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The original documents are located in Box 47, folder "1975/06/16 - Jerry Komes" 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States of America his copyrights in all of his unpublished writings in National Archives collections.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 47 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
9:30 AM Jerry Komes
URANIUM
Monday, June 16, 1975
WORK PLAN URANIUM ENRICHMENT
ASSUMING PRESIDENTIAL EVENT ON WEDNESDAY
JUNE 25, 1975
Work to
Action
Date
Responsibility
Be Done By
Begin
Congressional Briefings
Today
Friedersdorf
Congressional
Relations Staff,
Seamans, Fri, Zarb
Morton, Connor,
Schleede
Legislation
- ERDA draft-due to OMB June 17
Hills
ERDA, OMB, FEA,
- Final clearance
June 21 Lynn
Hills, AG, Connor,
NSC
Presidential Message/
Statement
- ERDA draft due to
Domestic Council
June 16 Fri
ERDA, OMB, NSC,
Hills, FEA, Connor
Domestic Council
- Domestic Council
June 18 Cannon
draft to Hartmann/
Theis
- Draft for Presidential June 21 Hartmann
Review
- Final Draft
June 24 Hartmann
Fact Sheet and Q & A
- Domestic Council draft June 16
Cavanaugh
Schleede, ERDA,
- Final Draft
June 18
Cannon
OMB, NSC, FEA,
Connor
Complete Negotiations
June 21 Fri
Fri, Hills, Jim
with Private Sector
Mitchell, Schleede
Participants
Economic Impact State-
ment
- Draft
June 18
OMB
CEA, Treasury,
- Final
June 21
Seidman
OMB, ERDA, FEA
Environmental and
June 18 Cavanaugh
EPA, ERDA, NSC,
Regulatory Evaluation
FEA, Schleede
BERALD 15. FORD LICE
Work to
Action
Date
Responsibility
Be Done By
Non-Proliferation
June 21 Scowcroft
Fri, Schleede
Evaluation
Elliott
Press Briefings
June 18 Nessen
Connor, Seamans
to 25
Fri
Briefing for Business
June 23- Baroody
Lynn, Seamans,
and Labor Groups
24
and Fri
Overall Coordination
Cannon
FOR
GERAED
Work to
Action
Date
Responsibility
Be Done By
Non-Proliferation
June 21
Scowcroft
Fri, Schleede
Evaluation
Elliott
Press Briefings
June 18
Nessen
Connor, Seamans
to 25
Fri
Briefing for Business
June 23- Baroody
Lynn, Seamans,
and Labor Groups
24
and Fri
Overall Coordination
Cannon
June 8, 1975
Draft
WORK PLAN--URANIUM ENRICHMENT BILL
AND MESSAGE TO CONGRESS JUNE 25 (?) TO JUNE 30
Fill
Copies
White House
Assignment
Responsibility
Work to be Done By
Due
Legislation
Hills
ERDA, FEA, OMB, NSC,
1st draft: 6/13?
Attorney Gen., Connor
Final due:
Message
Hartmann
ERDA, FEA, OMB, NSC,
1st draft:
Connor, Dom. Council
Final due:
Opening
Scowcroft
State, ERDA, FEA,
1st draft: 6/13?
Order Book
Buchen, DOJ, EPA
Final due:
Congressional
Friedersdorf
WH Liaison staff,
Begin informal contacts:
contacts
ERDA, FEA, Connor,
6/11?
Schleede
JAEC/WH:
Appropriations:
Other:
Press
Nessen
Press staff
(Schedule from
Nessen)
Economic
Seidman
DOC, Treas., OMB,
1st draft: 6/13?
evaluation
ERDA, FEA
Final: 6/19?
Environmental
Dunham
EPA, ERDA, FEA, CEA,
1st draft: 6/13?
& regulatory
NRC, Connor
Final: 6/19?
evaluation
Private
Connor (?)
ERDA, Commerce
Begin: 6/11?
sector contacts
Complete: 6/18?
(UEA, other
interested investors)
General business
Baroody
Lynn, Connor, others
Begin: 6/17?
& labor groups
Continuing
Overall
coordination
Cannon
THE WHITE HOUSE
DECISION
WASHINGTON
MEMORANDUM FOR:
THE PRESIDENT
FROM:
JIM CANNON June
SUBJECT:
PROVIDING ADDITIONAL U.S.
URANIUM ENRICHMENT CAPACITY
The Issue
The narrow issue for your decision is whether to propose that
the plant to provide the next increment of U.S. uranium enrich-
ment capacity be:
1. A privately-owned diffusion plant financed, built
and operated by a consortium, backed up by a
Federal commitment to assume assets and liabilities
of the project, if necessary and under stated
conditions, prior to its commercial operation; or
2. A Government-owned diffusion plant added on to an
existing ERDA plant.
In deciding this issue, you are also making broader determinations:
Whether the emphasis on future U.S. production of
enriched uranium will be by private enterprise,
or by the Federal government.
Whether, and how, the United States will maintain
its leadership as the free world's supplier of
enriched uranium.
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 commitment by June 30 for the next
increment of enrichment capacity be presented to you for
decision. This memorandum completes those actions.
2
UEA has submitted a substantially modified proposal
for back-up Government support for their venture which
provides a considerably improved basis for a legislative
proposal covering this and future increments of capacity.
This proposal (outlined below as Alternative #1) is
generally responsive to the major objectives on which
Zarb, Seamans, Connor and your other advisers all agree:
- An early commitment 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 retain a large share of the world
market and leadership in the nuclear field.
- Early private commercial involvement in the expanding
market for uranium enrichment services -- ending the
current Government monopoly.
- Minimum Federal budgetary impact, short and long term.
- Adequate Federal control over the export of uranium
enrichment services to satisfy national security and
international energy policy objectives.
The new UEA proposal is novel and making it work will require
care in presentation, effort in selling, and close oversight
by the Government as it proceeds. The risks connected with
it are:
- The question of acceptability to Congress.
- Some uncertainty that UEA can complete all the
necessary arrangements, to make it a going concern.
- Some Congressional delay, compared to a Government
plant.
However, the UEA proposal itself and the additional steps
developed by ERDA would minimize these risks.
In view of the risks, there is also presented for your
consideration the alternative (#2 below) of a Government
add-on diffusion plant -- which reduces the risks but which
also eliminates the chance of immediate private enrichment
and increases the Federal budget impact. Preparations for
this approach have been underway in ERDA for some time and
can be continued as a contingency measure.
3
Your advisers have also agreed that:
- The Administration should not consider proposing
that all future enrichment capacity be provided
by the Government or a Government corporation
because we must avoid perpetuating a Government
monopoly. However, this alternative needs to be
kept in mind because it undoubtedly will be con-
sidered 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
of capacity should also cover future follow-on
increments built by industry, probably with Federal
backup arrangements similar to those proposed for
UEA. The legislation must not be applicable solely
to UEA.
- ERDA's program to establish a competitive industry
should be intensified to assure that several private
firms will be ready to build subsequent plants using
centrifuge technology, and should also be announced
on June 30. (ERDA proposes to move promptly under
either alternative on this follow-on activity.)
- A legislative proposal authorizing an increase in 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) should be sent immediately to the
Congress.
The alternatives have been discussed with selected members
of Congress (Brief report on reactions at Tab A).
Considerations Bearing Upon Both Alternatives:
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), and the likelihood
that the capacity will be ready when needed.
- Nuclear materials safeguards (non-proliferation) in
terms of both the physical security of the plant and
continued Federal control over exports.
4
- Impact on the Government's stockpile of enriched
uranium.
- Customers for the next increment of capacity which
are expected to be predominately foreign.
- 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 ability to accommodate foreign investment in an
enrichment plant on a non-discriminatory basis.
Alternatives
The principal features of the two alternatives are described
below. Budgetary impacts are summarized at Tab B and a
comparative timetable for the two alternatives is provided
at Tab C.
Alt. #1. UEA would construct a free-standing 9 million
unit diffusion plant in Alabama. Both this alternative
and Alt. #2 would be followed by industry construction
of succeeding plants, probably using centrifuge technol-
logy, and with backup Government arrangements similar
to those now proposed by UEA. Details of the alternative,
including the new UEA proposal are at Tab D.
Briefly:
- UEA intends to build the plant at a cost of $3.5
billion in 1976 dollars ($2.75 billion in 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 control through
55% of the voting rights.
- The Government would sell to UEA essential components
which are produced exclusively by the Government;
supply information on diffusion technology and warrant
its operation; and agree to buy from or sell to UEA
enriched uranium from the U.S. Government stockpile
5
to accommodate a start up date earlier or later than
planned. 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 through new legislation
for the Government to assume assets and liabilities
of the project 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 failure.
- If it became necessary to assume assets and liabilities,
control of the multinational project would then rest
with the Federal Government, much as it would if the
enterprise had been launched as a Federal project.
ERDA has proposed several steps to minimize the risks of
delays in UEA's completion of its organizational,
financial and design steps, and help assure that a
national commitment to new capacity is perceived by
potential 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 arrangements.
- 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
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
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:
6
-
authorization and appropriations (beginning in FY 76)
for construction of the add-on diffusion plant.
- authorization for Government back-up arrangements
for centrifuge plants similar to those proposed by
UEA for the diffusion plant. (This facet would
parallel the succeeding centifuge plant aspects
of Alternative #1.)
This alternative is presented in more detail at Tab E.
Arguments
Alternative #1: (Immediate privatization)
- For
Explicitly maintains momentum built up over the
past 3 years 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, multi-firm 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 takeover proves unnecessary. Budgetary
impacts of the two alternatives are summarized
at Tab B.
Provides an adequate signal to foreign customers
of U.S. commitment 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 and shows the Administration's intent
of relying on private industry rather than Government
for the large capital investments that will be
needed for U.S. energy independence.
- Against
If UEA fails, the Government would end up with a
free-standing plant that is larger and more
expensive than the add-on plant that we would
start out with under the Government plant
alternative.
Congressional approval will be more difficult
to obtain than for a Government-owned plant,
and will take longer (probably by at least 2
to 3 months)
7
We will not know for another 7 to 10 months
whether UEA will be successful in putting its
deal together (getting foreign and domestic
equity partners, debt financing and customers)
UEA does not yet have an assured power supply
and plans to use nuclear plants which may face
uncertainty and delay.
It will be viewed as favored treatment for one
firm.
UEA equity investor risks are minimal because:
- little or no competition in short term;
- return on investment guaranteed by cost-plus
contracts with customers, and
- limited incentives to construct and operate
the plant more efficiently than planned
UEA would have to obtain licenses that the
Government would not have to obtain. If buy-out
were required because UEA cannot obtain necessary
licenses (e.g., because of environmental or
safety problems) -- an event considered unlikely --
it is conceivable that the Government would choose
not to override the objections and not proceed to
operate the plant.
Alternative #2 (Government Plant)
- For
Better chance of early Congressional approval.
Better chance of being perceived abroad as a
firm U.S. commitment to be a reliable supplier,
and at an earlier date.
Smaller diffusion plant will reduce the likelihood
of capturing part of the market that would other-
wise be available for early starts on centrifuge
plants.
Slightly easier to assure export controls necessary
to achieve safeguards and international energy
strategies.
-
Against
The major step that must be taken to achieve
commercialization would be deferred and the
policy of the past three years reversed, leaving
doubt in industry as to whether any future
Government attempts to privatize should be
considered credible.
8
Loss of momentum (UEA would fold) The opportunity
for immediate private entry would be lost.
Most obstacles and objections now being raised may
reappear when the follow-on opportunity. Further,
at that time, private entry will be even more difficult
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. If centrifuge
commercialization is less successful than hoped, a
larger Government plant would be needed.
Domestic electric utilities have benefited from the
existing Government monopoly. Commitment now to
another Government plant would strengthen their hopes
that the present Government monopoly can be perpetuated.
Certain to have a significant Federal budget impact,
particularly through 1981 (details at Tab B).
Difficulties are expected in getting clean fuel and
meeting environmental standards for the fossil fueled
power supply needed for the Government plant.
Recommendations and Decision
Alternative #1. Immediate Privatization.
Connor
Friedersdorf
Greenspan
Hartmann
Lynn
Marsh
Seidman
Zarb
Alternative #2. Government plant.
Buchen
Kissinger (views at Tab F)
Seamans (views at Tab G)
TAB A
TAB A
CONGRESSIONAL OUTLOOK
Members of the House and Senate are, for the most part,
not familiar with the complex issues involved in the
expansion of uranium enrichment facilities, thus reaction
is mixed at this point.
A great deal of briefings and consultation should be under-
taken before an Administration proposal is sent to the
Hill.
There may be considerable opposition to any expansion of
facilities -- partly because of environmental concerns,
partly because of the fear of any proliferation of material
that might be converted into nuclear explosives.
But members who are well informed about the importance of
uranium enrichment facilities believe that production
should be expanded as quickly as possible.
Here are comments from individual members:
Senator Baker indicated that he preferred building a
Government enrichment plant now, essentially for reasons
of speed. He said, however, that he would keep an open
mind on the private approach and if the President chooses
that option, he would review the details without prejudice.
He indicated that expansion of a consortium may face some
difficulties in the Joint Committee.
Congressman McCormack indicated that he could go along
with the private approach, but that there were several
caveats he wished to make. First, he suggested that some
time down the road there might be a demand for national-
ization of the entire nuclear fuel cycle. Second, he thought
that it might be desirable to explore going ahead with both
the UEA option and the building of additional Government
capacities at Portsmouth. When it was pointed out that this
might slow down the development of centrifuge technology, he
indicated that perhaps it might not be necessary to do both,
but still we ought to think about it.
Congressman Rhodes strongly supports the private Option,
and felt that privatization would not be achieved unless it
were achieved now.
Senator Pastore feels that the only way to proceed expeditiously
is to undertake some form of federal funding. "If you go
with private contracts, you face another Comsat filibuster
by starry-eyed members of the Senate who will rip any private
contract to shreds." Pastore suggests an informal meeting
with members of the Joint Committee on Atomic Energy so
they can sit around in private and let their hair down on
the issue.
Senator Tower said we should develop our increase in
production under private auspices, perhaps with some form
of federal incentives.
Senator McClure would rather see the undertaking exclusively
private, but the reality of situation is that private sector
will not be able to come up with the tremendous investment
required. Accordingly, he would support a combined funding
by private sources, to the extent possible, and federal back-
up to get the operation started.
Senator Fannin said we should push our efforts as strongly
as possible in the private sector.
Senator Hugh Scott leans toward combination of private
enterprise plus government.
Senator Curtis leans to private enterprise method for
production.
Congressman Cederberg said the government should have
some hand in production.
Congressman Price said he will talk with Chet Holifield
and Craig Hosmer
they're the experts. Would not mind
private control. Quasi-government control while business
is being nursed into it. Must move immediately but business
needs to be eased into the responsibility.
Congressman Bud Brown is inclined to go with private sector
approach.
Congressman Conable agrees with acceleration of production.
To meet capital requirements, the approach must be quasi-
government easing toward private sector control.
Senator Abourezk said that development is at the bottom
of his priorities because of waste disposal. He is very
concerned about the environment, and does not favor exports.
If there is an expanded program, he wants strong governmental
control (ostensibly for national security reasons).
Senator Bartlett is in favor of expansion, and private sector
development.
Senator Bumpers is cautious about nuclear power development
and concerned about current safeguards. He probably would
not oppose export to non-proliferation treaty signers.
Senator Church is quite favorable to development, perhaps
because of provincial Idaho interest. His prime concerns
are facility safety and waste disposal. His attitude is
not clear on exports, but the Senator has expressed worry
about shipments to the Near East. His feelings are mixed
on sponsorship. If Government controls, he does not want
to give public utilities free fuel.
Senator Glenn said he has not given the matter enough
serious study for hard answers. However, he is concerned
about exports, and would most likely be for quasi-govern-
mental operation and against private.
Senator Hansen is very favorable. He is concerned about
exports because of need to fill domestic needs. He is
alert to balance of payment problems. Even though he is
normally completely pro private sector, because of control
necessities, he would tend toward quasi-governmental opera-
tion.
Senator Hatfield feels we should not add new foreign agree-
ments (in addition to present ones). He does feel we should
beef up our domestic capacity. He gave no firm response on
sponsorship but does feel certain that Government will have
to take the first step.
Senator Johnston felt it was strictly a private sector on
fossil fuels, but is also concerned about safety problems.
Senator Stone wants more nuclear generation. He would be in
sympathy, but has safety concerns.
Senator Metcalf is negative. He is concerned with the whole
nuclear program and fears a monopoly like oil. His big worry
is on safety. No to exports. He sees no need to answer
questions on whom should run the program because there
should not be a program. He wants concentration on "clean"
energy production: geothermal, solar, wind, etc. He says
it is a crying shame that Interior and ERDA have not pushed
oil recycling.
Congressman Udall would probably favor private development
with Government regulation.
Congressman Roncalio favors expanded uranium enrichment.
He would probably like to see a mix between public and
private development.
Congressman Steelman is undergoing a learning process and
wants to remain open and uncommitted. He probably would
favor expansion and private development with Government
regulation.
Congressman Skubitz leans toward anti-nuclear development
ever since the AEC tried to store nuclear waste in Kansas.
He feels that ERDA is controlled by the same type of people
who used to run AEC.
Congressman Symms would favor private development.
Congressman Miller (D-Calif.) seems to favor nuclear
development and would support public development more
than private.
TAB B
TAB B
FEDERAL BUDGETARY IMPACT OF THE TWO ALTERNATIVES
SUMMARY
During the period through 1981:
Alternative #1 (UEA plant) would likely cost the
Government essentially nothing. The contingent require-
ment to assume UEA assets and liabilities may require
about $1.4 billion of contract authority (BA) initially
but the outlays would be expected to be zero.
Alternative #2 (Government plant) would involve about
$761 million in net outlays.
For the period through 1990 (about 8 years of operation) :
Alternative #1 could involve:
- $300 million in outlays to purchase resalable uranium
enrichment services from UEA for the Government stock-
pile which would be sold off about 1990.
- revenues of about $570 million from royalty payments
($140 million) and UEA income tax payments ($430 million)
during the period from 1984 through 1990.
Alternative #2 would involve outlays of about $508 million.
Regardless of the alternative selected, the Federal Government
will continue to receive considerable revenues from uranium
enrichment services carried on in the 3 existing plants.
These revenues will be increased if Congress approves the
commercial charge legislation which is now being readied for
transmittal. These revenues can be viewed as offsetting the
cost of another Government plant or simply as additional
Federal income.
The attached table shows the obligations, outlays and revenues
by year through 1990 for the two alternatives and the revenues
from the existing plants, assuming approval of the commercial
charge legislation.
The table does not include:
- The expected revenues that would be received from income
taxes and royalties under Alternative #1.
- The requirements for electrical power which:
under alternative #1, could involve an additional
Government obligation for assumption of UEA long-term
purchase agreements for power from 2 nuclear plants
servicing UEA - if acquisition of UEA assets and
liabilities became necessary, but power is resalable.
under alternative #2, the cost of power for the add-on
plant.
June 2, 1975
Comparative Analysis of Budgetary Impact on ERDA of Uranium Enrichment Capacity Expansion Alternatives
(in millions of FY 1976 dollars)
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
1976
TO
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
Total
A. Alternative 1 (ERDA assistance to the 9 million SWU venture, estimated by UEA to cost $3.5 billion)
Obligations
1. Performance
assurance,
net of revenues
33
-3
-14
-20
-4
-8
-8
-31
-55
2. Stockpile backup
load leveling
2/3/
60
60
60
60
60
300
3. Government buyout
(contingent)
See footnote 4 below
Total
-3
-14
-20
Y
-8
-8
-31
60
60
60
60
60
245
Outlays
1. Performance
assurance,
net of revenues
-1
0
-1
-2
m4
-8
-8
-31
-55
2. Stockpile backup
Lond leveling
/
60
60
60
60
60
300
3. Government buyout
(contingent)
See footnote 4 below
Total
-1
0
-1
-2
-4
-8
-8
-31
60
60
60
60
60
245
B. Alternative 2 (Construction and operation of add-on 5 million SWU diffusion plant by ERDA, at estimated capital cost of nt least $1.2 billion)
Obligations
16
21.
109
169
269
209
247
165
158
160
150
150
150
1.50
150
150
2,503
Outlays
15
6
34
79
229
294
313
247
191
195
150
150
150
150
150
150
2,503
Revenues
-15
-50
-70
-55
-19
-161
-374
-253
-265
-400
-333
-
1,995
Net outlays
15
6
19
29
159
239
294
247
191
195
-11
-224
-103
-11.5
-250
-183
508
C. Not revenues (-) from 3
existing MRDA plants
/
(for reference only)
164
139
294
-41
-436
-820
-1,107
-1,222
-743
-1,053
-1,137
-1,053
-660
-990
-1,013
-984
-10,662-
2
Footnotes
Note:
a. All figures assume "most likely" case, rather than minimum or maximum estimates.
b. Follow-on increments of capacity in either alternative are expected to be provided by private
industry (using centrifuge technology), with Government assistance (at least for the first few
plants). The cost of such an assistance program is not yet known but would be essentially the
same under both alternatives. However, such an assistance program might well occur a little
later under Alt. 1.
1/ Includes about $800 million for certain business costs which would not be incurred in Alternative 2.
2/ Government costs would be recoverable through sale of these excess SWUs, probably in the late 1980's
or beyond.
Assumes excess uranium feed (yellow cake) available from ERDA stocks. If such feed must instead
be purchased by ERDA at $30/1b. U3O8, an additional $500 million would be required. Furthermore,
potential maximum obligation proposed by UEA could cost the Government $1.2 billion.
4/ Covers contingent buy-out of domestic share of UEA project by ERDA. Assuming UEA project cost of
$3.5 billion (1976 dollars), this feature could cost the Government up to 40% of $3.5 billion, or
$1.4 billion for domestic debt and equity. If the Government should be obligated only to buy
domestic equity (15% of the domestic share), this feature would cost the Government up to $210
million. It would probably be necessary to seek BA initially unless Congress were willing to
approve, and UEA were willing to accept, authorization of appropriation of "such amounts as may
be necessary" when and if contingency arises. In any event, the "most likely" outlay projection
would be zero.
Assumes commercial-type charge for enrichment services and maintaining current contract schedules.
TAB C
TAB C
COMPARATIVE TIMETABLE - ALTERNATIVES #1 AND #2
Alt #1
Alt #2
UEA - Private
Government
Plant
Add-On Plant
Conceptual design began
Jan 74
June 74
Presidential meeting on
alternatives
June 5, 75
June 5, 75
Consultations, Legislation,
message preparation,
briefings, etc.
June 5-25, 75
June 5-25, 75
Presidential message
transmitting legislation
June 30, 75
June 30, 75
U.S. intent to reopen order
book clearly established
June 30, 75
June 30, 75
Sign first letter agreement
July 5, 75
na
Congressional approval
Nov 75
Sept 75
Second letter agreement with
UEA covering procurement and
backup support
Dec 75
na
Obtains commitment to supply
electric power
Dec 75
Mar 76
UEA has equity partners and
foreign and domestic customers
and financing - UEA ready to go
Mar 76
na
UEA files first part (environ-
mental report) of construction
permit application with NRC
Jul 76
na
ERDA files draft environmental
impact statement
na
Mar 76*
Complete UEA-Government agreement Jul 76
na
Site preparation begins
Jul 77
Mar 77
Production begins
Jul 81
Apr 83
Full production achieved
Jul 83
Jan 84
*
Environmental import statement may be necessary
before order book can be opened.
TAB D
TAB D
SUMMARY: Working Paper re Uranium Enrichment Associates
UEA intends to:
1.
Build as a private enterprise venture a 9 million SWU uranium
enrichment facility in Alabama, estimated to cost $2, 750, 000, 000
in 1974 dollars with full operation to be attained in 1983. Within
reasonable limits the actual plant size will be determined by the
market.
2. Sell to domestic utilities (40% of the output) and to foreign
organizations (60% of the output) on long-term (25 year)
contracts, at a price sufficient to pay all costs and provide
an appropriate return to the investors.
3.
Finance the 40% domestic capacity from normal commercial
sources in US on an 85% debt - 15% equity ratio, Finance the
60% foreign sources on the credit of the foreign coustomers and
with the same debt equity ratio.
USG has been requested to:
1. Supply, at cost, essential mechanical components, presently
produced exclusively by USG.
2.
Supply USG's diffusion technology and warrant its satisfactory
operation.
3. Provide during first years of operation limited access to and
from USG's stockpile of enriched material to balance significant
start-up loading problems.
UEA proposes that:
1. Prior to commercial operation a standby USG financial backup
lasting for the critical construction period plus one year is
proposed to offset the current weak credit position of the U.S.
utility industry and give confidence to commercial lenders.
UEA may require USG to provide such financial backup if UEA
cannot complete the plant or bring it into commercial operation,
but such a call is at the risk of loss to UEA of its equity interest.
USG at such call of UEA, has the right to acquire UEA's domestic
equity position and the obligation to assume UEA's liabilities and
debt.
2.
USG may also require UEA to release the project to USG if the
government's interest demands and thereby will be obligated to
assume UEA's liabilities and debt.
3.
The consideration for acquisition of UEA's domestic equity
position in either case can range from loss of equity for
uncorrected gross mismanagement of UEA to full fair
compensation for causative outside UEA's reasonable
control.
USG will have appropriate rights to approve certain matters to be agreed upon.
-2-
URANIUM
ENRICHMENT
ASSOCIATES
Address Replies to:
50 Beale Street
San Francisco, CA 9410
May 30, 1975
Dr. Robert C. Seamans, Jr.
Administrator
Energy Research & Development Agency
Washington, D. C. 20545
Dear Bob:
Uranium Enrichment Associates has for two years been
engaged in developing a privately financed, owned and operated
uranium enrichment venture in response to the Government's
invitation to do SO, During that period, a great deal of work
has been done and many tentative agreements have been reached.
In the attached paper entitled "Working Paper Re Uranium
Enrichment Associates" dated May 30, 1975 and in meetings
conducted with the USG inter-agency group during the week, we
have summarized our present situation and proposed a program
of Government contingency back-up to the credit worthiness of
United States utilities which we believe will enable us to success-
fully proceed with this undertaking.
The actions proposed anticipate no expenditure of Government
funds unless our project cannot be completed in the private
sector, an eventuality we believe most unlikely. If our project
cannot be so completed, provision is made for Government
possession and ownership of the facility and other assets, so
that the national objective of providing enrichment capacity will
be preserved. We believe the actions proposed for the Govern-
ment will lead to provision of the next increment of enrichment
capacity at the lowest possible involvement and cost to the Govern-
ment and in a manner most consistent with national policy; and we,
therefore, most urgently solicit early favorable decision.
To permit the project to proceed as expeditiously as possible
under the general principles outlined in the attached paper, we
urge that, in the event the Government favorably considers these
May 30, 1975
Page Two
proposals, such action be confirmed in the form of a brief
interim agreement to be effective while more definitive
agreements are negotiated.
We are most anxious to bring other equity participants
into the project, to advance negotiations with the customers
who have shown interest and to move on all other of the
complex management, financial and marketing undertakings
necessary to assure completion of the venture,
We assure you of the interest and dedication of our parent
organizations to UEA and to private enterprise and to this
project; although in the limited time available and in view of
the uncertainties of the Government's position, we have not yet
obtained formal approval of the Boards of the participating
companies to this specific proposal.
We stand ready to follow-up on this matter in any way
we can and will be available to discuss the matter further at.
your convenience.
Very truly yours,
J.a. Komes June
R. Rojay A. Jay
Attachments
(Working Paper)
(Summary)
May 3U, 1975
WORKING PAPER RE URANIUM ENRICHMENT ASSOCIATES
Uranium Enrichment Associates (UEA) has been formed in response
to the expressed policy of the United States Government (USG) to develop
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 organizations who require enrichment services. Recent
months, however, have demonstrated that the credit of U. S. utilities has
deteriorated. To give confidence to investors, back-up assurances will
be required from the United States Government. Such assurances would 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 been optioned.
A plant of 9 million SWU per year capacity is planned. Within reasonable
limits the actual plant size will be determined by the market. 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 expected to be supplied from a dedicated nuclear power
facility, to be financed differently.
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
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 its 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. 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 enrich-
ment plant. Such capital investments will include equity and debt and must
be provided by the customer from its own sources of capital and the obligation
of repayment rests with the customer. Prospective foreign customers
understand these conditions and also understand 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 acceptable
to USG. U.S. debt financing during the construction period will be by interim
FORD
GERALD
LIBRARY
SECOND, events involving:
A.
Gross mismanagement by UEA;
B.
Wilful misconduct by UEA; or
C.
Gross negligence by UEA,
which significantly threatens satisfactory completion 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 the rights of UEA's equity holders.
THIRD, events which do not fall within the first two
categories. In such an event, appropriate compensation, if
any, would be determined utilizing agreed formulas for the
recognition of UEA's compliance with its commitments, the
efforts of UEA and the degree of fault, if any, in foreseeing
and dealing with the particular situation. The preliminary
determination of compensation shall be made by USG and the
basis thereof reviewed with UEA.
As noted, UEA's domestic financing obligations would be
assumed by USG in the event of a transfer of ownership, which
UEA understands will invoke the full faith and credit of the
United States. UEA intends to assure 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. UEA will continue to advise prospective foreign customers
that their participation in UEA, either as an investor or client for enriching
services, would be subject to U.S. laws, regulations and licenses. 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 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.
FORD 97833 LIBRAR
any. reason, to physically complete the plant or otherwise bring
it into commercial operation, as agreed, despite its best efforts;
or USG in its opinion 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 has achieved full-scale steady commercial
operation.
The consideration to be paid by USG for the acquisition of
the rights of the domestic holders of UEA's 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 as listed below. In such cases UEA's
domestic equity holders would be entitled to full compensation,
that is, return of their original investment and additional
compensation, as determined by USG, to reflect the results
achieved to the date of transfer.
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.
Failure of governmental licenses to be obtained
in a timely manner or the application of law or
regulation so as to 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 of contractual relationships between
UEA and previously approved customers to a degree
which significantly threatens the economic viability
of the project.
D.
The inability of UEA ,because of lack of customer credit
worthiness, to raise capital for construction or long-
term financing despite reasonable efforts of UEA to do so,
E.
Such other events as may be mutually agreed upon.
FORD is 033410 LIBRARY
-4-
2.
Access to USG's stockpile of enriched material: 9 million
SWU equivalent to be available from USG stockpile for lease
or sale to UEA during start-up period to cushion against
delays or interruption of plant operation and to assist UEA
in matching capacity with orders during the first few years; and
a commitment that USG will purchase from UEA enriching
service up to 6 million SWU during the first 5 years of UEA
operation, to balance over-capacity due to scheduling of first
core loadings or other significant factors which affect the
reasonable balance of production capacity and the then current
demand. The quantity of USG material held in stockpile for
UEA would be decreased annually after start-up of the UEA
plant, so that after 5 years of operation no further requirement
would exist.
Specific provisions defining the conditions under which
material would be furnished from or to the USG stockpile as well
as repayment arrangements, if any, prices, terms and other
conditions will be negotiated on a mutually acceptable basis.
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 because of a breach
of USG's warranty. Such obligation shall continue until one year
after demonstration of full-scale steady commercial operation.
4.
An undertaking by USG to provide back-up support with respect
to the financing of the plant and the obligations to complete and
operate the plant which is anticipated to be through a "transfer
of ownership" from UEA to USG, as outlined below.
This undertaking 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
the opportunity to recover their investment if the project can not
reasonably be brought into commercial operation.
"Transfer of ownership" would be the acquisition by USG
of the owners' rights of the domestic holders of UEA equity and
the control of UEA. USG will also thereby assume the liabilities
and obligations, including responsibilities for repayment of
the domestic debt, of UEA. Either UEA or USG could require
a transfer of ownership; UEA, if in its opinion it were unable, for
-3-
GERALD FORD LIBRARY
loans from commercial banks with final take-out financing from the U.S.
commercial bond market. The security for long-term debt will be the firm
contracts from the purchasers of the enrichment services.
UEA proposes to use all reasonable commercial back-up arrangements
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 a limit
of $100 million 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 and collected
from U.S. customers will ultimately serve to offset their 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,
financing, operating, and maintaining the project, including provision for
an after tax return on equity computed at 15% of initial equity investment with
such adjustment as may be necessary to attract quality equity participants.
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, certain government assurances are reasonable to support
the transition to private industry. UEA, therefore, requests the following
assurances:
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;
LISERAY BERALD R. FORD
2
In recognition of USG interests and because of the USG support of
the financial position of the project, UEA will arrange to have its pro-
cedures, 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. UEA will also obtain USG approval
of actions and agreements to be undertaken by UEA which could significantly
affect the interests of USG. UEA and USG will define the types of such
actions and agreements and specify them to the extent possible.
LIBRARY GERALD FORD
6
TAB E
TAB E
Description of the Government Plant Alternative (#2)
Alternative 2 is similar to Alternative 1 insofar as the
development of private centrifuge enriching capacity is
concerned; it differs only in the method of providing
the needed early increment of Government diffusion capacity.
Under Alternative 2 the Government would proceed promptly
to undertake the construction of an add-on increment of
capacity to the existing ERDA plant at Portsmouth, Ohio.
While the increment would be sized nominally at 5 million-
separative work units per year, the firming (within the next
year or so) of future demand, and of plans of private centri-
fuge enrichers to supply enriching services, would permit
some adjustment of this capacity target before major construc-
tion had begun. The add-on plant would be scheduled for completion
by about 1983 assuming project authorization and initial funding
in FY 1976. The add-on increment would be designed to be an
integral part of the entire Government enriching complex; it
could not operate independently to produce a nuclear power
reactor grade product. Because of this it would utilize a
single size of equipment, thus have a lower per SWU capital
cost than would a "full gradient" plant. The total cost of
the add-on plant is projected to be $1.2 billion in 1976 dollars.
Under Alternative 2, just as under Alternative 1, ERDA would
launch concurrently an intensified program to assure that
several firms will be ready to build subsequent private plants
using the new centrifuge technology. The private centrifuge
program envisages early ERDA issuance of a Request for
Proposals (RFP) from the private sector to achieve several
centrifuge projects in the 2-3 million SWU/year range in the
mid-1980's. While such projects would likely commence with
smaller modules, perhaps a tenth that size, the program would
contemplate the smooth expansion of these projects to achieve
the capacity at which further expansion could occur without
Government assistance and in response to the need of the
marketplace. Response to the RFP would be expected to identify
the Government assistance required. This is likely to include
similar provisions to those requested by UEA under Alternative 1
and would therefore require appropriate authorizing legislation.
A period of negotiation with individual proposers is anticipated
leading to firm contractual commitments to the program by
several companies before the end of FY 1976.
Alternative 2 would achieve the objective of early resumption
of firm U.S. contracting by ERDA promptly seeking (a) amendment
by the Joint Committee on Atomic Energy of the criteria upon
which it is now permitted to contract, and (b) formal Congress-
ional authorization of and appropriations for the add-on
project. Then firm contracting could resume.
- 2 -
Alternative 2, like Alternative 1, also contemplates the
prompt request to the Congress for authority to charge for
Government enriching services on a more nearly commercial
basis. While this is justifiable in its own right, it has
a corollary benefit with respect to stimulation of private
enrichment projects and the willingness of utility customers
to negotiate with private enrichers.
H TAB
TAB F
MEMORANDUM
3784
THE WHITE HOUSE
WASHINGTON
June 2, 1975
MEMORANDUM FOR:
JIM CANNON
FROM:
HENRY A. KISSINGER
SUBJECT:
Views for the Uranium Enrichment Paper
The following are views that I would like to have incorporated in the
decision paper on uranium enrichment.
It is difficult to overstate the decline, during the last year, in the foreign
perception of the U.S. as the world's reliable supplier of nuclear fuel. We
have moved from a position of nearly absolute leadership to one where our
credibility is questioned in virtually every country pursuing the nuclear
energy option. Not only are we losing significant nuclear trade, but the
leverage that our nuclear position afforded us in achieving other energy
objectives, and in guiding non-proliferation efforts, has been weakened.
This decline has resulted largely from our actions of closing the order
book for enriched uranium a year ago, failing to take concrete steps to expand
our enrichment capacity, and offering "conditional" enrichment contracts
to some forty foreign customers, only to have the basis for firming up these
contracts postponed for several years by regulatory action.
To rectify this state of affairs, it is imperative that we take immediate
actions to allow firm U.S. enrichment contracts to be granted. In my view,
this requires a commitment now to an add-on plant to the present government
facilities. The other course of trying to establish UEA is far less certain
of success, given the possibility of (1) Congressional disapproval after
protracted debate, (2) failure of UEA after another year of marketing to
obtain the customer commitment (presale of 80% of the output for 25-years)
it requires before undertaking plant construction, or (3) intervention by
environmentalist to block construction of a large new plant at a new site.
These risks are not worth the limited potential gain of setting up a private
enrichment company that is basically in a monopoly position. It seems
better to deal forthrightly with our immediate problem of credibility by
building the last gaseous diffusion plant as a government add-on, and looking
to the several centrifuge companies to establish a competitive enrichment
industry.
2
If you decide, however, to support the UEA approach, it is vital that
as a first order of business we seek Congressional authority to guarantee
the enrichment contracts that UEA negotiates. In the event of UEA
failure to undertake plant construction, the government would then stand
behind the contracts by building and supplying from a new facility.
TAB G
TAB G
DEVEL
UNITED STATES
GREAT ADMINISTRATION ADMINISTRAT
ENERGY RESEARCH AND DEVELOPMENT ADMINISTRATION
WASHINGTON, D.C. 20545
USA
June 3, 1975
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
I have believed, from the beginning, that our essential
national objectives for expanding U.S. enrichment capacity are
to:
1. Get the U.S. order book open in a convincing way
so as to maintain the U.S. leadership position in
world supply, and to support growth of the utility
industry in this country.
2. Establish a competitive private enrichment industry.
3. Commercialize our most competitive technology,
centrifuge enrichment, at the earliest date.
I continue to believe that option #2 (minimum government
gaseous diffusion plant and active pursuit of centrifuge
commercialization) is the surest and most direct way to achieve
our central objectives. Option #1 (UEA gaseous diffusion plant
and centrifuge commercialization) is less sure of success because
it requires more coordinated effort to implement and it presents
more risk of Congressional rejection. In paying this price, option
#1 provides two benefits:
1. Commercialization of the next increment of capacity.
However, I believe putting a sole source into an
old technology may draw criticism.
2. Lower Federal outlays in the near term. However,
we would set a government price to recoup these
outlays, with interest, over the life of the plant.
-2-
Although I support option #2, I believe option #1 is
potentially workable, now that UEA has substantially modified their
proposal. If we are to open the U.S. order book using option #1, we
must immediately obtain agreement by the Joint Committee on Atomic
Energy of the proposal, outlined in the decision memorandum. In
addition, this option depends on:
1. A strong display of Administration support and the
vigorous assistance of the Department of State with
foreign customers.
2. An active follow-through on centrifuge commercialization
to minimize the adverse consequences of seeming to support
a single private firm as compared to a competitive industry.
This requires the continuing support of FEA and OMB.
Consequently, if we are to proceed with option #1, the necessary
State, OMB, and FEA support must be considered part of the decision.
I am, of course, prepared to pursue vigorously your decision on
either option.
Respectfully yours,
Ribet Sconos
Robert C. Seamans, Jr.
Administrator