A Question of Economics: The Answer Depends on the Assumptions

In 1970, President Nixon affirmed that the United States had long term objectives in the Antarctic regions and consolidated responsibility for management and funding of all Antarctic operations under the National Science Foundation. According to the new arrangement, the NSF was to take over the funding of PM-3A as of July 1, 1972.

At the request of the Office of Management and Budget (OMB), the NSF conducted a study to determine whether or not it was economically sound to continue operating the McMurdo Station nuclear power plant.

The study showed that based solely on cost effectiveness, the reactor should be shut down as soon as possible since it cost approximately $200,000 per year more than a comparable diesel generator to operate. At least, that is what the study showed under the assumptions imposed by the OMB.

Study Assumptions

The study was based on an assumption that was dramatically different than the one used in the 1955 study that resulted in the recommendation to proceed with nuclear power for the Antarctic. The key difference was a top level decision that the price of fuel delivered to McMurdo Station was equal to the average cost of bunker fuel to the Navy. At the time that the study was conducted (1971) the average cost of Navy bunker fuel was $0.22.

Fuel delivered to McMurdo Station was not average fuel; it was probably some of the most expensive fuel in the Navy because of the difficulty of the journey to deliver it. There are several months during the year when fuel deliveries are impossible, adding an additional cost for storing large quantities of fuel on site or requiring curtailment of activities to conserve available fuel.

Like many other OMB studies of that era (the one recommending discontinuing the nuclear commercial ship program was conducted in 1970) it seems as if there was an intention to bias the result against nuclear power by minimizing the cost of the main selection criteria where nuclear power has advantages over the more fully developed oil fired systems.

There is no doubt that maintaining a one-of-a-kind nuclear power plant in a remote region is a costly endeavor. Approximately 280 men went through the training program to man the plant, an entire support infrastructure was developed, and there was a requirement to maintain more than 15,000 line items of spare parts unique to the plant at the Antarctic site due to the difficulty of resupply. It is quite possible that a careful economic analysis would have determined that power provided by PM-3A was more expensive than power provided by a diesel engine.

However, it would have been a bit more fair if the analysis would have been conducted in a manner calculated to provide the right answer, instead of one that met with other political objectives.

Hind Sight Analysis

Taking the published figure of a $200,000 per year operating cost difference based on $0.22 per gallon diesel oil it is possible to compute what the operating cost difference would have been if a more realistic price of $1.20 per gallon of diesel fuel had been used in the economic model.

A good diesel generator burns approximately 200 grams of fuel for every kilowatt-hour of electricity it produces. There are approximately 3500 grams of fuel in a gallon. Therefore, the fuel oil cost of a kilowatt hour of electricity produced by a diesel generator located at McMurdo Station in 1972 would have been about $0.075. Based on the OMB assumed value of $0.22, the fuel cost per kilowatt hour would have been just $0.014.

A 2000 kwe generator operating with a capacity factor of 70 percent will produce 12.3 million kilowatt hours per year. Based on a reasonable fuel price estimate, the fuel cost portion of diesel generator electricity production would be $923,000 versus the OMB figure of $180,000.

Replacing PM-3A with a diesel generator appears to have been significantly more expensive than estimated by the NSF under the direction of the OMB. The Navy, which would have been assigned the task of supplying fuel to the station, agreed during negotiations to cover the calculated differential cost of continuing to operate the plant.

(Note: Soon after the NSF study was completed, a small leak from the shield tank into an inaccessible insulation area surrounding the reactor pressure vessel resulted in a decision to decommission the plant. There was no damage detected to the pressure vessel, but all of the necessary conditions for chloride stress corrosion were present. A full inspection and repair was estimated to cost in excess of $1.5 million and to require a 1-2 year shutdown because of the difficulty of gaining access to the area that needed to be inspected.)