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

Case 1:98-cv-00126-JFM

Document 791-2

Filed 04/16/2004

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

YANKEE ATOMIC ELECTRIC COMPANY

Plaintiff
No. 98- 126 C

(Senior Judge Merow)

UNITED STATES OF AMERICA
Defendant.

APPENDIX TO YANKEE ATOMIC' S OPPOSITION TO THE GOVERNMENT'
MOTION IN LIMINE

TO PRECLUDE

FRANK C. GRAVES EXPERT TESTIMONY OF EVIDENCE

JERRY STOUCK Spriggs & Hollingsworth 1350 I Street , N. , Ninth Floor Washington , D. C. 20005 (202) 898- 5800 (202) 682- 1639 - Fax

Counsel for Plaintiff YANKEE ATOMIC ELECTRIC COMPANY

Of Counsel:

Robert L. Shapiro SPRIGGS & HOLLINGSWORTH
April 16 ,

2004

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INDEX TO APPENDIX

Description
Expert Witness Report of Frank C. Graves................................................. Expert Witness Report of Kenneth T. Wise 2003.........................

Pa2:e

........ 0001
0048

Expert Witness Report of Dr. John W. Bartlett..................................................

... 0068

Proceedings of the 1983 Civilian Radioactive Waste Management Information Meeting (Dec. 12- , 1983)................................................................ 0090

Expert Witness Report oflvan F. Stuart......................... ............................... ... 0093
Civilian Radioactive Waste Management System Requirements Document
Revision 05 , DOE/R W - 0406

(Jan. 1995) (Excerpts)................................

.... 0121

Deposition Transcript of Dr. John W. Bartlett (8/26/03) (Excerpts).......................... . 0124
Letter from Dreyfus (DOE) to Kadak (Yankee Atomic), (YDK- 006- 1064)

of9/28/95.............................................................. .............. ....... ... 0128
Expert Report ofR. Larry Johnson 2004 (Excerpts).................... ........
Frank Graves Deposition Transcript (11/12/01 , 11/13/01 , 11/14/01 , 1/03/02)

0129

(Excerpts)....

0134

Hearing Transcript from August 6 , 2001(Excerpts).............................................. 0169

Expert Witness Report of Charles W. Pennington.......

0175

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IN THE. lJNITED STATES COURT OF FEDERAL CLAIMS

YANKEE ATOMIC ELECTRIC COMPANY
Plaintiff,
No. 98..126 C (Senior Judge Merow)

UNITED STATES OF AMERICA
Defendant.

FRANK C. GRAVES EXPERT WITNESS REPORT

INTRODUCTION

lhave been asked to prepare this report to address the performance of the United States Department
of Energy (DOE) in accepting spent nuclear fuel and high-level waste (together
spent fuel")

under

the terms of its contract with the Plaintiff, Yankee Atomic Electric Company. This contract is one
of approximately 50 similar contracts (each sometimes referred to as a Standard Contract) between

the government and commercial nuclear power producers ("Purchasers
Due to the government' s failure to commence acceptance of spent fuel by January 31, 1998

, the

Plaintiff is incurring and will continue to incur economic damages. The damages are equal to the

costs the Plaintiff a~tualIy incurs, in excess of the costs that would have
quantify this difference ,

bc~:: incurred had the

government commenced and continued acceptance in accordance with its contract obligations.

cost models must be constructed that describe the Plaintiff's economic

operations in a Non-Breach Wodd (a calculated world in which pte government honors its contract

obligations) and in the Breach World (the actual world, in which the government'
obligations are not fulfilled).

s contract

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The Plaintiff's costs are heavily influenced by the timing of the completion of spent fuel removal

ftom its site. The ' contract does not specify the date by which the government was required to
complete removal of spen~
fuel

nom Plaintiff's site. The purpose of my report

~s to

determine the

date of completion of spent fuel removalftom the Plaintiff's site , had the government Commenced

spent fuel acceptance by Janu!1..')' 31, 1998. In order to do this, I applied. ecoi1omicprinciples and
cost evaluation tools to characterize what the government' s performance in this Non-Breach World
would have looked like and how it would and should have operated. Based on this, I detennined the

date on which the government would and should have completed removing the spent fue~ ftom the

Plaintiff's site pursuant to the parties ' contract. I also endeavored ,
understand the spent fuel removal schedule in the Breach World.

to the eXtent possible

The key results of my analysis are the timing of spent fuel removal at Plaintiff's facility and the net
cost of swaps, i. e.,

the cost to buy acceptance

allocations (or U

slots") to alter a Purchaser s position

in the acceptance queue (as discussed later). These results, in turn, affect the timing and in some

cases the magnitude of spent fuel storage and ('ther costs at Plaintiff's facility. Accordingly, my
results are incorporated into the cost models that provide the basis for the damages calculation in the

expert report of Dr. Kenneth T. Wise.

II.

SUMMARY OF ApPROACH AND RESULTS

My analysis of DOE' s spent fuel acceptance program consists of two parts: 1) an assessment ofa
reasonable aggregate acceptance rate for DOE' s acceptance of spent fuel ftom all Purchasers; and
2) given this aggregate acceptance rate , determination of the sequence in which spent fuel would be
removed from individual plants. This basic structure applies in principle to analysis cfboth the NonBreach and Breach Worlds.

Under the contract , the government has provided for an initial ~llocation of spent fuel acceptance

rights , or "slots " depending on the date of the discharge of spent fuel from each Purchaser s reactor.
This initial allocation is frequently referred to as " Oldest Fuel First " or " OFF. " The contract states

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that swaps of acceptance slots within the OFF queue are allowed. By this mechanism, plant owners

may voluntarily exchaitge removal slots among themselves (subject to DOE approval), for
mutually-agreed price.

Because of the possibility of swaps of acceptance slots among Purchasers, it is essential to draw a

distinction between the initial allocation of acceptance slots and the actual sequence of spent fuel
acceptance that would occur~ SincePurchase~ are able to exchange acceptance slots, a Purchaser

initial acceptance allocation need not detennine the schedule of removal at its facility. By buying

and/or selling acceptance slots, a different position in the sequence could be arranged. Swaps
acceptance slots would allow Purchasers (and not insignif1cantly, DOE also) to realiZe substantial
savings in cost and efficiency as compared with the initial allocation of acceptance slots under OFF.

The costs associated with buying and/or selling acceptarice slots are determined and accounted for

, in my analysis.

I model the perfcnnance of a market for acceptance slots in which eac~participant pursues its own
economic interest in swapping slots. The market would include payments for swaps , and earlier

acceptance slots would in general be more valuable than later slots. For example, a Purchaser who
swaps away later acceptance slots in exchange for earlier slots would have to pay for the exchange.

The Purchaser would be willing to pay for this swap because the cost of the swap payment is less
than the storage costs it would incur by waiting until a later date for the government to remove spent

fuel. Similarly, a different Purchaser with less urgent need for spent fuel removal would be willing

to relinquish its earlier slots in exchange for later slots , because the payment received is at least as

great as the storage cost incurred by waiting until the later date.

My analysis shows that in the Non- Breach World , ha~ DOE commenced acceptance of spent fuel

by January 31, 1998 with a reasonable aggregate acceptance rate, it shou~d ~d would have
completed ' removal of spent fuel from Plaintiffs facility by Jpnuary 1999. In order to achieve

removal by this date, Plaintiff would need to swap removal slots with other Purchasers , and these

swaps would occur at a price. The estimated net cost of the swaps required for the Plaintiff to
achieve this removal date is $11.8 million , in 1999 present value. Thatis , Yankee Atomic would

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pay a net cost of $11. 8 million to exchange its initial OFF allocation of slots for the slots needed to
remove all of its spent fuel by January 1999. The economic foundations for swaps are discussed in

detail in Section IV.

Even though it did not occur, efficient government performance in the Non-Breach \Vorld is easier

to describe and evaluate than is DOE' s future perfonnance in the Breach World. In the Breach
World, it is not possible to estimate with confidence the date by which DOE will complete spent fuel

removal ftom Plaintiff's facility. This is primarily because of significant, currentlyunresolvable
uncertainty in DOE' s future actual perfonnance. Themostobvious missing fact in the Breach World

is the rate at which spent fuel will be accepted, particularly !he start date of acceptance. In addition

to this uncertainty (and partly because of it), it is much harder to characterize with confidence how
, acceptance slots may be traded , if at all, and thus what the cost and availability might be for swaps.

These difficulties are explored further after the discussion of the more straightforward Non-Bre~ch

World.

In forming my opinions, I rely on data input and facts from available docUmentary evidence and
expert opinion from other witnesses. I have considered the expert witness report of 10hn W. Bartlett,
former Director of

the Office of Civilian Radioactive Waste Management, for how the government

should and would have structured its spent fuel acceptance program. In particular, I rely on Dr.
Bartlett' s expertise and cxperience to determine the overall acceptance rate for efficient performance.
Documentary evidence in the form of DOE publications also supports this acceptance rate. The

amount and timing of spent fuel generated and stored by each Purchaser also affects the demand for

spent fuel acceptance and the removal date of any particular Purchaser. James P. Malone ofNAC
International has provided information on spent nuclear fuel inventory and projected discharges.

rely for Purchasers '

spent fuel storage capacity on parameters taken ftam DOE' s

most recent

published study on this topic. I As discussed later, the cost of spent fuel storage at the Purchasers

facilities also affects removal. Data on storage cost has been supplied by Mr. Malone. I also rely
on the expert witness report ofIvan F. Stuart ofNAC International to establish parameters describing

0004
Spertt-Fuel' Storage Requirements J 994-2042
U;S. - DOE,

June 1995, Appendix A.

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spent fuel transportation. A complete listing of the data and other infonnation 1 considered in
reaching my opinions is contained in Exhibit 1.

IlL

AGGREGATE ACCEPTANCE RATE OF SPENT FUEL DISPOSAL PROGRAM

Must-Move Analysis
It is useful to begin with an aggregate analysis of overall demand for accep~ce slots. Aggregate
demand is determined as the amount of spent fuel that is in a "Must-Move condition at any point

in time. "Must-Move" spent fuel is spent fuel that must b~ removed ftom a Purchaser s facility or
else the facility will incur significant costs that are otherwise avoidable. There are two classes of

Must-Move spent fuel:

1. 2.

Full Pool: Discharges in excess of spent fueI pool capacity ,2 and

Shutdown: Spent fuel at permanently shut down facilities.

Full-Pool" Must-Move spent fuel

e.,

discharges from the reactor in excess of the storage pool'

capacity, would necessitate installing a dry storage facility at considerable expense unless spent fuel were removed from the site. 4 " Shutdown" Must-Move spent fuel, ifnot removed , would require the

continued operation of the spent fuel pool beyond the time it could be decommissioned , incurring
significant ongoing operations and maintenance (O&M) expenditures. 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 operated 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 costS
Available pool capacity is net offull-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 fuel has cooled in the pool for at least 5 years , as required by the Standard Contract.
In certain instances ,

a utility can expand the capacity of its pool through fe-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 (continued...

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In order to determine the quantity of Must-Move spent fuel in a given year, one must identify each

storage facility' s CapacitY, future discharges, and shutdown date to determine when each facility

would exceed its pOol storage capacity or become eligible for spent fuel removal ~use
shutdown. This requires detailed descriptions of
the pool capacities

of

invento.ries and teactor

discharge rates for all the spent fuel facilities in the United States. I have obtained pool capacity data

ftom DOE, using 1995 as the reference point." In addition, I have relied on Mr. Malone

for

the most

recent available data on spent fuel inventOlY and projections of future spent fuel discharges.

The ' aggregate annual results of my Must-Move analysis are displayed in Figure I. The figure
distinguishes the cumulative quantity of Must-Move spent fuel by type-the
lower region

showing

discharges in excess of pool capacity 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 of spent fuel that will impose additional , avoidable storage

costs unless it is removed.

continued) 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.
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 oftheir pools through re-racking. Some of these expansions would not have been necessary had DOE been on track to commence spent fuel acceptance at a sufficient aggregate rate by January 31, 1998. The 1995 data provides a better representation of the Non- Breach capacity than would 1999 Spent

.capacity estimates.

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Case 1:98-cv-00126-JFM

Document 791-2

Figure 1

Must-Move Analysis Demand for Acceptance Slots
80, 000

60, 000

~ 40, 000

20, 000

I::) I::)

I::) I::)

I::) I::)
I::) I::)

I::)
I::)

I::)

I::)

ff')

Implications of Must-Move Analysis for Aggregate Acceptance Rate

My Must-Move analysis, together with the opinions of John W. Bartlett , support the aggregate rate
for spent fuel acceptance 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 of Must-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
1998. The annual aggregate acceptance amounts found to be reasonable by Dr. Bartlett

January 31 ,

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and supported by my analysis are shown in Table 1.7 The ' opinions of Ivan F. Stuart support the
feasibility of this acceptance rate.

Table 1

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

Year

1998

1999

2000

2001

2002
700

2003, . 2004
' 3,

2005

~ptance

200

200 2,000 2 000'

000 3,000 3,000 '

The ~ppropriateness of this acceptance rate can be Seen bY5omparing 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 ftom pools that become full and pools eligible for shutdown inorderto
avoid unnecessary

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

the aggregate acceptance catches up to the Must-Move backlog (the cumulative

demand for spent fuel removal). After this "crossover" point, the annual acceptance rate closely
approximates the average creation of new Must-Move spent fuel over time , staying somewhat ahead

of the production of Must- Move spent fuel. Any DOE acceptance rate that accepts spent fuel ftom

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 confirms, such uneconomic performance would not achieve the DOE' s objectives nor
meet its contract obligation.

0008
7 DOE
has recently used this same acceptance rate for its own planning purposes inCivilian Radioactive Waste Management System Requirements Document, Revision 05 DOEIRW-0406 (January 1999) at 13, Table 3,

CQ..'!firming

thereasonab1en~sscfthisrate.

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Figure 2 Supply and Demand for Acceptance Slots Non-Breach World
80, 000

60, 000

Non-Breach World

cceptance te

' 40, 000

20, 000

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....c

IV.

ANALYSIS OF SEQUE~CE OF SPENT FUEL ACCEPTANCE IN TilE NON-BREACH WORLD

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

of Spent Fuel

analysis offers some preliminary 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 MustMove spent fuel as sao..n.asjt.l\chie,v.e.sMnst-=Movestatus. Therewculd.bea.baclrJog. ofMust-Mov.e

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spentfuel; that is, either 1) spent fuel would exceed pool capacity, requiringchystorage, apdlor 2)

spent fuel at shutdoWn' facilities would require extended pool operation.

Because

ag~gate

acceptance would be less than the total quantity ofMust-~ovespent fuel prior to 2002, it would be

necessaIY for some Purchasers to incur otherwise-avoidable storage CQstsin these early years.

However, the balance of supply and demand changes in year 2002. At this point, the cumulative
aggregate acceptance would have caught up to the cumulative Must-Move spent fuel, and thereafter
supply' always would exceed demand. This
acceptance rate would have been able to remove

m~ that as of approximately 2002, the aggregate
all

spent fuelthat had by then achieved Must-Move

status., Going forward ftom this ' ~crossover" point, aggreg~te acceptance always would be sufficient
to remove all additional spent fuel' at or before the time it becaineMust-Move
e.

before itcaused

any avoidable storage cost. Thus, by approximately year 2002 and.thereafter in the Non-Breach

World, all Must-Move spent fuel could have been removed , and no Purchaser would have needed

to incur avoidable storage costs.

The economic implication of this supply-demand balance is that befor~ the cro~sover date,
acceptance slots would exchange at a positive price, reflecting the costs that unsatisfied Purchasers
would be forced to incur by not having their spent fuel removed. After the crossover point, the price

of swaps would be essentially zero because the supply of slots persistently exceeds demand, making

it very easy for Purchasers with Must- Move needs to acquire slots. Thus, all 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 Plaintiff's plant has shut down permanently. The year 2002

establishes the latest date for Plaintifrs

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 extent Plaintiff

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 detennine the impact on Plaintiff. As can be seen in the next section, the Economic Sequence .M.o.deJ..reSJJIts..are,.entirely.consistent with the Must-Move analy"

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Unfortunately, while this backstop date offers a 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 economicaily better forPlaintiffto pay anon-zero price before 2002 and have its spent fuel
~moved sooner. In order to establish this, the resu1tsofthe Must-Move analysis (the Must-Move

quantities at individual sites) are used in a more detailed model , the Economic Sequence Model,
described in the following section.

The Need toUepartfrom the OFF Allocation of Acceptance Slots

To determine the Non-Breach removal schedule for indiv!duaIPurchasers, I first demonstrate that
the initial allocation of acceptance slots, according to Oldest Fuel Fir~t, is not an efficient basis for
accepting spent fuel. Rather, Purchasers

would swap their acceptance

slots to achieve an

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

efficient allocation. A look at the consequences of adhering to an OFF -based acceptance sequence

shows why such a sequence would be inefficient. OFF priority, by design, has no underlying cost
foundations. In particular, it does not relate a Purchaser ' s pri~rity to the costs that would be incurred
, or could be avoided at the Purchaser s facility. OFF takes no account of a facility' s shutdown status,
nor ' of

the need to accept spent fuel to prevent operating plants from reaching pool capacity limits.

Therefore, accepting the spent fuel based on OFF priority would force some facilities to continue
operating a spent 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 ftom
, 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

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

(e.

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

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

(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 would not interfere accommodation of with

, - e

Must-Move needS.

The Role of Swaps of Acceptance Slots

The primary vehicle for achieving a sequence that is more cost-effective than OFF is "swaps" of acceptance slots relative to ~e initial allocation based on OFF. Slots would be bought and sold
among Purchasers, who have the e~ect of reallocating acceptance slots nom Purchasers who have
less immediate need for spent fuel removal to those with greater immediate need. lo The aggregate

supply of "swap-able" slots in a given year would be 4etennined 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 acceptance slots would be allocated to Purchasers

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

industry' s 4,401 st through 6, 400th metric tons to be accepted by DOE, the Purchasers who are initially
allocated these slots under OFF are just those who discharged the industry' s 4 40 I st through 6,400th

metric tons. (These tons were discharged in 1979 and 1980. )

Only by happenstance

would these

OFF slots be allocated to the Purchasers with greatest need for spent fuel acceptance in 2001.
Through swaps of acceptance slots , all parties could reduce their costs. I I

The economic superiority of campaigns has been widely recognized by DOE and others. See, for example
Spent Fuel Accept4nce Scenarios Devoted to Shutdown Reactors: A Preliminary
Analysis,

Laboratories, October 1989.
10 To remind

Pacific Northwest

the reader, the tenD "Purchaser" does

not

refer in this context to a purchaser of acceptance slots,

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

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

addition to the obvious benefit to the buyer of slots , the seller may also enjoy a benefit beyond the revenue generated. An operating reactor with slack pool capacity may prefer to delay acceptance 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.

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Slots would be exchanged based on private costs and benefits, as swaps occur at each Purchaser'

discretion. However,

beCause

such swaps will inevitably, drive the acceptance schedule toward

Must-Move campaigns, the resulting trades would also foster reductions in transportation and other
system costs, and would be viewed with favor by DOE, which retains som~ discr~tion to disapprove

swaps.

Model
, have bought

Calculating Spent Fuel ReinovalSchedule with the Economic Sequence

The Economic Sequence Model, described in this section , uses the results of the Must-Move artalysis
as input. The results of the Economic Sequence Model for the Non-Breach World include estimates

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

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

paid for those swaps in order to achieve this outcome.

I have demonstrated above that economic; forces provide compelling reasons for private exchanges
of acceptance slots. 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-cost maximization model to determine the efficient economic allocation of acceptance slots.,
The key assumption of my model , consistent with market structure and price formation throughout

the economy, is that swap prices and the corresponding rescheduling of removals' will' reflect

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

position in the acceptance sequence. Those Purchasers with the greatest impending,
removal. Those wi~ less pressing needs will wait and/or sell their slots.

hence

avoidable , costs will have the greatest willingness to pay and will buy slots to achieve earlier

For purposes of this analysis, 1 assume an OFF-based initial allocation. Acceptance slots are
allocated on a per metric ton basis , and all trading of slots would also occur on that basis. 12
12 This exchange provision is consistent with DOE'
This is

s view on approving exchanges on a tonnage basis as stated by Nancy Slater at her deposition. " You may substitute PWR for BWR. You may substitute older fuel for younger fuel. You may not substitute more MTU for less MTU. Deposition of Nancy Slater April21 , 1999,

(c?Trti~d...

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consistent with the fact that the total DOE acceptance for each year is a specified number of metric

tons, and the initi8l OFF 8llocation of acceptance slots is for a given number of metric tons.

, The storage costs that a Purchaser can avoid by having spent fuel removed ftom a site in a particular

year influence the Purchaser s willingness to pay. Avoidable storage costs may consist of ongoing
, pool O&M at a shutdown reactor, or the setup and operating costs of dry storage for a facility with

a fUll pool. A

Purchaser

s WTP for acceptance slots is expressed on a per metric ton basis, and it

is equal to the avoidable ,cost divided by the tonnage of spent fuel that mustbe removedtoavoid

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

The economic model assumes that all Purchasers will pursue their economic se\f-interest ,and be
willing to buy slots if price is below their WTP , or sellifit is above.
Purchasers " bid"

for slots 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. The clearing
price for all acceptance slots ' in a given )'ear is equal to the marginal bid (the lowest Winning bid) and

is paid by all buyers to all sellers. A market that performs in this manner coul4 be implemented by
a last.,.bid

auction procedure , or it could be the result of active, visible bilateral trading.

Figure 3 displays the annual market price of acceptance slots produced by the Economic Sequence
Model. The higher initial pric~of acceptance slots reflects significant demand in excess 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 at
essentially zero price.

A Purchaser s net cost of exchanging acceptance slots is the difference

U (... continued)
109.

0014
fGr.

1) A constraint requiring removal offult casks when possible is incorporated into the Economic Sequence Model.
t'ety ,

upon kmes P . M-a-!one

data.on -c-osts. ' cask'Stze -and wandling' constraints.

, :.. ,
Case 1:98-cv-00126-JFM Document 791-2 Filed 04/16/2004

. ,...
Page 17 of 17

, -, ..

between the total cost of the acceptance slots it needs according to the Economic Sequence Model
and the total value ofits' ii1itial allocation
of

OFF slots, both evaluated atthe market clearing price.

Figure 3

140
122

Yearly Prices for Acceptance Slots Results from the Economic Sequence Model

120
100

80 (I)

20 1998
1999

2000

2001

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~ Plaintiff would have ~l 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.

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

Based on this Yankee Atomic would buy sufficien~ acceptance slots in 1998 and 1999 to remove
all 127 metric tons ftom its pool by January 1999, at a cost of$15.4 million. Offsett!ng this, it would

sell its OFF slots for revenue of$3. 6 million, for a net swap cost ofapproximately
buy these slots (all costs in , 1999 present value). Table 2 displays the
IS Purchasers

$11. 8

million to

detailed results of the

' initial allocations of acceptance slots based on OFF are calculated from data on discharges from S. commercial.reactors , obtained 1hrooghJames 'P.-Malone.

0015