From: bweida@igc.apc.org (Bill Weida) Subject: MOX Program Acquisition Strategy Review Sender: bweida@igc.org Greetings Campers, For those of you who haven't looked at DOE's MOX program acquisition strategy, here is a quick and dirty look from the economic side of the hill. I think you will see why we shouldn't be interested in having as a contractor anyone who would be willing to compete for this contract. You should also be able to see why this hair-brained scheme is going to price MOX out of the market. Bill Some Comments on PROGRAM ACQUISITION STRATEGY FOR OBTAINING MIXED OXIDE FUEL FABRICATION AND REACTOR IRRADIATION SERVICES (PAS) released by the Office of Fissile Materials Disposition on July 17, 1997. 1. The PAS proposes to use existing LWRs or the CANDU if international agreements with Russia and Canada allow it. (p.1) 2. The PAS reserves the option to immobilize all surplus weapons-usable plutonium instead of using it in MOX. (p.1) 3. The entire document is heavily caveated. During the MOX DEIS hearings last month, it was made clear that this is because the costs of MOX appear to be extremely high. 4. The DOE has expressed a preference for dealing with a consortium, not a single company. (p. 2) In my view, this is probably because no US company has the required experience and the DOE did not want to deal solely with a foreign company. The economic issue here is that using a consortium drives up costs because it increases the amount of overhead that must be covered. 5. The potential contractors are clearly being allowed to write or modify the RFP. (See p. 3, para 3.) This is bound to increase the costs of the operation and is a clear sign that the DOE doesn't know enough about the project to write an adequate RFP (or to administer the contract later). 6. DOE will convert and provide plutonium oxide powder at not charge. (p. A-1) I believe this means that DOE will have to absorb the costs of gallium removal--and this is an additional subsidy to the MOX program. 7. The PAS does not consider spent fuel disposition and thus considers none of the costs involved with this. (p. A-1) This means that the recent revelations by RAND about the nature of MOX spent fuel can have no economic impact on this procurement and it obviously omits a large portions of the costs of the MOX program from consideration. 8. DOE absorbs all costs and responsibilities for transportation both of plutonium oxide and of fabricated MOX fuel. (p. C-3) Another subsidy to the program. 9. The amount of feed material to be converted to MOX is only expected to be 33 MT, but it could vary between 20 and 40 MT. (p. A-2) I say ONLY because this has direct cost implications. The MOX fabrication plant will be government-owned and contractor operated--and the contractor is supposed to make a payment to the DOE for the use of the plant. (p. A-2) However, the consortium is responsible for the design, construction, startup and operation of the MOX fabrication facility. This is clearly taken from the privatization plan where the costs of facilities are borne by the contractor who is then reimbursed over the life of the project for the cost of the facility. This reimbursement should cover, among other things, a payment for the capital costs of the plant. The investment required for a MOX fabrication plant is about $400 million for LWR MOX fuel--and this does not include interest charges of roughly 6-8%, or $24 to $32 million a year. The total charges, which are likely to be about $500 million by the time the plant is built, should be recouped by adding them to the bill for the MOX fuel. If only 33 MT of plutonium are converted, each ton will carry a surcharge of about $15 million that either must be passed on to the users of the power produced by the MOX or assumed by the government as yet another subsidy to the program. 10. Operations and decommissioning costs of the plant must be borne by the consortium. (p. A-2) These will have to be added to the cost of the MOX produced, and since so little MOX will be produced, the unit charge for decommissioning will be higher than that of the competing fuel--uranium. This alone would make MOX non-competitive with uranium. 11. The PAS envisions only a 10-12 year program. It says that all the material converted to MOX must also be irradiated for at least one cycle in 15 years. (p. A-4) The preferred MOX production rate of 3.5 MT/year suggests a production program of only about 10 years. This means that the period over which all costs must be written off is very short. This implies high consumer prices if the costs are passed through and high DOE budget requirements if they are not. 12. The fabrication plant is evidently supposed to be designed to run at almost any rate between 0 and 3.5 MT/year production, given whatever supply of plutonium is available. (p. A-4, para. A.1.4.2.3) Further, the plant is required to be designed to accommodate shifts in production rates of +/-30%. (p. A-6) This means that the plant is likely to operate well below its production capacity most of the time--a factor that increases inefficiency of operation and hence, the per unit cost of MOX. 13. Further, the plant must have enough unused space to allow construction of a second, production-scale MOX fuel assembly line. (p. A-6) Again, this fosters inefficiency and raises costs. 14. And, the production plant must be able to accommodate operation stoppages for national policy reasons--particularly those based on relations with Russia. (p. A-7) Again, this increases the cost above that for a normal production operation. 15. The facility must have enough storage for 7 MT of plutonium oxide. (p. A-7) Storage costs are very high for plutonium (about $4 per gram per year) and storing 7 MT would further drive up costs by $28 million per year. 16. MOX cannot be fabricated more than 18 months before it is used. (p. A-7) This limits the plant's ability to operate at an efficient production rate and gears production to the rate at which reactors will consume the fuel. Again, costs will be driven up. 17. All of the above makes the production of MOX so uncertain that the consortium is required to have on hand an inventory of LEU fuel or to have contracts that would allow such fuel to be purchase on short notice so that LEU can be used if MOX is unavailable to fulfill a contract to a LWR operator. (p. A-7,8) Purchasing and maintaining such an inventory also drives up the cost of MOX.