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September 25, 1996

The Honorable Hazel O'Leary
Departrnent of Energy
Washington, D.C. 20585

Dear Secretary O'Leary:

As chair of a working group of public-interest organizations on plutonium disposition issues, I am pleased to transmit the attached letter to express the deep concerns of these organizations about the comparative economic analysis contained in the Technical Summary Report for Surplus Weapons-Usable Plutonium Disposition.

As noted in the last paragraph of the letter, we would appreciate the opportunity to meet with you to discuss this important matter further.


Paul Leventhal

Greenpeace International * Institute for Science & International Security * Military Production Network * Natural Resources Defense Council * Nuclear Control Institute * Nuclear Information & Resource Service * Nuclear Waste Citizens' Coalition * Physicians for Social Responsibility * Public Citizen * Safe Energy Communication Council * Union of Concerned Scientists

September 25, 1996

The Honorable Hazel O'Leary
Secretary of Energy
Department of Energy
1000 Independence Avenue, SW
Washington, DC

Dear Secretary O'Leary:

We are writing to bring to your attention a serious omission in the Department of Energy's most recent economic analysis of mixed-oxide (MOX) fuel utilization in existing commercial reactors, which is contained in DOE/MD-0003, the Technical Summary Report for Surplus Weapons-Usable Plutonium Disposition (TSR).1 We ask that this omission, as detailed below, be corrected before you arrive at a Record of Decision (ROD) on the Storage and Disposition of Weapons-Usable Fissile Materials Programmatic Environmental Impact Statement (PEIS). This correction is all the more important because the economic analysis of disposition options was excluded from the draft PEIS and thus was not subject to public comment as required by the National Environmental Policy Act (NEPA).

The TSR provides estimates of the cost to DOE of the MOX option which include only the incremental costs associated with substituting MOX for low- enriched uranium fuel in existing reactors. While it is an encouraging sign that DOE now acknowledges that the MOX option would be a net liability, we are concerned that DOE continues to systematically underestimate its total cost by failing to include the "incentive" fees --- essentially hidden subsidies for uncompetitive electricity generation --- that utilities are certain to demand in exchange for their participation in the program. These incentives, in the form of free MOX fuel and/or direct cash payments, could cost as much as several billion dollars over the life of the program, a substantial increase over the TSR's incremental life-cycle estimate of $1.78 billion (constant dollars) for the lowest-cost MOX option.

The Office of Fissile Materials Disposition (MD) believes that it has properly accounted for potential incentive fees in the TSR by noting that they represent "a significant cost uncertainty." Having said that, however, the report goes on to treat the cost of the incentives as if they are equal to zero.

In the summary tables of the document, no ranges in cost for the MOX option are provided that would signify the presence of this "uncertainty." This has the effect of skewing the cost comparison of the immobilization and existing reactor MOX options to make the latter appear more attractive.

MD argues that it would not be appropriate to provide estimates of incentives to the public because DOE does not know yet how much the utilities will want, and its bargaining position could be hurt during later fee negotiations by such disclosures. However, ample information concerning the size of the fees that utilities expect is already available to DOE and the public. For instance, in a 1994 document done under contract for DOE, the General Electric Company concluded, on the basis of discussions with utilities, that incentives will represent a cost to the disposition program "approximately equal to the difference between the current total [emphasis added] generation cost of the selected facility and the cost of alternate energy supplies, thus making the facility competitive..."2

This statement indicates that nuclear utilities are looking to the plutonium disposition program as a source of revenue that can help them to recover investments that may otherwise be lost as the U.S. electricity market becomes increasingly competitive. An incentive arrangement that bases fees on the uneconomic performance of nuclear plants would be tantamount to a multi- billion dollar government bailout of utility shareholders.

The GE report also makes clear that the utilities expect to receive the MOX fuel at no cost, which in itself would amount to a subsidy of roughly 0.5 cents per kilowatt-hour. This is in contrast to the TSR's assumption that DOE will be reimbursed for MOX fuel by the utility at a price equal to the cost of the displaced uranium fuel.

The prospect that the plutonium disposition program will become saddled with huge stranded costs would be less worrisome if the utilities chosen to participate were in good financial shape, had well-run reactors and were in a strong position to compete against low-cost fossil fuel generation. However, the utilities in this category are the least likely to accept the additional risks associated with the MOX program, which has the potential for causing substantial delays and reversing a recent trend toward lower nuclear plant operating and maintenance (O&M) costs and higher fuel burnups.

An examination of the list of utilities that responded to DOE's January 1996 request for Expressions of Interest (EOI) in MOX fuel confirms the point that financially vulnerable utilities view the program as a means of securing a government bailout of their stranded cost burden. Of the twelve investor-owned utilities on the list, nine were identified in a 1995 report by Moody's Investor Service as having "potentially large" stranded nuclear investments, totalling in the tens of billions of dollars.

DOE may also be forced to absorb significant additional costs if a reactor selected to burn MOX were to become uncompetitive (on a marginal cost basis) with alternative electricity suppliers, either because of a rise in O&M costs or a need to make major capital improvements. In this case, it would be in the utility's financial interest to shut the plant down prematurely, perhaps even before the loading of MOX fuel could begin. In order to ensure continued operation of the plant, DOE would have to subsidize the price of electricity generated by the plant or pay for the capital improvements up front.

A case in point is the proposal of the Canadian utility Ontario Hydro, which has offered the Bruce A CANDU power station for disposition of both U.S. and Russian warhead plutonium. These reactors, which already produce more expensive electricity than fossil fuel plants, need costly replacements of their pressure tubes to avoid premature shutdown. At least one of them (Bruce 2) also has damaged steam generators, and was mothballed in 1995 because the utility was unwilling to provide the capital to replace them. Hydro initially asserted in its proposal to DOE that it was planning to retube the reactors within the next decade. However, Hydro's recent deferral of a decision on retubing until at least 2000, in the wake of an unfavorable review of the CANDU proposal in the TSR, makes it clear that it had been counting on DOE to provide funding for this project. 3

MD claims that it will not agree to shoulder costs of this nature, and will have back-up reactors available. However, this does not provide adequate assurance that the disposition program will be protected from risk. Due to the complexity and expense of the technical and regulatory process that will be required to license reactors for MOX use, it is doubtful that DOE will have the flexibility to simply change reactors in mid-stream should the need arise. Furthermore, there is no mention in the TSR of the costs and delays that would be associated with this contingency.

The uncertainties in the cost estimates of the MOX program could be significantly reduced if DOE were to provide the public with a list of the types and magnitudes of fees that it would be willing to pay to utilities in excess of the incremental costs of the MOX program. In our judgment, no such fees should be offered, but DOE may have a different position. Whatever their size, the fees that will be allowed should be announced openly and in advance. Such an announcement would no doubt separate the utilities who are interested in MOX for patriotic reasons from those who regard it as a way to recover lost profits. At a minimum, this course would provide DOE with a more realistic assessment of how many utilities would be available for MOX disposition, and a better basis to judge the viability of the MOX option in relation to the immobilization alternative.

The TSR in its current form does not present a fair cost comparison of the immobilization and existing reactor MOX options. Moreover, failure to adequately account for the cost of incentives for MOX use could only result in the public perception that DOE policy-making is out of touch with present-day economic realities. To correct this situation, we respectfully request that you direct the Office of Fissile Material Disposition, prior to issuance of the ROD, to either: (1) revise the TSR to include a detailed, quantitative discussion of the additional costs that are likely to be incurred by the MOX program, including incentives and contingency costs, as described in this letter, or (2) prepare a supplementary document for your review and public release that addresses these issues.

We hope that the information in this letter will be useful, and we look forward to your response to our request. We would appreciate the opportunity to meet with you to discuss this matter further.


Edwin Lyman
Nuclear Control Institute

Christopher Paine
Natural Resources Defense Council

Daryl Kimball
Physicians for Social Responsibility

Maureen Eldredge
Military Production Network

Tom Zamora-Collina
Institute for Science and International Security

Michael Mariotte
Nuclear Information and Resource Service

Tom Clements
Greenpeace International

Bill Magavern
Public Citizen

Todd Perry
Union of Concerned Scientists

Fred Millar
Nuclear Waste Citizens' Coalition

James Adams
Safe Energy Communications Council

End Notes

1. The following discussion is drawn partly from a forthcoming article in the Bulletin of the Atomic Scientists by Edwin Lyman of the Nuclear Control Institute. Back to document

2. GE Nuclear Energy, "Study of Plutonium Disposition Using Existing GE Advanced Boiling Water Reactors," Prepared for the U.S. Department of Energy, NEDO-32361, June 1, 1994, p. 1.2-4. Back to document

3. R. Silver, "Hydro Puts Off Bruce Retubing as Hope For Pu Mission Fades," Nucleonics Week, August 15, 1996, p.8. Back to document

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