Free Response to Motion - District Court of Federal Claims - federal

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Case 1:98-cv-00126-JFM Document 792-4 Filed 04/16/2004

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Spent fuel transportation. A complete listing of the data and other information co~id~red reaching my opinionS is Contained in Exhibit 1.

Ill.

AGGREGATE ACCEPTANCE RATE OFSPENT FUEL DISPOSAL PROGRAM

Must-M,ve Analysis
to begin with an -aggrega(e analysis of overall demand for accep~ce slo(5. Aggregate
of

- J~ ~s useful

~emand is detennined as the amount

spent fuel that is in a: "Must-Move condiuon a~ lU1y point.

in time. "Must-Move"
Must-Move spent fuel:

spentfuelis spent fuel that J11ust

~ removed from a Purchaser s facility or

else the facility will incur significant costs that are otheIWise avoidable. There ate tWo classes of

2.

I.

Full Pool: Discharges in excess of spent fuetpoolcapacity,2 and Shutdown: Spent fuel at pennanently shut down facilities.3 -

Full.Pool" Must-Move spent fuel

e.,

discharges from the r(factor in excess of the storage pool's

capacity, would necessitate installing a (f1)' storage facility at considerable expense unless spent fuel were removed from the site.4 "Shutdown" Must-Move spent fuel, ifnot removed, would require the
cQntinued operation of the spent fuel pool beyond the time it _could be decommissioned, incUITing

significant o~goi ~g operations and maintenance (O&M) cxpe~ditures. Note that spent fuel held at
an operating facility that has not reached pool capacity is not

considered Must-Move. Such a pool

must continue to be opera~ed regardless of the quantity of spent fuel it contains , so the reduction or

removal of existing spent fuel in the pool creates essentially no savings of operating cost

5

A vaHable pool capacity is net of full-core reserve (FCR) capacity. Only the amount in excess of pool capacity

is considered Must-Move. .
Spent fuel at a shutdown facility is not considered Must-Move until all of the spent fuelhas cooled in the pool.
for at least

years, as required by the Standard Contract -

In certain instances ,

a utility can expand the capacity of its pool through re-racking, a process in which

additional racks are added to the pool or existing racks are replaced with new racks that store spent fuel more compactly. Re-racking imposes a considerable expense.

Pool operating costs are essentially fixed , as there are no significarrt~e~uir~ments or operations that vary with

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In order to detennine the quantity of Must-Move spent fuel ina

given year,

one must ideii~

each

, storage facility' s Capacity, future diScharges, and shutdown date to detennine ~en each faQitity
would exceed its,

pool storage capacity or become eligible for spent fuel removal ~use
the pOol capacities

of

sh~tdown. This requires detailed descriptions of

iIiventoriesandreactor

discharge rates for all the spent fuel facilities in the United States. lhave

obtained pool capacity data

from DOE, using 1995 as the reference poin(' 1n addition, I ~verelied

on Mr.

Malone for the most '

recent available data on spent fuel inventolY andptojectionsoffuture spent fuel dischargeS~

annual results of my Must-Move analysis ' are 4isplayed in Figure , The figure The ' aggregate, distinguishes the cumulative quantity ofMust..Move spent fuel by type-.,-thelowerregion showing
discharges in excess ofpoolcapaciiy at Full Pools and the upper region showing the additional ,
quantitiesdue' to Shutdown pools. Total Must Move spent fuel is shown as the sum of these two. '
This graph of total Must-Move spent fuel offers a picture of ,the demand' for , acceptance slots,
, showing

for each year the total amount ofspent~el that will impose additional , avoidable storage

costs unless it is removed.

, size of the inventory in the pool. It is only operating the pool as a whole that can be avoidable, or the need to expand storage capacity ' once the pool becomes full.
Spent Fuel Storage Requirements: 1994-2042, DOE, June 1995. The year 1995 is an appropriate reference point because it slightly pre-dates the time at which the contract obligated DOE to begin accepting spent fuel. As it became evident that the program would not begin accepting spent fuel in 1998, several utilities began to expand the capacity of their pools through fe-racking. Some of these expansions would not have been necessary had DOE been on track to commence spent fuel acceptartce at a s ufficient aggregate rate by January 31, 1998. The 1995 data provides a better representation of the Non- Breach capacity than would 1999 apacity estimates.

continued)

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.~

Figure 1

Must-Move Analysis Demand for Acc eptance Slots '
80,000

60, 000

E-c 40,000, ::S'

-20, 000

"'1:1'

CI\

...c .

...c

...c

...c

ImlJlications of Must-Move Analysis for Aggregate Acceptance Rate

My Must.;Move analysis , together with the opinions of JohnW. Bartlett, support the aggregate rate
for spent fuel ~cceptance that DOE would and should have followed to meet its contract obligations.

In his report, Dr Bartlett states that DOE' s obligation, though not detailed in the contract, was to
deal effectively and efficiently with the commercial nuclear industry' s spent fuel. Substantial other

evidence also supports this conclusion. The aggregate acceptance rate that he concludes would and

should have been followed is in part derived from and corroborated by my analysis ofMust~Move
spent fuel discussed above.. This acceptance rate shows that DOE' s acceptance of spent fuel begins

in 1998, according to the contract requirement that DOE begin accepting spent fuel not later than
Januaty 31 , 1998. The annual aggregate acceptance amounts found to be reasonable by Dr. Bartlett

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and supported by IDY analysis are shown in Table L' The' ophiions ' of Ivan F. Stuart support the ,

feasibility of this acceptanCe rate.

, Aggregate DOE Acceptance Rate
, Non-Breach Wo.-Jd

Year
tance

1998 1999

2000 ' 2001 2002 2003, . 2004 ' 2005

200 .~200 2,000

000 2,7.00

' 3,

000 3,000 3,000' '

The ~ppropriatenessofthis acceptance rate can b~seen by comparing it with the aggregate quantity

of Must-Move spent fuel, in Figure 2. The acceptance rate has a steady-state acceptance rate of

000 MTU per year, which corresponds closely to the annual rate at which spent fuel must be
removed from pools that become full and pools :eligible for

sh~tdown in order to avoid unn~cessary ,

storage cost. Further, acceptance ramps up to this steady state in such a fashion that within the first
. several years ,
demand for

the aggregate acceptance Catches

up to the Must:-Move

ba~klog (th~. cumulative

spent fuel removal). After this "crossover" point, the annual aCceptance rate closely

approximates the average creation of new Must-Move spent fuel overtime, staying somewhat ahead
, of the production of Must-Move spent fu~l. Any DOE acceptance rate that accepts spent-fuel from

Purchasers at a rate significantly lower than the incremental demand would impos e

additional

unnecessary storage requirements and costs on Purchasers, a result that would be uneconomic. As ,
, 'Dr. Bartlett confinns , such uneconomic perfonnance would not achieve the DOE' s objectives nor

meet its contract obligation.

7 DOE

has recently used this same acceptance rate

for

its own planning purposes in

Management System Requirements Document, Revision

confirming the -reasooab!eriess'Gf

Civilian Radioactive Waste , DOEIRW-O406 (January 1999) at 13 , Table 3

this ,

rate.

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Figure 2 Supply and Deritand for Acceptance Slots Non-Breach World
80~000

60,000

Non-Breach World cceptance '

~:. 40,000

20, 000

,c
...c

...c

, ...c

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IV.

ANALYSIS OF SEQUENCE OF SrENT FUEL ACCEPTANCE IN TIlE NON-BREACH WORLD ,

Implications of Must.;.Move Analysis for Sequence of
Acceptance
The foregoing Mus~.Move

Spent Fuel

analysis offers some preliminaty answers to the question of when any

given Purchaser, and in particular the Plaintiff, would have its spent fuel completely removed.
Figure 2 above compares the cumulative acceptance by DOE (the supply of spent fuel acceptance)

with the cumulative quantity of Must-Move spent fuel (the demand for spent fuel acceptance). As
can be seen in the figure , the supply of acceptance slots is initially below the total demand of Must-

Move spent fuel , indicating that for the first few years , it is not possible to remove all of the Must- '
Move spent fuel as soo.D,a$..it.achievesMustMovestatus.
There-wcwd-bea.bacyjog, ofMust-Mov.e

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spentfuel; that is, either 1) spent fuel would exceed,

JX?01 capacity,

requiringd1y$torag~ a~lCJlor 2)

spent fuel at shutdoWn' facilities would require ext~nded

pool operation. Because

~ate

of~USt-~ovespel1t fuel priQf to 2002, it would be accep~ce would be less than the total quantity some Purchasers t() incur otherwise~avoidable StOrage C()stsin theseeMly years. , nCcessaiy for

However, the balance of supply and demand changes in year 2002. At this point, the ,cumulative
aggregate acceptance would have caught up to the cUIl1:wativeMust..Move spent iUei, and thereafter'

SUpply a1~ys would ' excee4 demand. ,This U1~ that as ofapproximately, 2001, :the aggregate

acceptance rate would have becnable to remove

all

spent fuelthat had by then achieved Must-Move

, Status., Going forward ti'om this c ~crossover" point, aggreg~te acceptance alWays would be sufficient

to remove all additional spent fuel' ator ~efore the time it became Must-Move, i. e. before it caused

any avoidable storage coSt. Thus, by approximately year 2002 aIid.thereai\er in the Non-Breach
World, ~l,

Must-Move spent fuel could have been removed, and' n() Purchas~r would have needed

to incur avoidable storage costs.

The economic implication

of

this supply-demand

balance is that befor~ the cro~sovei' date. '

acceptance slots would exchange at a positive price, reflecting the costs that unsatisfiedPUtChasers
would be forced to incur by not having their spent fuel removed. After the crossover point, the price

ofsv.'apswould be essentially zero because the supply of slotspersistently exceeds demand, making

" it vel)'easy for Purchasers with Must- Move needs to acquire slots. Thus, aU Purchasers with Must-

Move spent fuel by 2002 would be able to have all their Must-Move spent fuel removed by 2002 at
the latest They could

do this by acquiring slots at zero price in year 2002. All of Plaintiff's spent

fuel is Must-Move by 2002 , because Plaintiffs plant has shut down pennanently. The year 2002
,establishes the latest date for Plaintiff's spent fuel removal in the Non- Breach World because by
then, the price of slots falls dramatically (to essentially zero), and Plaintiff could acquire all the slots

it needed at no additional cost. The date of removal could be earlier than 2002 to the extentPlaintiff

is willing to pay for earlier acceptance slots.

I My conclusions regarding when spent fuel would be removed are based on the Economic Sequence Model
described in the next section. The Must-Move analysis provides only aggregate resultS, whereas more detail is necessary to determine the impact on Plaintiff. As can be seen in the next section, the Economic Sequence
MooeJ..resuUs..are--entirely.consistent with the

Must-M()ve anatvsk

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Unfortunately, while this backstop date offers Ii useful bOUnd, the aggregate Must-Move analYsis
does not establish When before

this backstop date the Plaintiff's site would be free of spent fuel--it

might be econoinicailybetter for Plaintiff to pay anon..zero price before 2002 andbaveits Spei1ttUe1

, ~moved sooner., In order to establish this, the results of the Must-Move anaIysi$' (the MUst;oMovc
quantities at individual sites) are used in a more detailed model, the Economic Sequence ModeJ,

described in the followmg seCtion.

, The Need to.Depart.from the OFFAIlo~tion of Acceptance

Slots

To deteimine theNon-Breach removal schedule for indiv!duat Purchasers, I first demonstrate that
the initial allocation of acceptance slots, according to Olde~t Fuel Fi~
~ccepting spent fuel. '
Rather, Purchasers

is not an' cfficientbasis for

would swap' their acceptan~ slots ' to achieve an

econoniicallyefficient allocation, and DOE ' would accept spent fuel according to the resulting,

etlicientallocation. A look at the consequences of adhering to an OFF-based aceeptancesequence
shows why such a sequence would be inefficient. OFF priority., by design, has no undedying coSt
foundations. In particular, it does not relate a Purchaser spri~rity to the costs that would be incun:ed
, or could be avoided at the Purchaser s facility. OFF takes no account of a facility' sshutdown s!atus,
nor ' of

the need to accept spent fuel to prevent operating plants from reaching pool capacity limits.
onO FF priority would force some facilities to continue

Therefore~ accepting the spent fuel based

operating a s~nt fuel pool long after shutdown, and others to incur the cost of dry storage as their

pool reaches capacity. At the same time, it would involve repeatedly removing spent fuel from
operating plants with slack pool capacity and no pressing need for

such removal.

, In addition" the OFF sequence would impose major inefficiencies on DOE' s transportation system'
. without offsetting private

cost savings. ,OFF would involve picking up a small amount of spent fuel

from many facilities each year. While there can be good reasons for small pickups in some
circumstances

(e.

to relieve facilities that are on the verge offacing full-pool constraints), the OFF

sequence would require small acceptances as a matter of course. This would be inefficient in tenns
oflogistics (coordinating pickups and shipment with transportation systems) and operational staffing

(requiring more staff to handle more shipments)~ In contrast, a system of campaigned spent fuel

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removal is economically superior, to the extent that it w~uld notmterfere acCommodation of with

Must-Move needS.

, The Role of Swaps of Acc~ptance Slo

The prim3ry vehicle for achieving a sequence that is more cost-etfectivethan OFF is "swaps"

a~ptance slots relative to ~e initial allocatio~ based on OFF. Slots would ~"bo
, among Purchasers, who have the e~ect of reallocating acceptance
slots

~ght and ,sold

from Purchasers who have

less immediate need for spent fuel removal t(l those With greater immediate need.lo , The aggregate
supply of

swap- able" slots in a given year would be getennined by DOE' s aggregate annual'

acceptance.

For example, as indicated in Table I , in the Non-Breach World, DOE would accept 2 000 MTUin
. the year 2001. Accordingly, 2, 000 MTU of accep~ce slots would ' be allocated toPurchasei's

according to their chronological discliargedate. Since the 2,000 MTU accepted in year 200 I are the

industty' s4,401 It through 6,400th metric tons to be accepted by DOE, the Purchasers who are initiaUy
allocated these slots under OFF are just those who discharged the industty' s 4,4011t through6 400th

metric tons. (These tons were discharged in, I979

and 1980.

, Only by happenstance would these'

, OFF slots be allocated to the Purchasers with greatest need for spent fuel' acceptance in 200 I.
" Thi'ough swaps Qf acceptance slots , all parties could reduce their costs.

The economic superiority ()f campaigns has been widely recognized by DOE and others. See, for example Spent Fuel Acceptance Scenarios Devoted to Shutdown Reactors: A Preliminary Analysis. PaCific Northwest
Laboratories, October 1989.

10 To remind

the reader, the term "Purchaser" does

not

refer in this context to a purchaser of acceptance slots

or swaps. It is the designation given to Commercial nuclear power producers who are counterparties

in a contract for disposal of spent nuclear fuel. To avoid confusion in this report, I use " buyer" and "seller" to refer to parties who exchange acceptance slots.
II In

toDOE

prefer t(jdelayacc~ptance so as to avoid frequent mobilization for small fuel acceptances, whiCh would be implied by the initial OFF allocation of slots. This benefit to sellerS was not explicitly modeled.

generated. An operating reactor with slack pool capacity may

addition to the obvious benefitto the buyer of slots , the seller may also enjoy a benefit beyond the revenue

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Slots would be exchanged bas~ on,privatC costs and benefits, as swaps occur at each ~urcbaSer!$

discretion. However, 1)eCatW,

such

swaps will inevitably, drive the acceptance schedule toWard

Must-Move campaigOs, the resulting trades would:a1so foster reductions in transportation and ,other
system coSts, and woUld be viewed with favor by DOE, which retains SO111e discretion to disapprove
swaps. '

M~ ,
asinput The

Calculating Spent Fuel ReinovarSchedule with the EconomicSeqUei1C~

The ECOnomic Sequence Model, described in this section, uses the resultsofth:MUst-Move analysis

results of the Eco ~omic Sequence Model for the Non-Breach World include estiritates

of when spent fuel would be removed from individual Purchaser s faciiities , which Purchasers would

have bought and sold the necessary swaps, of acceptance slots, and the prices that would have been

paid fot those swaps in order to achieve this outcome.

lbave demon~trated above ,that economic forces provide compelling reasons for private exchanges

ofacceptanceslots. BecaUse the buyers would be motivated by their avoidable costs , it is reasonable
to' assume that such swaps would approach the efficient economic allocation of slots. , I use an
avoided~stmaximization model

to detennine the efficient economic allocation of acceptance slots.,

The key assumption of my model , consistent with market structure and price formationthroughout
, the economy, ' is that swap prices , and the corresponding rescheduling of removals' will ' reflect

, participants' willingness to pay (WfP) up to their avoidable storage costs for improving their

position in the acceptance sequence. Those Purchasers with the greatest impending, hence
avoidable, costs will have, the greatest willingness to pay and will buy slots to achieve earlier

removal. Those wi~ less pressing needs will wait and/or sell their slots.

For purposes of this analysis , I assume an OFF-based initial allocation. ' Acceptance slots are
, allocated on a per metric ton basis, and aU trading of slots would also occur on that basis. 12
This is

.i

12 This exchange provision is consistent with DOE'

s viewon approving exchanges on a tonnage basis as stated by Nancy Slater at her deposition. " You may substitute PWR for BWR. Yau may substitute older fuel for younger fuel. You may not substitute more MTU for less MTU. Deposition of Nancy Slater April21, I999

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Case 1:98-cv-00126-JFM

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consistent With the fact that the total DOE acceptance fot eaCh year is a specifi~numbef
tonS. and the initi81 OFF'
8lIocation of acceptance slots is for

of

metric

a given number ofmemc

tons.

" The storage costs that a Purchaser can avoid by having spentfuel removed from a site m aparncular

year influence the Purchaser s willingness to pay. Avoidable, storage costs may consiSt
, , pool O&M at ~ shutdown reactor, or the setup and operating coSts of

of

ongoing

thy storage for 'a

facilitywitIi" '
~is, and it '

a fUll, Pool. A .Purchaser s WTP fo~ acceptance slots is expressed on a per m~tric io

is equal to the avoidable ,cost divided ,by the tonnage ' of spent fuel that must be removed to:avoid

those costs. 13 Exhibit 2 presents, the' input data, on costs " cask size, and, hatidling constraints
incorporated in my Economic Sequence Model.14'

Jhe economic model assumes that, aU Purchasers will pursue their economic setf-interest ,and be '
willing to buy slots if price is below their WTP or seUifitis above. Purchasers "bid" forslol$ based
on their WTP for removal of

spent fuel in the cUrrent year relative to one year later. These bids are

ranked in decreasing order, and acceptance slots are allocated to the highest bidders. Theclearing
, price for all acceptance slots 'in a given )'ear is equal to the marginal bid (the lowest Winning bid) and

is paid by aU buyers to all sellers. A market that perfonns in this manner could be implemented by
a last~bici

auction procedure , or it could be the result

of

active, visible bilateral trading.

Figure3 displays the annual market price ofacceptince slots produced
Model. Thehigher initial price of acceptance slots reflects significant demand in excess

by

the Economic Sequence
of

aggregate

acceptance capacity. However the price drops over time as the .Purchasers

with the

highest WTP

have their spent fuel removed , and the remaining Purchasers have lower WTP. In year 2002 and

beyond, the price goes to essentially zero , reflecting the fact that there is excess supply. That is, total
demand (from Purchasers with positive WTP) is less than total supply, so slots will trade freely'
essentially zero price.

A .Purchaser s net cost

of

exchanging acceptance slots is the difference

U (... continued)
p. 109.

1) A constraint requiring removal offult casks when possible is incorporated into the Economic Sequence Model.
rely -upon James P. M~one fGr, data,olt costs cask'Size -ancl-lrandling' constraints.

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.
-- H

the total cost ,of the acceptance ~lots it needs according to the, Economic Sequence Model

and the total value of its- initial allocation of OFF slots, both evaluated atthe

DiarJcet clearing price. IS '

Figure 3 '

140
122

Yearly Prices for Acceptance Slots Results from the Economic Sequence Model

120
100
t=)

80-

20

1998

1999

2000

20()1

2002

2003

2004

2005,

Note: Price of removal rights is zero for all years after 2002.

The Economic Sequence Model operates on an annual basis. To estimate to the nearest month when
th~ Plaintlffwould have ~ll its spent fuel ~ccepted, I assumed that a bidder s acceptance position

within a year would be proportional to the rank of its WTP among the winning bidders within that
year

(i. e.

the highest winning bidder has spent fuel accepted flfSt, and the lowest last within a year).

Based on this, Yankee Atomic would buy sufficient acceptance slots in 1998 and 1999 to remove
an 127 metric tons from its pool by January 1999, ata cost of$15.4 million.. Offsett!ng this , it would

sell its OFF slots forrevenue of$3. 6 million, for a net swap cost of approximately $11.8 million to

buy these slots (all costs in , 1999
IS Purchasers

present value). Table 2

displays' the detailed results

of the

' initial allocations of acceptance slots based on OFF are calculated from data on discharges frorp S. commercial-reactors , obtained1hronghJames-

p;Malone.
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, Economic Sequence Model for PlaiIi~ inCluding when spent fuCl isacccpted, and ~en and ~

. - " ,.. '

wbatcost acceptarice slotS are bought and sold.

T~ble2
Economic Sequence Model Results Yankee Atomic t!:ledric Company
1998
, Spent Fuel AcCeptance (MTU)
(Economic Sequence Model Resuit) ,

1999'

2000:

2001
().O

2002

2003 '
O~O

122.4

InitialAUocation of Slots (MTU) (According to OFF) ,
Mar:ketPrice of Slots
($OOOIMTU)

19.

18.

17.

122

, Cost of Required Slots ($ Millions) (PV =d$15.4 M) Revenue from OFF Slots Sold ($ Millions) (PV = $3. 6 M)

14.

2.4

at zero.

' All costs and revenues from slots are zero fromyear2oo2forward, as marketpricc ofstots goes to zero in 2002 and remains

, The model results show that overall , facilities with smaUeramounts of Must-Move spent fueL
(typi~ly ~mall shutd.own pools and operating reactors with full pools)tend to acquire, earlier

acceptance slots. The larger shutdown facilities have their spent fuel removed relatively later, closer

to the time when cumulati~e acceptance slots catch up with cumulative Must-Move spent fuel.

SPENT FUEL ACCEPTANCE ANALYSIS-BREACH WORLD

In principle , the same kind of economic sequencing analysis perfonnedabove could be applied to
the Breach World , albeit with a different set of inputs regarding the program start date and
acceptance rate , and with appropriate adjustments to spent fuel inventories and discharges to reflect

the later time ,period.

.Howe.v.er~, the. data, Dn

which :such a Breach World.anaLysis :w.ould, hav.eto,

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.d"

. (particularly the'

based isextremelyspecuhitive~Most obviouSly, the program s acceptance rate is highly uncertain st8rt date). The existence of a viable swap market for acceptance slots-critica1 to
achieving an econonrlca1ly efficient reallocation of slo~is doubtful. The results of such a Breach' World analysis would have to bedeemedhighly uncertain, so lnuchsothat it would be difficult to

have reasonable confidence ill them.
" ' One off:he ' mostcriticalanda1s~ most uncertain factors in the Breach World is the date at which la~er start date implies correspondingly later

. DOE will begin accepting spent fuel. Obviously, a a1so ,allows, more Must-Move spent fuel to acCeptarice~all else equal. However, a later start accumulate by the time the program begins. The resulting!,ncreased Competition f~ravail~ble slots

woUld likely push any particular Purchaser s acceptance back still further. . DOE has recently 16 , ,projected a program start date of2010, though even this late dale i~ by no means assured.
In my analysis of the Non-Breach World, with program operation beginning m, 1998, thebacldog ofM~t-Move spent fuel could be eliminated within, a few years. However, by 2010, the volume of

Must-Move spent fuel is considerably larger. To illustrate the situation in the Breach World, Figure
4 plots cumulative Must-Move spent fuel. . This cumulative demand for spent fuel removal reach~s , 18,000 MTU by 20 I 0 , and continues to grow at an ' average rate of approximately 3,000 MTU/year
. for the next 20 years. A 20 I 0 program start with the same annual acceptance as in the Non-Breach , cannot catch up with this need. The cumulative amount of Must- .
W,orld,'also illustrated in FigUre 4

Move spent fuel is significantly in excess of the cumulative acceptance through the year 2030 and

beyond. A later start date would only make the situation worse , and even a start date several years
earlier would not solve the problem. Absent a much

higher acceptance rate in the Breach World, it

is ' not

possible for the supply of spent fuel acceptance slots to keep pace with demand.

t .

16

- Radioacti:ve W.aste.!-.1anagetnent

Civilian Radioactive Waste Management System Requirements i5;;c Department- ofEnergy,

nt. Revision 05,

Office of Civilian

January 1999.

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