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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 (3)
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Uranium Enrichment (3)
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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)
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The original documents are located in Box 36, folder "Uranium Enrichment (3)" 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States of America his copyrights in all of his unpublished writings in National Archives collections.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
THE WHITE HOUSE
WASHINGTON
MEETING ON URANIUM ENRICHMENT
Saturday, May 24, 1975
The Cabinet Room
8:45 a.m. (60 minutes)
FROM:
JIM CANNON
Sam
I.
PURPOSE
For you to hear the key points on this problem
before making your final decisions.
II.
BACKGROUND, PARTICIPANTS, AND PRESS PLAN
A. Background:
The immediate issue is how Secretary Kissinger
can, at the May 27 Ministerial Meeting of the
International Energy Agency, demonstrate that the
United States is committed to maintaining United
States leadership as the free world's supplier
of enriched uranium and United States' dominance
in nuclear affairs.
The long-term issue is whether enriched uranium,
the fuel for the atomic energy utility plants that
are expected to be built by the hundreds from now
until 2000, will be produced by the United States
government, by private enterprise or by a combina-
tion of the two.
B. PARTICIPANTS:
The Secretary of State
Jim Lynn
Brent Scowcroft
Phil Buchen
Bill Seidman
Frank Zarb
Jack Marsh
Jim Connor
Jim Cannon
Jim Cavanaugh
Glenn Schleede
Bob Fri
2
C, PRESS PLAN: To be announced as the President
is meeting with staff on energy
related issues.
III.
TALKING POINTS:
1. This is a major issue and before making my
decision I wanted to hear the views of the
supporters of the various options.
2. Henry, I'm told you have a few views on this
subject.
NOTE:
After calling on Henry, you might
ask Jim Lynn to present his side of
the case.
THE WHITE HOUSE
WASHINGTON
May 27, 1975
MEMORANDUM FOR:
MAX FRIEDERSDORF
FROM:
BOB WOLTHUIS RKW
SUBJECT:
Uranium Enrichment Discussions with
Chet Holifield and Craig Hosmer
I talked with both men this afternoon and they were
delighted that the President is moving ahead in the nuclear
power field. They both think it's the only answer on an
interim basis until something like solar energy takes its
place several decades hence. On approach and organization both
felt that the President should rely primarily on the private
sector. Although this will require some form of government
financing, Hosmer made the recommendation that perhaps the
Iranian government would like to pick up part of our
financing tab and then have a right in the mid 1980's to
draw on the U.S. uranium stockpile.
Holifield and Hosmer are going to get together in the next
week and then be back in touch with me.
I have also asked Kyl, Cyr, Sparling, and Cantus to check
their jurisdictional committees. George Murphy indicated
to John Guthrie, Cantus' aid at ERDA, that a quasi-Federal
private approach would not be productive in the short run.
He felt it would require Federal effort initially.
THE WHITE HOUSE
WASHINGTON
May 27, 1975
MEMORANDUM FOR:
MAX FRIEDERSDORF
FROM:
VERN LOEN
VL
SUBJECT:
Congressional Notifications on Energy,
Crime and Uranium - May 27, 1975.
Speaker
-
Out of office, left word with Joel Jankowsky
O'Neill
-
Out of town, no answer at office. No answer at 5:30.
Michel
-
In Illinois. All for taking Congress to task on its
failure to act on energy. People want to see President
be a strong national leader, building on the Mayaguez
performance.
On compensation for crime victims, has real doubts
about it.
Will miss the Bi-Partisan Leadership meeting on June
4th because of commitment in Charlotte, North
Carolina.
John Anderson
-
In Bali enroute back from Japan. Left word with
Don Wolfensberger of his staff.
Edwards
-
Enroute to Alabama. All for the President's energy
proposals. As for crime victims, is disturbed about
such a provision. Feels it puts a premium on crime.
Lou Frey
-
In Bogota, Columbia. Left word with Toby Harder of
his staff.
Ed Hutchinson
-
Energy problems can be solved better in the free
market than by any federal agency program. On
compensation to crime victims, feels it would reward
the criminal vicariously. Money could be better spent
to beef up law enforcement. Never favored concept of
federal government being "insurer. " Can imagine
people se tting themselves up for beatings just for
financial compensation. Understands that Chief Justice
Burger talked to Chairman Rodino, telling him to go
2
slow on criminal code revisions because some
suggested changes are pretty revolutionary. Courts,
already overburdened, could face chaos. Rodino
agrees. Hungate's proposed Rules of Criminal
Procedure (H. R. 6700) is scheduled for House floor
consideration next week.
McCormack
-
Reached in Seattle. Open-minded on uranium enrich-
ment questions. Wants to meet with Jim Cannon next
week. Wants to cooperate. He will have basic juris-
diction in House Science and Astronautics Subcommittee.
Is working on breeder legislation right now with nuclear
plant siting his next priority. Believes legislation can
be developed in July and August with hearings in
September and passage in October. Agrees with
objective of increased production as rapidly as possible.
Devine
-
Reached in Ohio. Pointed out that Democrats' plan
would increase prices at pump also. Would limit
compensation of crime victims to dependents of law
enforcement officers only. Need tougher judges instead.
Henry T. Simmons,
1052A National Press Bldg.,
Washington, D.C. 20045
Tel. 202-347-1337
28 May 1975
Mr. James Cannon,
Executive Director,
Domestic Council,
FORD & GERALD LIBRARY
White House
Uranium Enrichment
The U.S. presently has three government-owned plants with a total
annual uranium isotopic enrichment capacity of about 17 million
separative work units (SWU). Presently under way are the Cascade
Improvement Program (CIP) and the Cascade Uprating Program (CUP)
to expand total capacity to 27.6 million SWU by about 1981.
The SWU is an arbitrary unit relating the amount mi
and assay of uranium feedstock to the enrichment
cascades, the electrical power requirement to run the process, the
degree of U-235 enrichment in the produce product and the amount
of U-235 left in the depleted feedstock or "tails." One SWU is
the equivalent of one kilogram of separative work.
To get some idea of what this represents, about 116,000 kg of
separa,tive work is required to support a single light water reactor of
1,000 megawatts electrical capacity for one year. Thus if all the
present U.S. separative capacity were devoted to civil power needs,
it could carry about 146 of these baseline reactors. After the
capacity expansion program is completed, the three U.S. gaseous diffusion
plants could carry 232 such reactors if their total output were devoted
to this purpose. Of course, the assumption that all SWUs will be devoted
to civil power is unrealistic; there is now and will be a continuing
military requirement for enriched uranium to fuel nuclear carriers,
Uranium Enrichment 2 2 2
frigates and submarines, and for the manufacture of tritium and subin
other weapons ingredients.
At present, U.S. separative capacity is more than adequate to cover all
U.S. military and civil power reactor needs -- as well as áll foreign
requirements. But projections in the growth in the numbers, electrical
power generating capacity and enriched uranium requirements of light
water reactors indicate that at some point in the future, even the vast
present and planned U.S. separative capacity will be inadequate to meet
these demands.
Thus the critical question is, when must we put new separative
capacity on line if we are to avoid pinching off the future growth
of nuclear power?
The last full-scale treatment of this question is contained in
an AEC study, "Nuclear Power Growth 1974 - 2000" (WASH-1139 (74)),
published in February, 1974. This document forecasts a 1980 U.S. FORD
domestic nuclear generating capacity in the range of 85,000 to
LIBRARY AGERALD
112,000 megawatts, with the most likely figure standing at about
100,000 megawatts. (As of 31 Dec. 1974, U.S. nuclear capacity stood
at just under 40,000 megawatts from 55 reactors in full operation.)
Translating this projection to the question of timing the addition
of new separative capacity, WASH-1139 (74) observed:
"Significant shifts in one or more of these variables (total U.S.
and foreign nuclear power capacity, foreign demand for enrichment
services, the extent of plutonium recycle, the capacity factor of
nuclear plants, etc.) can dramatically affect the date at which new
enrichment capacity is required. For example, the range of the timing of
this need is from 1982 to 1990. (Italics supplied.) The earlier date
will follow from high U.S. and foreign nuclear power with low foreign
enriching napanitys capability. The latter date follows from low
Uranium enrichment 3 3 3
LIBRARY GERALD R. FORD
nuclear growth with high foreign enriching capability
"
To my knowledge, ERDA has not undertaken an update of WASH-1139
despite the fact that events of the past year have been devastating
for the nuclear power outlook over the medium term. ERDA on 14 May
did issue a study entitled "Nuclear Fuel Cycle: A Report by the Fuel Cycle
Task Force" (ERDA-33) which came to some important conclusions in
the area of separative capacity. The task force found, among other
things, "insufficient existing enrichment capacity to support the
projected growth of the industry beyond 1983 (italics supplied)" and it
called specifically for a U.S. "commitment to new enrichment capacity by
the end of ############# FY 1975" -- i.e., by 30 June.
There are several things that are troubling about this early deadline
for a national commitment to a huge and costly addition to U.S.
enrichment capacity, either public or private:
dbt. The Atomic Energy Commission has been consistently over-
optimistic in its projections of the growth of nuclear
power. In 1971, for example, it projected 151,000 megawatts
of U.S. nuclear generating capacity by the end of 1980.
In 1973, it lowered that projection to 132,000 megawatts,
and a little more than a year ago (in WASH-1139 (74)) it
MM
cut it back again to about 100,000 megawatts. Environmental
lawsuits, regulatory delays, construction slippages and
manufacturing bottlenecks were principally responsible
for these earlier disappointments.)
dbt. Within the past year, a new factor has emerged: a severe
utility financial crunch because of rate lag, a deterioration
in utility credit ratings and borrowing ability, and (until
late 1974) sky-high interest rates and spiraling construction
GERALD FORD VIBRARY
Uranium Enrichment 4 4 4
wage and manufacturing costs because of inflation. The
effect of these forces was to run the cost of nuclear
capacity from about $400 per installed kilowatt to
$600 or $700, compared with about $300/kw for new oil-fired
generating capacity and perhaps $500/kw for coal. The
inevitable result of this collision between soaring costs
and reduced ability to pay was a tremendous contraction in
the number of reactors which U.S. utilities had been planning.
ERDA has acknowledged that while utilities announced plans
for 36 new reactors in 1974, during that year they also
deferred 126 large reactors previously ordered or announced.
These deferments range from six months to "indefinite" in
time, and economic reasons were given for the postponement
or cancellation of two-thirds of them. The question must
be asked, what impact does this catastrophic shakeout in
nuclear plant construction have on ERDA's projections for
the growth of domestic nuclear capacity? There is no
evidence that ERDA-33 attempts to update WASH-1139 (74) by
taking the 1974 shakeout into account. Just how reliable
is ERDA-33 as a basis for a major Presidential policy
decision? It insists on a decision by 30 June to move
ahead with a major new increment of U.S. enrichment
capacity, yet AEC only one year earlier, when things looked
far brighter for the nuclear power, could not pin down any
closer than eight years (1982 to 1990) the time when the new
capacity would have to be in place.
dbt. If U.S. utilities are finding it necessary to slow down the
pace of their nuclear plant construction, isn't it possible
that foreign utilities -- although mostly government-owned --
Uranium Enrichment 5 5 5
GERALD FORD ALBRARY
are going to have to cut back some of their ambitious plans?
Just how firm are foreign plans for new plants requiring
enriched uranium? To what extent are foreign orders for
forward U.S. enrichment services "precautionary" in
character? The present lack of alternative sources for
enriched uranium, uncertainties over competing European
efforts like URENCO and EURODIF, and uncertainties over
the ability of U.S. enrichment capacity to meet future orders
may combine to attract such orders. If this sort of bow
wave effect is operative, at least some of these foreign
orders may turn out to be spongy and not the stuff on which
to rest a major U.S. undertaking just now. So we have
to ask the question, how much of this foreign interest is
of a "hedging" character? Aren't we in a situation
structured to encourage a queueing-up of foreign nuclear
operators anxious to assure a future supplym supply of
enriched uranium at a cost significantly less than the
nuclear plants they propose to build, and which they may
not be at all certain to build on the timetables they have
indicated?
One or two other points deserve mention. One is that the foregoing
questions are almost certainly the ones that trouble the UEA consortium
and compel it to ask for such a staggering array of gold-plated guarantees.
In
a
mont conversation with an official of the Atomic Industrial Forum,
the trade association of the nuclear industry, I was advised that
AIF is now preparing a study of its own on the effects of the 1974
shakeout in nuclear plant orders, but that the preliminary evidence
suggests that this has postponed by about two years the previous
projections (including WASH-1139 (74)) for the growth in nuclear
FORD & LIBRARY GENALD
Uranium Enrichment 6 6 6
generating capacity in the U.S., and consequently the time when we get
to a hard crunch on nuclear enrichment capacity. Purely aside from
the problem of the firmness of foreign demand, a two-year stretchout
in domestic capacity would mean that a huge new increment of enrichment
capacity coming on line in the U.S. in the 1982-83 period might find
orders rather few and far between in its first years of operation when
its financing charges would be the most burdensome.
A second consideration is the role of non-proliferation in making
a decision to expand U.S. separative capacity. Countries like India,
Israel and Argentina (not to mention Canada) are pursuing the
heavy water/natural uranium route for at least some of their needs
precisely because they do not want to become dependent on enriched
uranium from the U.S. and all the strings that we would attach to
its use. Similarly, Brazil obviously wants to cut a deal with the FRG for
reactor technology and the relatively inefficient "jet nozzle" separation
process precisely because it doesn't want to be "safeguarded" by
IAEA or anyone else. Even if the U.S. were to announce an infinite
expansion of enrichment capacity, and a willingness to accept firm orders
to enrich every last scrap of uranium in the world, it would probably
not deter any of these particular countries from the course they are
following because, not to put too fine a point on it, cheap and
reliabile nuclear power for civil use as is not the Sum total of their
nuclear aspirations.
A third consideration in any decision is the fact that the light
water reactor burning enriched uranium is by no means the only option
we have for assuring a significant nuclear contribution to our
future energy needs. There is also the thorium fuel cycle, and ERDA
is pursuing two promising initiatives in this area -- the High Temperature
Gas Reactor and the Light Water Breeder Reactor. The first could
GERALD FORD
Uranium Enrichment 777
sharply reduce lifetime requirements for natural and enriched uranium
while the second has the potential of supporting its own fuel cycle
entirely after its first 10 years of operation. Both must be "subsidized"
initially with in highly enriched uranium, but in operation they convert
finanda fertile thorium-232 to fissile uranium-233 which they can burn up
in subsequent mhanges fuel charges. Mastery of the thorium fuel cycle
would approximately double our fissile fuel base without the necessity
of laying on any new enrichment capacity.
Conclusion
The two options which appear to be under consideration boil down
to just one: plunge ahead with another large-scale increment of
U.S. uranium enrichment capacity. The only question seems to be
whether this new capacity should be government-owned or privately
owned. A genuine second option would be the following:
1. Because of uncertainty over when the U.S. must have the new
capacity on line to meet hard domestic and foreign demand, forego
for at least one year a major expansion of U.S. gaseous diffusion
enrichment capacity, either by the government or private industry.
2. Order a new study to update WASH-1139 and Project Independence
insofar as they relate to future requirements for enrichment capacity.
3. Proceed or even accelerate the present ERDA program to
secure industry proposals to build one or more gas centrifuge demonstration
plants in the 100,000 - 300,000 SWU range. These plants have the
advantage that they can be built in far smaller increments than gaseous
diffusion plants so that their construction can be geared more closely
to actual demand trends and exposure to risk is therefore more limited.
Such plants can probably be built with shorter leadtimes than diffusion
facilities and they have the further important advantage that they use
only about 10% to 20% as much power to do the same work.
Uranium Enrichment 888
(From the standpoint of the public MASSINS versus private power
issue, such small plants with appropriate government purchase commitments
and other assistance would be far more saleable to Congress than any
attempt to bulldoze through the 9 million SWU $3 billion UEA plant.
Politically, the centrifuges should be much easier to defend against
"giveaway" charges than the UEA proposal. Government assistance to
launch a privately-owned centrifuge program would be analogous to
the assistance which the Eisenhower Administration provided to launch
I
(1?
the "Partnership" program which built the first small privately-owned
power reactors 20 years ago. As in that case, one would expect
that government assistance to the m) centrifuge industry would gradually
taper to zero. A new industry would ultimately stand on its own feet --
and would probably pay royalties to the government for many years in
return for commercial use of centrifuge technology originally financed
by U.S. taxpayers.)
4. If the new study shows that interest in LWRs has hardened again
over the coming year, and that enriched uranium requirements will
indeed climb strongly, then a decision can be made by mid-1976 on
how to meet that demand. The gaseous diffusion option would be
available, whether government or private. Perhaps there might be
sufficient confidence to go all out on centrifugation. And there is also
a remarkable laser/UV separation process now under development which
may be more elegant and efficient than either of these two alternatives.
-v-
QERALD FORD LIBRARY
DRAFT
May 28, 1975
WORKING PAPER RE URANIUM ENRICHMENT ASSOCIATES
(UEA)
Uranium Enrichment Associates has been formed in response to the
expressed policy of the United States Government to develóp the first
private enrichment plant in the United States following the CIP/CUP
programs of ERDA. UEA is confident this can be accomplished with
financing based upon long-term non-cancellable contracts with United
States and foreign utilities who require enrichment services. Recent
months, however, have demonstrated that the credit position of U.S.
utilities has deteriorated. To provide for investor confidence, back-up
assurances will be required from the United States Government. Such
assurances would seem to be compatible with the commitment of this
country to be a continuing and reliable source of enrichment services.
The general plan for proceeding with a private uranium enrichment
venture involves the construction and operation of a large gaseous diffusion
enriching plant located on the Chattahoochee River in southeastern
Alabama, where a site has be optioned.
Planning has assumed plant of 9 million SWU per year capacity blanned,
but if actual firm orders fall short of full load, a plant of proportionally
smaller size will be built capable of future expansion to the full 9 million
SWU size. A preliminary estimate of the cost of
the
9 million SWU plant is $2, 750, 000, 000 in 1974 dollars, with full operation
to be attained in 1983. Power in the amount of about 2500 MWe is
facility
to
be
seporately
expected to be supplied from a dedicated nuclear power plant
findned.
Based on marketing efforts undertaken to date about 40% of the plant
capacity will be taken by domestic utilities, and the balance by non-US
utility organizations. For both domestic and foreign customers UEA will
supply toll enrichment service under long-term (25 year) contract.
Each customer will be charged for his percentage of the total cost of
operation of the facility on a "take or pay" basis and will supply and retain
title to the required feed material.
Project financing utilizing an 85% debt, 15% equity ratio is contemplated
both for the non-US share of the plant and for the domestic share of the plant.
As now foreseen, about 60% of the project will be contracted to foreign
reactor needs. In avoidance of the problems of political change, currency
modifications, and other possible modifying events, the UEA contracts with
foreign customers will require that each such customer provide, on a firm
basis, all of the capital investment proportional to each customer's
subscription to the output from the enrichment plant. Such capital investments
will include equity and debt and must be provided by the customer from his own
sources of capital and the obligation of repayment rests with the customer.
Prospective foreign customers understand these conditions and also under-
stand that voting control (55%) will be in the hands of the United States
investors.
The United States portion of the equity will be supplied by US investors
who are expected to be a group of substantial industrial concerns. U.S. debt
financing during the construction period will be by interim loans from
commercial banks with final take-out financing from the U.S. bond market.
The security for debt will be the firm contracts from the purchasers of the
enrichment services.
back divargments
Uranium Enrichment Associates proposes to use all reasonable
commercial safeguards within the private sector in support of the project.
A program of insurance has been developed which will provide substantial
coverage from the risks of physical damage, business interruption, and
general liability. Extended risk coverage to the limit of $1 billion, business
interruption with limit of $1 billion and general liability insurance up to
$50 million now have been assured.
It is also proposed to establish a contingency reserve fund which will
accumulate from an addition to the unit cost, of separative work performed
for customers of the plant. The reserve fund is intended to provide
protection against unforeseen financial requirements during the operation of
the enrichment facility. Amounts unused in the reserve fund for such purpose
will ultimately serve to offset debt service through the latter years of debt
obligation. Sufficient funds are expected to accumulate to permit this reserve
fund to pay for debt service during the last 10 to 12 years of the debt obligation.
At that point, the customer's cost of separative work would be reduced by
elimination of payments to the reserve fund as well as of charges for debt
service.
Under the contracts with the customers of the plant, the cost of
separative work will provide full recovery of the total costs of owning,
why
ndewed
financing, operating, and maintaining the project, including provision for an
at.
after tax return on equity computed at 15% of initial equity investment with
provisions for future (escalation)
The above basic terms have been discussed at length with interested
U.S. utilities and foreign customers, and they are in general agreement.
These terms coupled with the following areas of government assistance will
produce conditions which in our
opinion, will allow private entry
into uranium enrichment.
It must be recognized that the technology and the key components of
the gaseous diffusion process are classified government information not
generally accessible to either the private investor or to the utility customer.
Accordingly, the UEA plant will be founded on confidence in government
supply of key components, government processes and government knowhow.
USG will charge a royalty during the first 17 years of operation of the UEA
plant. Consequently, it will be essential that certain government assurances FORD
be provided to support the transition to private industry. Requested USG
assurances are as follows:
GERALD LIBRARY
1.
The supply by USG to UEA at cost of essential mechanical
components of the plant such as barriers and seals which,
for security reasons, are presently produced exclusively
by USG;
-2-
2.
To cushion against possible start-up delays and/or
interruption of plant operation, and to assist UEA in
matching plant capacity with customer's requirements
during the first few years of operation, UEA proposes
that there be a full year's equivalent production of its
plant (9 million SWU's equivalent) available in the
Government's stockpile to be leased to UEA during the
plant start-up period. Starting after a year of success-
ful operation, the quantity available would be steadily
decreased, being eliminated altogether after five years
of normal operation.
If it develops that there is a temporary over-capacity
Prix
of the UEA plant, UEA proposes that USG purchase from
UEA enriching service not to exceed 6 million SWU. Terms
and conditions for these transfers, sales or leases will be
subject to negotiation of mutually acceptable provisions.
In addition to these transactions, UEA and ERDA will
work out mutually acceptable arrangements for the exchange
of SWU's to permit UEA to serve customers requiring
highly enriched HTGR fuel, and to assist an economical
plant start-up.
3.
The supply at cost of technical assistance and knowhow
for the installation and operation of USG's diffusion process.
USG will guarantee that the manufactured items and process
technology will operate as expected and will accept the
obligation to complete or cause completion of the plant if
UEA is unable to satisfactorily complete. Such obligation
shall continue for one year after demonstration of full scale
steady commercial operation.
4.
An undertaking by USG to provide backup support with respect
to the financing of the plant and the obligations to complete and
operate the plant. It should be noted costs incurred by the
FORD
Government in continuing the program should such become
&
necessary are anticipated to be included in the costs of plant
financing or operation and thus become a part of the cost of
GERALD
LIBRARY
service to customers under contract. The manner in which
USG would exercise its protective position within this area
is anticipated to be through transferring ownership from UEA
to USG.
This would provide the needed assurance from a credit
worthy source that additional capital can be available to provide
for completion of the project or that the investors have
opportunity to recover their investment if the project can not
-3-
reasonably be brought into commercial operation.
Transfer of ownership would involve the acquisition by US of
the controlling owners rights of UEA's direct and indirect domestic
debt. Either UEA or USG could require a transfer of ownership;
UEA, if it were unable for any reason to physically complete the
plant otherwise or bring it into commercial operation despite its best
efforts; or USG for the same reasons or if UEA has defaulted in meeting
specified and agreed conditions. The right to require a transfer and the
obligation to accept would terminate one year after the plant had achieved
full scale steady commercial operation.
The consideration to be paid by USG for the acquisition of UEA's
domestic equity would be determined by reference to whether the reason
for the transfer fell within one of three categories but the consideration
would in any event include assumption of liabilities. The three categories
are:
First, events caused by USG or otherwise beyond the reasonable control
of UEA. If the request for transfer of ownership were attributable to
such an event UEA's equity holders would be entitled to full compensa-
tion, that is, return of their original investment and such additional
compensation, as determined by USG, to reflect the results achieved
to the date of transfer.
Among the type of events which would fall within the first category are:
A. Failure of warranted USG technology to operate so as to permit the
plant to achieve commercial operation within the agreed-upon
time period and costs, despite reasonable efforts of both UEA and
USG:
B. Delays or frustrations of governmental licensing, or enactment of
law or regulation, which would prevent the plant from achieving
commercial operation within the agreed-upon time period and
costs, despite reasonable efforts of both UEA and USG;
C. Interposition by USG for reasons of national interest in the matter
contractual relationships between UEA and previously approved
customers to a degree which significantly threatens the economic
viability of the project;
GERALD R. LIBRARY FORD
D.
The inability of UEA to raise capital for
construction or long-term financing despite
reasonable efforts of UEA to do so.
Second, events involving gross mismanagement, willful
misconduct, or gross negligence by which UEA signifi-
cantly threatens satisfactory operation and capacity of
the project and for which UEA, after formal written request
from USG, does not take reasonable steps toward
correction. In such an event, no cash compensation would
be paid for UEA's domestic equity rights.
Third, events which do not fall within the first two cate-
gories. In such an event the appropriate degree of com-
pensation would be determined utilizing agreed formulas
for the recognition of the efforts of UEA and the degree
of fault, if any, in foreseeing and dealing with the particular
situation. In any event, the preliminary determination
of compensation shall be made by USG and the basis thereof
reviewed with UEA. If the parties agree on an amount, the
determination shall be submitted by USG to the JCAE for a
90 day period during which Congress is in session and there
shall become final unless JCAE should dissent from such
determination. If the parties cannot agree on the appropriate
compensation, recourse shall be had to an agreed impartial
body for determination.
As noted, UEA's direct and indirect domestic debt would
be assumed by the USG in the event of a transfer of ownership.
In order to obtain the full benefit of such an assumption, it must
invoke the full faith and credit of the United States. UEA
will use its best efforts to provide that all its domestic debt
will be callable, without premium, in case of a transfer of
ownership.
UEA has proceeded on the basis that there will be a firm and continuing
policy of the United States Government with reference to the participation
of foreign investors in enrichment facilities located in the United States and
in the sale of enriching services to foreign customers. It has been taken
that the policy of the Government has been to encourage such international
relationships and it is expected that the present areas of doubt will be clarified
with a strong and positive statement reexpressing the United States policy.
FORD
-5-
DRAFT
May 28, 1975
UEA intends in all respects to operate as a private industry venture using high
quality standards of commercial procedure, practice and control.
In recognition of USG interests and because of the USG support of the financial
position of the project UEA will arrange to have its procedures, practices and
controls reviewed by an independent audit firm of recognized competence and
secure and file with the USG their opinion of the adequacy of these elements.
In recognition of the USG guarantee of equipment, process and the like, UEA
will develop the design of the plant in full cooperation with USG and permit USG
full opportunity to be aware of, have access to and approval of the manner in
which the process is engineered, installed in the plant and operated.
CHOP LIBRARY :- 07V839
THE WHITE HOUSE
WASHINGTON
May 29, 1975
JMC:
Glenn Schleede would like to
pass this draft memo out at
the 11:00 a.m. Uranium Meeting.
If you would like to discuss
with him prior to that meeting
he will be willing to come over
and discuss with you.
p
BERALD FORD LIBRARY
THE WHITE HOUSE
WASHINGTON
NOTE FOR:
JIM CANNON
FROM:
GLEAN SCHLEEDE
SUBJECT:
URANIUM ENRICHMENT
Attached is a rough draft-outline
of a decision paper. I put this
together following your note
of yesterday and a long meeting
with the ERDA-FEA-OMB-NSC-Connor
task group.
Bob Fri attended part of it and
expressed the strong desire to
have a draft like this available
for the 11AM meeting to be used:
to help focus discussion.
GERALD
to try to get principals'
agreement that the right
facts and criteria are being
presented.
I will have multiple copies of this
ready for the 11AM meeting -- to
be used only if you agree that it
should be passed out.
We are meeting at 10AM with UEA.
Decision Memo Draft
5/29
Attached is a very rough draft of a potential decision
memorandum. It is based on only preliminary information
and discussions with the task group. It is far from
complete and, as it stands:
- does not necessarily reflect anyone's views.
- has noone's approval
- contains unnecessary information and omits other
information that will have to be added.
Therefore, at this point, it is furnished only as a
rough outline to get senior advisers' views as to whether
the right issue, alternatives, considerations and facts
are being assembled.
DRAFT #2
5/29/75
DECISION
MEMORANDUM FOR:
FROM:
SUBJECT:
PROVIDING ADDITIONAL U.S. URANIUM
ENRICHMENT CAPACITY
The Issue
The issue for your decision is whether to propose legislation
which contemplates construction of the next increment of
U.S. uranium enrichment capacity (a) by the Uranium Enrichmen
Associaties (UEA) in a privately owned plant backed up by
the potential for Federal by-out prior to completion, or
(b) by a Government owned plant.
Both alternatives contemplet that construction of succeeding
enrichment plants would be by private industry, probably
with the initial plants subject to the same kind of conditions
now proposed for UEA.
None of your advisers believe that you should consider
proposing that all future enrichment capacity be in plants
owned by the Government or a Government corporation. However,
this alternative needs to be kept in mind because (a) it
undoubtedly will be considered by the Congress, and (b) such
an alternative provides a useful baseline for evaluating the
the two alternatives presented for your decision.
Developments since your May 23 Meeting.
Since your last meeting with senior advisers on this subject:
Negotiations have been conducted with UEA officials and
their financial advisers -- which have resulted in a
substantially different proposal from that previously
discussed by UEA and ERDA. It is discussed under Alt. #1,
below.
The alternatives have been refined further and evaluated.
- 2 -
More data have been assembled to respond to questions
you have raised, including:
A comparison of the relative status of diffusion
and centrifuge technology. (Tab A)
Projected world supply of enriched uranium (Tab B)
Projected world demand for enriched uranium (Tab C)
Extent of private industry interest in proceeding
with centrifuge demonstration plants (Tab D) (To be
supplied by ERDA).
The Congressional Relations staff has assessed the
attitudes of Congressional leaders (Tab E - to be supplied
by Congressional Relations staff) Potential Congressional
acceptance is one of the considerations discussed below
in evaluating the alternatives.
The Alternatives
The principal features of the two alternatives are as follows:
Alt. #1. UEA construction of a free standing 6.5 to 9
million unit diffusion plant. This would be followed by
industry construction of succeeding plants (using either
diffusion or centrifuge technology, as determined by
industry. The arrangement would work as follows:
- UEA and future enrichment firms would:
provide the organization, management, financing,
plant site, power, customers.
Design, build and operate the plant.
- ERDA:
transfers information on diffusion technology
to the enrichers and receives a royalty payment
(no new authority needed).
supplies and gives warranty for those materials
for plant which are available only from the
government. Enricher pays for these.
reviews and approves design of plant.
oversees construction and management, much as it
would now if ERDA were going to own the plant.
- New legislation would be needed to authorize the
transfer of ownership of assets and liabilities of
the enrichment firm to the Federal Government at
any time prior to completion of the plant, with:
-- either the enrichment firm or the Government
able to request the transfer.
-- with amount of payment depending upon the
circumstances -- varying from essentially full
repayment of U.S. equity investors funds to
no repayment (total loss of equity).
-- ownership then resting with the Federal government
just as it would if the enterprise began with
the intent of Federal ownership.
- 3 -
This alternative is described in more detail at Tab E. E
to which is appended the specific wording of the UEA
proposal. (To be supplied by ERDA)
Alt. #2. ERDA would contruct an add-on diffusion plant
of up to 5 million units adjacent to its existing 9
million unit plant at Portsmouth, Ohio. This would be
followed by private industry construction of centrifuge
plants, starting with competitive proposals from firms
that would be prepared to build 1 million unit demonstration
plants which are capable of being expanded to 3 million
units. Depending upon the speed with which these plants
could be built and production begun, it may be possible
to reduce the size of the add-on ERDA-owned diffusion
plant--perhaps even to zero. This approach would work as
follows:
- Legislation and appropriations would be requested
to permit ERDA to proceed with design, long-lead time
procurement, and if necessary, construction of the
add-on plant.
- For the centrifuge followon plants, the overall approach
would be much the same as that outlined for private
enrichers under alternative #1.
- Legislation would be needed to authorize the transfer
of ownership.
This alternative is discussed in more detail at Tab G
(to be supplied by ERDA).
Considerations bearing upon your Decision
A number of considerations are essentially equal with respect
to either alternative and need not be considered further here.
These include:
- The date when the next increment of capacity must be
on line (now estimated at 1983).
- Nuclear materials safeguards (non-proliferation) in terms
of both the physical security of the plant and Federal
control over exports.
- Impact on the Government's stockpile of enriched uranium.
- Customers for the next increment of capacity which
are expected to be predominantly foreign.
- Risk of not having the next increment of capacity on
line when needed.
- Opposition from nuclear power opponents -- who may
try to prevent any new increment of capacity as another
way of slowing nuclear power (but who will be vulnerable
to the answer that failure to build means dependence on
foreign sources of enriched uranium).
- 4 -
Other considerations are important and the relationship to
each alternative is discussed below:
1. Date when the U.S. will be perceived by potential foreign
customers as a reliable supplier of uranium enrichment
services. An early date is important to the nation's
ability to obtain a large share (target 50%) of the
foreign market. There are some differences between
the two proposals for the next increment-- in terms of
when all arrangements will be firm. In the case of
into)
alternative #1, the foreign perception would depend
heavily on how it was explained. The steps necessary
and probable completion dates for the two alternatives
are as follows:
Alt #1
Alt #2
UEA
ERDA
Propose legislation
6/30
6/30
Congressional authorization
UEA obtain equity partners
na
UEA obtain foreign equity
and customers
na
Obtain committment for
electrical power
UEA obtain domestic orders
Plant design completed
NRC construction license
na
Construction begins
NRC operating license
na
Production begins
In summary,
Under alternative 1
Under alternative 2
2. Impact on the ability to achieve (and the timing) the
objective of having indsutry build and operate succeeding
increments of enrichment capacity.
Under alternative 1
Under alternative 2
- 5 -
3. Federal Budgetary impact (Budget authority and outlays)
Tab H (to be supplied by OMB and ERDA) contrasts the
budgetary impact of the two proposals over the next
years. Briefly,
Under alternative 1
Under alternative 2
4. Chances of Congressional acceptance of the proposal,
and the probable impact of the timing of approval.
Under alternative
1,....
TO Be pupplied
Under alternative 2
my D
5. Ability to accommodate committments to foreign nations
to permit non-discriminatory participation in the
financing of enrichment capacity.
Under alternative 1
Under alternative 2
6. The risks and how they are shared from the viewpoint
of:
- Domestic utility customers
- Foreign customers
- Domestic equity partners
- Potential financiers for debt
- Potential enrichers
(These considerations may be worked in at other
points in the memo)
7. Other Foreign Policy Considerations (if any -- to be identified
by NSC staff by 5/29)
- 6 -
Other Actions Affecting Uranium Enrichment that must be
taken by the Administration
Submission of Commercial charge legislation
Decision on "open season" and conditions for escaping
from enrichment contracts with ERDA.
Recommendations
,
,
and
recommend Alternative
1 because
,
,
and
recommend Alternative
2 because
Decision
Alt #1.
Alt #2.
TABS
A - Comparison of status of technology
centrifuge and diffusion
(attached)
B - Projected world supply of enriched
uranium
(attached)
C - Projected world demand for enriched
uranium
(attached)
D - Extent of private industry interest
in proceeding with centrifuge
demonstration plants now
(to be supplied
by ERDA)
E - Assessment of Congressional situation
(to be supplied
by Max Friedersdorf)
F - Description of Alternative #1 -
(to be supplied
UEA builds next increment, private
by ERDA)
industry succeeding units.
Addendum to "F" - UEA's specific
proposal
G - Description of Alternative #2 -
(to be supplied
ERDA builds next increment, private
by ERDA)
industry succeding units.
H. Federal Budgetary Impact
(to be supplied
by OMB and ERDA)
TABA
1. Question
Compare the status of gas centrifuge technology to gaseous diffusion
insofar as its present commercialization potential is concerned.
Answer
With over 30 years of large-scale operating experience and development,
the gaseous diffusion process has proved to be a highly reliable and
economical method of enriching uranium. The gas centrifuge process
which has been under development for 15 years and is now approaching
production capability appears to be economically competitive and has
been shown to have certain advantages in commercialization potential.
Plant Size
Gas centrifuge plants can be economically built in smaller capacities
than gaseous diffusion. This results from a higher degree of separation
inherent in individual gas centrifuge equipment and the ability to more
readily scale the plant to desired size. Gaseous diffusion, on the
other hand, requires many stages to achieve enrichment and is dependent
on large equipment to achieve economy. The scaling of gas centrifuge
plant size permits consideration of many smaller regional gas centrifuge
enrichment plants providing greater flexibility. Provided that a sound
centrifuge sub-supplier industry has been established, construction of
small increments of capacity may permit "tracking" the enriching service
demand.
Power Requirements
The gas centrifuge process is shown to use about 10 percent of the electric
power consumed by the same capacity gaseous diffusion enrichment plants.
This results from the fact that the gas centrifuge process is inherently
more energy efficient. The lower electric power requirement allows locating
gas centrifuge enrichment plants without major dependence on large electric
power systems and sources. Projections of operating costs indicate that
gas centrifuge plant operating costs will be largely under the control of
the operator. Because of high power consumption, a large portion of
gaseous diffusion plant operating cost will be dependent on utility control.
Technology Potential
The capacity and performance of gas centrifuge equipment is currently limited
by materials, fabrication techniques and the understanding of gas centrifuge
theory. Further developments are expected to increase the capacity and
performance of individual centrifuges. These improvements could be incor-
porated in operating enrichment plants during normal replacement of centrifuges.
Gaseous diffusion technology, although not exhausted, is more mature and by its
nature is more difficult and expensive to incorporate into operating plants.
- 2 -
Patent and Proprietary Incentive
Since the gas centrifuge process is new and has large potential for
improvements, patent and proprietary opportunities are great. These
opportunities are part of the reasons that industry participants are
considering gas centrifuge for uranium enriching and serve to encourage
further industrial entry into the field of gas centrifuge fabrication.
In the gaseous diffusion process, the Government has developed to a
highly sophisticated level and is the sole fabricator of key elements
of the process. Therefore, the patent and proprietary opportunities
in gaseous diffusion enriching are limited.
Reliability and Demonstrated Performance
Adequate reliability and performance of production type gas centrifuges
has been demonstrated in test facilities. These tests will continue with
current and advanced centrifuges in support of new enrichment plants. The
gaseous diffusion process with 30 years of operating experience has demon-
strated high reliability and performance. A significant part of the
operating cost of gas centrifuge enriching plants is the replacement and
repair of the high speed centrifuges, thus the cost of enrichment in these
plants is sensitive to the centrifuge operating life. Operation of gas
centrifuge enriching plants would assure a manufacturing market for
centrifuge component suppliers. The projected gas centrifuge enriching
plant economics are based on short operating life centrifuges. If the
plant operator can increase the life by reasonable operating changes or
improved centrifuges, the economics would improve.
Risk
The overall risks associated with new enrichment plants are higher with the
gas centrifuge process since industry has never been called upon to supply
large quantities of equipment and materials used in manufacturing gas
centrifuges. On-going ERDA programs are providing industry with the
technology that has been developed and assisting in promoting the expansion
of necessary supporting industries until the market is established. The
gas centrifuge process cost projections assume conservative operating life
for centrifuges tending to minimize the risk of higher operating costs.
More ERDA effort is currently directed toward gas centrifuge manufacture
consistent with the development program. For a new, large gaseous diffusion
enrichment plant, ERDA assistance would be provided to minimize the risk.
General
Considering the major advantages, it appears that the gas centrifuge process
provides a more likely ability to achieve a competitive industry by permitting
more entrants, more regional participation, more industrial involvement
(including more labor), with reduced electric power constraints. The "spin-
off" of new technologies such as high speed rotating components, balancing
procedures and special fabrication techniques associated with the gas
centrifuge can be of significant benefit to industry. The availability of
this technology can serve to encourage industrial entry as a supplier. The
use of the technology without compromizing security can serve to upgrade
the Nation's overall industrial capability.
- 3 -
2. Question
What is ERDA's current estimate of the foreign and domestic enrichment services market?
Answer
Based on the April 1975 IEA forecast of world-wide demand, the requirements for enrichment services
in millions of SWU with plutonium recycle and a 0.25% tails assay are given below. The U.S.
requirements and the foreign market currently under ERDA enrichment services contracts are also
shown, resulting in a net foreign requirement.
Requirements
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
World-wide
10
12
14
19
25
28
31
34
38
41
47
52
58
64
U.S.
5
7
7
9
11
12
13
16
19
21
24
26
29
34
Foreign Supplied by ERDA
4
4
4
6
8
9
11
10
10
11
11
10
10
10
Net Foreign
1
1
3
4
6
7
7
8
9
9
12
16
19
20
The U.S. requirements for enrichment services from new domestic enrichment capacity in millions of
SWU with plutonium recycle and a 0.30% tails assay is given below.
1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
U.S. Requirements
0.2
0.7
3.2
5.0
8.3
11.6
15.6
TABB
- 4 -
3. Question
What is the present status of foreign enrichment supply? What information do we have on foreign
customer preferring U.S. versus foreign supply sources?
Answer
Based on the April 1975 IEA forecast, the projected enrichment services from foreign plants in
millions of SWU are given below. The U.S.S.R. capacity under contract is also included in the
totals. The net foreign requirements from Question 2 are deducted from the total foreign capacity,
resulting in a projected excess capacity. Additional foreign capacity is then included, resulting
in a total projected excess capacity.
1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
U.K.
0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4
URENCO
--
-
0.2
0.5
0.8
1.2
1.8
2.7
4.5
7.0
10.0
10.0
10.0
10.0
Eurodif-I
-
3.1
6.5
8.4
10.8
10.8
10.8
10.8
10.8
10.8
10.8
U.S.S.R.
0.5
2.2
2.6
3.1
4.1
4.1
3.1
3.1
3.1
2.1
2.1
2.1
2.1
2.1
Subtotal
0.9 2.6 3.2 4.0 8.4 12.2 13.7 17.0 18.8 20.3 23.3 23.3 23.3 23.3
Net Foreign Requirements
1
1
3
4
6
7
7
8
9
9
12
16
19
20
Excess Capacity
--
--
2
5
7
9
10
11
11
7
4
3
Additional Foreign Capacity
Eurodif-II
--
3.0
6.5
8.5
10.0
10.0
10.0
South Africa
--
--
5.0
5.0
5.0
Japan
--
--
--
--
--
5.0
5.0
5.0
5.0
Total Excess Capacity
--
--
2
5
7
9
13
17
24
27
24
23
The foreign demand for enrichment services could increase due to lack of plutonium recycle, a
reduced enrichment plant tails assay or a growth in the foreign demand for nuclear power.
Moreover, working inventories and stockplies of enriched uranium to backup the operation of the
foreign enrichment plants are unknown; these inventories and stockpiles could add to foreign
TABC
requirements.
A domestic private enricher must compete with foreign suppliers by offering more competitive
contract terms and assured reliable supply of enrichment services. Since the U.S. technology,
particularly for the gaseous diffusion process, is well advanced and proven, it should have a
tendency for lower costs, other factors being equal. The U.S. has also been nondiscriminatory in
the treatment of all customers, which has assisted in promoting sales of U.S. enrichment services
throughout the world. A similar policy for domestic private enrichers may be assumed for the
future.
Only about 2.7 million SWU of the capacity of the URENCO plant is committed. An attractive feature
claimed by the owners of the plant is that only five years are needed to expand the capacity, so
that demand may be closely tracked. The Eurodif-I plant is fully committed. The Eurodif-II plant
has not begun to be committed; it is beginning to go through the French political process. A
domestic private enricher could affect this plant more than the URENCO or Eurodif-I plants. The
South African plant is tied to the South African supply of feed. Since feed may be in short supply
on the world market, the South African plant may penetrate the enriched uranium market. It is
unknown what further market penetration the U.S.S.R. will make.
Addendur to
Lawth
TAB F
5/28/75
(he gassie)
A "transfer of ownership" involves assumption by the USG of
the assets and liabilities of UEA and the controlling rights
of UEA's domestic equity holders. This event may be triggered
by the request of either UEA or the USG at any time prior to
the enrichment plant achieving commercial operation. In the
event of a "transfer of ownership," the following basis shall
be employed to determine the appropriate degree of payment for
USG assumption of such domestic UEA equity rights:
Fair compensation (as later defined) shall be paid by
the USG for such rights in the event, as determined
by the USG, that the proximate cause of the request
for transfer of ownership was
1. failure of warranted USG technology to operate so
as to permit the plant to achieve commercial
operation within the agreed-upon time period and
costs despite the best efforts of both UEA and
the USG.
2. failure of necessary governmental licenses to be
obtained in a timely manner so as to permit the
plant to achieve commercial operation within the
agreed-upon time period and costs despite the best
efforts of both UEA and the USG.
3. interposition by the USG for national security
reasons in the matter of contractual relationships
between UEA and previously approved customers so
2
as to prevent the service of such customers to a
degree which significantly threatens the economic
viability of the project.
4. a matter of similar character as determined by the USG.
No compensation shall be paid by the USG for such rights
in the event, as determined by the USG, that the proximate
cause of the request for transfer of ownership was
1. gross mismanagement, or arbitrary and capricious
action by UEA which significantly threatens the
economic viability of the project or the reasonable
reliability or assurance of supply to the customers,
and following failure to correct the situation upon
request by the USG.
2. a matter of similar character as determined by the USG.
In all other cases, the USG shall determine the appropriate
degree of compensation for such rights recognizing the
degree or lack thereof of UEA to reasonably foresee or
deal with the particular situation.
In any event, the preliminary determination (for fair,
modified or no compensation) shall be made by ERDA and
the basis thereof reviewed with UEA. Before becoming final,
the determination shall be submitted by ERDA to the JCAE
for a 90-day period during which Congress is in session.
3
The determination shall then become final unless, during
such period, the JCAE shall dissent from such preliminary
determination by recommending an alternative basis for
such settlements to the Congress in the form of a joint
resolution shall be affirmatively acted upon by the Congress
during the then current session of the Congress.
Schwort
OMB
THE WHITE HOUSE
WASHINGTON
May 31, 1975
MEMORANDUM FOR:
PHIL BUCHEN
JIM CONNOR
MAX FRIEDERSDORF
ALAN GREENSPAN
BOB HARTMANN
HENRY KISSINGER
JIM LYNN
JACK MARSH
BRENT SCOWCROFT
BOB SEAMANS
BILL SEIDMAN
FRANK ZARB
FROM:
JIM CANNON
SUBJECT:
DRAFT DECISION MEMORANDUM ON
URANIUM ENRICHMENT
Enclosed at Tab I is the draft of a decision memorandum
on the uranium enrichment issue. We are committed to
have the memorandum ready for the President upon his
return on Tuesday. Accordingly, would you please provide
your comments, suggested changes, and position on the
alternatives by 12 noon, Monday, June 2 so that we may
make necessary revisions and prepare the final version.
Enclosed "at Tab II are background papers which provide
information that may be useful to you in reviewing the
draft. These provide information on:
The market for enriched uranium
Status of centrifuge technology
Private industry interest in building centrifuge plants
CC: Donald Rumsfeld
DRAFT #6 5/31/75
12 noon
DECISION
MEMORANDUM FOR:
FROM:
SUBJECT:
PROVIDING ADDITIONAL U.S. URANIUM
ENRICHMENT CAPACITY
The Issue
The issue for your decision is whether to propose that the
plant to provide the next increment of U.S. uranium enrichment
capacity be:
au,s. consentium,
buy out
1. A privately-owned plant financed, built and operated
by the Uranium Enrichment Associates (UEA) / backed up
by a Federal committment to take over the plant, if
necessary and under stated conditions, prior to its
commerical operation; or
biret
2. A government-owned plant financed by ERDA withopymoniated funds.
The next increment must use diffusion technology. Future
increments are expected to use centrifuge technology.
Developments Since Your May 23rd Meeting
During your May 23rd meeting, you directed that discussions
be held immediately with the UEA and that alternatives for
a firm Administration committment by June 30 for the next
increment of enrichment capacity be presented to you for
decision by June 3. This memorandum completes those actions.
Since May 23:
UEA has submitted a substantially modified proposal for
back-up Government support for their venture which appears
thisdnd
to provide an acceptable basis for a legislative proposal
covering future increments of capacity. This proposal
(outlined below as Alternative #1) goes a long way toward
meeting the major objectives on which Zarb, Seamans, Connor, K,
and your other advisers all agree:
-especially abroad,
- An early committment to build additional capacity so
that the U.S. will be perceived as a reliable supplier
of uranium enrichment services so that the Nation can
obtain a large share of the world market and retain GERAD
leadership in the nuclear field.
FIBRARY
- 2 -
- Early private commercial involvement in the expanding
market for uranium enrichment services -- ending the
current Government monopoly.
um
- Minimized Federal budgetary impact, short and long term.
- Adequate Federal control over the export of uranium enrich-
ment services to satisfy national security and international
energy policy objectives.
There are risks connected with the new UEA proposal,
involving principally:
- The question of [Congressional acceptability by congress.
- Some uncertainty that UEA can complete the necessary
arrangements.
quatly
Some delay, compared to a government plant.
INSERT
However, the UEA proposal itself and additional steps
developed by ERDA are designed to minimize these risks.
In view of the risks, there is also presented for your
the
consideration the Alternative (#2, below) of a Government
add on diffusion plant -- which reduces the risks but which
also reduces the chances of early private enrichment or
[and
[mcreases]
minimum Federal budget impactor the
Your advisers have also agreed that:
be
- the Administration should not consider proposing that
all future enrichment capacity be in plants owned by
the Government or a Government corporation; but this
alternative needs to be kept in mind because it
undoubtedly will be considered by the Congress, and
it provides a useful baseline for evaluating the
FORD LIBRARY
two alternatives presented for your decision.
facilitate The provision
- the legislative proposal covering the next increment
private
of capacity should also provide for fellow-on increments
built by industry, probably with Federal backup arrange-
ments similar to those proposed for UEA.
- ERDA's the program to establish a competitive industry should
be intensified to assure that several firms will be
ready to build subsequent plants using centrifuge, and
should also be announced on June 30.
- the legislative proposal should also authorize increas King in
_N
the price of ERDA's government.subsidized enrichment
services to a level more nearly comparable to a commercial
rate (from current $53 per unit to approximately $75)
In any mine attly to The congress
Considerations Bearing Upon Your Decision
A number of considerations are essentially equal with respect
to either alternative and need not be considered further
- 3 -
here. These include:
- The date when the next increment of capacity must be
on line (now estimated at 1983).
- Nuclear materials safeguards (non-proliferation) in
terms of both the physical security of the plant and
continued Federal control over exports.
- Impact on the government's stockpile of enriched uranium.
- Customers for the next increment of capacity which are
expected to be predominately foreign.
- Risk of not having the next increment of capacity on
line when needed.
- Opposition from nuclear power opponents -- who may
try to prevent any new increment of capacity as
another way of slowing nuclear power (but who will be
vulnerable to the counter argument that failure to
build means dependence on foreign sources of uranium
enriched services).
- The commitment to permit foreign investment in an
enrichment plant on a non-discriminatory basis.
Alternatives
FORD is LIBRARY
The principal features of the two alternatives are:
Alt. #1. UEA would construct a free-standing 7 to 10
million unit (measured in separative work units - SWUS -
per year) diffusion plant in Alabama. Both this alternative
and Alt #2 would be followed by industry construction of
succeeding plants, using centrifuge technology, and with
backup Government arrangements similar to those now pro-
posed by UEA. Details of the alternative, including the
new UEA proposal are at Tab A.
Briefly:
- UEA intends to build the plant at a cost of $2.75 billion
(1974 dollars) with full operation attained in 1983;
sell 40% of the output to domestic utilities and 60%
to foreign organizations on long term contracts; and
finance the venture on an 85%-15% debt-equity ratio.
Investment will be 40% domestic and 60% foreign, but
which?
U.S. owners will have under law, 55% of the voting
rights.
control,
through
- The Government would sell to UEA essential components
which are produced exclusively by the Government;
- 4 in the event of initial stintyes
of suris
supply diffusion technology and warrant its operation;
and provide access to the Government stockpile of
enriched uranium to balance agains potential start-up
problems. The Government would be paid at cost for
components and technical assistance and receive a
royalty for the technology.
- UEA proposes that, prior to commercial operation, there
be available authority for the Government to buy out UEA
if the venture threatened to fail -- at the call of UEA
or the Government, and with compensation to UEA ranging
from full reimbursement to total loss of its equity
interest, depending upon circumstances leading to the threat of
potential failure.
project
- If it became necessary to buy out UEA, control of this
multinational corporation would then rest with the
Federal government, much as it would if the enterprise
had been launched as a Federal project.
To minimize the risks of delays in UEA's completion of
its organizational, financial and design steps, and b
inadequate national commi ment to new capacity in the eyes
of foreign customers (because Congress may be slow to approve
such a novel approach), ERDA proposes make:
- A letter agreement with UEA, under existing authority, to
permit UEA to proceed about July 1 with preliminary design
and with financial and other arrangments.
this
- Assurances (perhaps a Presidential statement)
to domestic
and foreign customers that orders placed with U.S. suppliers
would
would result in assured U.S. supply -- either through a
successful UEA project or through the U.S. Government necessary.
Ic
97 These steps be implemented only after consultation and
informe
ERDA exchange of letters with the Joint Committee on
Atomic Energy.
UEA
ERDA will look for additional steps that might be announced
on June 30 to help assure industry an adequate market, so
that the private centrifuge program moves ahead quickly.
follow on
Alt. #2. ERDA would construct a $1.2 billion diffusion
FORD
plant with a capacity of up to 5 million units as an add-on
to its existing 9 million unit plant at Portsmouth, Ohio.
This would be followed by private industry construction
LIBRARY
of centrifuge plants, starting with competitive proposals
from 3 or 4 firms. This alternative would involve a request
to Congress for:
- authorization and appropriations (beginning in FY 76) for
construction of the add-on diffusion plant.
similar to
- authorization for Federal Government back-up arrangments
for centrifuge plants [like] those proposed by UEA for
the diffusion plant. (This facet would parrallel the
succeeding centrifuge plant [aspects] of Alternative #1.)
please
This alternative is presented in more detail at Tab B.
- 5 -
firm
Arguments
multi
Alternative #1: (Immediate privatization)
- For
Maintains momentum built up over the past 3 years
under an Executive Branch policy committed to having
industry build the next increments of capacity.
must time
Takes the major step necessary toward achieving the
objective of a private, competitive enrichment industry;
in effect "breaks trail" for subsequent private plants.
Minimizes the Federal budget impact in the next few
years by avoiding a Government plant -- assuming
buy-out alternatives are summarized at Tab C.
Provides an adequate signal to foreign customers of
U.S. committment to be a reliable supplier, and adequate
control over exports to meet national security and
international energy goals.
Constitutes a bold step, demonstrating innovative
/
leadership. Reduces impad as U.S.cap.tal markets by securing substanted
Against
large (but
If UEA fails, the Government would end up with a useful
?
free-standing enrichment plant whereas without the
privatization attempt we would have built a smaller
add-on plant.
If buy-out were required because UEA cannot obtain
problems
necessary licenses (e.g., because of environmental or
a
7.
safety) -- an event which is considered unlikely -- it
is conceivable that the Government would choose not to
override the objections and not to proceed to operate
the plant.
Congressional approval will be more difficult to
obtain than for a government-owned plant, and will
take longer (probably by 2 to 3 months).
We will not know for another 7 months whether UEA will finally
be successful in putting its deal together (getting
foreign and domestic equity partners, deft financing
and customers) conditions
b
FORD
It may be viewed as favored treatment for one firm.
LIBRARY
Alternative #2 (Covernment lant)
abroad
- For
Better chance of early Congressional approval.
Better chance of being perceived, as, a firm U.S. commit ment
possibility
to be a reliable supplier, and at an earlier date.
Smaller diffusion plant will reduce the likelihood of
taking up some of the market that could otherwise be
available for early starts on centrifuge plants.
but.UEA's plant design and ERDA's contingency plaining
would meanute proceed.
Government invitations to industry
- 6 -
Somewhat easier to assure export controls necessary to
achieve safeguards and international energy strategies.
- Against
ing
The major step that must be taken to achieve commercial-
ization would be deferred and the policy of the past
three years reversed, leaves doubts in industry as to
whether any future attempts would be considered credible.
Loss of momentum (UEA would fold). The present oppor-
tunity for private entry would be lost.
Most obstacles and objections now being raised may
reappear when the next [opportunity] emerges. Further,
at that time, private entry will be even more difficult
for
entry
because of the need to use new technology (centrifuge).
There is no assurance that a 5 million unit diffusion
plant would be adequate to get us to the stage of
centrifuge demonstration plants, thus requiring a larger
For
government diffusion plant add-on.
benefitid
Domestic electric utilities have profited from the existing
Government monopoly. and would prefer to have it continue.
Committment now to another Government plant would
question
strengthen their hopes that the present Government
monopoly can be perpetuated.
Federal budget impact, particularly through 1981 (Details
at Tab C).
Assessment of Congressional Outlook
Tab D (to be provided Monday by the Congressional Relations Staff)
summarizes the assessment of the Congressional Relations staff of
the outlook for the alternatives. We expect it to show that
Congressional leaders in the nuclear areas are prepared to
support expansion of the nation's uranium enrichment capacity.
Whether they will support a private approach as contrasted with
a government approach is thus far unclear. What is clear is
pro-
that the major disagreement will be between the nuclear versus
the non-nuclear forces rather than the public versus private issue.
Recommendations and Decision
Alt #1. UEA proposal.
Alt #2. Government plant.
FEDERAL BUDGETARY IMPACT OF THE TWO ALTERNATIVES
ment service)
The attached table contrasts the budgetary impact of the
U
two proposals over the next 15 years. Briefly,
Under alternative #1 (UEA plant), net ERDA outlays
through 1990 would be $245 million, but ERDA would hold
resalable assets (in the form of enriched uranium) with
an acquisition cost of $300 million which would be sold
around 1990. These figures exclude revenues to the U.S.
from 1984 through 1990 in the form of:
- income tax payments by UEA of about $430 million.
- royalty payments on technology of about $140 million.
about
The contingent "buy out" feature might require $1.4
billion of contract authority (BA) initially, but the
outlay projection would be expected to be zero. (In
addition, a takeover of UEA would involve an additional
obligation for two nuclear power plants at a value of
$1.2 billion.)
buyant
Under alternative #2 (Government plant), net ERDA outlays
through FY 1990 would be about $508 million, but net ERDA
outlays would be $761 million in the short term (through
1981). (There would also be an obligation to provide for
electric power supplies for the add-on diffusion plant
which is not shown on the table.)
A The short-term (through 1981) budget impact
usened be 8 19 millin of revenues, ¿.e., negative outlays.
FORD NURARM
DRAFT #6
5/31/75
12 noon
DECISION
6mB Director scemments
MEMORANDUM FOR:
FROM:
SUBJECT:
PROVIDING ADDITIONAL U.S. URANIUM
ENRICHMENT CAPACITY
The Issue
The issue for your decision is whether to propose that the
plant to provide the next increment of U.S. uranium enrichment
capacity be:
1. A privately-owned plant financed, built and operated
by the Uranium Enrichment Associates (UEA), backed up
by a Federal committment to take over the plant, if
necessary and under stated conditions, prior to its
commerical operation; or
2. A government-owned plant financed by ERDA.
The next increment must use diffusion technology. Future
increments are expected to use centrifuge technology.
Developments Since Your May 23rd Meeting
During your May 23rd meeting, you directed that discussions
be held immediately with the UEA and that alternatives for
a firm Administration committment by June 30 for the next
increment of enrichment capacity be presented to you for
decision by June 3. This memorandum completes those actions.
Since May 23:
UEA has submitted a substantially modified proposal for
back-up Government support for their venture which appears
to provide an acceptable basis for a legislative proposal
covering future increments of capacity. This proposal
(outlined below as Alternative #1) goes a long way toward
meeting the major objectives on which Zarb, Seamans, Connor,
and your other advisers all agree:
- An early committment to build additional capacity so
that the U.S. will be perceived as a reliable supplier
of uranium enrichment services -- so that the Nation can
obtain a large share of the world market and retain
leadership in the nuclear field.
GERALD ", FORD
- 2 -
- Early private commercial involvement in the expanding
market for uranium enrichment services -- ending the
current Government monopoly.
- Minimized Federal budgetary impact, short and long term.
- Adequate Federal control over the export of uranium enrich-
ment services to satisfy national security and international
energy policy objectives.
There are risks connected with the new UEA proposal,
involving principally:
- The question of Congressional acceptability.
- Some uncertainty that UEA can complete the necessary
arrangements.
Really,
- Some delay, compared to a government plant.
However, the UEA proposal itself and additional steps
developed by ERDA are designed to minimize these risks.
except
In view of the risks, there is also presented for your
consideration the Alternative (#2, below) of a Government
complex?
for
add-on diffusion plant -- which reduces the risks but which
?
also reduces the chances of early private enrichment or
minimum Federal budget impact.
Your advisers have also agreed that:
- the Administration should not consider proposing that
all future enrichment capacity be in plants owned by
the Government or a Government corporation, but this
GERALD FORD LIBRARY
alternative needs to be kept in mind because it
undoubtedly will be considered by the Congress, and
it provides a useful baseline for evaluating the
two alternatives presented for your decision.
- the legislative proposal covering the next increment
legisl also
allow
of capacity should also provide for follow-on increments
built by industry, probably with Federal backup arrange-
ments similar to those proposed for UEA.
to
- the program to establish a competitive industry should
be intensified to assure that several firms will be
ready to build subsequent plants using centrifuge, and
should also be announced on June 30.
the
of
- the legislative proposal should also authorize increasing
the price of ERDA's government subsidized enrichment
turns part out
services to a level more nearly comparable to a commercial
rate (from current $53 per unit to approximately $75)
Considerations Bearing Upon Your Decision
UEA.
A number of considerations are essentially equal with respect
buck
to either alternative and need not be considered further
have to apell out what legist would
be sought inder each alternation
- 3 -
here. These include:
- The date when the next increment of capacity must be
on line (now estimated at 1983).
- Nuclear materials safeguards (non-proliferation) in
terms of both the physical security of the plant and
continued Federal control over exports.
- Impact on the government's stockpile of enriched uranium.
- Customers for the next increment of capacity which are
expected to be predominately foreign.
Risk of not having the next increment of capacity on
line when needed.
have
-
Opposition from nuclear power opponents -- who may
try to prevent any new increment of capacity as
another way of slowing nuclear power (but who will be
vulnerable to the counter argument that failure to
build means dependence on foreign sources of uranium
of
enriched services.
- The committment to permit foreign investment in an
enrichment plant on a non-discriminatory basis.
Alternatives
probably
LIBRARY
The principal features of the two alternatives are:
Alt. #1. UEA would construct a free-standing 7 to 10
million unit (measured in separative work units - SWU's -
per year) diffusion plant in Alabama. Both this alternative
and Alt #2 would be followed by industry construction of
succeeding plants, using centrifuge technology, and with
backup Government arrangements similar to those now pro-
posed by UEA. Details of the alternative, including the
new UEA proposal are at Tab A.
Briefly:
- UEA intends to build the plant at a cost of $2.75 billion
(1974 dollars) with full operation attained in 1983;
sell 40% of the output to domestic utilities and 60%
to foreign organizations on long term contracts; and
finance the venture on an 85%-15% debt-equity ratio.
Investment will be 40% domestic and 60% foreign but
U.S. owners will have, under law, 55% of the voting
rights.
- The Government would sell to UEA essential components
which are produced exclusively by the Government;
- 4 -
supply diffusion technology and warrant its operation;
and provide access to the Government stockpile of
enriched uranium to balance against potential start-up
problems. The Government would be paid at cost for
components and technical assistance and receive a
royalty for the technology.
- UEA proposes that, prior to commercial operation, there
be available authority for the Government to buy out UEA
if the venture threatened to fail -- at the call of UEA
or the Government, and with compensation to UEA ranging
from full reimbursement to total loss of its equity
interest, depending upon circumstances leading to the
potential failure.
- If it became necessary to buy out UEA, control of this
multinational corporation would then rest with the
Federal government, much as it would if the enterprise
had been launched as a Federal project.
To minimize the risks of delays in UEA's completion of
its organizational, financial and design steps, and
inadequate national committment to new capacity in the eyes
of foreign customers (because Congress may be slow to approve
such a novel approach), ERDA proposes:
- A letter agreement with UEA, under existing authority, to
permit UEA to proceed about July 1 with preliminary design
and with financial and other arrangments.
- Assurances (perhaps a Presidential statement) to domestic
and foreign customers that orders placed with U.S. suppliers
would result in assured U.S. supply -- either through a
successful UEA project or through the U.S. Government.
- These steps be implemented only after consultation and
ERDA exchange of letters with the Joint Committee on
Atomic Energy.
ERDA will look for additional steps that might be announced
on June 30 to help assure industry an adequate market, so
that the private centrifuge program moves ahead quickly.
Alt. #2. ERDA would construct a $1.2 billion diffusion
Usit
plant with a capacity of up to 5 million units as an add-on
to its existing 9 million unit plant at Portsmouth, Ohio.
This would be followed by private industry construction
of centrifuge plants, starting with competitive proposals
from 3 or 4 firms. This alternative would involve a request
to Congress for:
- authorization and appropriations (beginning in FY 76) for
construction of the add-on diffusion plant.
check authorization for Federal Government back-up arrangments
for centrifuge plants like those proposed by UEA for
the diffusion plant. (This facet would parrallel the
succeeding centrifuge plant aspects of Alternative #1.)
This alternative is presented in more detail at Tab B.
- 5 -
Arguments
as
Alternative #1: (Immediate privatization)
- For
Maintains momentum built up over the past 3 years
patripting
under an Executive Branch policy committed to having
industry build the next increments of capacity.
Takes the major step necessary toward achieving the
objective of a private, competitive enrichment industry;
in effect "breaks trail" for subsequent private plants.
Minimizes the Federal budget impact in the next few
years by avoiding a Government plant -- assuming
buy-out alternatives are summarized at Tab C.
Provides an adequate signal to foreign customers of
U.S. committment to be a reliable supplier, and adequate
control over exports to meet national security and
international energy goals.
Constitutes a bold step, demonstrating innovative
leadership.
- Against
Remand
If UEA fails, the Government would end up with a useful
free-standing enrichment plant whereas without the
privatization attempt we would have built a smaller
add-on plant.
If buy-out were required because UEA cannot obtain
necessary licenses (e.g., because of environmental or
safety) -- an event which is considered unlikely --- it
is conceivable that the Government would choose not to
override the objections and not to proceed to operate
the plant. What then
Congressional approval will be more difficult to
obtain than for a government-owned plant, and will
Both as
take longer (probably by 2 to 3 months)
We will not know for another 7 months whether UEA will
be successful in putting its deal together (getting
foreign and domestic equity partners, deft financing
and customers).
this rempent. in
It (mill may be viewed as favored treatment for one firm.
Alternative #2 (Government Plant)
that part of
?
the
publicly
- For
a
Better chance of early Congressional approval.
Better chance of being perceived as, a firm U.S. commi then
to be a reliable supplier, and at an earlier date.
Smaller diffusion plant will reduce the likelihood of into
taking up some of the market that could otherwise be
the
available for early starts on centrifuge plants.
(h) the there way that
or
faty equity fart could of the any be presently offined foreasen
- 6 -
Somewhat easier to assure export controls necessary to
achieve safeguards and international energy strategies.
- Against
The major step that must be taken to achieve commercial-
ization would be deferred and the policy of the past
three years reversed, leaves doubts in industry as to
whether any future attempts would be considered credible.
Loss of momentum (UEA would fold). The present oppor-
tunity for private entry would be lost.
Most obstacles and objections now being raised may
reappear when the next opportunity emerges. Further,
at that time, private entry will be even more difficult
That
because of the need to use new technology (centrifuge).
There is no assurance that a 5 million unit diffusion
plant would be adequate to get us to the stage of
centrifuge demonstration plants, thus requiring a larger
ERBA
government diffusion plant add-on.
Domestic electric utilities have profited from the existing
5m.77
Government monopoly and would prefer to have it continue.
Committment now to another Government plant would
strengthen their hopes that the present Government
monopoly can be perpetuated.
Federal budget impact, particularly through 1981 (Details
at Tab C).
Assessment of Congressional Outlook
Tab D (to be provided Monday by the Congressional Relations Staff)
summarizes the assessment of the Congressional Relations staff of
the outlook for the alternatives. We expect it to show that
Congressional leaders in the nuclear areas are prepared to
support expansion of the nation's uranium enrichment capacity.
Whether they will support a private approach as contrasted with
a government approach is thus far unclear. What is clear is
that the major disagreement will be between the nuclear versus
the non-nuclear forces rather than the public versus private issue.
Recommendations and Decision
FORD VIBRARY
Alt #1. UEA proposal.
This They is tromed frod the
Alt #2. Government plant.
inthout ble for UEA flant for to be Thousands,