated that these estimates represent a maximum load, as they provide for no batching between reactors. Such limited batchiing which is permitted under proposed contracts between NFS and utility companies could reduce the revenue unit estimates. In addition, the availability of the above load is dependent on the ability of the NFS plant to process the various types of fuels included in the estimate.

On the basis of NFS's estimate of its processing-load needs and of AEC's estimates of the non-Government fuels available, it is apparent that NFS's successful operation of the plant cannot be accomplished without Government support before 1973. Moreover, whether an adequate workload of non-Government fuel for processing would be available after that date is dependent on the accuracy of AEC's forecast of private reactors in operation at the various dates. Government obligation with respect to providing research and development support for the project

The proposed contract contains provisions which would enable AEC to undertake research and development work in support of the NFS plant and enable NFS, at AEC's request, to undertake research and development work in lieu of chemical processing of fuels. An NFS proposal for research and development work has been received and is under consideration by AEC.

› AEC research and development.—The proposed contract provides that AEC will consider requests by NFS for specific research aid development support of the NFS plant.

AEC, in its report on industrial chemical processing transmitted to the Joint Committee on Atomic Energy on May 3, 1963, stated in regard to the NFS plant:

"The NFS plant is based generally upon technology developed or under development in AEC facilities. It includes a mechanical cell for chopping fuel elements into sections which are then transferred to a dissolver where the 'meat' of the fuel elements is leached from the cladding or ‘hulls.' This is described as a 'chop-leach' system; it is still under development at ORNL using nonradioactive material * **""

It is our understanding that the above method has not been previously employed on a production basis by either AEC or private industry.

NFS, in a letter to the Chairman, AEC, dated, January 9, 1963, regarding contract negotiations stated in part:

"With regard to an immediate demonstration development program on the proposed mechanical decladding equipment which would provide greater technical assurances, we are preparing a suggested detailed development program for review by your staff in line with the thoughts outlined by your technical consultants. We assume that this program would be financed by the Commission. The major equipment units could be supplied by NFS with the exception of a shear which is already in being at ORNL. We suggest that the work could be carried out under the guidance of ORNL.

"The AEC technical consultants expressed concern with the adequacy of the startup contingencies, provided by NFS. We feel that the technical revisions as previously discussed provide a partial antidote to these concerns. In addition, we propose that AEC-supported development work be done in the NFS plant during the startup period. We feel that such a program should be treated as a separate research and development contract. We are thinking in terms of a contract to cover the first campaign of each type of Commission fuel. To operate the NFS plant on a development basis would require about $400,000 per month. We would be willing to enter into such supplemental contracts on a cost basis."

The Chairman, AEC, in a letter dated January 17, 1963, in reply to the above NFS letter, stated:

"With respect to AEC-sponsored research and development, it appears that a preoperational development program in Commission-owned facilities on the mechanical decladding equipment would be acceptable. We would be pleased to receive and consider the details of the development proposal you have under preparation.

"You recognize, of course, that there is a limit beyond which the Commission could not support research and development specifically directed to the NFS plant. Your proposal that AEC fund the startup operations of the NFS plant on a development basis cannot be accepted since it would be inconsistent with arrangements for a service-type contract. We would be pleased to receive and consider other development proposals of a type and scope not inconsistent with these arrangements."

By letter to AEC dated April 3, 1963, NFS proposed that AEC, through the Oak Ridge National Laboratory (ORNL), cooperate with NFS in a preoperational development program relative to fuel processing. The program, referred to in the proposal as the shear-leach program, is primarily for the develop ment of mechanical processing equipment and facilities.

The proposal defines three major phases of the program as follows:

"1. A design phase in which ORNL would cooperate with NFS, Inc., in preparing final criteria for process mechanical facilities and equipment, and review the final designs prior to their fabrication and construction.

"2. An experimental phase in which ORNL would do shearing, leaching, and possibly other mechanical tests of unirradiated fuels. Work under this phase would be limited for the most part to mechanical equipment currently on hand at ORNL.

"3. An evaluation phase in which a mockup of the process mechanical facilities would be built at ORNL in which the NFS equipment would be installed for testing and evaluation. This phase would include checking of equipment accessibility to cranes and manipulators, debugging of equipment, determination of remote maintenance and decontamination limitations, operator training, and finally the preparation of an operating manual. The NFS equipment would then be shipped to NFS for reinstallation in their New York plant at the end of the program and the mockup dismantled. It was agreed that it would be of

great value to the ORNL program to have one or more ORNL engineers in residence at the NFS plant in an advisory during the cold and hot startup periods." The NFS proposal states that meetings have been held between ORNL and NFS personnel and that it is NFS's understanding that the program outlined in the proposal would be a continuation of present ORNL programs and that ORNL is capable of and wishes to carry out such a program.

The AEC General Manager in a letter dated May 9, 1963, to the president of NFS, stated that AEC believed that it would not be feasible or appropriate to give detailed consideration to NFS's proposal of April 3, 1963, until consummation of the proposed contract, and accordingly deferred comment on the proposal. He stated in addition, however, that the AEC believed that the general criteria (cited below) would apply to any research and development project agreed to by AEC with respect to NFS:

"1. It would not constitute a contribution to the capital or startup costs of the NFS plant.

"2. It would not constitute a guarantee by the AEC of the NFS plant performance. (This criterion, together with (1) above, may preclude any final design reviews or evaluations by Commission contractors. Individual specialists in our contractor organizations could as appropriate be retained on a consultant basis.)

"3. It would not constitute a contribution to solution of specific operating problems arising from day-to-day plant operations.

"4. Performance of any research and development relative to safety, would not in any way prejudice the freedom of the Division of Licensing and Regulation in carrying out its regulatory responsibilities.”

NFS research and development.—The proposed contract provides that AEC may request NFS to perform other services in lieu of chemical processing. The other services include:

1. Recovery of material other than uranium and plutonium;

2. Laboratory work involving radioactive material ;

3. Radiation chemistry investigations ;

4. Research and development related to chemical processing;

5. Isolation of special isotopes;

6. Studies on waste utilization and processing.

The proposed contract provides also that, in the event services such as those described above are agreed upon, the agreement shall provide for a reduction in the amount of material which AEC is obligated to deliver to NFS and shall equate the charges for processing the reduced amount of material with the charges for the other services to be performed.

The above provisions could become particularly important in the event that the processing plant is not operative at the time anticipated. For example, should difficulties in the plant's shear-leach system prevent chemical processing at the completion of construction, AEC could request NFS to perform research and development in lieu of processing fuels. However, AEC informed us that it has emphasized to NFS that it does not contemplate affording financial relief in the event such difficulties do occur.

ADDITIONAL FUND REQUIREMENTS TO THE GOVERNMENT UNDER THE CONTRACT

AEC has estimated that over the 5-year period of the proposed contract, its fund requirements will be increased by about $19.9 million comprised of increased costs of about $10.4 million and foregone revenues from licensees of about $9.5 million.

At present time AEC has the facilities for chemical processing of its nonproduction irradiated fuel elements at its Savannah River and the Idaho installations. AEC, in determining the increase in fund requirements that would result from accepting the NFS proposal, compared the funds that would be required, under a conceptual case, of AEC's chemical processing of Government and non-Government fuels at AEC facilities with the funds that would be required, under a conceptual case, of NFS's processing of Government and non-Government fuels— other than cermets or sodium-bonded-type fuels under the terms of the proposed contract. AEC's estimate of the funding requirements for processing the fuels at its facilities does not, of course, include depreciation or interests costs associated with AEC's fixed investment in facilities existing at the beginning of

the contract. Also the estimates do not include any provision for possible future research and development projects related to the proposed contract. A summary of AEC's cost estimates is presented below:

The estimates do not consider the Government's cost for perpetual care of wastes generated from the processing of Government fuels since the matter is still under negotiation.

AEC has estimated (1) that about $3.5 million worth of equipment would have to be installed at Savannah River to process the low-enriched fuels that NFS would process and (2) that capital expenditures would not be required for facilities to the extent that NFS might, at some future time, install facilities to process cermet and sodium-bonded fuels. AEC has estimated also that it would be less expensive to process the latter fuels than to provide storage for them. However, its facilities are not equipped to process such fuels at the present time.

CONTINGENCIES FOR DELAYS IN STARTUP OF THE PLANT

Studies by AEC and by a private board of consultants indicate that, because of the developmental nature of essential plant equipment, serious doubt exists that the NFS plant can begin operation immediately after completion of construction. Moreover, both AEC and the consultants have questioned whether NFS's planned staffing is adequate. In view of the technical nature of these problems, we are unable to determine whether the planned financing is sufficient to insure the completion of construction and successful operation of the plant over the term of the contract. However the record shows that AEC has considered the technical and financial risks involved in the venture, but has determined, in view of its responsibility to promote a private nuclear power capability, that support in the form of a baseload is warranted.

In October 1962, AEC made a preliminary study of the ability of the NFS plant to perform fuel-processing services and concluded that neither the overall operating efficiency nor the reliability of the plant could be assured. It was noted that the ability to operate the plant successfully at design conditions would require: (1) substantial increases of operating, technical, and supporting staff, (2) substantial increases in plant startup estimates (both time and money), (3) probable capital additions and/or modifications to the plant which may be in excess of the present allowances by NFS, and (4) a corollary research and development effort of substantial magnitude.

The conclusions reached in the AEC study were based on comparisons with applicable experience derived from AEC research, development, testing, and production operations giving recognition to the inherent differences between requirements of the Commission program and of commercial ventures,

The major conclusions contained in AEC's study are summarized in the following paragraphs.

Staffing

The study concluded that the facility staff, as estimated by NFS at 129 employees, (1) would need to be at least doubled to meet standards of performance, safety, and accountability considered acceptable in AEC contractor operations and (2) would need to be significantly increased to operate at lower standards but with the minimum performance needed to meet "throughput" predictions. The study noted that the NFS plant, because of handling a number of fuel types differing in form, processing chemistry, and handling manipulations, would be far more complex than any AEC plant in operation.

Upon the study conclusion that at least 211 employees would be required to operate and maintain the proposed plant, AEC financial analysts recomputed the annual estimates for salaries and wages. The recomputation on the basis of NFS costs per employee and of AEC's estimated staff requirements indicated that NFS annual cost estimates for salaries and wages were underestimated by approximately $596,000.

Startup costs, capital additions, and modifications

The AEC study noted that the proposed NFS plant, although based largely upon demonstrated AEC technology, would be attempting to perform a task not yet performed elsewhere; i.e., processing power reactor fuels with irradiation levels beyond those previously experienced in spent-fuel processing plants. It was concluded that extrapolation of the present state of technology involved considerable risk and would require a concurrent research and development program. However, it was noted that such a program was not contemplated by NFS. AEC also concluded, on the basis of AEC's plant startups at Hanford, Idaho Falls, and Savannah River, that significant costs beyond those estimated by NFS might be required for equipment modifications, prolonged operation at low output or with off-standard products, or both.

Cited as an example of a plant startup problem was the installation of a single-purpose mechanical head-end at the Idaho Chemical Processing Plant which required an operational period of nearly 2 years before equipment modifications and operating procedures were developed sufficiently to insure a reasonable probability of meeting design production rates on a continuous basis. It should be noted, however, that the difficulties at the Idaho Chemical Process. ing Plant occurred some 5 years ago and that because of experience gained in technology since that time a similar delay at the NFS plant would not necessarily occur.

The study indicated that AEC was particularly concerned with the unresolved problems relating to the chop-leach system used in the basic head-end of the NFS plant. It was noted that considerable laboratory experimentation and engineering development have been conducted in Commission facilities on this system, but that unresolved problems in this one area alone, involving mechanical equipment and maintenance, contamination control, fire hazard, and accountability, would undoubtedly require additional study and possibly additional equipment development, design, construction, and demonstration to assure indicated capacities.

Research and development effort

The AEC study indicated that NFS's proposed dissolution of high-enrichment stainless steel fuels by a method known as the Darex process or, as an alternative, by an electrolytic dissolution process, has not yet been proved and that no satisfactory alternate methods are available. However, the NFS proposal did not take into account any requirement for research and development effort. NFS advised AEC in a letter dated October 8, 1962, stating in part that "NFS is satisfied that the plant as designed will operate successfully especially since it is based on established technology proven at AEC sites." A study conclusion indicated the need for additional research and development.

As a supplement to its study, AEC formed a team of consultants with recognized stature and experience in the chemical processing field to independently review the technical aspects of the NFS proposal. The review team was comprised of the following individuals:

Dr. Stephen Lawroski, Director, Chemical Engineering Division, Argonne National Laboratory