relate to any chemical business. I think again it would require a detailed analysis of the cost of chemical processing before one realizes that a large proportion of the cost of chemical processing is in fixed charges and not as related to the quantity of fuel put through. The only place we would err substantially in those estimates would be if the process itself were basically inoperable or if the plant, as designed, were inoperable. If the plant functions as designed-and you must appreciate that the key elements of this plant have already had substantial production testing and experience we think that the uncertainties that are in this project are in the variable costs and the variable costs are a very small percentage of the total cost. We believe that they are very good for the 15-year period, subject only to the escalation clauses that we have in the contract.

Representative PRICE. Mr. Conway, do you have any questions?

DELAYS IN STARTUP OF THE PLANT

Mr. CONWAY. You estimate that the plant can begin operation 3 months after completion of construction and the AEC suggests that it is going to be longer. If you are delayed in your startup past a 3-month period, have you then estimated what your monthly additional cost will be on any delay of startup?

Mr. RUNION. Yes; again that is part of the confusion that exists in various peoples' minds as to what startup costs are. There is a difference between a plant that won't work at all in which you can't put any fuel through, one in which there are no revenues at all to offset the so-called startup costs.

I believe the technical committee when they presented a 2-year figure in a subsequent discussion with us clarified this by stating that they felt the 2-year figure was not a period of time it would take to determine whether the plant would run at all, but it was a period of time

it would take for that plant to come up to an 85-percent-on-stream · factor and be functioning as a production facility. Does that answer your question?

Mr. CONWAY. We have gotten some figures on the record showing that if you are delayed in construction what your additional costs are going to be. I am trying now to balance it on the other side, that if the AEC is more accurate than you are, what are your additional costs going to be for any extended delay in start up.

Mr. RUNION. We have discussed this factor with Mr. Abbadessa in the process of analyzing our costs for the purposes of the contract. I believe the cost figures he has presented here are consistent with

our own.

Mr. CONWAY. I think the point the committee is most interested in knowing is that the AEC and the technical people in the AEC have pointed out to you all the various difficulties, and that knowing these difficulties you have of your own free will decided to move ahead in this project, and that you are not being encouraged to go into it by the AEČ.

Mr. RUNION. Yes; this is certainly true. I think at one point we had less startup funds than would have been satisfactory to the Commission. Since that time we have added additional startup funds of the order of $2 million in our startup costs, bringing it from $1.4 million up to $3.4 million. We believe that contingency is adequate to cover even the type of difficulties we think people envision.

RESEARCH AND DEVELOPMENT SUPPORT TO BE PROVIDED BY AEC

Mr. CONWAY. There is one other point, Mr. Chairman, that we had some discussion on this morning. In the event of inability to start up as originally planned, would you propose to come in under the contract for R. & D. to assist you along this line in addition to the baseload that you are asking the Government to assume.

Mr. MCGUIRK. Mr. Conway, I think this came up somewhat out of context this morning. Early in the negotiations with the Commission, the Commission was concerned that the $1.4 million which we had provided for additional funds to cover us against startup problems was not adequate, and they suggested to us that we might consider adding more money or taking other action which might make it more certain that there would be sufficient moneys there. We pointed out to the Commission that one of the things they could do if they so desired was to put us on a research basis for each new fuel which the Commission supplied to us and that the cost of running the plant for a month would be about $400,000. The Commission would, of course-if we went completely haywire, get nothing back for that 30-day period. If we ran at design rate the Commission would get back something like $690,000 worth of reprocessed fuel. This was one of the ways of curing this worry about not having enough money for startup. The Commission in its own judgment decided that was not a feasible route for them and prevailed upon us to provide more money which we have done in terms of an additional $2 million allocated to startup, bringing the total startup allocation to $3.4 million which would cover us for 9 months if we didn't get a dime of revenue, a highly unique assumption. If we were running at half capacity it would run us for 18 months.

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Representative PRICE. Thank you very much, Dr. Runion. Before you leave, does your group wish to bring up anything before the committee?

Mr. McGUIRK. I refer you to page 16 of the GAO report. (See app. 2, p. 194.)

Representative PRICE. What point do you desire to cover?

ADDITIONAL FUNDS REQUIRED BY AEC UNDER THE PROPOSED CONTRACT

Mr. MCGUIRK. I would like to revert to the questions that were asked in the earlier sessions of this morning relative to the premium costs alleged of doing business with NFS and referring to the GAO report at page 16. If you will look at that report you will note the top column, processing costs, in the far right-hand column, a figure of $13.3 million. That $13.3 million refers to the costs incurred by the Government in performing 1,200 days of reprocessing.

Representative PRICE. You might further identify that figure under column, increase or decrease, under baseload contract, and this is minus $13.3 million.

Mr. McGUIRK. That is right, minus $13.3 million. As I understand it from a very quick perusal because we didn't have this GAO report unfortunately

Representative PRICE. We didn't see it either until this morning. Mr. MCGUIRK. That refers to the incremental costs which the Government feels it would incur in doing 1,200 days of reprocessing work. This 1,200 days of reprocessing work would come from the combination of the Commission baseload of 625 days, plus 123 days of utility load, which is temporarily in the hands of the Commission for custody, plus 452 days of utility load which never gets into the hands of the Government, as shown on page 8 of the GAO report. By very simple arithmetic you can see that this is roughly $10,500 a day as the estimated incremental cost to the Government for carrying out this 1,200 days of reprocessing. Now if you will stay on page 16 and drop down to the middle column, under the heading, revenues to AEC for reprocessing non-Government fuel, you will see there in the center column, processing contractual baseload, figures of $3.1 and $2.7 million. These are deductions from the first column of $3.1 and $12.2, leaving a net of $9.5 million which the Commission would charge the utilities for doing their share of this 1,200 day load.

If you will subtract the $9.5 from the $13.3 million you get a difference of $3.8 million. That $3.8 million it is alleged by this report that it would cost on an incremental basis to process the 625 days of Government fuel. I submit on the very face of it that this is a $5,000 figure in round numbers which indicates that this so-called incremental accounting indicated by the $13.3 million starting figure is very wide of any real accounting situation. It is manifestly impossible.

Mr. CONWAY. According to the GAO report these are figures from the Atomic Energy Commission.

Mr. MCGUIRK. That is right.

Mr. CONWAY. I think at this point the Atomic Energy Commission ought to be given an opportunity to respond to that point if they are prepared.

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.