ments relate specifically to the seven points set forth in your letter. Most of these points are being developed more fully in the contract negotiations now going forward with your staff. This letter outlines the positions which we are presenting in the negotiations, most of which are fundamental to our proceeding with the project.

Point 1. The Commission decision to authorize a baseload contract covering 125 days of plant use and excluding from the initial baseload cermets, sodiumbonded fuels, and fuels generated in private power reactors is most helpful.

In the negotiations, we have suggested methods by which the charges to operators of small reactors can be materially reduced. In general, these measures contemplate batching of fuels which would reduce the industrial load as measured in revenue days by approximately the 25 days additional load which would be provided in the AEC contract.

Point 2. The negotiations are proceeding on the basis that the AEC obligation in supplying fuels may be proportionately reduced to the extent that the NFS load exceeds 300 days annually.

Point 3. The AEC decision not to require the processing of the baseload on a definite annual schedule is noted. In this connection, we have suggested that the Commission give consideration to a moratorium on use charges in an identical manner to that contemplated by the Commission in its own chemical processing contract for private utilities. Such a moratorium would put the NFS plant on the same basis as the AEC conceptual plant, and would facilitate the batching of fuels from small reactors thus obtaining power charges.

In line with your suggestion, the plant, as presently planned, will not include a capability for stainless steel-cermet and sodium-bonded fuels. If such a capability is added at a later date, NFS would be obliged to negotiate with the AEC to include these fuels on a mutually satisfactory basis. It should be noted that the plant, as presently designed, provides space to accommodate the facilities believed necessary for processing such fuels.

Point 4. We welcome the decision of AEC to expand its research efforts in the chemical processing field and to include in the contract a statement indicating the AEC willingness to consider requests by NFS for specific research and development support related to the NFS project.

We concur with your technical consultants that a developmental approach to the initial processing of stainless steel-cermet, sodium-bonded, and other complex fuels will provide greater assurance as to the available processing techniques which are now untried in a production plant. We shall be happy to cooperate in such development work, either by making development program suggestions for work at the Commission's laboratories or in carrying out at the NFS site programs which the Commission might care to undertake.

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.

Point 5. We recognize that the AEC requires rights in the technical data de veloped by the NFS plant. It would be unfortunate if a competitor, without undertaking the expensive program which we have undertaken, would be in a position to establish itself through taking a free ride, so to speak, on our know-how. We trust that these viewpoints can be resolved in the language developed through the negotiations.

Point 6. The sixth point indicates that the AEC will require assurances of sufficient financial support "to insure the construction and operation of the facility by NFS in order that the contemplated processing services are available

during the baseload contract period." We suggest that such assurances should not be a part of the baseload contract, but rather should be a condition precedent to execution of the baseload contract by the Commission. We have outlined orally to the Controller of the Commission the financial support which is presently available for the project. We believe this is significantly stronger than the Controller had previously understood. Likewise, it should be noted that the Bechtel Corp. has proposed a fixed price basis for construction which includes a contingency of about $900,000. The elimination of facilities proposed for sodium fuels and stainless steel-cermet fuels provides NFS with further available funds. With the removal of stainless steel-cermets, sodium-bonded and other complex fuels, neither NFS nor Bechtel anticipate changes in scope sufficient to upset the Bechtel fixed price.

If the removal of these fuels and the execution of the R. & D. program do not resolve the technical doubts you have expressed earlier, please give us your specific suggestions as to what other steps should be taken.

The information in the preceding paragraphs will be included in the amended application for a construction permit and operating license, and written and/or oral testimony will be provided to the Commission to support such statements in the amended application. We believe that the available financial support is adequate to assure construction of the plant and its operation during the 5-year baseload period. In the event of unfavorable developments beyond those which we can foresee, the sponsoring companies would be confronted with a business decision of whether to add an additional investment in order to salvage the substantial investment which already had been made. The decision of the sponsoring companies would depend upon the many factors usually associated with sound business judgments, including in this case such matters as load prospects for the future, the adequacy of processing rates, and the amount of additional capital required. You will appreciate that the sponsoring companies, as a matter of good business judgment, would be unlikely to abandon the large sums which will have already been invested in the project, so long as there is any prospect that future operations will be profitable or, at the least, will permit the salvage of a portion of the investment.

Point 7. We recognize the general principle that the AEC should have authority to insure the continued operation of the plant in the event of NFS default. The exact terms of such an arrangement must take into consideration the requirements of the lending institutions and the NFS agreement with ARDA which is framed to achieve the same objective of continued operation of the plant in the event of NFS default. We believe that since the objectives of the Commission, NFS, and ARDA are identical, this situation can be adequately covered in the contract.

The negotiations to date have developed in our opinion no unresolvable issues. Time continues to be a major problem.

Sincerely yours,

T. C. RUNION, President, Nuclear Fuel Services, Inc.

Senator ANDERSON. The Asperpetal contract. If Fermi comes in, if it should ever come in, you would pay them $400,000 a month to work on that.

Mr. ABBADESSA. As Commissioner Wilson stated, the Commission turned the request down. In a letter dated May 9 from the General Manager to Mr. Runion, we acknowledge that the Commission plans to continue its basic program in aqueous chemical processing. However, with respect to requests by the NFS, we state that we believe the following general criteria will apply to any research project agreed to by AEC with respect to NFS. Previous to that we say do not bel'eve it feasible or appropriate to give detailed consideration until such time as we sign the contract.

Senator ANDERSON. Then when you sign the contract you go ahead. Mr. ABBADESSA. Then we spell out these criteria. One, that it would not constitute a contribution to the capital or startup costs of the NFS plant. Two

Dr. WILSON. That is a very important thing. In other words, that essentially negates this type of proposition of each campaign of fuel. Senator ANDERSON. Read it again.

Mr. ABBADESSA. Our research and development would not constitute a contribution to the capital or startup costs of the NFS plant. The second point, it would not constitute a guarantee by the AEC of the NFS plant performance. This criterion together with No. 1 of not contributing to the capital or startup costs may preclude any final design reviews or evaluations by Commission contractors. Individual specialists of our contractor organizations could as appropriate be retained on a consultant basis. Three, it would not constitute a contribution to solution of specific operating problems arising from day-to-day plant operations. And finally, 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.

Senator ANDERSON. Did you examine the financial statement of NFS to see if they had enough money to cover the startup time itself? Mr. ABBADESSA. Yes, sir.

Senator ANDERSON. Do you think they did?

Representative PRICE. Did you say yes?

Mr. ABBADESSA. No, that is not my answer, sir, I was trying to get to my paper here. The answer is that this is a "first of a kind" plant. Our own technical staff and the consultants that the Commission asked to review the project have expressed grave concern with the startup costs. At the time that the consultants looked at the startup costs, they said they felt it would take a startup period in excess of 6 months and could possibly go as high as 12 months. Senator ANDERSON. That is the AEC committee of experts. What is the actual startup time at Idaho? Is it 2 years?

Mr. ABBADESSA. There is a reference in the GAO report to a 2-yearperiod. It took a 2-year period to start up a head end at Idaho. Senator ANDERSON. That is right.

Mr. ABBADESSA. This was 5 years ago, sir, and the GAO acknowledges in their report, because of the experience we have gained since that time, that it might take less time to start up the plant. I would like to answer your question on what they have for startup, sir.

Senator ANDERSON. Yes. Can this be taken from the Comptroller's report on page 3, where they list assets they have?

Mr. ABBADESSA. I will look at the Comptroller's report. Yes, sir. In that money, at the time that the consultants to the Commission looked at the financial setup of NFS, NFS had provided $625,000 for startup.

Senator ANDERSON. In other words, a month and a quarter.

Mr. ABBADESSA. Approximately 2 months.

Senator ANDERSON. A month and a half.

Mr. ABBADESSA. About 6 weeks or about a month and a half to 2 months, that is correct.

Senator ANDERSON. Does that sound sensible in view of the funds that they have?

Mr. ABBADESSA. We considered this amount to be completely inadequate and much has happened since that time. Let me take you through it.

Senator ANDERSON. All right.

Mr. ABBADESSA. The decision to remove the cermet and sodium bonded fuel generated about $775,000 additional funds. This was added to the $625,000 startup cost and the startup cost at that point became $1.4 million. The $625,000 provided for 46 salaried people for one and a half to 6 months on a building up scale and for 83 hourly people for about 2 months. The $1.4 million provides 46 people for the full 6 months, 83 people for the full 6 months, and a substantial increase in items like interest, insurance, maintenance and chemicals. At this point we are at a 6-month startup period. NFS, and I am sure they will speak to it, believe 6 months is adequate. The Commission was still not satisfied and still pressed for additional funding.

The NFS then obtained additional funding of some $4 million, of which $2 million has been allocated to startup. So we now have $3.4 million available for startup. The NFS believes that this additional $2 million would take them 6 months. We have made some computations, and we think it could carry them for a period of 6 to 10 months.

Senator ANDERSON. Where did you get the $4 million?

Mr. ABBADESSA. The $4 million was obtained by additional bank loans.

Senator ANDERSON. Above the $13,500,000?

Mr. ABBADESSA. No, sir; $13,500,000 is the total figure.

Senator ANDERSON. It includes the $4 million?

Mr. ABBADESSA. That is correct, sir. At the time the consultant raised the question NFS only had $625,000 for startup and only had a $9.3 million bank loan. They have since obtained $4 million more. Senator ANDERSON. Does this include all the staffing along with the other things?

Mr. ABBADESSA. That is correct. Basically they are at a 129-man staffing level. This provides for full staffing during the startup period. Their salary cost is approximately a million dollars per year. This provides about half a million for 6 months.

Mr. CONWAY. You say "full staffing" during the startup period. How many people?

Mr. ABBADESSA. 129, sir.

Mr. CONWAY. Your experts estimated that instead of 129 staff members as proposed by NFS, at least 267 employees would be required plus an additional 35 during startup?

Mr. ABBADESSA. That is correct.

Mr. CONWAY. Your experts said they did not consider the staffing adequate from a technical point of view. In fact they said, "We are convinced that the proposals for manning are Spartan and will be possible only after some years of operating experience.'

Mr. ABBADESSA. That is correct.

Mr. CONWAY. So, therefore, they did not meet the staffing level that the Commission experts recommended.

Mr. ABBADESSA. They do not today meet the level, Mr. Conway. I would like to make two points. This is a private enterprise and a high-risk venture, and it is so recognized. These are two points that

I think are important. This is the opinion of our consultants. I understand that the utility people who are NFS customers do not hold the same view.

Mr. CONWAY. In response to the Senator's inquiry, I didn't want to leave the impression that by increasing the financial side of it they had also increased the staffing, which they apparently have not done.

Mr. ABBADESSA. That is not correct, Mr. Conway. They have increased the staffing for the startup period. They increased the staffing to provide for 6 months at the full staffing that they intend to have in operation. You are raising a point that their full staffing is not adequate. With the initial $625,000 they did not provide for a complete staff at the level they expect to operate. They do now provide for that full staff. I would like to make one more point, sir, to this point of inadequate staffing at the level NFS intends to operate.

Remember, we are signing here a 5-year fixed price contract. Private industry has come to us and stated, “We can do it with this number of people." There are, however, varying estimates of the need for additional people. As the controller, I finally settled on 80 people at an annual cost of some $600,000. NFS has come in and given us a fixed-price contract with the smaller number of people. They must have confidence in their figures. The alternate would be for AEC to go into negotiations and give them a higher price, which we did not do.

Representative PRICE. Mr. Morris, has your last question been adequately answered?

Representative MORRIS. I think so.

Representative PRICE. Do you have any further questions?

Representative MORRIS. I would like to ask who took your former position in the GAO, Mr. Abbadessa?

Mr. ABBADESSA. May I go off the record?

Senator ANDERSON. I don't know why he should go off the record as to what his former position was.

Mr. ABBADESSA. Deputy Director of Civil Accounting and Auditing was my former position. It is now held by Mr. Oye Stovall, a very able auditor.

Representative MORRIS. I was thinking when we had these reports when Mr. Abbadessa was in the GAO, we got a lot of good information. Maybe the next time we have the hearing which involves these reports, we should get this other gentleman over, too. Then he could explain more in detail the way they arrived at those figures. Frankly, sometimes they confuse me when they get to throwing these figures around.

ADDITIONAL FUNDS REQUIRED BY AEC UNDER PROPOSED CONTRACT

Senator ANDERSON. Dr. Wilson used the term that this is being held down by the ingenuity of private industry. You are familiar with this figure of $19,900,000. Does that represent the ingenuity of private industry?

Dr. WILSON, No.

Senator ANDERSON. You say it includes rent. Does the Government have to pay rent on these institutions?

Dr. WILSON. I didn't say it represented rent.