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This file contains materials relating to proposals for the production of enriched uranium by a private company versus the expansion of the government-owned plant in Portsmouth, Ohio.
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Uranium Enrichment (1)
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Uranium Enrichment (1)
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This file contains materials relating to proposals for the production of enriched uranium by a private company versus the expansion of the government-owned plant in Portsmouth, Ohio.
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James M. Cannon Files (Ford Administration)
James Cannon's Issues Files
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Uranium enrichment
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1976-03-31
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1974
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The original documents are located in Box 36, folder "Uranium Enrichment (1)" of the
James M. Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 36 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
Opening Statement
by Chairman Dixy Lee Ray
U. S. Atomic Energy Commission
before the Joint Committee on Atomic Energy
Hearings on Uranium Enrichment
June 25, 1974
Introductory Remarks
Mr. Chairman. I am here today before the Joint Committee
to testify on the Committee's Phase III hearings on the future
structure of the enrichment industry.
With me are Mr. John Erlewine, General Manager;
Mr. Mark Rowden, General Counsel; Mr. Victor Corso, Deputy
Controller; Mr. George Quinn, Assistant General Manager for
Production and Management of Nuclear Materials; Mr. Roger LeGassie,
Deputy Director, Office of Planning and Analysis; and
Mr. L. Manning Muntzing, Director of Regulation. Mr. Quinn,
Mr. LeGassie and Mr. Muntzing will be testifying later on
various aspects of the AEC's uranium enrichment program.
During the Phase I and II segments of these hearings last
year, both the AEC and industry witnesses testified on the
status of Government and private sector planning to create a
private uranium enrichment industry in this country. We believe
that the emergence of a private and competitive industry is
essential to support the many fold growth in nuclear power which
is expected to take place over the next several decades. Some
- 2 -
6 million units of new enrichment capacity are expected to
be required each year in the United States, beginning in the
mid 1980's, to serve expanding domestic and foreign needs.
This may be contrasted with the 27 million units of AEC capacity
which will exist in our improved, fully powered plants at that
time.
President Nixon, in his 1971 Energy Message, noted that
the responsibility for a future uranium enrichment industry
should reside with the private sector. He reiterated this
point in his 1973 Energy Message. He stated that the
Government's capacity, even after expansion,
"
will not fully meet our needs in the
1980's; the Government now looks to private industry
to provide the additional capacity that will be
required".
Following the President's 1971 message the AEC began to
implement the Administration policy through a program whereby
private U. S. companies were allowed access to the Government's
classified enrichment technologies for the purpose of engaging in
privately funded research and development. Subsequently, in
May, 1973, a companion program with identical access to
classified information was established, in a regulation known
as 10 CFR 25, for companies seeking to determine their interest
- 3 -
in entering the private enrichment business. Additional
companies have been granted classified access under this program.
In this connection, the 1973 report of the Joint Committee
on Atomic Energy on authorizing appropriations for the AEC's
fiscal 1974 budget noted:
"As in the past, the Joint Committee supports
changing the Commission's sole source position in
providing uranium enrichment services so that the
private domestic sector may participate also in
this segment of the nuclear fuel cycle. The
committee notes that domestic sharing of technology
with industry for research and development purposes,
under conditions which will protect sensitive
information, is now underway. The committee urges
the Commission to proceed expeditiously with the
program so that an early decision could be forth-
coming on the role private industry will play in
the design, construction and operation of new
enriching plants. The Commission should not delay
in its efforts to provide additional capacity in the
event the private sector is not ready to provide
the needed capacity on time."
It is the AEC's objective, of course, to assist the
industry in being prepared to make a timely determination to
provide the needed new capacity. A competitive industry with
multiple sources of domestic supply, achieved under the free
enterprise system, will provide the necessary broad base and
assurance of capability for future expansion. We believe that
this objective, and the Commission's programs to achieve it,
merit the strongest possible private and Congressional support.
- 4 -
Status of Contracting
We have now reached a major milestone in the evolution of
Governmental and private planning.
In the Phase I hearings before the Joint Committee, last
July, AEC witnesses testified that the limit of AEC's legal
capability to enter into further long-term fixed commitment
contracts would be reached between the spring and fall of this
year. It was also estimated that the 27 million units of AEC
enrichment capacity, as improved and fully powered, could meet
the long term needs, on a sustaining basis, of between 275 and
382 thousand electrical megawatts of nuclear power. This limit,
as finally determined by the AEC, would represent the maximum
number of plants with which AEC could enter into long-term
enriching services contracts in accordance with the Uranium
Enrichment Services Criteria. The precise level could not be
defined last year because its selection required consideration
of several matters. These include the utility decisions,
reflected in contracts, on its projected use of plutonium
recycle, projected operating capacity factor, reactor type etc.;
and on the AEC's selection of a projected future operating
tails assay.
- 5 -
The most significant of the above factors are the degree
of use of plutonium recycle and the AEC operating tails assay.
A generic finding of a regulatory nature as to the acceptability
of plutonium recycle has not yet been made. The AEC cannot
prejudge the nature of that finding. Accordingly we have
determined that our enrichment contracting capability at this
time must be based on the assumption of no recycle. With
respect to operating tails assay, we are now reaffirming our
previous projection of a future level of 0.3% U-235, the
present operating tails assay.
The result of these determinations is to establish our
present contracting capability, under the Criteria, at
approximately 290 thousand electrical megawatts of nuclear
power plants to be served.
Last July, we had signed contracts for 107 thousand
megawatts -- 81 thousand domestic and 26 thousand foreign.
We were then in transition to our new fixed-commitment type
of contract, requiring both a firm statement of need for an
initial 10 year period, and a contracting action 8 years in
advance. The purpose of the latter feature was to permit
planning for additional capacity, whether Government or private,
to be based on assured need as opposed to simply a projection
of need.
- 6 -
We have now signed some 163 thousand megawatts of these
new long-term fixed commitment contracts -- 124 thousand
domestic and 39 thousand foreign, covering reactors requiring
initial enriching services through June 30, 1982. Thus a
total of 270 thousand megawatts has been placed under contract
to date within our capability of approximately 290 thousand
megawatts. Within the remaining contractual capability we
have, we now anticipate being able to complete contracting
with all the remaining domestic utilities having needs to be
met within this time frame. In addition, we will be able to
meet current Presidential commitments and any deliveries
required under historic supply obligations previously entered
into by the U. S. Government through treaty or Agreement for
Cooperation. There will remain, however, a substantial number
of requests for contracts submitted by foreign sources which
we will be unable to consummate at the present time.
In this regard, we note the possibility that when a
generic regulatory finding is made on plutonium recycle,
that finding may result in a reduction of our obligations
under some contracts which would then automatically convert
their demands to a plutonium recycle basis. We would then
have an increased degree of contracting capability and would
- 7 -
expect to resume contracting up to a new limit of capability.
Resolution of this matter may occur within the next six to
nine months.
We have reached our present contracting capacity limitation
rapidly, especially considering that our new rigorous contractual
terms and conditions were implemented only last September.
Dire predictions were made at that time that these more commercial
contracts would reduce the attractiveness of the nuclear power
option at home and drive away potential customers abroad. But
today, both at home and abroad, there has been no relaxation
in the industry turning to nuclear power. Indeed, the rate of
orders achieved has exceeded our expectations and appear to
reflect an expansion of demand that probably exceeds the present
capability of industry and utilities to actually bring nuclear
power plants on line in the near term.
On the domestic side, contracts in hand imply utility
expectations of bringing plants on line some 19 months in
advance of recent reference projections of our Office of
Planning and Analysis and some 10 months in advance of a high
forecast case of that Office.
- 8 -
On the foreign side, requests for contracts are nearly
at the same level as projected a year ago even though, in the
interim, a substantial firming of plans for new enrichment
capacity abroad has occurred. Indeed, some of our most recent
inquiries on contracts have been from countries participating
in these specific foreign enrichment projects. Further, this
past year has also seen the vigorous entry of the Soviet Union
into the international enrichment supply market.
What does all this mean? Let me suggest a few explanations.
Enrichment services from the U. S. Government, under current
prices and contractual terms, represent an extraordinary and
unique bargain. Worldwide, the quality and dependability of
U. S. supply on a long-term basis is unsurpassed. Our prices
currently reflect bargain basement construction costs from
the 1940's and 1950's. By Congressional mandate we are
limited to Government cost recovery principles that do not
reflect elements of cost associated with a fully commercial
activity nor current costs of construction of new enriching
capacity. Our inplace production capacity dwarfs that
available anywhere else in the world and results in economies
of scale not initially achievable in new increments of capacity.
The real, unsubsudized cost of enriching services from any new
capacity, regardless of ownership, is likely to be significantly
higher than current AEC charges.
- 9 -
Enriched uranium is a storable energy commodity of proven
value. It does not deteriorate. In the present period of
worldwide monetary fluctuations, it represents an extraordinarily
secure investment.
Utilities, concerned with surety of supply at any price
apparently have not overlooked the attractiveness of AEC's
current contract and basis for charges which guarantee surety
of supply at prices which are far lower than can be expected
from any other future source.
We question whether this is an appropriate basis on which
to continue to seek foreign sales. I see little value to the
United States in seeking foreign trade at any price. Let it
be a fair price, fairly arrived at in an open competitive
market. If we cannot meet foreign competition on that basis,
with our superior reliability and technology, then we do not
deserve to make foreign sales.
The above discussion suggests the possibility that both
domestic and foreign customers may have overstated, to some
extent, the timing of their needs in order to achieve the
assurance of current AEC contract offerings. We cannot assert
that this is SO. To the extent it may have occurred, there
could be an excess of enriched uranium in private hands in the
early 1980's.
- 10 -
Nevertheless, there remain customers whose needs are
presently neither satisfied nor even announced. How are these
needs to be met?
We believe it essential to afford the emerging United
States enriching services industry an opportunity to meet
those needs. To assess this approach we must next discuss
the current status of private enrichment planning.
Status of Private Enrichment
During these hearings, the Committee will hear direct
reports from private companies, concerning their current
activities and plans for providing new enrichment capability.
We will report here, however, those particular matters which,
based on our understanding, lead us to believe that significant
and timely private commitments can occur over the course of the
next year. Such a statement of course assumes that our domestic
utility industry is seriously prepared to play its part in
supporting its announced commitment to a private enrichment
industry.
One group of private companies exists which appears to
be prepared to make the earliest commitment to private capacity.
This group, Uranium Enrichment Associates (UEA), is currently
a joint venture of Bechtel, Union Carbide and Westinghouse.
- 11 -
UEA has advised the AEC that it is prepared to reach a decision
by the end of this calendar year on proceeding to construct
a new 9 million unit gaseous diffusion plant. This plant
would be operating in the early 1980's. UEA advised us that
they have an option on the necessary electrical power supply
and site to permit them to proceed promptly on that schedule
if utility customer support can be obtained. UEA has provided
us and prospective customers a copy of a proposed letter
agreement outlining the terms of long-term contracts under
which UEA proposes to supply enriching services. Based on our
understanding of UEA's planning, we believe that both their
schedule and their general approach are realistic. We believe
it inappropriate to comment on their draft contract terms since
we understand that these are open for comment by potential
customers and, we presume, to further negotiations between UEA
and its potential customers.
This project, if it proceeds, would greatly enhance the
surety of U. S. supply, a matter which the utility industry
has often indicated as being of prime importance to it.
We are also pleased to note that there would be an
opportunity for foreign participation in the UEA project and
that UEA has actively been seeking orders from potential
foreign customers.
- 12 -
UEA, however, is not the only possible private domestic
source of enriching services. The Commission approved in
principle, and Commissioner Larson announced at a recent
Atomic Industrial Forum meeting in Reston, Virginia, a new
program to assist the entry of private companies desirous
of adopting the centrifuge enrichment technology. Under this
program, private enrichers and utility customers would commit
to the construction of private centrifuge demonstration
facilities. Their initial capacity could be as high as
300 thousand units. If several such facilities proceeded
the total capacity could be 1 to 1.5 million units. These
plants would be operating in the late 1970's. Their output
would be used to fuel actual power plants, with assurance of
supply being backstopped for an initial period by the AEC
preproduction stockpile.
The output of each demonstration facility, as with all
demonstration facilities, would clearly not initially be
economic. Within some reasonably short time period after
initial operation (e.g. 3 years), it is visualized that each
such facility would become a productive module of a larger
plant thus leading to a number of competitive suppliers, each
with capacity in the 3 million unit range in the mid-1980's.
- 13 -
During the initial period of uneconomic operation, it
is anticipated that both the supplier and customers would
make significant contributions to the support of the project.
Some portion of the supplier's costs would be put at risk and
deferred for later recovery from large plant operation. The
utility customers would pay more than the then-current rate
for enrichment as their contribution in order to enhance the
surety of future supply and, perhaps, to obtain a later
"favored customer" position for output from the anticipated
production plant. The assurance of value to be received from
the output of the facility could aid in obtaining the needed
financing for the activity.
However, after the supplier and utilities agree as to the
reimbursement per enrichment unit delivered which is required
on the one hand, and is willing to be paid, on the other hand,
it is likely that a differential will remain. The Government
would anticipate being requested to assist in the reduction or
elimination of this differential through a payment in terms of
dollars per enrichment unit delivered. Such a Government
commitment would be limited to a defined unit amount for a
defined quantity per year for a defined number of years. The
cost of this assistance would be recovered in the AEC charge
for separative work in the same manner that R&D on new products
in the private sector must be paid for by the existing product
lines of a company's business.
- 14 -
The overall approach to the project is not unlike some
joint ventures in the field of nuclear power which have
received government support in the past. The concept of non-
economic demonstration projects with government support is
well understood to be a key step in assuring establishment of
industrial commercialization of new technologies. Historically,
within AEC, it has been emphasized that such projects must
include significant utility customer and supplier participation
to ensure success.
Commission planning is to formalize this concept through
the release of a request for proposals in July of this year,
calling for proposals to be received in the early spring of
1975. All proposals would be subject to Congressional
authorization which would be sought next year based upon our
review of the proposals received. Thus, through this program,
the commitment of other suppliers who exist as alternative
domestic sources for private enrichment could be obtained
within the year.
Indeed, subsequent to our first public discussion of this
concept, and prior to a formal request for proposals, there has
already been substantial private activity to develop such
arrangements. Utilities have already met with potential
suppliers. Those companies expected to be represented in the
- 15 -
program of providing enriching services include a General
Electric-Exxon joint venture, Goodyear, Garrett, Westinghouse,
and Electro Nucleonics. The latter company has already issued
a public announcement of a joint study of this concept including
participation by Burns and Roe, and the Tennessee Valley Authority.
We believe, therefore, that the opportunity exists for any
utility desirous of contracting for fuel to select from among a
number of viable options and to play an important role in the
structuring of the future enrichment industry.
Use of AEC Preproduction Stock
The private initiatives described above should, in our
view, be given every opportunity to come to fruition. If
successful they can result in announced private commitments
over the next year to proceed with new capacity construction,
both diffusion and centrifuge. During this same time period,
the AEC will further review its planning for the appropriate
size and use of its preproduction stockpile. As Mr. Quinn's
testimony will indicate, this stockpile, if required, could
be further increased over its present projected levels by
additional government actions to acquire additional natural
uranium feed and electric power supplies. Whether such
actions will be necessary will depend on the timing of future
requirements for enriched uranium and the timing and magnitude
- 16 -
of the anticipated private actions on new capacity. We
also need to consider further the appropriate levels of
contingency supplies of enriched uranium and the appropriate
level of government stocks to be made available as back-up
material for the initial period of operation of private plants.
There are government preproductions stocks still
uncommitted -- quantities anticipated to be in the range of
20 to 40 million units -- capable of providing substantial
fuel needs beyond those covered in AEC's long-term contracts,
if necessary. The existence of these stocks provides, in our
judgment, time to allow for private actions to proceed without
introducing the risk of an actual shortfall of needed nuclear
fuel. If private actions do not proceed over the course of the
next year in accordance with our expectations, we would review
the situation then -- or sooner, if appropriate -- and take any
necessary actions.
If a return to further government contracting should
appear necessary at that time, we believe that it should not
automatically be a return to the present contractual arrangements
and prices for government services. Consideration should be
given to a substantially more commercial approach if the
government must assume a continuing burden of providing the
- 17 -
large amount of enrichment capacity needed for the future.
We hope that it will not be necessary to consider these
questions, however, and that potential suppliers, customers
and financing sources will cooperate to make the private
activity a reality.
Conclusions
The AEC has reached the present limit of our contracting
authority. We are terminating further long-term contracting
and will issue a Federal Register Notice to this effect in a
few days. This does not mean that future enrichment needs
will not be met. A future increase in AEC contracting capability
will occur should there be a favorable Regulatory finding on
plutonium recycle. Independently of that situation, private
plans exist which could, over the course of the coming year,
lead to commitments to new enrichment capacity. Government
planning can be reviewed at the end of that period should
actions not match expectations. In the interim, private
decision-making should be given an opportunity to proceed in
an orderly way without unnecessary government involvement.
Additional uncommitted material will be available in AEC
preproduction stocks to ease the transition to a private
supply industry and meet contingency needs. The existence
- 18 -
of these stocks provides assurance that actual shortfalls
of enriched material to meet needs are not in prospect.
The totality of potential private initiatives, both
diffusion and centrifuge, can proceed simultaneously. This
offers an opportunity both for competitive approaches and for
expressions of customer preference.
The successful assumption of responsibility by private
industry for the future provision of enriching services will
eliminate the necessity of adding billions of near-term
dollars to the Federal budget for construction of new government
capacity. It will also result in royalty payments to the U. S.
Treasury and payment of local, State and Federal taxes amounting
to billions of dollars between now and the end of this century.
Far more importantly, however, this country needs the
private enterprise base to ensure our ability to implement
the nuclear option down stream, not at just the 200 thousand
megawatt levels, but at a thousand megawatts by the end of
this century. The time to establish that basis for the
future is now.
DRAFT
UNITED STATES
[Apr_1975]
ENERGY RESEARCH AND DEVELOPMENT ADMINISTRATION
ADMINISTRATION ADWANA
WASHINGTON, D.C. 20545
USA
Current ERDA 3 positmin
Page
Honorable James T. Lynn, Director
Office of Management and Budget
Dear Jim:
As agreed at our meeting of April 15, 1975, on the UEA proposal
and alternative approaches to providing new enrichment capacity,
I am supplying additional information in response to your
specific questions and those of your staff.
We have continued to examine several aspects of this matter and
have determined that the centrifuge approach to commercial
enrichment is potentially more attractive than I had earlier
believed.
in the past several weeks, ERDA staff met
with eight organizations interested in private
centrifuge enriching and/or manufacturing.
The consensus is that the present Government
centrifuge program (DCEF) is overly modest and
that pilot plants -- expandable to large-scale
modules -- are necessary for successful
commercialization;
several asserted that centrifuge technology is
GERALD
LIBRARY
at a stage worthy of capital investment and
equity risk;
the Centar and EXXON centrifuge enriching proposals,
which I have reviewed personally, are more attractive
in many ways than UEA's diffusion proposal.
After further consideration, I have concluded that it is unlikely that
the Government will need to build the first large centrifuge plant, or
even pay for it; that at least three centrifuge proposers offer real
competition to the UEA proposal; and that it is conceivable that 9 million
SWUs centrifuge capacity can be on line in the 1984-86 time frame, provided
chiefly by three competitive private enrichers.
-2-
At the same time, I conclude that the Government must commit to
building an "add-on" plant.
re-opens the "order book" sooner and thus
clears up domestic uncertainty over future
capacity while moving to retain our share of
the expanding foreign market;
affords flexibility in gauging the size and
timing of the centrifuge plants; an increasingly
valuable asset given the uncertain demand picture;
maximizes the opportunity for hand-off of
Government contracts to centrifuge enrichers; this
is not possible under the UEA proposal alone;
offers a good hedge against the uncertainties
in feed availability and plutonium recycle which
could increase needed SW capacity by several
million units.
It has also become more apparent that the size needed for the proposed
Government "add-on" diffusion plant, if any is built, is less
certain now than earlier.
the growing evidence of centrifuge commercia-
lization potential, alluded to above, will
affect the size and timing of any diffusion
plant;
the demand picture in general is changing
substantially and we are proposing an open
season to reassess the demand situation for
the 1980's.
Government stockpile buildup and uncertainties
of the War Reserve will also affect the rate
of growth of needed capacity.
Uncertainties surrounding plutonium recycle have
cast doubt on ERDA's ability to meet commitments
of contracts contingent on recycling;
-3-
In light of these considerations, I now believe that ERDA's alterna-
tive plan should be accelerated by dropping the previously proposed
Government demonstration centrifuge plant and moving instead
directly into assistance for establishment of a competitive centrifuge
industry.
In summary form, therefore, ERDA's recommendation is:
-- Rejection of the UEA plan;
--- Initiation of private enriching capacity
on a competitive basis using centrifuge
rather than gaseous diffusion separation
methods. This advanced technology has
much greater energy efficiency; and is
more flexible in terms of meeting shifting
demand.
--- Commitment to take orders, both foreign and
domestic, as soon as Congress permits; commit-
ment to construct and operate a government
add-on facility to serve such orders while
the centrifuge industry gets underway; adjust
the size of the add-on plant to the minimum
FORD in LIBRARY 038830
needed to give private industry time to get
established.
I believe that this approach constitutes better policy and is a more
defensible proposal particularly because it applies government guarantees
more appropriately in support of the establishment of a competitive enrich-
ment industry rather than a single, sole-source supplier, such as UEA, and
thus buys a better result.
On the basis of current estimates, our proposed add-on plant is expected
to have a net budget impact of not more than $100 million total before
the higher enrichment charges already planned will begin to off-set new
plant costs in 1978 with breakeven occurring in 1980.
The UEA approach is not the best alternative available to the
government.
-- As it now stands, the UEA plan represents
both a sole source procurement and such a high
Federal liability and low private risk that it
-4-
would set an undesirable precedent for future
commercial ventures. For this reason, Congres-
sional support will be most difficult to achieve
and, even if such authorization is achieved,
9-12 months will have passed without an assured
program for meeting demand for enriched uranium.
-- Negotiations with UEA would require a number of
months and --- even if their position proved
more acceptable -- would still not of itself
speed the re-opening of the "order book" nor
establish enrichment on a competitive basis.
Altogether I believe these measures will provide additional capacity when
needed in the 1980's, and do so by a judicious and politically salable
mixture of Government and private programs, retain a large share of the
expanding foreign market, and give birth to a private centrifuge industry
-- all with acceptable risk to the Government, reasonable implications for
Federal outlays, and a good precedent for future commercialization ventures
of this type.
The answers to your specific questions are contained in the enclosure. My
staff and I would be glad to discuss these responses in more detail.
Sincerely,
Robert C. Seamans, Jr.
Administrator
FORDA is LIBRARY GERALD
Enclosure:
As stated
Additional Uranium Enrichment Capacity
Note: The following information is provided in response to
specific questions from ONB. Occasional redundancy is
necessary for completeness in responding to each question.
Also, for the sake of clarity, question No. 3 has been
addressed prior to question No. 2.
QUESTION NO. 1
How much time is needed for, and available for, the following:
a. negotiation of ERDA contract with UEA?
b. drafting of enabling legislation?
c. UEA negotiations with other potential equity partners?
d. UEA negotiations with foreign and domestic customers for
75% of plant capacity?
To what extent could these actions be accomplished concurrently?
Please provide a graphic display -- critical path analysis.
A graphic display and accompanying information is attached in
Tab A. Briefly, however,
a. 2-3 months are needed to agree on the features of
the UEA - ERDA contract and an additional 2-3
months to agree on the detailed terms;
b. 2-3 months are required for drafting the legislation;
C. 2-3 months are necessary to locate UEA's foreign equity
partners; followed by 4-6 months of contract negotiations.
d. 3-4 months needed for locating foreign and domestic
customers, 6-12 more to complete negotiations and
reach 75% commitment.
Enclosure
-2-
Altogether, 8-12 months would be required to complete the steps
leading to the UEA project's startup. This time frame
assumes concurrent action on all key steps
and necessarily runs the risk of serious delay
if setbacks occur in one or more of the steps;
assumes that Congress approves whatever is
negotiated and does so "on time. " Congressional
action and timing may be problematical given the
uncertainties of the UEA proposal and the emergence
of the centrifuge alternatives, such as Centar,
EXXON, Garrett et al that will also seek Congres-
sional attention. It should be noted that Congres-
sional action on LMFBR took 18 months -- a proposal
that enjoyed the vigorous support of several key
members of the JCAE. UEA's plan has thus far drawn
fire from the Chairman of the House Appropriations
Subcommittee on Public works (Evins) and the
Chairman of the JCAE Subcommittee on Agreements for
Cooperation (Montoya), among others;
assumes that negotiations with UEA go well and also
that UEA will accept what Congress passes;
assumes no antitrust or regulatory problems including
high foreign participation.
As to the time available for securing passage of the UEA proposal,
the situation seems to be worsening. While the decision with
respect to size and timing of new capacity can wait for several
months, the decision with respect to the basic approach for providing
new capacity must be made in a matter of weeks.
The absence of a credible decision is creating
uncertainty among domestic utilities, thus
casting doubt on the future of nuclear power
expansion in this country;
Our large lead in centrifuge technology is
dininishing due to our continuing indecision;
the Germans and Japanese, particularly, are
catching up;
-3-
The recent NRC decision on exporting procedures
has complicated foreign access to U. S. nuclear
materials; a credible source of capacity will
encourage them to keep looking to the U.S. as
a supplier and thus permit us to retain a healthy
share of the expanding foreign market.
The UEA negotiation route is less credible now
than a month ago because the NRC action on exports
of nuclear materials will complicate UEA's bid for
foreign customers; and because the very existence
of several centrifuge proposals raise questions as
to desirability of commercializing a diffusion
plant.
QUESTION NO. 3
What are the pros and cons (or the risks and benefits) of going
to Congress with an enabling legislative package for UEA versus
enabling legislation for assistance programs for private entry
in the future.
UEA Approach
A. Benefits from our standpoint of going to Congress
with UEA include:
1. probability of being able to send legislative
package to Congress faster than any approach
except direct Government construction; and
2. Could be seen by Congress as less complex since
only UEA is involved whereas the alternative
approach is a mixed Government-private package
with several corporate entitites involved.
B. Risks from our standpoint include:
1. Loss of more time since the UEA proposal is fraught
with uncertainties that will invite close Congres-
sional scrutiny. Some members of Congress have
already expressed hostility to the UEA plan
(lack of sufficient UEA equity risk, lack of
identity of equity partners, lack of firm con-
tractual arrangements for domestic and foreign
customers, etc.);
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2. Loss of control over the nature of the legislation
which, if a strong push cannot be mounted or main-
tained, could be completely rewritten into an
undesirable but mandatory course of action, e.g.,
a semi-independent Government corporation for
enrichment; and
3. Discouragement of future commercialization efforts
if the first proposal fails for whatever reason.
The first proposal, must be good
enough to withstand strong Congressional cross-
currents.
Alternative Approach
A. Benefits from standpoint of going to Congress with
the Alternative Plan include:
1. Greater Congressional receptivity since the plan
could be presented as "transitional" to commercial
enrichment. It contains both a Government plant
and several private pilot plants, as well as the
other advantages. In short, more salable; and
2. Political base would be broader and more supportive
since several corporations from several states
would be involved (the President should capitalize
on this before Congress does).
B. Risks include:
1. As with the UEA approach, possible outright rejection
of the commercialization concept and rewriting of
the bill in an undesirable manner; however, this is
believed to be less risky than the UEA route since
the Alternative Plan appears more defensible.
2. Present Congressional antipathy toward the big oil
companies may have some negative effect on the
centrifuge proposal inasmuch as EXXON and Atlantic-
Richfield are involved.
QUESTION NO. 2
Comparison of advantages to the Government of going UEA VS.
alternative route(s).
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A brief comparative analysis follows based on certain key criteria
such as relative cost, impact on eventual centrifuge commercialization,
flexibility, etc. Tab B contains a summary comparison of the UEA
Centar, EXXON and Garrett plans.
A. Cost - UEA would avoid substantial Federal outlays -- assuming
Government guarantees are not involved. Liabilities
amount to as much as $3.8 billion.
- ERDA's Alternative Plan means initial net outlays, however,
our preliminary projections indicate that, with pricing
changes in separative work now being recommended, net
outlays can be held to less than $100 million before
total annual outlays can be offset by revenues beginning
in 1978. Cumulative outlay breakeven would occur in
1980 followed by rapidly mounting net revenues thereafter.
And, if the demonstration centrifuge is not Government-financed,
the picture will be even brighter. This projection is based
on the $75-80 per SWU range and is calculated based on full
costs to the Government. At $75.21, maximum enrichment
drain would be $636 cumulative million in 1977, but most of
that includes CIP/CUP; net new plant drawdown in 1978 is
about $85 million with breakeven in 1980.
B. Centrifuge Commercialization
- UEA route, if successful, could conceivably give some
momentum to later centrifuge commercialization; but if
the UEA concept were rejected, it almost certainly
FORD
would discourage future commercialization ventures.
- UEA also offers greater assured capacity than do the
GERALD
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centrifuge plants, but the relative inflexibility
of GDP capacity is a drawback.
- The ERDA Alternative Plan offers the following advantages
from the standpoint of centrifuge commercialization:
1. less power to operate (about 1/10th of that needed for
diffusion; or 300 MWe as opposed to 3,000 MWe);
2. inherently greater "add-on" flexibility, a valuable factor
given the current uncertainty of demand; UEA's total plant
size must be committed early while the centrifuge process
can be incrementally expanded as demand develops.
3. with the add-on plant, less capital to construct (about
$1 billion less than a comparable 9 million SWU diffusion
plant); eases drain on hard-pressed capitalization market;
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4. less of an antitrust problem since several suppliers
would be involved; and
5. establishes a whole competitive industry, including
competitive procurement, using a new, more efficient
technology, rather than simply a single additional
supplier utilizing an aging technology that offers
virtually no future economic or technological
advantages.
C. Construction of an add-on gaseous diffusion plant
UEA agrees that a privately constructed and operated add-on
plant is not a realistic option. ERDA's Government add-on plant:
- removes all doubt that additional capacity will be
available in mid-1980's, thus encouraging continued
expansion of nuclear light water reactor power plants;
- takes advantage of potential available power at Portsmouth;
- small enough to avoid large-scale Government outlays;
- believed to be more salable to the Congress than the
UEA plan; and
- hedges the risk that centrifuge technology may possibly
encounter some unforeseen engineering obstacle that
would delay bringing capacity on line when needed.
D. Decisive Action
- UEA is less credible as a decisive action than ERDA's
Alternative Plan which contains the add-on feature
combined with a strong centrifuge commercialization
push.
E. Flexibility
- UEA proposes a 9 million SWU plant the demand for which
is less certain now than earlier.
- The Alternative Plan affords greater flexibility by
providing some assured capacity via the add-on GDP
leaving more time to adjust the size and scheduling
of the private centrifuge to market conditions as they
clarify.
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F. Competition
- UEA is a sole source supplier and thus runs counter to
Government interface policies with the private sector.
- The Alternative Plan provides healthy competition result-
ing in the establishment of an industry.
QUESTION NO. 4
What is specifically unaccentable about the UEA proposal? What
kind of package could ERDA recommend?
Our recommendations are not predicated on specific problems with the
UEA plan although they do constitute an important consideration.
Rather, we are mainly concerned with the broader implications of
going the UEA route -- namely the undesirable policy precedent that would
be set by providing assistance on a sole source basis to establish
a single supplier; the difficulty in defending such a proposal before
the Congress in a timely manner; and, even if successful, the establish-
ment of a single last-of-its-kind diffusion plant, rather than a
competitive future-oriented centrifuge enrichment industry. Therefore,
even if the UEA package could be made "acceptable," the desirability
of proceeding the UEA route remains highly questionable.
With specific regard to the UEA plan, a basic weakness is its in-
completeness as a proposal. Important gaps exist in such areas as
GGERAL FORD LIBRARY
specific equity partners, corporate base, and source of power for the
GDP. It is difficult to comment on the acceptability of elements of a
proposal that have been only vaguely developed or omitted altogether.
Much of the UEA plan has emerged only after intensive probing on
ERDA's part.
Another problem is that several features of the proposal are un-
conventional to say the least. For example, the lack of risk to UEA,
the "hell or high water" provisions in UEA-customer contracts, and the
open-ended cost overrun concept. Such features are controversial and
difficult to judge with any assurance.
We also believe that as a matter of desirable and defensible policy,
Government assistance for any commercialization venture should be com-
mensurate with the amount of risk involved on the part of the private
sector. Since diffusion technology is fully developed on commercial
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scale, we therefore think that the amount of risk to UEA should be higher
than the risk assumed by a prospective centrifuge plant operator. Of
course, the degree of Government assistance for centrifuge will be honed
by competition.
Taking the foregoing into account, we cannot say precisely what UEA plan
would be "acceptable". But it would appear that adjustments to the exist-
ing UEA plan would have to be made in the following areas:
1. Require greater UEA equity (probably more than 25%).
2. Require greater UEA risk such as defaulting utilities.
3. Eliminate open-ended project cost overrun concept.
4. Assure strong U.S. participation in decision role if ERDA is
to provide a performance guarantee.
5. Except for major licensing changes by NRC, UEA should be committed to
completion of the facility.
6. Develop and enforce firm time schedule for UEA commitment/mile-
stones.
7. Limit terms of Government obligation to purchase SWUs from
UEA.
Also, in the area of UEA-customer contracts, we would like to see
the removal of pricing concepts which may be discriminatory or
inequitable (e.g., payment over contract period regardless of need;
and "hell or high water" provisions).
FORD JORAPH
As to what kind of package ERDA would recommend, the following
summarizes our total proposed plan of action for development of
additional enrichment capacity in the mid-1980's.
1. Draft and transmit legislation ASAP designed to authorize ERDA
construction of a 4-5 million SWU gaseous diffusion add-on
plant at Portsmouth; also seek authorization for entering
into government-assistance contracts with 3-5 private
corporations to construct and operate several 200-300
thousand SWU centrifuge pilot plants, expandable to 1-3
million SWUs by 1985; and concurrently issue Requests For
Proposals on centrifuge enrichment.
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2. Firm up estimates of demand for enriching services by announcing
an open season for fixed commitment customers; and also open
the "order book" for enrichment services from the new add-on
diffusion plant as soon as permitted by Congress. Based on
the firmed up estimates, decide within one year on the size and
timing of the capacity to be met via add-on plant and the private
centrifuge route. Assuming passage on the legislation in the meantime,
complete arrangements and let contracts.
3. Place the Government's enriching operation on a paying basis
to relieve pressure on the Federal budget. This would be done
as follows:
a. Raise the price of SWUs closer to a commercial level
based on Government costs, risks, and subsidies;
b. Attract foreign investment to the add-on diffusion
plant as well as to the centrifuge plants; and
c. Organize ERDA's enrichment operation into a more
self-contained, accountable unit. This could also
help de-fuse interest in establishing a Government
enrichment corporation.
APR 1975
TO:
Honorable James T. Lynn
GERALD FORD
FROM:
Robert C. Seamans, Jr.
SUBJECT: ADDITIONAL URANIUM ENRICHMENT CAPACITY
In December 1974, Uranium Enrichment Associates (UEA) presented
a plan for Government assistance in bringing on line UEA's
proposed 9 million separative work unit (SWU) gaseous diffusion
uranium enrichment plant. Following a briefing from UEA on the
plan, which I attended shortly after assuming office, I estab-
lished a Board of ERDA specialists to provide me a prompt but
thorough review of the UEA proposals.
The Board has conducted several weeks of clarifying discussions
with UEA, and has now reported to me; the Board's summary report,
in which I concur, is attached. In addition, I have reviewed the
report and the issues it raises with senior ERDA staff, and my
Deputy and others have met with the UEA leadership to confirm
at a high level our understanding of the UEA proposal.
Throughout our study, I have been sensitive to the need for the
Government to establish a firm position on additional uranium
enrichment, and to do so quickly. Our expanding domestic power
industry needs a known source of additional U.S. enrichment
capacity, now that our existing capacity is fully committed.
As importantly, foreign competitors are now signing up customers
for enriching services, and the U.S. should be able to retain a
strong position in the foreign market if we move quickly.
Finally, decisive Government action is becoming increasingly
critical in this time of growing uncertainty in our domestic
utilities industry.
In light of these objectives, my continuing support for private
entry in the uranium enrichment market, and the deliberations
we have conducted, I have concluded that the UEA plan should
be rejected, and that an alternative, more promising approach
to providing a competitive uranium enrichment capacity should
be adopted.
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FORD
Background
The UEA concept began about two years ago with Bechtel,
Westinghouse, and Union Carbide as partners. Since then,
Westinghouse and Union Carbide have dropped out. Goodyear
has associated itself with Bechtel in the UEA venture,
although Goodyear's formal commitment appears to extend only
to a few months of study. At this point, there are no other
partners in UEA, no firm financing, and no definitive customer
contracts.
UEA is properly convinced that other partners, the financial
markets, and prospective customers -- foreign as well as
domestic - are looking to the U.S. Government for assurance
that UEA is a viable operation. Hence, UEA has proposed a
general plan for providing such assurances. UEA concurs in
the following summary of its proposal.
1. Performance assurances by ERDA that the plant will perform
technically and achieve design productivity; this assurance
will provide one form of protection desired by the financial
backers and the participating utilities.
To provide the assurance, ERDA would supply certain essential
components and materials and technical expertise and assis-
Proposes
tance, UEA would accept Government overview of design,
construction and startup. UEA, as a matter of principle,
agrees to reimburse ERDA during the construction period for
all costs of this assistance, including "insurance" cost to
the Government to enable it to warrant its products and the
productivity of the UEA enrichment plant.
2. A "completion guarantee" by ERDA to assure the financing of
the project. This would include a contingent Government
loan guarantee feature, Government assistance to meet cost
overrun and Government "takeout" in the event of "economic
frustration" of the project.
UEA's proposed financial plan is structured on the basis
of 85 percent debt - 15 percent equity. ERDA could be
called upon to assume major financial obligations should
the plant be unacceptably delayed or result in cost over-
runs, although UEA feels that the probability of this is low.
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Another unique feature of the plan is a contingent
loan guarantee by ERDA to assure UEA's ability to sell
securities at an interest rate equivalent to an A rating
or better; there is a significant risk of the guarantee
being required for all or most- domestic debt.
Foreign participation is a significant feature of UEA's
plan; 60 percent of the project costs, both debt and
equity, are to be financed with foreign capital (including
the same share of cost overruns).
3. To meet UEA delivery commitments, in the event of project
startup delays and/or interruptions, ERDA would make avail-
able, by lease from its stockpile up to nine million SWU's
from startup through the first year of operation, and then
decreasing during the next four years to zero. UEA would
replace on a best efforts, basis, or otherwise pay ERDA
within ten years for, any SWU's leased on a deferred basis.
ERDA would also commit to purchase from UEA up to a total
of six million SWU's of excess UEA production, or to lease
to UEA up to two million SWU's to "levelize" UEA's operations
during a four to five year period after startup.
4. In order to assure that the UEA plant would be fully and
contractually committed, UEA proposes that ERDA terminate
enough of its existing contracts to provide an adequate
demand for the plant.
5. TO protect UEA against a defaulting or bankrupt customer,
ERDA would agree to assume that liability - limited to
50 percent of the domestic utilities' share of the plant
output -- when other remedies could not be obtained.
UEA characterizes its proposal as "flexible." H have not attempted
to negotiate with UEA, however, but only to understand as clearly
as possible what they propose at this time.
Evaluation of the UEA Plan
I have evaluated the UKA plan to determine whether it is likely
to be successful, whether its adoption is the best policy for
the Government, and whether the UEA plan is the best vehicle for
meeting the Government's objectives in the uranium enrichment
area. It should be noted that our participation would require
Congressional authorization.
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It would be difficult to show that the UEA facility will be
unwórkable, since by definition the Government would guarantee
to make it work. With Government guarantees of performance
and other assistance, I am confident that the UEA plant could
be made to operate effectively, even with some of the attendant
encumbrances such as dual project management responsibilities.
Similarly, Government completion and overrun funding guarantees
are likely to attract the necessary partners, domestic customers,
and financing for the 40 percent domestic share of the project.
In short, with the Government as its guarantor, there is no
reason to think that a UEA enrichment plant would be much
different from a Government enrichment plant in meeting the
domestic demand for enriched uranium.
It is somewhat less certain, however, that the same situation
prevails with respect to foreign customers and financing for
the 60 percent foreign share. of the project. UEA's ability to
sign up foreign partners is somewhat less certain than its
ability to sign up domestic partners, because of the novel
financial arrangements of the UEA proposal and because foreign
customers have other sources of supply. My staff, for example,
is less confident than UEA that the Japanese, the French, and
the West Germans will sign with UEA without substantial and
potentially unsuccessful negotiations. There is also major
concern over having a preponderant share of the project under
foreign financing and the consequent effect of these arrange-
ments on the independence of our future enriching capacity.
Despite these questions, however, it is not altogether un-
reasonable to assume that, with USG backing and influence, UEA
could pull together the 60 percent foreign participation that
it seeks.
My primary concern, however, is not that UEA would fail if it
had adequate Government support but rather how much Government
assistance is reasonable, how acceptable that assistance is
to the Congress, and how long it will take to consummate
the arrangements.
I believe that the UEA situation has gone unresolved for SO
long - and that the UEA proposal is still so "flexible" and
imprecise - that none of our options for backing UEA is
particularly attractive given the increasingly critical need
for a firm program to develop additional enriching capacity.
More specifically, we are presented with two broad options in
support of UEA.
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1. Undertake negotiations with UEA to firm up its offer,
but without making any specific commitments until
negotiations are complete. I agree with UEA that it
would take about a year to wrap up negotiations and
establish a corporate capability, in order to seek the
final Congressional clearances. However, with a
Government commitment only to negotiate, the decision
on the next increment of uranium enrichment capacity
is effectively postponed for at least a year even if the
negotiations proceed smoothly. The course of negotiation
is certainly prudent, however, since it would help limit
the Government's liability and maximize our chance of
gaining Congressional approval. However, it is a
temporizing act that does little to restore confidence
to the domestic power industry or to attract foreign
customers in the meantime.
2. Commit ourselves promptly and irrevocably to providing
whatever support UEA needs, and conduct negotiations
within the framework of this commitment. This option
would probably be decisive enough to solve the timing
problem. However, it would also give away any negotiating
position we might have had with UEA and thereby tend to
increase the Government's liability in the final arrange-
ments. For this and other reasons I do not believe we
would find Congress receptive to the early commitment
approach, and I believe that we could not in fact imple-
ment this option.
As a matter of Government policy, I am also concerned with the
UEA plan as a precedent for Government assistance in commer-
cializing Government-owned technology. Within the UEA framework
we are providing substantial guarantees, and risking a multi-
billion dollar liability, in order to commercialize a 30-year
old technology; establish a single supplier (with attendant
antitrust problems), not a competitive industry; and virtually
guarantee a 15% return to the equity investors. None of these
seems to be the proper objective of a Government commercialization
program, and were it not for the unusual circumstances sur-
rounding this case, I would not entertain a commercialization
venture on this basis.
In summary, I believe the UEA plan can be made to work if we
want to put enough effort into it. However, I do not think
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we can complete negotiations with UEA and gain the necessary
Congressional approval in anything less than a year, and I
believe that delay to be unacceptable. I do not think it is
a good commercialization venture and it may set an adverse
precedent for future ventures of this type. Finally, as I
will describe in the next section, I do not believe that
the UEA plan is the best alternative open to the Government.
For these reasons, I recommend against accepting the UEA
plan.
Recommendations for an Alternate Approach
The Government's effort in supporting the next increment of
enriching capacity, through UEA or by any other means, is
necessarily substantial. I believe there is an alternative
approach to the UEA proposal in which this effort can be
invested, with a minimal net impact on the Federal budget,
and which will yield greater benefit in the long run. It is
to realize this larger return that I make the following
recommendations.
First, the Government should announce as soon as possible its
firm intention to construct a 5 million SWU gaseous diffusion
enrichment plant, and a commercial size (but not more than
4 million SWU) centrifuge enrichment demonstration plant,
coupled with measures to encourage the development of a private
centrifuge enriching industry. I believe this is the most
decisive and credible action we could take to resolve quickly
the uncertainty surrounding future increments of enrichment
capacity.
1. Although this action --- as with the UEA plan -- would
require Congressional authorization, our announcement
of new Government enrichment capacity is likely to be
received with greater receptivity in Congress and
credibility in the industry than an immediate, irrevo-
cable commitment to negotiate with UEA. Therefore,
there would be a less uncertainty created by announcing
our intention to build the next enrichment capacity in
the Government.
2. By committing ourselves to commercialization of centrifuge
technology for future enrichment plants, we will greatly
improve our long-term position in the foreign market.
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Our technology appears to be superior to Urenco
centrifuge technology and our public commitment to
commercialize our centrifuge technology will, we are
confident, make serious inroads on the markets now
sought by Urenco and Eurodif and force a reevaluation
of their current investment plans.
3. Important economies would accrue from:
a. Integrating a new Government-owned gaseous diffusion
plant into an existing Government enrichment facility
(an economy that would not be available in the UEA
proposal)
b. Reduced power consumption of the proposed centrifuge
demonstration plant and smaller gaseous diffusion
plant.
c. Avoidance of dual project management responsibility.
Second, the centrifuge project should be designed from the outset
to encourage commercialization and a competitive industry. I
believe this could be done in several ways.
1. We should qualify several competing suppliers of centrifuges
in order to establish a manufacturing industry. By care-
fully surveying the field before we issue a formal Request
For Proposals, we can develop a procurement package to create
this competitive manufacturing base.
2. A medium-size centrifuge plant will most likely be small
enough to overcome major financial and technological
obstacles but large enough to significantly add to
enrichment capacity at the time needed while providing
sufficient incentive to the establishment of a centrifuge
manufacturing industry -- a key step in commercializing
the centrifuge technology. To be competitive with the
gaseous diffusion industry, the centrifuge suppliers and
sub-suppliers must eventually have a large market -- this
market will be started with the demonstration plant.
3. In addition to the medium-size ERDA demonstration centrifuge
facility, we plan to proceed with the previously approved
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Demonstration Centrifuge Enrichment Facility (DCEF)
program in which small pilot plants (about 300,000 SWUs)
would be constructed and operated by private industry --
namely EXXON, ENI-Atlantic Richfield, and Garrett
Corporation. The DCEF program will be particularly
useful in developing the necessary commercial relation-
ships between utilities, private enrichers, and
centrifuge manufacturers. Both the ERDA demonstration
centrifuge facility and the DCEF program will provide
the combination of sufficient size and commercial expertise
that are the necessary ingredients for the critical step
to full-scale centrifuge plants and the emergence of a
competitive industry.
4., A centrifuge industry will be manifested in followon
increments of enriching capacity which we should continue
to encourage through DCEF and through the development of
an even broader base of potential enrichers. Several U.S.
companies -- in addition to those interested in a DCEF
program -- are already interested in the centrifuge
technology (only UEA proposes to pursue gaseous diffusion
technology), and we believe we have realistic prospects
of establishing a commercial centrifuge industry.
We have the time and the tactics to develop the necessary
assistance package and to set up Government participation
and liabilities on a more orderly and acceptable basis
than we have been able to do with UEA. At worst, our
participation and liabilities could not exceed that
requested by UEA, thus, with the same or less liability,
we would buy the commercialization of a new technology
which appears inherently better adapted to the partici-
pation of competing operators and suppliers.
Third, we should take steps to firm up our estimates of demand
for enriching services during the next year. The demand picture
is not clear, largely as a result of the reactor deferrals we
have experienced in recent months. We would therefore intend
to:
1. Propose a new relief option (open season) for our present
fixed commitment customers in order to remove from our
present capacity any separative work that is excess to
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their demand. This action would tend to eliminate
possible overseas sales of excess separative work units,
a practice in which some utilities are already indulging.
2. Simultaneously announce that ERDA will prepare new con-
tracts for enrichment services from the new plant. We
can begin immediately to seek expressions of interest
from potential domestic and foreign customers on
contracting for services from the new capacity.
Fourth, we should decide on the final size and timing of the
new centrifuge plant based on the results of our steps to
firm up demand. The gaseous diffusion plant would provide
for timely addition of assured capacity, thereby permitting
the scheduling of the gas centrifuge plant to be controlled
partly by the time required to qualify centrifuge manu-
facturers, and partly by the firmed up demand for enrichment
capacity. The final decision on both size of the next increment
of capacity and the timing of followon increments could also be
made with a better understanding of how we intend to proceed
on the plutonium recycle problem and how we expect industry to
respond to achieving projected higher levels of feed. To
resolve uncertainties associated with future enriched uranium
availability, we will also attempt to obtain more specific
commitments from the Department of Defense concerning War
Reserve requirements and retirements which are anticipated
for the early 1980's.
Fifth, we should put the Government's enrichment operation on
a paying basis to relieve pressure on the Federal budget. I
believe we can minimize the impact on the budget in three ways.
1. Modify our charges for all Government enrichment services
with the objective of:
a. Increasing the cash flow needed to construct, maintain,
and operate all Government enrichment plants.
b. Eliminating any subsidies inherent in our present
pricing mechanism.
c. Accounting for the risk and contingencies incident
to a Government operation.
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These objectives can be largely achieved by increases
in the current charges for separative work in line with
higher power and labor costs; and the establishment of
a commercial basis for separative work charges.
2. Attempt to attract larger dollar advances from foreign
sources in the next Government enrichment plant. If some
governments are prepared to invest in the UEA proposal,
I think it is reasonable to expect that we can attract
foreign money to a USG plant. If we can, it will of
course be extremely useful in minimizing the front end
capital loading on the Federal budget.
3. Organize our Government operation into a more self-
contained, accountable, and responsive unit.
I will shortly forward you an FY 1976 budget amendment to
implement these actions, including the changes in pricing
policy which your staff has previously requested. I propose,
however, to integrate my pricing recommendation into the
overall recommendations I am making here. In addition, I will
soon be forwarding the new relief option for our present fixed
commitment customers, as explained earlier.
I believe the foregoing recommendations provide a better prospect
than the UEA proposal toward eliminating uncertainty in the
nuclear power industry, improving our export earnings through
strong competition in the overseas market, limiting both
liabilities and cost to the Government, and providing for
private entry on a more competitive and reasonable basis.
I would appreciate the opportunity to discuss these matters
with you in further detail.
Enclosure:
Summary Report
SA/A
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4/ /75
4/ /75
Form AEC-318 (Rev. 9-53) AECM 0240
U.S. GOVERNMENT PRINTING OFFICE 1974-526-166