[Senate Hearing 110-422]
[From the U.S. Government Publishing Office]
S. Hrg. 110-422
RUSSIAN SUSPENSION AGREEMENT
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
TO
RECEIVE TESTIMONY TO UNDERSTAND THE IMPACTS OF THE CAPABILITY OF THE
UNITED STATES TO MAINTAIN A DOMESTIC ENRICHMENT CAPABILITY AS A RESULT
OF THE RECENTLY INITIATED AMENDMENT BETWEEN THE UNITED STATES AND THE
RUSSIAN FEDERATION ON THE AGREEMENT SUSPENDING THE ANTIDUMPING
INVESTIGATION ON URANIUM FROM THE RUSSIAN FEDERATION
__________
MARCH 5, 2008
Printed for the use of the
Committee on Energy and Natural Resources
______
U.S. GOVERNMENT PRINTING OFFICE
43-015 PDF WASHINGTON DC: 2008
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
DANIEL K. AKAKA, Hawaii PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota LARRY E. CRAIG, Idaho
RON WYDEN, Oregon LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana JIM DeMINT, South Carolina
MARIA CANTWELL, Washington BOB CORKER, Tennessee
KEN SALAZAR, Colorado JOHN BARRASSO, Wyoming
ROBERT MENENDEZ, New Jersey JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont JIM BUNNING, Kentucky
JON TESTER, Montana MEL MARTINEZ, Florida
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
Frank Macchiarola, Republican Staff Director
Judith K. Pensabene, Republican Chief Counsel
C O N T E N T S
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STATEMENTS
Page
Barrasso, Hon. John, U.S. Senator From Wyoming................... 18
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................ 1
Craig, Hon. Larry E., U.S. Senator From Idaho.................... 19
Domenici, Hon. Pete V., U.S. Senator From New Mexico............. 2
Ervin, Robert C., Jr., President, Local 550, United Steel
Workers, West Paducah, KY...................................... 33
Fertel, Marvin, Executive Vice President and Chief Nuclear
Officer, Nuclear Energy Institute.............................. 21
Hinterreither, Reinhard, President and CEO, Louisiana Energy
Services, Eunice, NM........................................... 38
Malone, James P., Vice President, Nuclear Fuels Exelon Generation
Company, LLC, Warrenville, IL.................................. 30
Spooner, David M., Assistant Secretary, Import Administration,
Department of Commerce......................................... 3
Tobey, William H., Deputy Administrator for Defense Nuclear
Nonproliferation, National Nuclear Security Administration,
Department of Energy........................................... 10
Welch, John K., President and CEO, USEC, Inc., Bethesda, MD...... 25
APPENDIXES
Appendix I
Responses to additional questions................................ 53
Appendix II
Additional material submitted for the record..................... 59
RUSSIAN SUSPENSION AGREEMENT
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WEDNESDAY, MARCH 5, 2008
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 3:01 p.m. in room
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman,
chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
MEXICO
The Chairman. The committee will come to order.
I want to thank you all for being here. I'm informed
Senator Domenici is on his way. Senator Barrasso and I will get
started here.
Let me thank the witnesses for their testimony today on the
February 2008 amendment to the Russian Suspension Agreement.
This topic is complicated, it amends an Antidumping Suspension
Agreement that has given certainty to the United States
domestic enrichment market since 1992.
That agreement has also provided an incentivized framework
for the highly successful program to blend down 500 metric tons
of Russian weapons-grade uranium, and sell it as commercial
reactor fuel.
It's my understanding that this recent amendment is a
result of court determinations that the importation of
enrichment is a service, rather than a good, and hence outside
the purview of United States trade law, and that the United
States Government and other parties are now seeking a review of
that court decision in the Supreme Court.
Given the complications surrounding the issue, my purpose,
at least, today, is to hear the witnesses and try to understand
the various point of view that are going to be expressed.
We obviously need to be careful in rushing to judgment
before we understand the full implications of this important
topic. I hope other committees in the Senate with jurisdiction
in areas such as United States trade law will also carefully
investigate the ramifications of the amended agreement.
Again, let me thank all of you for coming, and I look
forward to the hearing. Let me call on Senator Domenici for any
opening statement he would like to make.
STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM NEW
MEXICO
Senator Domenici. Thank you very much, Mr. Chairman. I
apologize for being late, but I'm very glad you started,
because we do have a lot of work to do this afternoon. You,
like me, have been inundated with hearings today.
I'd like to make a few opening remarks, because I've been
part of a history that involves itself with the matter that is
before us, and I would like to be part of a good solution, as
you have indicated, in the closing of your remarks.
The subject of this hearing could have a profound effect on
two policy goals that I have championed for many years: the
nonproliferation of nuclear weapons material, and a renaissance
of commercial nuclear power.
It has been nearly 15 years since the signing of the
historic HEU agreement with Russia in 1993. That agreement
provides for conversion of the highly enriched uranium from
thousands of nuclear weapons to low-enriched uranium for use in
our civilian power reactors. It takes those weapons out of
Commission, and uses the nuclear material for safe, commercial
purposes.
I worked very hard to forge that agreement, wherein we
purchased the HEU from the Russians about the same time we
purchased a large quantity of a very, very hot material, which
we are still in the process of disposing of. Just as important
to me over the years has been the belief that we needed to
revive the country's nuclear power industry, a crucial part of
our electricity supply, which has been dormant for about 27
years.
It has been 10 years since I gave a speech at Harvard
University, which I'm very proud of, which I named ``A New
Nuclear Paradigm.'' My purpose then was to highlight the
tremendous benefits of nuclear power, and outline the policy
initiatives that would bring about a nuclear power renaissance.
It is surely a surprise to no one here that I doggedly
pursued those initiatives and others, as evidenced by many of
the provisions in the landmark Energy Policy Act of 2005, which
Senator Bingaman worked with me, shoulder-to-shoulder, to give
to the Senate, and ultimately to the people.
Obviously, a plentiful and secure source of nuclear reactor
fuel is a must for a successful re-birth of this industry. I
believe it's essential that we maintain a domestic capability
in uranium mining and enrichment, and I am excited about
progress being made in a national enrichment facility in my
home State--which is also Senator Bingaman's home State--as
well as the efforts of the United States Enrichment
Corporation, AREVA, and General Electric, who are all at least
in some stage of planning for additional uranium enrichment
capacity in the United States.
That said, I remain deeply concerned about the effects on
our uranium fuel markets of the amendment to the Russian
Suspension Agreement we are here to review today, and the
pending trade litigation related to it.
Recent court decisions regarding aspects of our trade law
could potentially undermine the HEU agreement, and our future
domestic uranium enrichment capability. I, for one, certainly
don't intend to let that happen. I don't know the best way to
prevent it from happening, and that's why we're having this
hearing, so we can find out.
The manner in which we address these issues is another
matter.
I am pleased to see that we have a wide variety of
witnesses interested in the issues presented today, and I
compliment the chairman and the staff for arranging it on very
short notice.
I look forward to their testimony, and their suggestions as
to how we can address the issues that are before us, if
necessary.
With that, I thank you, Mr. Chairman.
The Chairman. Thank you very much.
We have a very distinguished panel of witnesses as Senator
Domenici said.
Our first panel is made up of two witnesses from the
government, one from the Department of Commerce, and one from
the Department of Energy.
We have David M. Spooner, who is the Assistant Secretary
for Import Administration in the Department of Commerce, and we
have William Tobey who is the Deputy Administrator for Defense
Nuclear Nonproliferation in NNSA, in the Department of Energy.
Thank you both for being here. Why don't we proceed in that
order, if that's acceptable to you. Mr. Spooner, could you take
5 or 6 minutes and give us a summary of the main points you
think we need to understand about this, and then you, the same
thing, Mr. Tobey.
STATEMENT OF DAVID M. SPOONER, ASSISTANT SECRETARY, IMPORT
ADMINISTRATION, DEPARTMENT OF COMMERCE
Mr. Spooner. Thank you, Mr. Chairman and Senator Domenici
for the opportunity to address the committee on the Russian
Uranium Suspension Agreement and related issues.
My testimony will cover four topics. First, I'll provide an
overview of the recently amended uranium Suspension Agreement.
Second, I'll describe the agreement's relevance to the United
States-Russia agreement on highly enriched uranium, or HEU.
Third, I'll outline the importance of the agreement for our
domestic uranium industry. Last, I'll touch on a recent
judicial finding that threatens the viability of the domestic
uranium industry, as well as the integrity of this agreement.
On February 1, after lengthy negotiations between my
Department and Russia, the two governments signed an agreement
which will permit certain exports of commercial Russian uranium
products to the United States. The agreement limits these
exports to 20 percent of the United States market for enriched
uranium, during the period 2014 to 2020. It also permits
smaller quantities of Russian uranium products to enter the
United States market in the years 2011 to 2013.
This latest agreement with Russia builds upon, or amends, a
16-year-old agreement between Commerce and Russia, that
suspended an antidumping investigation on uranium. This old
agreement, signed in 1992, covered all forms of uranium from
natural ore, to bomb-grade highly enriched uranium, and
permitted Russian uranium to enter the United States pursuant
to various quota provisions.
One longstanding quota provision of the original 1992
agreement permits unlimited imports of Russian low-enriched
uranium, down-blended from nuclear bombs, pursuant to a
separate agreement, known as the Megatons-to-Megawatts
agreement or program. This down-blended bomb material is then
used in United States nuclear reactors.
Under the Megatons-to-Megawatts agreement, often called,
also, the HEU agreement, Russia agreed to export LEU derived
from the highly enriched uranium, or HEU, in 20,000
decommissioned nuclear weapons to the United States for use as
fuel in nuclear reactors.
This key nonproliferation agreement expires at the end of
2013. Therefore, the Suspension Agreement's new quotas will
begin largely after the expiration of an important United
States-Russia agreement to convert Russia's nuclear weapons
into nuclear fuel for the United States.
The United States Enrichment Corporation, or USEC, as the
United States Executive Agent under HEU agreement, purchases
low-enriched uranium down-blended from bomb material, and
resells it to electric utilities for use as nuclear fuel.
This material currently supplies over 40 percent of the
enrichment needed each year to fuel United States nuclear
reactors that generate around 10 percent of United States
electricity overall.
In order to preserve the Megatons-to-Megawatts agreement,
it is important to ensure that Russia cannot sell unlimited
quantities of low-enriched uranium in the marketplace at dumped
prices. Thus, Commerce's trade remedy proceedings support the
Megatons-to-Megawatts agreement by limiting the nuclear fuel
that Russia can sell in the United States at dumped prices, a
more lucrative proposition for Russia than down-blending bomb
material.
But let's make no mistake about it. Russia's government-
owned enrichment facilities do not operate on a commercial
basis.
As you know, the United States is experiencing a resurgence
in interest in nuclear power. This has translated into plans
for expansion of nuclear power capacity, including possible new
reactors in the United States in future years.
The United States has one operating uranium enricher, USEC.
USEC runs a gaseous diffusion enrichment facility in Kentucky.
Because this technology is outdated, and energy intensive, USEC
is in the process of developing new state-of-the-art enrichment
capability at its plant in Ohio. In addition, as you all are
well aware, Louisiana Energy Services, or LES, owned by the
European Enrichment Consortium, Urenco, is developing an
enrichment facility in New Mexico, which uses Urenco's gas
centrifuge technology.
Two additional companies, GE, and AREVA, have also
announced plans.
In litigation challenging a separate antidumping case
covering enriched uranium from France, the United States Court
of International Trade, and the Court of Appeals, recently
ruled that low-enriched uranium imported pursuant to Separative
Work Unit, or SWU, transactions is not subject to the
antidumping law. This case is often called the Eurodif
decision.
In a SWU transaction, or contract, instead of making
payment for the entire low-enriched uranium product, a United
States utility customer obtains its low-enriched uranium in
exchange for feedstock and payment for the enrichment.
The Eurodif decision provides a roadmap for circumvention
of the trade remedy laws. Imagine, for a moment, if you export
lemons to a juice company in Canada. Is the lemonade you get
back a new product? Or the squeezing service provided by the
company making the lemonade?
The production of all merchandise involves processing, that
could be contracted for separately as a service in the same
manner as SWU contracts.
Furthermore, if Eurodif stands, the Russians will be free
to sell unlimited enriched uranium in the United States,
notwithstanding the recent quota agreement. Dumped Russian low-
enriched uranium will threaten USEC's ability to resell some,
or all, of the material down-blended from bombs it has
committed to purchase, which will--in turn--threaten USEC's
ability to continue to purchase this material from Russia, and
act as the United States Executive Agent.
Thus, by compromising the Suspension Agreement, Eurodif
also compromises the Megatons-to-Megawatts agreement, which is
a vital component of the United States' nonproliferation
strategy.
In addition, Eurodif threatens the economic viability of
the United States flag producer of enriched uranium, USEC.
Because USEC is the only United States producer of enriched
uranium not subject to peaceful use limitations, only USEC can
supply the enriched uranium necessary for two TVA--Tennessee
Valley Authority--reactors that produce tritium for United
States nuclear weapons. By threatening the viability of USEC,
Eurodif threatens the maintenance of the United States nuclear
arsenal.
Furthermore, the United States cannot be dependent on
imports of uranium from Russia to produce electricity. It is
not clear that Europe, European, or other newly developed
United States sources of enrichment will be available to
replace what USEC plans to produce after 2013.
Therefore, Commerce--in close coordination with other
agencies--supports a simple legislative fix to address the
adverse impact of the Eurodif ruling. In late 2007, Senator
McConnell, Senator Bunning, and Representative Whitfield
introduced legislation to address Eurodif. Last December, the
Departments of Commerce, State, Energy and Defense, sent the
bill's sponsor a letter of support, highlighting the national
security and energy implications of the legislation.
As you may also be aware, Mr. Chairman, the government is
seeking Supreme Court review of the Eurodif decision. In
addition to the Solicitor General, the petition asking the
court to hear the appeal was signed by various other interested
Executive agencies. The court should decide whether to hear the
appeal this Spring.
Successful Supreme Court review, of course, is not assured,
and the case will take some time, which is why a legislative
fix is important.
Thank you for the opportunity to appear before you today,
sorry I ran a little over, and I'm happy to answer any
questions.
[The prepared statement of Mr. Spooner follows:]
Prepared Statement of David M. Spooner, Assistant Secretary, Import
Administration, Department of Commerce
Chairman Bingaman, Ranking Member Domenici, Members of the
Committee, I am pleased to appear before you today to address the
recently-amended Agreement Suspending the Antidumping Investigation on
Uranium from the Russian Federation (``Suspension Agreement'') and
important related issues.
First, I will give an overview of the history of the recently-
amended ``Suspension Agreement.'' Next, I will describe the
``Suspension Agreement's'' relevance and relation with the United
States-Russia agreement on highly-enriched uranium, or ``HEU.'' Then, I
will outline the importance of the Suspension Agreement for the
domestic uranium industry. I will finish by touching on a recent
judicial ruling that has tremendous effect on the integrity of this
Suspension Agreement and the potential to threaten the viability of the
domestic uranium industry as a whole.
AD Suspension Agreement on Uranium from Russia
The antidumping duty (``AD'') law provides a remedy against
imported ``merchandise [that] is being . . . sold in the United
States'' for less than its fair value (i.e., ``dumped''), and is a
cause of material injury to a U.S. domestic industry. (See Section 731
of the Tariff Act of 1930, 19 U.S.C. 1673.) Merchandise is sold at
less than ``fair value'' when the price of the imported merchandise
sold in the United States is less than the price of comparable
merchandise sold in the producer's home market or less than the cost of
producing that merchandise. The difference is called the dumping
margin. The AD law is designed to remedy the injury to U.S. industry
from dumped imports by imposing an additional duty on dumped imports,
equal to the amount of the dumping margin.
In 1991, the U.S. uranium miners and the union representing U.S.
uranium enrichment and conversion workers filed an AD petition at the
Department of Commerce against uranium imported from the former Soviet
Union. Commerce initiated an investigation and preliminarily determined
that there were dumping margins of 115 percent and the International
Trade Commission determined that there was a reasonable indication that
the U.S. uranium industry was materially injured or threatened with
material injury. No AD order was ever issued, because, in October 1992,
Commerce and the Russian Federation signed the ``Suspension
Agreement''. The Suspension Agreement covered all forms of uranium,
from natural uranium ore to bomb-grade, highly-enriched uranium
(``HEU''), and permitted Russian uranium to enter the United States
pursuant to five different quota provisions, one of which was later
replaced by amendment in 1994. In recent years, two of the Suspension
Agreement's quota provisions have remained operational, permitting the
following: 1) unlimited imports of Russian low-enriched uranium
(``LEU'') derived from weapons-grade HEU, under a separate agreement
known as the ``HEU Agreement,'' for use as nuclear fuel in U.S. nuclear
power reactors, and 2) imports of Russian uranium products for
reprocessing and re-exportation from the United States within 12 or 36
months.
On February 1, 2008, after lengthy negotiations between Commerce
and Russia's then Federal Atomic Energy Agency (Rosatom), which is now
a State Corporation, the two governments signed an amendment to the
Suspension Agreement which will permit certain exports of Russian
uranium products to the United States under a new quota system. The
amended Suspension Agreement will prevent Russian exports of LEU
through normal commercial channels through 2010. From 2011 through 2013
(when the HEU Agreement terminates), very small quantities of Russian
LEU will be permitted to enter the United States. From 2014 through
2020, Russia will be limited to approximately 20 percent of the U.S.
market for enriched uranium. The amendment is intended to promote a
stable uranium market in the United States, which will encourage
investment in new enrichment facilities. However, because of the
Eurodif decision discussed below, which held that material sold under
SWU contracts is not covered under the AD law, the new amendment does
not now limit sales by Russia to U.S. customers of material sold under
such contracts.
The HEU Agreement with Russia
In 1993, the United States and Russia signed the Agreement Between
the Government of the United States of America and the Government of
the Russian Federation Concerning the Disposition of Highly Enriched
Uranium Extracted from Nuclear Weapons (``HEU Agreement''). This so-
called ``megatons to megawatts'' agreement, expiring at the end of
2013, permitted the Russians to export to the United States substantial
quantities of LEU derived from the HEU in decommissioned nuclear
weapons. To date, under this agreement, about 325 metric tons of HEU
(the material equivalent to approximately 13,000 nuclear weapons) have
been converted into LEU and exported to the United States. A further
175 metric tons from about 7,000 nuclear weapons will be processed and
exported to the United States by 2013. This will result in the
elimination of the equivalent of 20,000 Russian nuclear weapons over
the agreement's life. The United States Enrichment Corporation
(``USEC''), the U.S. Executive Agent under the HEU Agreement to the
implementing commercial contract supporting the Government-to-
Government HEU Agreement, is obligated to purchase the enrichment
component of the 30 metric tons of this LEU from Russia each year
through 2013. USEC re-sells this LEU to U.S. utilities and returns
natural uranium equivalent to the LEU back to Rosatom. The LEU down-
blended from HEU currently supplies over 40 percent of the enrichment
needed to fuel U.S. nuclear reactors each year that generate about 10
percent of U.S. electricity overall.
Because the Suspension Agreement permits unlimited imports of the
LEU down-blended from HEU under the HEU Agreement, the two agreements
are inter-related and have facilitated stability in the U.S. uranium
market for more than a decade. Given the difficulties of downblending
HEU, Russian profits on U.S. sales of such LEU under the HEU Agreement
are lower than the profits Russia could earn by making commercial sales
of LEU produced from natural uranium. Thus, Russia has an incentive to
prefer commercial sales in the U.S. market to sales through USEC under
the HEU Agreement. Competition from Russian commercial sales would
reduce USEC's sales and profits under the HEU Agreement, which, in
turn, would threaten USEC's ability to continue to purchase Russian LEU
under that agreement. In order to preserve the HEU Agreement, it is
important to ensure that Russia cannot make unlimited commercial sales
of LEU in the U.S. marketplace at dumped prices. Therefore, the amended
Suspension Agreement supports the HEU Agreement by severely limiting
the quantities of LEU that Russia can sell in the United States through
normal commercial channels until 2014.
State of the U.S. Industry
As you know, the United States is currently experiencing a
resurgence in interest in nuclear power, popularly referred to as the
``nuclear renaissance.'' This has translated into plans for expansion
of nuclear power capacity, including possible construction of new
reactors in the United States in the near future. In addition, with
demand increasing for all uranium products, prices have risen to record
high levels in the past year.
The United States currently has one operating uranium enricher,
USEC. USEC operates a gaseous diffusion enrichment facility in Paducah,
Kentucky. Because this technology is outdated and energy-intensive,
USEC is in the process of developing new state-of-the-art enrichment
capability, its American Centrifuge Plant in Piketon, Ohio. In
addition, Louisiana Energy Services, L.P. (``LES'') owned by the
European enrichment consortium, URENCO, is developing a U.S. enrichment
facility in New Mexico which will use Urenco's gas centrifuge
technology. Two additional companies, General Electric and AREVA S.A.,
have also announced plans to develop future enrichment capability in
the United States.
SWU Contracts
When U.S. utilities purchase LEU abroad, they follow one of two
procedures. Sometimes, they simply purchase the finished LEU from a
foreign enricher. More commonly, however, they follow a somewhat more
complex procedure. The U.S. utility purchases natural uranium
``feedstock'' and arranges for it to be delivered to a foreign
enricher. The foreign enricher then delivers to the U.S. utility
uranium enriched from its own feedstock inventory. The U.S. utility
compensates the foreign enricher by giving the foreign enricher title
to the feedstock that the utility arranged to be delivered to the
foreign utility, and by paying for the value of the enrichment. This
arrangement is referred to as a separative work unit (``SWU'')
contract, because the value of the enrichment is measured in SWUs
(defined as the standard measure of enrichment processing). The value
of the feedstock used to produce the exported LEU is offset by the
value of the feedstock supplied to the foreign enricher by the U.S.
utility.
Commerce's AD and CVD Investigations of LEU from France
In 2001, Commerce issued an AD order on LEU from France and
countervailing duty (``CVD'') orders on LEU from France, Germany, the
United Kingdom and the Netherlands. In its AD determination, Commerce
found that LEU imported pursuant to SWU transactions was subject to the
AD law because, through such transactions, U.S. utilities obtained
ownership of imported LEU for less than fair value. The impact of this
imported LEU on the U.S. domestic industry was no different from that
of LEU imported through conventional transactions. Commerce rejected
the argument advanced by Eurodif (the French respondent in the
investigation) that uranium enrichment was a service, so that the LEU
resulting from that service was not subject to the law. Commerce did
not consider uranium enrichment to be a true service (like banking,
insurance, or medicine), but a manufacturing process that transformed
one tangible good (uranium feedstock) into another tangible good (LEU).
Commerce determined that the merchandise resulting from such a
manufacturing process should be subject to the AD law, in the same
manner as identical merchandise purchased through more conventional
arrangements. (See Commerce's Final Determination, 66 Fed. Reg. at
65879.)
In its CVD determination, Commerce found that the French
Government's purchase of LEU from Eurodif for more-than-adequate
remuneration constituted a subsidy to Eurodif, notwithstanding that the
applicable provision in the CVD law (Section 771(5)(E)(iv) of the
Tariff Act of 1930, 19 U.S.C. 1677(5)(E)(iv)) treats as a subsidy only
the purchase of goods by a foreign government for more-than-adequate
remuneration and the French Government purchased the LEU through a SWU
contract.
The Eurodif Decisions
In the AD case, the U.S. Court of International Trade (``CIT'')
ruled, and the U.S. Court of Appeals for the Federal Circuit (``Federal
Circuit'') agreed, that LEU produced abroad and imported into the
United States was exempt from the AD law if it was imported pursuant to
a SWU contract. The Federal Circuit interpreted the statutory
requirement that ``merchandise is being . . . sold in the United
States'' to require a transfer of ownership of the LEU, as LEU, from
the foreign producer to the U.S. utilities. Because the SWU contracts
created the legal fiction that the U.S. utilities owned the uranium
while Eurodif performed the ``service'' of transforming it into LEU,
the Federal Circuit found that there was, in fact, no transfer of
ownership of the LEU, as such, from Eurodif to the U.S. utilities, but
only a transfer of the ``service'' of enrichment. Hence, no sale of
merchandise occurred and the AD law did not apply. Eurodif v. United
States, 411 F.3d 1355, 1364 (Fed. Cir. 2005) and Eurodif S.A., et al.
v. United States, 423 F.3d 1275 (Fed. Cir. 2005) (collectively
``Eurodif'').
The Federal Circuit's decision is in error. First, Eurodif did
transfer title to finished LEU to the U.S. utilities. What the U.S.
utilities owned was the feedstock that they had delivered to Eurodif.
Eurodif did not enrich this feedstock, but feedstock from its own
inventory. When Eurodif produced that LEU by enriching the feedstock,
Eurodif owned that LEU. This would be true regardless of which
feedstock was used because enrichment is a substantial transformation.
Thus, if the utilities had not paid Eurodif for the enrichment, they
would not have been able to demand that Eurodif return of ``their''
LEU--they would have been entitled only to the return of their
feedstock. Second, the U.S. utilities did not start out with title to
LEU. They acquired ownership of LEU from Eurodif. The Federal Circuit
acknowledged that the U.S. utilities received ``title in the LEU for
which [they] contracted,'' as a result of the SWU contracts, but never
identified the source. Thus, in substance, the SWU transactions were
sales of LEU from Eurodif to U.S. utilities, for feedstock and cash.
The fiction agreed between the U.S. utilities and Eurodif, that Eurodif
simply ``serviced'' uranium owned at all times by the U.S. utilities,
is just that--a fiction.
In any event, even assuming arguendo that the enricher never
acquires title to the LEU, the Federal Circuit's decision is still
wrong. The Federal Circuit reasoned that, even though the operation of
the SWU contracts makes clear that title to the LEU passes to the
utility upon delivery of the LEU (and not before), no ``sale'' of LEU
occurs because the parties' contracts evidence no intent to vest
ownership in the enricher, and title therefore does not pass from the
enricher to the utility. But there is no basis in the AD law for the
Federal Circuit's mandate that title must vest in the manufacturer in
order for there to be a ``sale'' of ``foreign merchandise'' within the
meaning of the AD law. The question is not whether a particular person
has ``sold'' foreign merchandise; rather, the AD law asks only whether
foreign merchandise ``is being sold,'' without regard to the identity
of the specific parties or entities from which title is passing. 19
U.S.C. 1673(1). It is undisputed that, under the contracts at issue, a
utility provides raw materials and monetary consideration to the
enricher and, in exchange, receives delivery of and title to finished
LEU that is not traceable to the particular lots of uranium feedstock
supplied by the utility. The utility has thus received title to LEU
that it did not previously own in exchange for the payment of
consideration. Regardless of the identity of the seller, there is no
question that what has occurred is a sale.
The Federal Circuit disregarded the result of the transactions and
instead focused on the intent of the parties, which was to regard the
uranium as owned by the U.S. utilities at all times. This reliance on
the intent of the parties was misplaced. The intent of the parties to a
contract is logically paramount in settling a dispute between those
parties as to their respective rights and obligations under that
contract. Relying on the intent of the parties to a contract to
determine whether a Federal regulatory scheme applies to that contract
however, inevitably will frustrate that regulatory scheme. The parties,
quite naturally, will draft the contract to ensure that the regulatory
scheme does not apply. For this reason, it is the intent of Congress,
as reasonably construed by Commerce (the agency entrusted by Congress
to administer the statute), that must determine whether the AD law
applies to merchandise imported pursuant to SWU contracts.
The Federal Circuit reached this erroneous result because it
approached the issue, not from the perspective of the AD law, but from
the perspective of one of its recent decisions--Florida Power & Light
v. United States, 307 F.3d 1364 (Fed. Cir. 2002). In that case, the
Department of Energy prevailed in asserting that, under a contract
between the Department of Energy and Florida Power and Light, as
governed by the Contract Disputes Act, SWU contracts constituted
transactions for the provision of services. In Eurodif, without
accounting for the fact that the application of the AD law and the
interpretation of a contract under the Contract Disputes Act presented
completely different issues, the Federal Circuit adopted its conclusion
from Florida Power and Light, explaining only that Congress had not
given specific guidance that the same result should not be reached in
both contexts. Of course, the likelihood that Congress anticipated the
Florida Power & Light dispute in drafting the AD law approaches zero.
Congress did not decline to distinguish the two issues; it simply never
considered the question. Consequently, the Federal Circuit had no basis
for assuming that the holding of Florida Power and Light permitted it
to overturn Commerce's reasonable construction of the AD law.
In the CVD case, the Federal Circuit applied the ``service''
rationale of its dumping decision to conclude that there was no
countervailable subsidy, because the French Government's purchase of
LEU through a SWU contract for less than adequate remuneration
constituted the purchase of a service not covered by the applicable
provision of the CVD law and, thus, not even potentially a
countervailable subsidy.
The U.S. Government filed a petition for a writ of certiorari with
the Supreme Court in February, asking it to review the Federal
Circuit's decision in the AD case. The Supreme Court should decide
whether to hear the appeal this spring. If the appeal is accepted and
the U.S. Government prevails, the decision likely will also have the
effect of reversing the CVD decision.
Implications of Eurodif for the AD law
The immediate implication of Eurodif is that, in order to know
whether LEU imported into the United States constitutes a good or a
service, Customs will have to refer the contract pursuant to which the
LEU is imported to Commerce for analysis. If the importer purchased the
LEU pursuant to a conventional sales transaction, Commerce will
determine that the LEU is a good subject to the AD law. If, however,
Commerce determines that the sale was broken into separate sales of
natural uranium and processing by means of a bona-fide SWU contract,
Commerce will determine that the imported LEU is not subject to the AD
law. In that case, the natural uranium component of the LEU also would
escape scrutiny under the AD law.
Eurodif holds that the parties to an import transaction can bypass
the AD law by having the U.S. purchaser supply raw materials to the
foreign producer and pay that producer for what is described in their
contract as the ``service'' of transforming raw materials into the
merchandise to be imported. Consequently, Eurodif effectively provides
a road map for circumvention of the AD law. The production of virtually
all merchandise involves processing that could be contracted for
separately, as a service, in the same manner as SWU contracts. For
example, steel could be obtained by supplying iron ore for ``smelting
and rolling services''; lumber could be obtained by supplying trees for
``harvesting and milling services''; and semiconductors could be
obtained by supplying sand for ``processing services.'' Thus, Eurodif
potentially threatens the viability of the entire AD law.
Implications of Eurodif for the CVD law
The implications of Eurodif for the CVD law are not as serious as
they are for the AD law, because the CVD law applies to imported goods
even if they are not sold, as such, in the U.S. market. All that is
necessary for the CVD law to apply is for a subsidy to have been
provided with respect to the production or exportation of a good
imported into the United States. Thus, the CVD law would apply to
subsidized imports of LEU, even if they were imported pursuant to SWU
contracts. Nevertheless, foreign governments would be free to purchase
LEU from their uranium enrichers for more than adequate remuneration
without incurring any exposure under the CVD law, provided they
structured the purchase as a SWU contract. If this rule were extended
beyond uranium, it could constitute a significant loophole in the CVD
law.
National Security Implications of Eurodif
If Eurodif stands, the Russians will be free to make unlimited
commercial sales of LEU in the U.S. market pursuant to SWU contracts,
notwithstanding the continued existence of the Suspension Agreement.
Given that Russia has enough enrichment capacity to supply its own
domestic market and the entire U.S. market with LEU for the foreseeable
future, these sales are potentially enormous. Thus, competition from
Russian commercial LEU which is produced at a lower cost is likely to
limit substantially USEC's ability to resell the down-blended LEU it is
committed to purchase under the HEU Agreement. This will threaten
USEC's ability to continue to make those purchases. In sum, by
compromising the AD Agreement, Eurodif also compromises the HEU
Agreement, which is a vital component of our non-proliferation
strategy.
Eurodif also threatens the economic viability of the only U.S. flag
producer of enriched uranium--USEC. Because USEC is the only U.S.
producer of enriched uranium not subject to ``peaceful use''
limitations, only USEC can supply the enriched uranium necessary for
use in the Tennessee Valley Authority reactors that produce tritium for
U.S. nuclear weapons. As noted above, the Paducah facility operated by
USEC enriches uranium through gaseous diffusion, which consumes vast
amounts of electricity and, at current prices, is commercially
obsolete. USEC is planning to replace the Paducah facility with a new
centrifuge facility in Piketon, Ohio, for which it will need to raise
billions of dollars in new capital on commercial markets. It will be
very difficult for USEC to raise this capital if it does not appear
that the U.S. market for enriched uranium will be reasonably stable and
profitable for the next 10 to 15 years. Thus, by threatening the
viability of USEC, Eurodif also threatens the maintenance of the U.S.
nuclear arsenal.
Energy Security Implications of Eurodif
By threatening to drive USEC out of business, Eurodif also could
leave the United States excessively dependent on imports of LEU from
Russia to produce electricity. Should Russia be permitted to sell
significant quantities of LEU above the agreed limit in the Suspension
Agreement Amendment, U.S. enrichment capacity currently under
construction or planned might not be completed. As a result, existing
U.S. enrichment capacity combined with imports from Europe would be
insufficient to replace what USEC plans to produce after 2013 with its
new centrifuge facility in Piketon, Ohio. This would increase U.S.
dependence on Russian LEU.
Efforts to Close the Eurodif Loophole
For all of the reasons discussed above, the Administration believes
it is crucial that the loophole opened by the Eurodif decisions be
closed in order to ensure that the Suspension Agreement and the HEU
Agreement continue to work in concert. The Administration supports a
simple legislative fix to address the adverse impact of the Eurodif
ruling. In late December 2007, Senate Minority Leader McConnell,
Senator Bunning and Representative Whitfield introduced legislation to
address Eurodif. On December 21, 2007, the interagency group forwarded
to the bill's sponsors a letter of support signed by the Departments of
Commerce, State, Energy and Defense. We look forward to working with
this Committee, and the Congress as a whole, to resolve the issues
Eurodif has created.
As noted previously, Commerce is also seeking Supreme Court review
of the Eurodif decisions. The U.S. Government has filed a petition for
a writ of certiorari with the Supreme Court, asking it to review the
Federal Circuit's decision. The Court should decide whether to hear the
appeal this spring.
Thank you for the opportunity to appear before you today. I am
pleased to answer any questions you may have.
The Chairman. No, thank you very much for that very good
testimony.
Mr. Tobey, why don't you go right ahead.
STATEMENT OF WILLIAM H. TOBEY, DEPUTY ADMINISTRATOR FOR DEFENSE
NUCLEAR NONPROLIFERATION, NATIONAL NUCLEAR SECURITY
ADMINISTRATION, DEPARTMENT OF ENERGY
Mr. Tobey. Thank you, Chairman Bingaman, Ranking Member
Domenici, and Senator Craig. I appreciate the opportunity to be
here to discuss the nonproliferation aspects of the Suspension
Agreement.
My remarks concern the relationship between the Suspension
Agreement, and the Department of Energy's broader strategy to
reduce and eliminate highly enriched uranium. Denying countries
of concern, and terrorists' access to weapons-usable materials,
is a cornerstone of United States nonproliferation strategy.
To this end, perhaps the most successful nonproliferation
program ever conceived is the United States-Russia HEU Purchase
Agreement, which--when fully implemented, in 2013, will have
eliminated some 500 metric tons of HEU, material that according
to Russian officials, accounted for roughly 40 percent of the
total of the Soviet nuclear stockpile.
The HEU Agreement is a government-to-government
arrangement, implemented by commercial contract and monitored
by a bilateral transparency program that my office oversees. We
have a great interest in ensuring its uninterrupted
continuation, until its termination in 2013.
As you know, about 10 percent of all electricity produced
in the United States is powered by uranium, once in Soviet or
Russian nuclear weapons that were likely targeted at the United
States or its allies. Roughly 325 metric tons of HEU have been
eliminated, to date, under this agreement. The Suspension
Agreement has been critical in this regard. It has set the
legal foundation for executive control of uranium imports from
Russia, facilitating entry of low-enriched uranium, down-
blended from Russian-weapons origin HEU, while excluding
commercial, non-weapons origin, LEU.
We recognize that imports of Russian commercial LEU would
compete directly with, and could therefore undermine the
viability of the HEU Purchase Agreement. For this reason, the
September 2007 Eurodif ruling by the Court of Appeals is a
cause for serious concern. Absent a change in the court's
ruling, or legislative relief, Russia could gain unrestricted
access to the United States nuclear fuel market.
Unfettered access to the United States market before the
HEU Agreement is completed, could allow Russia to sell
commercial LEU ahead of down-blended HEU from weapons. It has
been our preference, therefore, to exclude Russian commercial
LEU from the United States market until after 2013, when the
HEU Agreement expires.
Another drawback of the Court's Eurodif ruling is that it
may also preclude future HEU down-blending agreements with
Russia. Both the United States and Russia have implemented
major nuclear reductions in the period since 1993, when the HEU
Purchase Agreement entered into force.
It is reasonable to expect, then, that Russia has
additional excess HEU, especially as the Moscow Treaty
Reductions are carried forward, and it is in our
nonproliferation interest that all excess HEU be declared, and
disposed of, in ways that are transparent to us and the
international community.
While we are committed to facilitating Russia's transition
into the United States nuclear market as a commercial partner,
we believe it should be accomplished in ways that advance our
national security, nonproliferation and energy interests. A
reasonable means for doing so would be to continue Executive
control over nuclear imports until such time that we conclude
the Suspension Agreement. This would protect the gains realized
in the existing HEU Agreement, and any future agreement----
Senator Domenici. Mr. Chairman.
Mr. Tobey [continuing]. Providing for----
Senator Domenici. Mr. Chairman.
The Chairman. Yes.
Senator Domenici. Could I ask--would you go back and repeat
about a minute of your testimony there?
Mr. Tobey. Certainly, sir.
Senator Domenici. Half a minute. That's enough.
Mr. Tobey. Sure.
Another drawback of the Court's Eurodif ruling--is that an
appropriate place?
Senator Domenici. Yes, sir.
Mr. Tobey. Is that it may also preclude future HEU down-
blending agreements with Russia. Both the United States and
Russia have implemented major nuclear reductions in the period
since 1993, when the HEU Purchase Agreement entered into force.
It is reasonable to expect, then, that Russia has
additional excess HEU, especially as the Moscow Treaty
Reductions are carried forward, and it is in our
nonproliferation interest that all excess HEU be declared and
disposed of in ways that are transparent to us, and to the
international community.
While we are committed to facilitating Russia's transition
into the U.S. market as a commercial partner, we believe it
should be accomplished in ways that advance our national
security, nonproliferation, and energy interests.
A reasonable means for doing so would be to continue
Executive control over nuclear imports, until such time that we
conclude the Suspension Agreement--complete the Suspension
Agreement. This would protect the gains realized in the
existing HEU Agreement, and any future agreement providing for
transparent disposition of additional excess Russian HEU.
I don't want to leave the committee with the impression
that negotiation of a new HEU Agreement covering materials in
excess of the original 500 metric tons would be straightforward
or simple. Russia would have to show an interest in pursuing
such an agreement, something it has not done in the recent
past.
Discussions held in 2002 foundered over questions relating
to cost, domestic uranium impacts, and other provisions, with
no progress made since that time. While we can't predict
whether Russia will be persuaded to enter into a future HEU
Agreement, we can certainly foresee no progress in the absence
of incentives, incentives that the Eurodif decision effectively
undercuts.
It is important that Congress ensure that we have the tools
needed to pursue such an agreement with Russia. We believe the
disposing of additional HEU from military stocks would serve a
number of important goals. It would eliminate weapons-usable
materials sought by proliferants and terrorists, reinforcing
our material protection and consolidation efforts. It would
complement strategic nuclear warhead reductions required under
the U.S./Russian Moscow treaty, it would complement our efforts
to pursue the global fissile material cutoff treaty, and it
would demonstrate our shared commitment to promote
nonproliferation treaty's Article 6 nuclear disarmament goals.
Demonstrating a continued commitment to make progress on
Article 6 strengthens our ability to improve other parts of the
treaty, including compliance by non-nuclear weapons states, and
verification that civilian nuclear programs are not used as
cover to pursue nuclear weapons.
I've had the opportunity to travel recently with NNSA
Administrator Tom D'Agostino, to the United Nations, to the
International Atomic Energy Agency, and to the Conference on
disarmament, where we highlighted the significant, concrete
steps taken by the United States in support of Article VI of
the Nonproliferation Treaty.
Part of this dialog is focused on related nonproliferation
achievements and partnerships with Russia, including the HEU
Purchase Agreement. It is clear from these discussions that
continued and transparent reductions of nuclear material
removed from weapon stocks are regarded as a high priority and
helped to improve international confidence in the treaty.
Allow me to address one additional issue having to do with
our nuclear weapons program. To meet long-term treaty and
production needs, the United States must have a domestically
owned source of nuclear fuel, which would be unburdened by the
peaceful use assurances typically required of foreign-owned
suppliers.
This, in turn, requires that the United States have a
domestic enrichment supplier, capable of providing un-obligated
fuel for some time. Only one such U.S.-owned supplier exists--
the United States Enrichment Corporation, which is also the
Executive Agent for the HEU Purchase Agreement.
Over the near term, retaining executive control on LEU
imports. Regardless of the type of contract under which the
material enters the U.S. market, may therefore effect,
materially, our long-term access to un-obligated fuel for
treaty and production.
To conclude, if we are to ensure that the current agreement
is successfully completed, it will be necessary to overcome the
effects of the Eurodif ruling.
I also remain hopeful that we can continue the transparent
disposition of excess Russian HEU, beyond the expiration of the
current agreement, and reestablish the circumstances that
allowed us to grasp the opportunities presented in 1993.
Thank you very much, and I look forward to your questions.
[The prepared statement of Mr. Tobey follows:]
Prepared Statement of William H. Tobey, Deputy Administrator for
Defense Nuclear Nonproliferation, National Nuclear Security
Administration, Department of Energy
Chairman Bingaman, Ranking Member Domenici and members of the
Committee, thank you for the opportunity to appear before you today to
discuss the nonproliferation aspects and impacts of the Agreement
Suspending the Antidumping Investigation on Uranium from the Russian
Federation (Suspension Agreement), signed October 16, 1992. My remarks
center on the relationship of the Suspension Agreement to the
Department's broader strategy to reduce and eliminate highly enriched
uranium (HEU).
Denying countries of concern and terrorists access to weapons-
usable materials is a cornerstone of U.S. nonproliferation strategy. To
this end, perhaps the most successful nonproliferation threat reduction
program ever conceived is the U.S.-Russia HEU Purchase Agreement, which
when fully implemented in 2013 will have eliminated 500 metric tons of
HEU--material that, according to Russian officials, accounted for
roughly 40 percent of the total Soviet nuclear stockpile.
The HEU Agreement is a Government-to-Government arrangement
implemented by a commercial contract and monitored by a bilateral
transparency program that my office oversees. We have a great interest
in ensuring its uninterrupted continuation until its termination in
2013. As most of you know, about ten percent of all electricity
produced in the United States is powered by uranium once in Soviet or
Russian nuclear weapons that were likely targeted at the United States
or its allies. Roughly 320 metric tons of HEU have been eliminated to
date under this Agreement.
The Suspension Agreement has been critical in this regard. It has
set the legal foundation for Executive control of uranium imports from
Russia, facilitating entry of low enriched uranium (LEU) downblended
from Russian weapons-origin HEU, while excluding commercial, non-
weapons origin LEU.
We recognize that imports of Russian commercial LEU would compete
directly with and could therefore undermine the viability of the HEU
Purchase Agreement. For this reason, the September 2007 Eurodif ruling
by the Court of Appeals is cause for serious concern. Absent a change
in the court's ruling or legislative relief, Russia could gain
unrestricted access to the U.S. nuclear fuel market.
Unfettered access to the U.S. market before the HEU Agreement is
completed could allow Russia to sell commercial LEU ahead of
downblended HEU from weapons. It has been our preference therefore to
exclude Russian commercial LEU from the U.S. market until after 2013,
when the HEU Agreement expires.
Another drawback of the Court's Eurodif ruling is that it may also
preclude future HEU downblending agreements with Russia. Both the
United States and Russia have implemented major nuclear reductions in
the period since 1993, when the HEU Purchase Agreement entered into
force. It is reasonable to expect, then, that Russia has additional
excess HEU, especially as the Moscow Treaty reductions are carried
forward, and it is in our nonproliferation interest that all excess HEU
be declared and disposed of in ways that are transparent to us and the
international community.
While we are committed to facilitating Russia's transition into the
U.S. nuclear market as a commercial partner, we believe it should be
accomplished in ways that advance our national security,
nonproliferation, and energy interests. A reasonable means for doing so
would be to continue Executive control over nuclear imports until such
time that we conclude the Suspension Agreement. This would protect the
gains realized in the existing HEU Agreement and any future agreement
providing for the transparent disposition of additional excess Russian
HEU.
I don't wish to leave the committee with the impression that
negotiation of a new HEU agreement covering materials in excess of the
original 500 metric tons would be straightforward or simple. Russia
would have to show an interest in pursuing such an agreement, something
it has not done in the recent past. Discussions held in 2002 foundered
over questions relating to cost, domestic uranium market impacts, and
other provisions, with no progress made since that time. And while we
can't predict whether Russia will be persuaded to enter into a future
HEU Agreement, we can certainly foresee no progress in the absence of
incentives--incentives that the Eurodif decision effectively undercuts.
It is important that Congress ensure we have the tools needed to
pursue such an agreement with Russia.
We believe that disposing of additional HEU from military stocks
would serve a number of important goals: it would eliminate weapons-
usable materials sought by proliferants and terrorists, reinforcing our
material, protection and consolidation efforts; it would complement
strategic nuclear warhead reductions required under the U.S.-Russian
Moscow Treaty; it would complement our efforts to pursue a global
Fissile Material Cutoff Treaty; and it would demonstrate our shared
commitment to promote the Non-Proliferation Treaty's Article VI nuclear
disarmament goals.
Demonstrating a continued commitment to make progress on Article VI
strengthens our ability to improve other parts of the Treaty, including
compliance by non-nuclear-weapon states and verification that civilian
nuclear programs are not used as a cover to pursue nuclear weapons. I
have had the opportunity to travel recently with NNSA Administrator Tom
D'Agostino to the United Nations, the International Atomic Energy
Agency, and the Conference on Disarmament, where we have highlighted
the significant, concrete steps taken by the United States in support
of Article VI of the NPT. Part of this dialogue has focused on related
nonproliferation achievements and partnerships with Russia, including
the HEU Purchase Agreement. It is clear from these discussions that
continued and transparent reductions of nuclear material removed from
weapons stocks are regarded as a high priority and help improve
international confidence in the Treaty.
Allow me to address one additional issue having to do with our
nuclear weapons program. To meet long-term tritium production needs,
the United States must have a domestically owned source of nuclear
fuel, which would be unburdened by the peacefuluse assurances typically
required of foreign-owned suppliers. This in turn requires that the
United States have a domestic enrichment supplier capable of providing
unobligated fuel for some time. Only one such U.S.-owned supplier
exists--the U.S. Enrichment Company, which is also the Executive agent
for the HEU Purchase Agreement.
Over the near term, retaining Executive control on LEU imports,
regardless of the type of contract under which the material enters the
U.S. market, may therefore affect materially our long-term access to
unobligated fuel for tritium production.
To conclude, if we are to ensure that the current agreement is
successfully completed, it will be necessary to overcome the effects of
the Eurodif ruling. I also remain hopeful that we can continue the
transparent disposition of excess Russian HEU beyond the expiration of
the current agreement and reestablish the circumstances that allowed us
to grasp the opportunities presented in 1993.
Thank you and I look forward to your questions.
The Chairman. Thank you, both, very much.
Let me start, I'll ask a few questions.
Mr. Spooner, let me start with you. You said the Russian
imports may threaten USEC's ability to enrich uranium for
defense purposes--how much uranium does USEC enrich for our
defense needs, at this time?
Mr. Spooner. I must confess, Mr. Chairman, I don't know the
quantitative answer to that question. I only know that USEC is,
again, not subject to the peaceful use limitations that
foreign-owned suppliers would be.
But I cannot, at least not off the top of my head, provide
you with a quantitative answer.
The Chairman. OK, let me ask another question. If Russian
uranium threatens our national security--as I believe our--
that's our government's position in the Supreme Court case--why
not seek protection under section 232 of the Trade Expansion
Act, instead of section 731 of the Tariff Act?
Mr. Spooner. If I understand your cite correctly, sir, that
might be the IEPA authority that the President has. The answer
to that would be that, that is something we may consider if we
need to, but that the executive branch, and I would hope the
Senate would agree with us, we would prefer to work with the
Senate to enact legislative effects, instead of using the
President's extraordinary Executive authority to fix the
problem.
The Chairman. You're convinced that the legislation that
has now been introduced is the legislative solution that
Congress should adopt while awaiting this action by the Supreme
Court, is that correct?
Mr. Spooner. That is correct, sir.
The Chairman. Mr. Tobey, you agree with that?
Mr. Tobey. Yes, sir.
The Chairman. You believe that legislating enrichment as a
good and not a service will set a precedent for other services
industries, such as banking or insurance?
Mr. Spooner. No, Mr. Chairman. Of course, the trade remedy
laws can not apply to services such as banking or legal
services, or insurance. But, again, our view is that LEU is a
product, and regardless of what the two parties to a
transaction may term their contract, or may call the
manufacturing process, it's up to Commerce to enforce,
reasonably, the regulatory scheme that it's trusted to
enforce--the dumping law--which talks about applying dumping
duties to merchandise, which crosses the border for sale. It's
our view that LEU is merchandise, regardless of whether or
not--whether or not it's a conventional contract or a SWU
contract--by which that merchandise crosses the border. That
there's no danger that--we're only seeking to go back to the
status quo before Eurodif. We're not seeking, in any way, to
expand the dumping law to traditional services.
The Chairman. Is it your position, Mr. Spooner, that if
Russia were to resume the free sale of low-enriched uranium, or
enrichment services to the United States today, the sale price
would be sufficiently low as to qualify as dumping?
Mr. Spooner. Yes, Mr. Chairman.
The Chairman. That's your firm belief?
Mr. Spooner. Yes.
The Chairman. All right, let me defer to Senator Domenici
for his questions.
Senator Domenici. Thank you very much, Mr. Chairman.
First, Mr. Spooner, I listened as well as I could to your
testimony, and I don't listen to arguments as a judge very
often, if ever, and certainly not on complicated trade matters.
But I would tell you that it didn't do me much good to hear you
iterate your reasoning for why we should have gotten a
different result from the Court. We're not the Court, and we
can't do much about the Court, and it looks like you lost
rather handily, twice. That disturbs me, because it appears
that that shouldn't have been the case. So, I don't know what
happened along the way, but something did. Somebody had a
better lawyer than the other, or somebody did something to the
other that appears very unreasonable to a logical person, here
in the United States, and certainly to me.
But, let me see if I understand, fundamentally, before we
go off on some questions.
You know, I remember--just so you know, you weren't around,
neither of you were--when I walked over to the Appropriations
Committee here with my trusted helper, and Chairman Obey was
presiding, and they were doing a supplemental, and believe it
or not, I presented a case for $350 million supplemental then
and there--no documents, and told them why we should do it. For
a very substantial amount, for the purchase of the Russian
plutonium.
The chairman of the House Committee said, ``I don't see how
we can not do that. That sounds like the best thing America
could ever do with $350 million,'' and they gave it to us.
Now, that's where the money came from, for a huge amount of
plutonium, and we've also got to figure out what to do with
some that Russia is supposed to take care of. All of this
uranium, since that day, has been blended to make fuel for our
reactors. Now, are we in tune that we're talking about the same
uranium. We know what that uranium is? That's the uranium that
came from their missiles. They had a surplus, and the United
States had made an agreement, but we didn't have the money. We
came over here 1 day, and all of a sudden we got the money.
Then we've been using it ever since, and along came the
President and he decided to select the company that is now an
agent, the agent of the United States to handle this
transaction. Believe it or not, we wrote the charter for that
company, which was never a private sector--it was a public
sector entity for all of its existence, until we--Senator Ford
from Kentucky, and I--wrote that bill, and made them such that
they could be private.
It's never been a very good deal for them, I don't think,
at least they claim it's not been. But some people made a lot
of money out of it, so I'm not sure. Somebody, made a lot of
money. So, they haven't told me yet as to whether they lost
money or not.
But anyway, what I understand is that this decision says
that the Russians can decide, while the state is going on, that
they want to sell it another way from their own sources, and
dump on the United States, is that right?
Mr. Spooner. That is correct, yes, sir.
Senator Domenici. Easy to understand, sounds very wrong on
the part of Russia, that they should be able to do that, and
certainly it won't do much to enhance America's initiative to
do more of what it did in the first agreement. What it did in
the first agreement is in the international interest, as I
understand from your testimony--it's in the interest of the
world if we can do that, with all of their surplus from
weapons, it's in the interest of the world to get it all
inventoried and get it into the market, is that correct?
Mr. Spooner. I wholeheartedly agree. Yes, Mr. Senator.
Senator Domenici. If we could.
Now, what do you recommend that a committee of the the
United States Senate--we'll start with you, Mr. Spooner--what
do you recommend we do to correct this situation, and what are
you trying to correct with your recommendation?
Mr. Spooner. I think, two things. The first would be to
adopt the simple legislative fix which Senator McConnell has
introduced. I think it's a three- or four-line bill, which
simply stipulates that should LEU cross the border, it's a
good, not a service, pursuant to our trade laws.
Of course, in doing so, we would both support our HEU
Agreement, and all the national security objectives which you
outlined so well, and also, at least set a precedent, send a
shot across the ballast, so to speak, for others who may want
to dump into the United States other products using the same
logic as the court used in this court case.
Senator Domenici. OK, so, if we did that, we would then
have the right definition--if all that held up in court, that
you could make that decision. Somebody would challenge that,
too, that we could make such a change, legislatively, but let's
assume we did. What would that accomplish in terms of the HEU
Agreement, and as far as Russia's sale of their uranium to us?
The HEU Agreement would proceed, and nothing would be changed
by that definition, right?
Mr. Spooner. Right. That's exactly right.
Senator Domenici. What could Russia do then?
Mr. Spooner. Should the legislation pass, the HEU Agreement
would proceed without danger, so to speak, and also the
Suspension Agreement which we negotiated with Russia, and I
hope I put this well, but it would immediately plug into the
legislation, so to speak, so that Russia would be capped,
immediately, at 20 percent of the United States market in
future years.
Senator Domenici. So, what you're saying to us, you favor
20 percent, after all of your negotiations, you think the
United States would be getting a fair deal if it was 20
percent, and that were enforceable?
Mr. Spooner. Yes, sir. Indeed, in the negotiations, we of
course, consulted with stakeholders, both the miners and USEC
and the utilities, and the guidance we received from all sides
was right around 20 percent.
Senator Domenici. All right, now I'm going to just quickly
ask Mr. Tobey the same question.
Mr. Tobey. I can make it easy--I agree with the answer that
Mr. Spooner gave.
Senator Domenici. All right, thank you very much.
Thank you, Mr. Chairman.
The Chairman. Senator Barrasso.
STATEMENT OF HON. JOHN BARRASSO, U.S. SENATOR
FROM WYOMING
Senator Barrasso. Thank you very much, Mr. Chairman.
First, I recognize that the primary purpose of this hearing
is to receive testimony regarding the domestic enrichment
capability, as it relates to the Russian Suspension Agreement.
But I must, Mr. Chairman, make reference to the fact that this
agreement and the recent amendment to it can have a direct
impact on America's uranium mining industry.
Wyoming currently leads the Nation in domestic uranium
production, and several witnesses will note the importance of a
robust, competitive, domestic uranium industry in our Nation.
In my view, there are at least four distinct sectors of the
nuclear industry worth mentioning, and one is the uranium
mines, the miners. Number 2 is the enrichment companies; Number
3 is the electric generators; and then Number 4, at some future
point is a viable, secure, cost-effective mechanism for
addressing the waste from the generators.
I know we have many folks who are going to speak, I don't
want to take much time, Mr. Chairman, so I ask that a statement
on the recent amendments that comes from the Uranium Producers
of America* be submitted for the record, if that's all right
with you, Mr. Chairman.
---------------------------------------------------------------------------
* See Appendix II.
---------------------------------------------------------------------------
The Chairman. It will be included in the record.
Senator Barrasso. I just wanted to make sure, Mr. Chairman,
that the role of the mining and production of uranium not be
lost in the discussion. So, I'm looking forward to the
testimony, I have some questions, but the issues have many
facets--international trade, national guard security, economic
security, and then national energy policy.
So, it seems to me that we have an opportunity to encourage
domestic uranium production and enrichment, not discourage it.
I want to commend the leadership of this committee for its
success in the area of nuclear energy over the years.
Historically, the committee has carefully examined and
encouraged a robust, competitive nuclear energy industry.
When it comes to our energy policy, as a Nation, I believe
we need it all--the wind, the solar, the geothermal, the fossil
fuels, coal, oil and gas, and then conservation and investment
in energy efficiency, and of course, nuclear.
So, with that, Mr. Chairman, I have a few questions--first
to Mr. Spooner. With respect to the amendments to the Russian
Suspension Agreement, I understand it allows the Department of
Commerce to unilaterally raise the exports, the limits, from
Russia that would then come into the United States in the
agreement. How, and under what circumstances, do you foresee
the Administration would use that power?
Mr. Spooner. Thank you, Mr. Senator, and you're correct.
The agreement does contain a provision which gives the
Department of Commerce the unilateral authority to raise the
quotas, should we have a severe supply problem. That's
something which the miners have expressed some concern over.
We will issue guidance in the very near future, adopting
some objective and more transparent criteria as to how we would
enforce that provision. But, I can assure the miners and you,
sir, that that provision is only intended to address severe
supply shortages, or crises. We would not raise the export
limits--I hope this is a good way to put it--but, you know, on
a whim, or because we're under a little bit of pressure from
other stakeholders--it was simply a pressure valve, should we
face somewhat of a crisis in the market.
Senator Barrasso. Mr. Tobey, if I could, I think the
uranium producers, the miners, view either Russian uranium or
sale of Department of Energy uranium, as having a cumulative
impact on the market. I know this isn't directly related to
your activities. I think the Department of Energy is working on
a policy right now, developing a policy on how to dispose of
the Department of Energy inventory. What can we expect from
that? When do we expect that policy to be released--to give us
a little more assurances as folks in the industry make plans?
Mr. Tobey. Sir, I believe that analytical work is underway,
you're correct that it isn't directly under my control, but I
know my colleagues are thinking about those issues. I know that
they are mindful of the justifiable concerns about United
States industry--including miners--and, in fact, there are--as
I understand it--legal restrictions on what the Department can
do in terms of sales in order that markets not be damaged.
I would expect that there would probably be something
forthcoming in the reasonably near future, but I don't know an
exact time for that.
Senator Barrasso. OK. Thank you very much.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Craig.
STATEMENT OF HON. LARRY E. CRAIG, U.S. SENATOR
FROM IDAHO
Senator Craig. Mr. Chairman, thank you very much.
Gentlemen, I'm struggling to understand the ins and outs of
all of this. I think I have a grasp of it, but Mr. Spooner, in
your testimony--you discuss the importance of the Eurodif case,
and its impact on the domestic enrichment market. If you lose
the Eurodif case, and there is no legislative fix, when would
you anticipate the influx of Russian LEU?
Mr. Spooner. That's a very good question, Mr. Senator, and
it's something we've considered. Frankly, I don't know if
anybody has a firm answer for.
I think, to be frank, for the time being, we've made it
clear to--potential utility customers, that we intend to fix
Eurodif, either by Supreme Court review, or hopefully through a
legislative fix.
Senator Craig. The Suspension Agreement expires in 2020?
Mr. Spooner. Yes, sir.
Senator Craig. Is that a timeline that you look at in
relation to----
Mr. Spooner. Actually, we could very well see an influx
well before 2020. But, I think right now, utilities are
somewhat reluctant to aggressively engage in contracts with
Russia because we've made it clear that we intend to fix this.
Over time, if the market becomes more and more confident that
we won't fix it, I think then we quickly have a train wreck.
But, at least for the moment, there's some uncertainty and
caution in the market.
Senator Craig. OK.
Could the latest Russian Suspension Agreement have been
concluded without referencing the outcome of the Eurodif case?
Mr. Tobey. There's a provision in the Suspension Agreement
which says that the agreement will be implemented in accordance
with United States law. This doesn't explicitly reference the
Eurodif case, but of course Eurodif is the law of the land,
right now.
Senator Craig. Mr. Tobey, I watched what went on in Russia
yesterday with Gazprom, and of course, apparently the fellow
who made the decision to start turning the valve down on the
Ukraine, happens to be the new President of Russia. Then you
talk about Russia as a commercial partner--a reliable
commercial partner?
Mr. Tobey. I think that Russia's actions with respect to
gas must give people pause. Our interest in all of this,
obviously, has been one that would allow us to take material
that had formerly been in weapons stocks, and to use it for
productive purposes.
Senator Craig. Why are the Russians unwilling to expand the
HEU Agreement, and how much additional HEU do the Russians
have?
Mr. Tobey. It's difficult for us to say. They've told us
that at this point they have no further excess quantities. Now,
given the Moscow treaty reductions, I'm not sure that's
entirely logical. In terms of how much more they might have,
the one statement that we have that sheds some light on this is
the one that I referred to earlier that, according to Russian
officials, the 500 metric tons accounted for roughly 40 percent
of the Soviet nuclear stockpile. There was a public statement.
Senator Craig. OK.
I guess that's all of the questions I have of this panel,
thank you.
The Chairman. All right, well, thank you both very much for
your testimony, we have a second panel with five witnesses, and
we'll go ahead with the second panel.
We have Marvin Fertel, who is Executive Vice President with
the Nuclear Energy Institute, James Malone who is Vice
President for Fuels Management at Exelon, Reinhard
Hinterreither, who is the President and CEO of Louisiana Energy
Services, John Welch, who is the President and CEO of USEC,
Robert Ervin who is the President of United Steel Workers Local
550 in West Paducah, Kentucky.
So, thank you all for being here.
Why don't we operate on the same basic format we did with
the prior panel. If we could just start with Mr. Fertel, and
just go right across the table, here, and have each of you give
us 5 or 6 minutes of testimony as to the main points you
believe we ought to understand about this issue, and your
recommendations to us. Then we will have some questions for
you.
Mr. Fertel.
STATEMENT OF MARVIN FERTEL, EXECUTIVE VICE PRESIDENT AND CHIEF
NUCLEAR OFFICER, NUCLEAR ENERGY INSTITUTE
Mr. Fertel. Thank you, Mr. Chairman and Ranking Member
Domenici, and members of the committee. I'm pleased to be able
to address the subject of the Russian Suspension Agreement.
The United States faces major demand for new baseload
electricity generation and a response, you know, the nuclear
industry is in a major expansion mode.
In the face of rising energy costs to consumers, ensuring a
predictable, reliable, nuclear fuel supply is essential to
being able to continue to offer the benefits of nuclear energy
to our electricity customers.
Also, worldwide expansion of nuclear energy requires the
expansion of the world's fuel suppliers. That is why it's
important for United States utilities to have access to
international suppliers, and why domestic fuel suppliers look
beyond the United States for their business.
My comments today are based on the following four
principles. It is critical for a nonproliferation and a United
States nuclear fuel reliability perspective that the existing
United States/Russian HEU Agreement be fully and efficiently
implemented through its completion in 2013.
It is necessary to modernize and expand the economical and
reliable domestic uranium and conversion services capabilities
in the United States It is also necessary to modernize and
expand economically competitive and reliable domestic
enrichment capacity, as currently being pursued by USEC, LES,
AREVA, GE and any others that might want to locate in this
country.
Finally, given that the United States/Russia HEU Agreement
will be fulfilled by the end of 2013, it is necessary for
reliability of nuclear fuel supply that United States nuclear
power plants have access to the global nuclear fuel supply
market, including uranium conversion and enrichment. Even with
the expansion previously cited, domestic supply will not be
sufficient to meet all United States needs by 2013.
A key responsibility of NEI is to work with all sectors of
the industry to develop positions on government policies that
support the overall health of the entire nuclear energy
enterprise. In the overall fuel supply, a healthy tension
always exists between the interests of buyers and sellers. NEI
has been, in the past, been able to successfully bring them
together in preparing input to the United States Government.
The greatest assurance of market stability is multiple
suppliers, and our primary goal with respect to the fuel market
is to create as much certainty in the marketplace as possible.
Certainty is important to the development and deployment of new
properties for all components of the fuel supply chain. The
fuel supply from the United States/Russia HEU Agreement, has
formed a vital part of the enrichment supply for United States
reactors, at time providing more than 50 percent of our annual
enrichment requirements.
We will continue to rely on this supply through the
completion of the agreement in 2013. Based upon the announced
plans by domestic enrichers, even with the timely completion of
USEC's American Centrifuge Plant, the LES National Enrichment
Facility, the combined capacity of these plants will not fully
replace the existing capacity of USEC's Paducah facility by
2014, much less be able to compensate for the contribution now
received under the HEU Agreement.
Looking at the most optimistic projections by all of the
companies planning production in the United States, in 2014,
domestic supply is slated to be at less than 11 million SWU,
not sufficient to meet the current demand of about 14.4 million
SWU. Adding new plants could increase demand between 1.5 to 3
million SWU.
At least two of the planned facilities--the ACP and the GE
Hitachi's SILEX project--currently, involve currently
commercially unproven technologies, although we hope they do
get deployed. While AREVA has announced plans for a facility
using proven technology, the AREVA facility is not yet been
sited.
Delays in opening any of these enrichment plants will
further increase the gap between domestic supply and demand.
With these uncertainties in future supply, it's essential that
nuclear generators have access to international sources of
supply, including that from Russia.
As the ultimate users of nuclear fuel, with billions of
dollars of generation investment at risk, no sector has more
incentive to ensure the continued operation of a healthy fuel
supply industry than the utility sector. It is not in the self-
interest of fuel buyers to become over-dependent on any single
source of supply.
United States utilities fully recognize the need to manage
the costs and risks of operating a generating plant by
maintaining diverse sources of supply.
Mr. Chairman, Senator Domenici, other Senators--as recently
as this morning, many of the parties represented at this table,
along with others in the sector, met to discuss the issues we
are talking about today, and we are committed to work together
in cooperation with this committee, the United States
Government and the Russians, if necessary, to achieve a
framework that meets the common objectives we all share.
In my written testimony, we discuss the potential for using
a government-to-government agreement. While we still believe
this is a viable path, we would like to engage with the
committee to see if legislation could be passed that provides
the certainty needed to ensure both the deployment of new
enrichment facilities, and a competitive and reliable fuel
supply for our 104 operating plants.
I appreciate the opportunity to testify today, and look
forward to hearing your questions.
[The prepared statement of Mr. Fertel follows:]
Prepared Statement of Marvin Fertel, Executive Vice President and Chief
Nuclear Officer, Nuclear Energy Institute
Chairman Bingaman, Ranking Member Pete Domenici, and distinguished
members of the committee, I am Marvin Fertel, Executive Vice President
and Chief Nuclear Officer at the Nuclear Energy Institute (NEI). I am
honored to address the subcommittee on the subject of the Russian
Suspension Agreement (RSA).
NEI brings together and is responsible for developing policy for
the U.S. nuclear industry. NEI's 307 corporate and other members
represent a broad spectrum of interests, including every U.S. electric
company that operates a nuclear power plant, the existing U.S. enricher
and all proposed U.S. enrichers, the sole U.S. convertor, and the major
U.S. uranium miners. NEI's membership also includes suppliers,
engineering and consulting firms, national research laboratories,
manufacturers of radiopharmaceuticals, universities, labor unions, and
law firms.
The United States faces major demand for new base-load electricity
generation. The Administration and Congress both have recognized that
nuclear power plants are critical to meeting electricity supply and for
addressing climate change issues. The 104 operating nuclear power
plants represent about 11% of installed capacity; however, they provide
nearly 20% of electricity demand. In response, the nuclear industry is
in an expansion mode. One of the strengths of the nuclear option
relative to other energy sources is forward price stability. In the
face of rising energy costs to consumers, ensuring a predictable,
reliable nuclear fuel supply is essential to being able to continue to
offer the benefits of nuclear energy to our electricity consumers.
Expansion of nuclear energy is also occurring throughout the world. The
International Atomic Energy Agency is protecting about a 15% increase
in the number of operating reactors by 2020. This world wide expansion
requires the expansion of the world suppliers of nuclear fuel cycle
services. This is why it is important for U.S. utilities to have access
to international suppliers.
In 2007 utilities submitted to the NRC combined license
applications for 7 new nuclear power plants and additional
announcements account for 24 more plants. This expansion is predicated
on a reliable and economically competitive nuclear fuel supply.
Numerous mining and milling companies have reactivated or have
submitted applications to states and/or the Nuclear Regulatory
Commission (NRC) for uranium mines and mills. In 2007 Converdyn,
working with Honeywell, increased the conversion capacity of the
Metropolis, IL facility. USEC has licensed a new enrichment facility
which is currently in the demonstration phase, LES has licensed and
begun construction of a new enrichment facility, and AREVA and General
Electric have both announced plans for new enrichment facilities. The
billion of dollars in financing for these facilities is proceeding
under existing law. It is critical to the utilities, nuclear fuel
suppliers, and the country that everyone succeeds. In this environment,
the RSA must be viewed in terms of the overall fuel supply market and
how perturbations in one facet of the market can have ramifications
across all sectors.
Our comments today are based on the following principles:
1. It is critical from both a non-proliferation and a U.S.
nuclear fuel reliability perspective that the existing U.S./
Russian HEU Agreement be fully and efficiently implemented
through completion in 2013.
2. It is desirable to modernize and expand the economical and
reliable domestic uranium and conversion service capabilities.
3. It is desirable to modernize and expand economically
competitive and reliable domestic enrichment capacity as
currently being pursued by USEC, LES, AREVA, and GE and any
others that might want to locate in the US.
4. Given that the U.S.-Russian HEU Agreement will be
fulfilled by the end of 2013, it is necessary, for reliability
of nuclear fuel supply, that U.S. nuclear power plants have
access to the global nuclear fuel supply market including
uranium, conversion, and enrichment. Even with the expansions
previously cited, domestic supply will not be sufficient to
meet all U.S. needs by 2013.
A key responsibility of NEI is to work together with all sectors of
the industry to develop positions on government policies that support
the overall health of the entire nuclear energy enterprise. In the area
of fuel supply, a healthy tension always exists between the interests
of buyers and suppliers. NEI has been able to successfully bring them
together in preparing input to the U.S. government. The greatest
assurance of market stability is multiple suppliers. Our primary goal
with respect to the fuel market is to create as much certainty in the
marketplace as possible. This certainty is important to the development
and deployment of new properties for all components of the fuel supply
chain. Competition among all suppliers is a good thing. Certainly the
U.S. suppliers want access to sell in the broad international market,
and utilities want to be able to buy internationally as well.
Today's situation in Russian is quite different from what existed
when the RSA first came about. At that time, Russia was still
functioning as a non-market economy.
Today it is on the verge of ascension to the World Trade
Organization, and its energy resources form a major component for its
continued economic growth.
Well before the current amendment to the RSA was signed, the U.S.
industry had discussions about what might constitute acceptable
quantities of Russian commercial material entering the U.S. market. The
quantity limits for Russian exports to the U.S. now contained in the
RSA are reasonably consistent with what the industry had discussed. The
provision that states that the Department of Commerce can allow
additional imports in case of supply emergencies provides an important
way to ensure adequate supply. The RSA also provides for a needed
transition period for getting from our current reliance on Russian
supplies under the U.S.-Russian HEU Agreement to what will be required
once that Agreement terminates in 2013. Post-2013, access to Russian
commercial enrichment will be essential.
The material supplied in the U.S. under the U.S.-Russian HEU
Agreement has formed a vital part of the enrichment supply for U.S.
reactors over the term of the agreement, at times providing more than
50 percent of our annual enrichment requirements through sales by the
U.S. executive agent, USEC. We will continue to rely on this material
through the completion of the existing agreement in 2013. Yet while we
have every expectation that the Russians are committed to fulfilling
their obligations under the existing agreement, the Russians have been
very clear that they do not intend to seek an extension of the
agreement. This agreement that established this significant source of
supply for U.S. reactors will cease to exist after 2013, and alternate
sources will be required to fully meet the needs of existing reactors
as well as for any new generating capacity.
Even assuming the timely completion of USEC's American Centrifuge
Plant (ACP) and the LES National Enrichment Facility now under
construction in New Mexico, the combined capacity of these plants will
not fully replace the existing capacity of USEC's Paducah facility by
2014, much less be able to compensate for the contribution now received
under the HEU agreement. Looking at the most optimistic projections by
all the companies with future domestic enrichment facilities under
construction or on the drawing boards, production in the U.S. in 2014
is slated to be less than 11 million SWU, clearly not sufficient to
meet the current demand of about 14.4 and adding new plants will
increase it between approximately 1.5 to over 3.0 million SWU. At least
two of the planned facilities, the ACP and GE Hitachi's SILEX effort,
involve commercially unproven technologies. While AREVA has announced
plans for a facility using proven technology similar to that being used
by LES in New Mexico, the AREVA facility has not yet even been sited.
Delays in opening any of these enrichment plants will further increase
the gap between domestic supply and demand.
With these uncertainties in future supply, it is essential that
nuclear generators have access to international sources of supply,
including that from Russia. The implications of uncertainty and
unreliability that could result from having even one nuclear unit sit
idle for lack of timely delivery of fuel would be totally unacceptable.
A nuclear fuel market that is open and fair will be critical to
expansion of nuclear generation worldwide. Technological innovation is
fostered by open markets. Advancement is fostered by market
competition, not by government protections and allocation schemes.
Recent trends in uranium pricing vividly illustrate that market signals
can and do work.
As the ultimate users of nuclear fuel with billions of dollars of
generation investment at stake, no sector has more incentive to ensure
the continued operation of a healthy fuel supply industry than the
utility sector. It is not in the self-interest of fuel buyers to become
over-dependent on any single source of supply. U.S. utilities fully
recognize the need to manage the costs and risks of operating their
generating plants by maintaining diverse sources of supply for all fuel
components. Events in recent years have demonstrated dramatically the
importance of supply diversity. Physical and regulatory issues have
triggered prolonged shutdowns of operating mining and conversion
facilities, and delayed the opening of anticipated new sources.
Unexpected disruptions can occur in any portion of the supply chain,
and utility managers cannot afford to be left without options to ensure
plants stay on line.
The electric utility sector cannot operate its nuclear units
without a secure fuel supply; without a successful nuclear electricity
utility market, the nuclear fuel supply community will have no
customers. The parties represented at this table, along with the other
sectors of the industry, are willing to work together, in cooperation
with the U.S. government and the Russians, to achieve a framework that
meets the common objective we all share--the continued growth of clean,
safe nuclear energy.
While there could be a number of options used to support continued
growth of nuclear energy and competitive fuel supply, one potential
vehicle for achieving our joint objectives might be a government to
government agreement modeled after the very successful U.S.-Russian HEU
Agreement. Such an agreement could be consistent with the mutual U.S.
and Russian objectives of fuel supply assurance. Successful development
and maintenance of adequate sources for enrichment supply in both
countries to support a robust generation industry underscores that
countries seeking to begin nuclear generation need not pursue their own
enrichment facilities to be certain of supply.
NEI appreciates the opportunity to address the committee and would
be happy to answer any questions you may have.
The Chairman. Thank you very much.
Mr. Welch, go right ahead.
STATEMENT OF JOHN K. WELCH, PRESIDENT AND CEO, USEC, INC.,
BETHESDA, MD
Mr. Welch. Good afternoon. My name is John Welch, and I am
President and CEO of USEC, Inc., a leading supplier of enriched
uranium fuel for commercial nuclear power plants.
Thank you, Chairman Bingaman, Ranking Member Domenici, and
members of the committee for inviting me to testify on
America's ability to maintain domestic enrichment capability in
light of recent agreement between Russia and the United States
on Russian uranium imports.
There is complete agreement throughout the industry that we
want expanded use of nuclear power in the United States. This
includes a strong domestic fuel nuclear fuel industry, robust
competition among domestic and international fuel suppliers,
and a reinvigorated nuclear industrial manufacturing base
needed to achieve all of the above. The question before us is,
how to get there?
One of the most pressing challenges we face is how to
integrate Russia's huge nuclear fuel supply into the United
States market without endangering our future nuclear fuel
production capability. We all agree that the principles
reflected in the recent agreement are the way to move forward
with Russia. The Agreement provides a critical transition
period, to deploy new domestic capacity, while giving Russia
the opportunity to sell here, without threatening the stability
of the United States market.
The problem we face now, and the reason I am here today, is
that the Agreement may not be enforceable, because of the
Eurodif case.
We strongly believe that today, stable market conditions
will not hold if the United States Government can not enforce
limits on Russian uranium imports. Without an enforceable
agreement during the transition, our Paducah Plant, our
advanced technology projects, and I suspect all of the projects
underway to ensure America has a secure fuel supply, may be in
jeopardy.
No one, including USEC, wants to exclude Russia from the
United States market, but we need Congress to give the
Administration the authority to make the agreement work.
A successful American nuclear renaissance needs a
corresponding growth in American nuclear fuel production. USEC
is one of four companies that are making, or planning to make
multi-billion dollar investments in the United States
enrichment plants to meet America's fuel supply needs. It is a
testament to the openness of the United States market today
that we have four commercial projects for new enrichment
domestic capacity, while no other country has more than one.
It is vital that these projects are successfully deployed.
Our Nation must have a secure fuel supply to ensure that an
expanded reliance on nuclear power does not lead to increased
dependence on yet another foreign source of energy.
I want to acknowledge the forward-thinking efforts of you,
Mr. Chairman, Senator Domenici, Congress and the Administration
to support the growth of nuclear power by passing the Energy
Policy Act of 2005, and USEC thanks the United States
Government for its support of efforts to close the gap in the
coverage of United States trade law created by the Federal
Appeals Court decision.
I want to thank Kentucky Senators, Mitch McConnell and Jim
Bunning, as well as Congressman Ed Whitfield, for introducing
legislation clarifying that all nuclear fuel imports should be
subject to United States trade law. This legislation will
ensure that the agreement with Russia can be enforced according
to the terms of the agreement.
I also want to acknowledge United Steel Workers for taking
the lead in requesting the legislation, and in particular, the
efforts of Local 550 in Kentucky, and Local 689 in Ohio.
USEC will support any measure that will ensure that the
terms negotiated with Russia can be enforced. Those terms
provide a reasonable market access for Russia and for
utilities, and they give USEC and others, who want to provide a
secure domestic fuel supply to support the renaissance, the
market stability we need to finance and complete our new
enrichment projects.
Our new American Centrifuge Plant will help produce the
fuel that American utilities need, and will replace the fuel
that, today, comes from Russian nuclear warheads under the
Megatons-to-Megawatts program. This United States technology
will ensure a reliable and competitive domestic supply of
nuclear fuel, help revitalize America's nuclear industrial
base, and create hundreds of well-paying jobs in more than 10
States.
The American Centrifuge is the only technology available to
meet United States national security needs, such as enriched
fuel for defense purposes. Even if plants using foreign
technology are deployed in the United States, only the American
Centrifuge could be used to meet defense needs, including fuel
for our nuclear Navy.
Some contend that without immediate and unlimited access to
Russian uranium imports, America will face a shortage in our
nuclear fuel supply. I think an examination of the numbers
would show something else.
The proposed quotas for Russia, existing and planned
domestic capacity, plus a potential expansion and continued
imports from our allies in Western Europe, ensure more than
sufficient fuel supply to meet domestic needs, provided United
States market conditions remain stable, and afford us the
certainty needed to maintain and deploy domestic supply.
We are at a critical juncture in our efforts to support the
nuclear renaissance. Action now to ensure that the recent
agreement with Russia is enforceable, will facilitate the
stable and strong United States nuclear fuel industry needed
for the renaissance.
Thank you very much.
[The prepared statement of Mr. Welch follows:]
Prepared Statement of John K. Welch, President and CEO, USEC, Inc.,
Bethesda, MD
Good afternoon. My name is John Welch, and I am president and CEO
of USEC Inc., a leading supplier of enriched uranium fuel for
commercial nuclear power plants. Thank you Chairman Bingaman, Ranking
Member Domenici and Members of the Committee for inviting me to testify
on America's ability to maintain a domestic enrichment capability in
light of the recent agreement between Russia and the United States on
Russian uranium imports.
Let me begin by saying there is complete agreement within all
sectors of the industry that where we want to end up is with expanded
use of nuclear power in the United States; a strong domestic nuclear
fuel industry; robust competition among domestic and international fuel
suppliers; and a reinvigorated nuclear industrial manufacturing base in
the United States needed to achieve all of the above. The question
before us is how to get there.
In answering this question, one of the most pressing challenges we
face is how to integrate Russia's huge nuclear fuel supply into the
U.S. market without endangering our own nuclear fuel industry.
Fortunately, I believe there is consensus throughout the industry that
the principles reflected in the recent agreement are the way to move
forward with Russia. The agreement provides a critical transition
period to deploy new domestic capacity while giving Russia an
opportunity to sell here without threatening the stability of the U.S.
market.
The problem we face now--and the reason I am here today--is that
the agreement between Russia and the United States may not be
enforceable. A 2005 federal appeals court decision in a case involving
French nuclear fuel declared that certain enrichment transactions
between foreign enrichers and U.S. utilities are outside the scope of
the U.S. trade law used to control imports of Russian fuel. This means
that if the French case were applied to Russian imports, Russian fuel
could be imported without limit as long as the contracts were written
and the imports were carried out to qualify for the exception the
appeals court created.
Today's stable market conditions will not hold if the U.S.
government cannot enforce limits on Russian uranium imports. Without an
enforceable agreement with Russia during the transition, our Paducah
plant, our advanced technology project and, I suspect, all the projects
underway to ensure America has a secure fuel supply face an uncertain
future and may well fail.
No one, including USEC, wants to exclude Russia from the U.S.
market. But we need Congress to give the Administration the authority
needed to make the agreement work. The agreement gives Russia limited
access to the U.S. nuclear fuel market starting in 2011, access to 20
percent of the market beginning in 2014 and full access by 2021.
Further, it also allows Russia to sell unlimited quantities of fuel for
new reactors and gives the Commerce Department the power to adjust the
limits on Russian fuel in the event of a real supply shortage.
We believe the terms of the agreement are reasonable and reflect
the broad consensus that exists in the U.S. nuclear fuel industry
regarding a measured approach to Russia. For USEC, our United Steel
Workers (USW) union, our workers and the communities we serve, the
agreement provides the assurance of market stability that we need to
finance and complete our new enrichment plant.
I think everyone here would agree that a successful American
nuclear renaissance needs a corresponding growth in American nuclear
fuel production. I am happy to report that USEC is one of four
companies that are making or planning to make multi-billion dollar
investments in new U.S. enrichment plants to meet America's fuel supply
needs. This is unprecedented in the history of commercial nuclear fuel.
No other country has more than one domestic producer, and all enrichers
other than USEC are wholly or partially government owned. It is a
testament to the openness of the U.S. market today that four commercial
projects for new enrichment capacity are either under construction or
being proposed.
It is vital that these efforts succeed. A domestic supply is a more
secure supply. Our nation must have a secure fuel supply to ensure that
an expanded reliance on nuclear power does not lead to increased
dependence on yet another foreign source of energy. We currently import
most of our oil and are becoming increasingly dependent on foreign LNG
supplies for our natural gas--we cannot afford to let that happen with
our nuclear fuel supply. Just as geo-political change can open up new
energy supply sources as we saw with the collapse of the Soviet Union,
geo-political change could just as quickly shut down access to foreign
energy supplies.
I want to acknowledge the forward-thinking efforts of you, Mr.
Chairman, Senator Domenici, Congress and the Administration to support
the growth of nuclear power by passing the Energy Policy Act of 2005.
This legislation provides important loan guarantees and tax credits to
utilities who are working hard to proceed with building new nuclear
reactors and modernizing America's nuclear industrial base.
USEC thanks the U.S. government for its support of efforts to close
the gap in the coverage of U.S. trade law created by the federal
appeals court decision. The U.S. government's support highlights the
national interests at stake in this case.
I want to thank Kentucky Senators Mitch McConnell and Jim Bunning,
as well as Congressman Ed Whitfield, for introducing legislation
clarifying that all nuclear fuel imports are subject to U.S. trade law.
This legislation will ensure that the agreement with Russia can be
enforced according to the terms of the agreement. I also want to
acknowledge the United Steel Workers for taking the lead in requesting
the legislation and, in particular, the efforts of International Local
550 in Kentucky and Local 689 in Ohio in support of the legislation.
USEC will support any measure that will ensure that the terms
negotiated with Russia can be enforced. Those terms provide an
extremely reasonable market opportunity for Russia and for utilities.
And they give USEC and others who want to provide a secure domestic
fuel supply to support the nuclear renaissance in the United States the
market stability we need to finance and complete our projects.
USEC is doing three things that are of vital importance to U.S.
energy and national security.
First, we operate the only uranium enrichment facility on U.S.
soil--a gaseous diffusion plant in Paducah, Kentucky.
Second, we are deploying the only U.S.-owned and U.S.-operated
advanced uranium enrichment technology at USEC's American Centrifuge
Plant in Piketon, Ohio.
Third, we are the U.S. government's executive agent for the
Megatons to Megawatts nonproliferation program with Russia. This
program has converted highly enriched uranium from almost 13,000
dismantled Russian nuclear warheads into fuel that generates
approximately 10% of America's electricity annually. The program is on
track to eliminate 20,000 warheads by 2013.
USEC supplies approximately one-half of the fuel used to power U.S.
nuclear reactors today. USEC also employs more than 2,800 workers at
its facilities in five states--Georgia, Kentucky, Ohio, Tennessee and
Maryland.
Let me talk briefly about what USEC has been doing to meet our
country's need for reliable uranium enrichment supply.
USEC has substantially improved operations at our Paducah plant,
which is now operating at historically high levels of efficiency.
Market prices for our product at current levels can support continued
production from our existing plant.
USEC must also replace the fuel that today comes from dismantled
Russian nuclear warheads under the Megatons to Megawatts program, and
we are building new capacity using the world's most advanced enrichment
technology, which is based on research and development done by the U.S.
Department of Energy. USEC is investing billions of dollars in a new
enrichment plant to produce the nuclear fuel that American utilities
need.
The American Centrifuge Plant we are building in Ohio will use 95
percent less electricity than a comparably sized gaseous diffusion
plant. The new plant relies on domestic technology and will employ
highly skilled American workers. It will ensure a reliable and
competitive domestic supply of nuclear fuel, help revitalize America's
nuclear industrial base and create hundreds of new, well-paying U.S.
jobs in more than 10 states.
I am personally committed to keeping the project economic for our
investors and price competitive for our customers. However, there is an
important national security dimension to the project that cannot be
ignored. While other domestic plants based on foreign technology have
been proposed, the American Centrifuge Plant is unique because it alone
will employ U.S. technology. This technology is not only vital to our
nation's energy interests, it is also the only technology available to
meet U.S. national security needs, such as enriched fuel for defense
purposes. Even if plants using foreign technology are deployed in the
United States, only the American Centrifuge technology could be used to
meet those defense needs. By international agreement, enriched uranium
produced using such foreign technology may only be used for peaceful
purposes.
Some contend that without immediate and unlimited access to Russian
uranium imports, America will face a shortage in our nuclear fuel
supply in the future. That is simply not the case.
First, our Paducah plant is setting new production records and can
continue to operate throughout the next decade if needed, provided that
market prices remain stable and are not depressed by dumped imports.
Second, our American Centrifuge Plant's modular architecture can be
expanded years ahead of an increase in fuel demand, thus providing
ample supply for utilities.
Third, LES and the other projects I mentioned before are planning
to provide additional domestic capacity using foreign technology, which
individually or together will provide substantial domestic supply in
addition to the supply from the American Centrifuge Plant.
Fourth, we expect the United States will continue to import
substantial amounts of nuclear fuel from Western Europe. See our chart,
exhibit 1.*
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* Exhibits 1-2 have been retained in committee files.
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Fifth, as mentioned earlier, the terms of the recent agreement
allow unlimited imports of Russian fuel for initial cores of new
reactors and permit the Commerce Department to increase the quotas on
Russian fuel in the event of a supply shortage for existing reactors.
Therefore, there should be more than sufficient fuel supply to meet
domestic needs, provided U.S. market conditions remain stable and
afford us the certainty needed to maintain and deploy domestic supply.
It is important to note that, under these conditions, nuclear power is
very attractive because, among other benefits, it does not put us in a
position of being reliant on a single country or cohesive group of
countries, like OPEC, for our fuel supply.
In this regard, Russia has the largest nuclear fuel supply in the
world and is aggressively seeking to expand its share of the world
market, particularly in the United States, as confirmed in the U.S.
International Trade Commission's year-long investigation that was
completed in 2006 (see exhibit 2). Russia can clearly play an important
role in the U.S. nuclear fuel market in the long term, but given
Russia's significant excess supply and propensity to use energy to
further their policy objectives, unfettered access to the U.S. market
would put the United States in the unacceptable position of being at
the mercy of Russian fuel imports.
At the beginning of my remarks, I stated that we are all committed
to the expanded use of nuclear power, a strong domestic nuclear fuel
industry, robust competition among domestic and international nuclear
fuel suppliers and a reinvigorated manufacturing base, and I raised the
question of how do we get there.
We are at a critical juncture in our efforts to support the nuclear
renaissance. Action is required now to assure the stable and strong
U.S. nuclear fuel industry that is needed for this renaissance by
ensuring that the recent agreement with Russia is enforceable.
The U.S. nuclear power industry, the Congress and the
Administration must work together to prevent the United States from
becoming dependent on foreign governments, the nuclear fuel companies
they control or foreign enrichment technologies to keep America's
nuclear plants operating. It would be a great irony if the nation that
first harnessed the power of the atom became solely dependent on other
nations to provide its nuclear fuel. A nuclear renaissance overly
reliant on foreign-controlled fuel is a bad deal, and Congress has the
power to ensure that does not happen.
The Chairman. Thank you very much.
Mr. Malone, go right ahead.
STATEMENT OF JAMES P. MALONE, VICE PRESIDENT, NUCLEAR FUELS
EXELON GENERATION COMPANY, LLC, WARRENVILLE, IL
Mr. Malone. Thank you, Mr. Chairman, Ranking Member
Domenici, and members of the committee.
Today, I would like to present you with four thoughts. One,
free markets work best. Two, Exelon supports, and is committed
to, a robust domestic enriching services market. Three,
utilities utilize strict risk management criteria, and; Four, a
government-to-government agreement, or legislation based on the
principles of the Russian Suspension Agreement could be in the
best interests of all stakeholders.
Let me address free markets. Exelon is a merchant-
generator, which means we have no captive customers, and sell
our electricity in the competitive wholesale market.
Competition makes us work very hard to maintain high
performance. We focus on safety, high-quality workmanship,
personal responsibility, and accountability for our actions. At
Exelon, we believe that our core values are the reason for our
success.
I mention those values in the hope that the committee will
agree that competition can provide the incentive for any
participant to achieve excellent performance, and to rely on
sustaining that performance to provide the basis for continued
success. Fair and open competition does not favor one
competitor over another. Fair and open competition is all
having an equal chance, and being judged by their performance--
markets reward high performance.
Two, we need a robust domestic enriching services market.
Each year, Exelon requires 2.5 to 3 million Separative Work
Units for enriching services. Needless to say, those quantities
are significant, and represent about 20 percent of the United
States annual requirements for nuclear fuel.
Just as we believe in competitive, wholesale electricity
markets, we also believe in competition among our fuel
suppliers. Exelon is a large customer of both USEC and LES. We
are working to reach agreement on terms and conditions with
both Global Laser Enrichment, and AREVA, for enrichment
services from their proposed United States plants.
Three, rigorous risk management. In light of Exelon's
annual nuclear fuel needs, it is important for us to pay
particular attention to risk management. We employ a rigorous
process to assure that we manage risk in a balanced and
informed manner. Risk can manifest itself in many ways, so
diverse sources of supply are a necessity when the risk
portfolio is as broad as it is in the worldwide nuclear fuel
market.
Exelon supports the amendment to the Russian Suspension
Agreement. The purpose of the amendment is to open the United
States market to commercial SWU from Russia--in other words, it
seeks to add an additional competitor to the market.
The importance of the amendment lies in the incremental
manner in which Russian origin commercial SWU has increased
over time, especially recognizing the end date of the HEU
Agreement.
Currently, the HEU Agreement provides about 5.5 million SWU
per year to the United States, meeting roughly half of United
States demand. This SWU is delivered to USEC, and they use it
to fulfill delivery commitments under their contracts. This is
a very important nonproliferation program, and Exelon is
pleased to work with USEC to achieve the goals of the HEU
blend-down program.
By the end of 2013, there will be a drop in the supply of
SWU available to the United States market. Recognizing that the
supply of material from the HEU Agreement will end at that
point, Exelon is working hard to diversify our SWU supply base.
As we progress through the negotiating process with AREVA
and GLE, it is becoming more evident that there is a need to
improve the certainty on both sides, or said another way,
reduce the risk.
Suppliers need stability and predictability in order to
obtain the financing required to build the new facilities.
Consumers need stability in order to have reasonably
predictable future prices. Exelon recognizes the importance of
this issue to both sides. Customers have been surprised when
Exelon points out that we believe that our suppliers must be in
a position to profit from their investments. We do not believe,
for example, that a return of uranium prices to the very low
levels seen earlier this decade would be in the industry's
long-term interests. The uranium sector needs the ability to
explore for, and develop, new ore bodies in order to assure the
supply for their customers.
Last, a government-to-government agreement, or legislation.
Exelon believes that a new government-to-government agreement
between the United States and Russia, or legislation that
achieves the same purpose, can form the basis for a stable and
predictable supply of uranium enriching services from Russia to
the United States The language could be, in large part, that
which is already in the Russian Suspension Agreement.
Exelon also believes that the NEI membership can support
either approach, and wants to work with the committee to
accomplish this. NEI has already accomplished what many thought
could not be done, by working with its membership and the
Department of Energy to establish mutually agreed-upon terms
under which DOE uranium could enter the market.
Market participants are willing to cooperate to reach an
agreement that will lead to market stability and adequate
supplies of enriching services. Exelon stands ready to work
with the consumers, producers, the nonproliferation community,
and others to develop a proposal that could serve as the basis
for a government-to-government agreement, or legislation that
will accomplish the goals of all stakeholders.
On behalf of Exelon, I appreciate the opportunity to
address the committee, and would be happy to answer any
questions you may have.
[The prepared statement of Mr. Malone follows:]
Prepared Statement of James P. Malone, Vice President, Nuclear Fuels
Exelon Generation Company, LLC, Warrenville, IL
Mr. Chairman and Members of the Committee: I am James Malone, Vice
President, Nuclear Fuels at Exelon Generation Company, LLC. Exelon is
honored to address the committee on the subject of the Russian
Suspension Agreement (RSA).
In my testimony today, I want to stress the need for a fair and
open market for nuclear fuel supplies. Such a market is an essential
prerequisite for our industry.
Exelon Generation is the largest owner and operator of commercial
nuclear power plants in the United States. We have 17 reactors at 10
sites in Illinois, Pennsylvania and New Jersey. Our total net nuclear
generating capacity is 17,649 megawatts.
Exelon's nuclear fleet produced a record of 132.3 million net
megawatt-hours of electricity in 2007. The fleet also achieved an
average capacity factor of 94.5 percent, the seventh year in a row the
capacity factor was greater than 92 percent.
While producing this record output, the plants prevented 121
million metric tons of carbon dioxide emissions by eliminating the need
for an equivalent amount of coal based generation. When compared with
natural gas generation, Exelon Nuclear prevented the release of 63
million metric tons of carbon dioxide. The carbon avoided by the Exelon
Nuclear fleet in 2007 is equivalent to the emissions of more than 23
million passenger cars, nearly double the number of cars in Illinois,
Pennsylvania and New Jersey combined.
The environmental and economic benefits of Exelon Nuclear's
operations are significant. To continue to provide our customers with a
clean, safe and economic source of electricity, we must have reliable
and economic fuel supplies. Exelon Nuclear is a merchant generator,
which means we have no captive customers and sell our electricity in
the competitive wholesale market. We sell our output via Exelon's Power
Team, primarily into the PJM market, which serves 51 million people in
13 states. Competition makes us work very hard to maintain high
performance. We focus on safety, high quality workmanship, personal
responsibility and accountability for our actions. At Exelon we believe
that our core values are the reason for our success.
I mention those values in the hope that the Committee will agree
that competition can provide the incentive for any participant to
achieve excellent performance and to rely on sustaining that
performance to provide the basis for continued success. Fair and open
competition does not favor one competitor over another. All have an
equal chance and are judged by their performance. Markets reward high
performers.
Each year Exelon consumes between 8.5 and 10 million pounds of
uranium. We also require 2.5 to 3 million separative work units (SWU)--
a unit of enriching services--each year. Needless to say, those
quantities are significant and represent about 20 percent of the United
States' annual requirements for nuclear fuel.
Just as we believe in competitive wholesale electricity markets, we
also believe in competition among our fuel suppliers. Exelon is a large
customer of both USEC and LES. We are working to reach agreement on
terms and conditions with both Global Laser Enrichment (GLE) and Areva
for enrichment services from their proposed U.S. plants. The
negotiating process can be protracted, but we hope that we will be able
to reach mutually agreeable terms with both suppliers.
In his prepared testimony, Mr. Fertel of NEI detailed the quantity
of 2014 enriching services represented by the proposed new build in the
U.S. Each of the four facilities has an initial nameplate capacity of
about 3.5 million SWU per year, while U.S. annual demand is about 14.4
million SWU per year. Exelon could choose to sign a contract with a
single supplier and ask for terms that reflect the importance to that
supplier of having a baseload customer that consumes about 85 percent
of its output. That may sound appealing on the surface, but it would
not be prudent risk management on either side of the deal.
In light of Exelon's annual nuclear fuel needs, it is important for
us to pay particular attention to risk management. We employ a rigorous
process to assure that we manage risk in a balanced and informed
manner. Risk can manifest itself in many ways. We must manage financial
risk, political risk, transportation risk, environmental risk--
including adverse weather, and operations risk. Diverse sources of
supply are a necessity when the risk portfolio is as broad as it is in
the worldwide nuclear fuel market.
We also believe that markets must operate fairly and equitably.
Establishing barriers can appear to be a short-term solution to a
difficult problem, but eventually the laws of economics will prevail.
Thus we support the recently-signed amendment to the Russian Suspension
Agreement. The purpose of the amendment is to open the U.S. market to
commercial SWU from Russia. In other words, it seeks to add an
additional competitor to the market. The importance of the amendment
lies in the incremental manner in which Russian origin commercial SWU
is increased over time, especially recognizing the end date of the HEU
agreement.
Currently the HEU agreement provides about 5.5 million SWU per year
to the U.S., meeting roughly half of the U.S. demand. This SWU is
delivered to USEC and they use it to fulfill delivery commitments under
their contracts. This is a very important non-proliferation program and
Exelon is a pleased to work with USEC to achieve the goals of the HEU
blend down program.
Thus far, Exelon has loaded the enriching services component of
over 5,000 Russian weapons into its reactors. The threat represented by
those weapons has been permanently eliminated. The HEU program will
have achieved its goal of eliminating about 20,000 Russian weapons by
the end of 2013 and at that time there will be a drop in the supply of
SWU available to the U.S. market. Recognizing that the supply of
material from the HEU agreement will end at that point, Exelon is
working hard to diversify our SWU supply base.
As we progress through the negotiating process with Areva and GLE,
it is becoming more evident that there is a need to improve certainty
on both sides. Suppliers need stability and predictability in order to
obtain the financing required to establish the new facilities.
Consumers need stability in order to have reasonably predictable future
prices. Exelon recognizes the importance of this issue to both sides.
Observers have been surprised when Exelon points out that we believe
that our suppliers must be in a position to profit from their
investments. We do not believe, for example, that a return of uranium
prices to the very low levels seen earlier this decade would be in the
industry's long-term interest. The uranium sector needs the ability to
explore for and develop new ore bodies in order to assure supply for
their customers.
Similarly, Exelon believes that it is important for the enriching
services market to be stable and predictable. Efforts to expand
enriching capacity in the U.S. could be stymied if the Nuclear
Regulatory Commission's review of any proposed facility is limited in
its ``need'' assessment under the National Environmental Policy Act
(NEPA) to consider only whether there is a need to meet domestic, as
opposed to world, requirements. The SWU market is truly international
and the U.S. would further its non-proliferation goals more readily if
the definition of need were expanded to include contracts signed by
non-U.S. consumers for U.S. production. Capping U.S. production
capability at the level of domestic consumption is a recipe for
instability that could drive customers overseas and encourage other
countries to build enrichment capacity.
Exelon believes that a new government-to-government agreement
between the United States and Russia can form the basis for a stable
and predictable supply of enriching services from Russia to the U.S.
The language could be, in large part, that which is already in the
Russian Suspension Agreement. Exelon also believes that the NEI
membership can support such an agreement despite the fact that many of
its members believe that SWU, as a service, should not be limited. NEI
has already accomplished what many thought could not be done by working
with its membership and the Department of Energy to establish mutually
agreed upon terms under which DOE uranium could enter the market.
Market participants are willing to cooperate to reach an agreement
that will lead to market stability and adequate supplies of enriching
services. Exelon stands ready to work with consumers, producers, the
non-proliferation community and others to develop a proposal that could
serve as the basis for a government-to-government agreement that will
accomplish to goals of all stakeholders.
On behalf of Exelon, I appreciate the opportunity to address the
Committee and would be happy to answer any questions you may have.
The Chairman. Thank you very much.
Mr. Ervin.
STATEMENT OF ROBERT C. ERVIN, JR., PRESIDENT, LOCAL 550, UNITED
STEEL WORKERS, WEST PADUCAH, KY
Mr. Ervin. Good afternoon. At the onset, I would like to
thank the chairman and the ranking member for conducting this
hearing, and inviting me to testify.
Mr. Chairman, and members of this committee, my name is Rob
Ervin. Currently, I serve as President of the United Steel
Workers, USW, Local 550 at the Paducah Gaseous Diffusion Plant.
There are nearly 900,000 active members in the USW
International Union, and we are the largest industrial union in
North America. I represent almost 600 members at our only
domestic uranium enrichment plant.
The USW also represents workers at Local 689, at the
Portsmouth Gaseous Diffusion Plant in Portsmouth, Ohio.
Enrichment activity ceased in 2001, but it will be the site of
the United States Enrichment Corporation, USEC, American
Centrifuge Plant.
Briefly stated, the recently signed amendment to the
Russian Suspension Agreement, RSA, has a weakness.
Specifically, it does not cover low-enriched uranium, LEU,
imported as Separative Work Units under so-called SWU
contracts. This gap in coverage is a result of the recent
Eurodif goods versus services court decision, and it is a
direct threat to the continued operation of the Paducah Plant,
and USEC's deployment of the new Centrifuge Plant.
LEU alone, or sold under SWU contracts, is a commodity.
Demand for nuclear fuel is largely fixed and stable, so
declining prices will not result in a significant increase in
demand. However, because of its commodity nature, a small
increase in supply could destabilize the market.
The Paducah plan operates very efficiently, in fact, we
have recently set all-time production records. However, we
compete against foreign enrichers that are either government-
owned, or government-subsidized.
Because we are a private corporation, a drop in the LEU, or
SWU price, would result in the Paducah Plant operating at a
loss. If that happens, we could see significant job losses and
possibly the closure of the only domestic uranium enrichment
facility.
Under the amended RSA, the Russian Federal Atomic Energy
Agency, Rosatom, and the United States nuclear utilities could
easily circumvent the quota limits utilizing SWU contracts. The
result would be a saturated United States market, and depressed
prices.
The Russians have the largest enrichment capacity in the
world, and it far exceeds their domestic needs. They have also
demonstrated their intent to further their policy initiatives,
through manipulation of their energy resources.
The utilities--through their trade association, the Nuclear
Energy Institute, NEI--say they have no interest in
circumventing the RSA quotas, and flooding the market. Yet, the
resulting price drop would benefit them immensely. NEI has
stated, we should just trust them to live within the RSA
quotas, even though they are not legally bound to do so.
The USW, and all local communities, are not willing to
entrust the fate of our domestic industry, and well over 1,500
hourly and salary to NEI, the self-interest of the utilities,
or the Russian government.
While the Russians pose the most serious threat to our
industry, the fundamental issue is the gap in SWU coverage
created by the Eurodif decision. To correct this gap, S. 2531,
sponsored by Senators McConnell and Bunning, and H.R. 4929,
sponsored by Representative Whitefield, were introduced.
These companion bills amend the Tariff Act of 1930 to
clarify that all imports of LEU, including SWU contracts, would
be subject to our trade laws. In addition to these efforts, the
Administration also strongly supports this legislation, as
demonstrated by a letter signed by four Cabinet-level agencies.
We have attached a copy of their letter as an Exhibit to our
written testimony, and we ask that it be included in the
record.
The USW is very appreciative of all efforts to ensure our
domestic industry and its workers can compete on a level
playing field.
In conclusion, the USW urges Congress to take action that
would limit the amount of imported LEU. We believe the 20
percent annual RSA quota is reasonable, but it must include LEU
sold under SWU contracts.
The USW will support legislative efforts to ensure that
these reasonable limits can be enforced, with the terminal
objectives of preserving our domestic enrichment capability,
timely completion of new and modernized facilities, lessening
our dependence on foreign energy, and protecting our national
security interests.
Mr. Chairman, this concludes my testimony, and I am happy
to answer any questions that you may have.
[The prepared statement of Mr. Ervin follows:]
Prepared Statement of Robert C. Ervin, Jr., President, Local 550,
United Steelworkers, West Paducah, KY
Mr. Chairman and Members of the Committee, I am Rob Ervin,
President of Local No. 550 of the United Steel, Paper and Forestry,
Rubber, Manufacturing, Energy, Allied-Industrial and Service Workers
International Union (``USW''). The USW has 850,000 active members and
is the largest industrial union in North America. Our union has been
fighting on the front lines against foreign governments and companies
seeking to gain an unfair competitive advantage by violating the rules
of fair trade. The USW represents workers in Paducah, Kentucky at the
USEC enrichment plant. This plant is the sole uranium enrichment plant
operating in the United States. USW also represents USEC workers in
Local No. 689 at the Portsmouth, OH nuclear site. Another enrichment
plant, previously shut down after USEC's privatization, is now
designated as the site for USEC's new American Centrifuge Plant (ACP).
I appreciate the opportunity to testify about the serious concerns
of the USW regarding the recent amendment to the suspension agreement
in the antidumping case on Russian uranium imports between the United
States and Russia (``RSA''). The USW was the original petitioner in the
underlying antidumping investigation and sought relief under the trade
laws to stop the dumping of uranium products by Russia that were
flooding the market and causing harm to the domestic commercial nuclear
fuel industry. That preliminary investigation found that Russian
uranium was being dumped at over 110 percent. Thereafter, the Russian
government and the Department of Commerce entered into a suspension
agreement under which entry of Russian uranium was limited to specified
annual quota amounts.
However, as a result of a court decision in the Eurodif case\1\,
low-enriched uranium (``LEU'') imported from any country, including the
Russian Federation, through sales of Separative Work Units (``SWU'')
contracts would no longer be subject to the trade laws. Consequently,
the quotas under the recently amended Russian Suspension Agreement
(``RSA'') do not cover LEU sold pursuant to SWU contracts. This creates
a large gap in coverage that is an imminent threat to the continued
operation of the sole remaining domestic enrichment plant at Paducah,
Kentucky. This fatal gap in coverage of Russian LEU sold under SWU
contracts also threatens the ability of USEC to build the new American
Centrifuge Plant at the Portsmouth, Ohio site. Investment will not be
forthcoming if LEU may enter unrestricted from the Russian Federation
or other countries that enrich commercial uranium. The USW represents
over 1000 hourly workers at these two sites--all of those high-skilled,
well-paying jobs are now at serious risk. Moreover, the energy security
interests of the United States in maintaining an adequate and
competitive commercial uranium enrichment industry are at risk.
Finally, and of great importance, the national security and non-
proliferation interests of the United States in maintaining a viable
domestic military nuclear fuel capacity and the successful completion
of the Russian HEU Agreement\2\ also are at serious risk. Something
must be done to correct this.
---------------------------------------------------------------------------
\1\ Eurodif v.U.S., 411 F.3d 1355 (Fed. Cir. 2005). The CAFC held
that LEU imports sold under SWU contracts are not covered by the
antidumping or countervailing duty laws of the United States because
such transactions are for services and not goods. See Slip Op. 04-1209,
p.16.
\2\ The Russian HEU Agreement is formally known at the ``Agreement
Between the Government of the United States and the Government of the
Russian Federation concerning the Disposition of Highly Enriched
Uranium Extracted from Nuclear Weapons'', dated February 19, 1993.
---------------------------------------------------------------------------
LEU--alone are sold under SWU contracts--is a commodity. Demand for
nuclear fuel is largely fixed and stable, so lowering prices for LEU or
SWU will not increase demand significantly. Yet, even a small increase
in supply will significantly lower prices. Therefore, while the
enrichment plant at Paducah operates very efficiently and recently set
an all-time high for production, the plant relies on older gaseous
diffusion technology, which requires large amounts of electricity.
Given the increases in electricity rates for the Paducah plant, a
significant drop in the prices of LEU--regardless of how it is sold--
likely would force the plant to operate at a loss. When that happens,
our union members working at the plant lose their jobs. We are the
canary in the mine.
The Russian Federation is the largest enricher of uranium in the
world and has capacity well beyond its domestic demand. As the
Department of Commerce found in its sunset review of the suspension
agreement, the Russian federation has publicly made known it intent to
target its excess capacity to the U.S. market now that the law under
Eurodif prevents the amended RSA from covering LEU sold under SWU
contracts. So long as that legal gap in coverage exists, our domestic
industry and workers will be under serious threat. This means that the
Russian Federal Atomic Energy Agency, ``Rosatom'' and U.S. nuclear
utilities are now free to structure their sales of LEU under SWU
contracts thereby easily circumventing the reasonable annual quota
limits (20 percent) agreed to under the amended RSA. There is not
prohibition against them oversupplying the U.S. market and depress
prices to our grave detriment.
The nuclear utilities and their trade association, the Nuclear
Energy Institute (NEI) say they have no interest or intent to use SWU
contracts to avoid the quotas and flood the market, and we should just
trust them. The United Steelworkers are not willing to entrust over
1000 jobs of its members to the good intentions and the commercial
interests of the NEI and U.S. utilities, much less the Russian
government. We also think that both the Administration and the Congress
should not be willing to entrust the critical energy and national
security interests of the United States to the good will of the utility
industry and the Russian government.
The USW strongly urges the Congress to act to limit the amount of
LEU that the Russians can sell into the U.S. market, and SWU contracts
must be included in those limits. We are especially vulnerable to
excessive Russian LEU imports from now to the end of the Russian HEU
Agreement in 2013. The LEU derived from Highly Enriched Uranium
(``HEU'') from dismantled nuclear warheads from the arsenal of the
former Soviet Union, under that agreement currently accounts for over
40% of U.S. supply. It is marketed by USEC as the agent for the U.S.
government, and while that is helpful to USEC's profits, it does not
directly provide jobs for our workers and members. After the end of the
Russian HEU Agreement, starting in January 2014, the RSA allows LEU
quotas for the Russians of approximately 20% of U.S. demand through
2020 to provide a transition from the HEU Agreement. By 2014 it is
expected that there will be at least two new enrichment plants in
operation by USEC and LES, and Paducah can continue operations so long
as necessary to provide sufficient supply. That can all be defeated by
excess supply from Russian SWU contracts not covered by the quotas.
S. 2531, legislation introduced by Senators McConnell and Bunning,
and H.R. 4929 by Rep. Whitfield, would fix the decision in the Eurodif
case to make LEU sold under SWU contracts subject to the U.S. trade
laws. The USW strongly supports such legislation. These companion bills
amend the Tariff Act of 1930 so that all imports of LEU--including LEU
sold under SWU contracts--would be subject to our trade laws. That
would mean that any country dumping or taking prohibited subsidies for
LEU products exported here would be held accountable for such unfair
trade practices. Certainly, the USW is very appreciative of the efforts
to make sure that our domestic industry and workers can compete on a
level playing field in the uranium industry. The Administration also
strongly supports that legislation\3\. We have attached a copy of that
letter as an exhibit to our testimony and ask that it be included in
the record.
---------------------------------------------------------------------------
\3\ See letter to Sen. McConnell, Sen. Bunning and Rep. Whitfield
dated December 21, 2007 signed by the Departments of State, Commerce,
Defense and National Nuclear Security Agency of the Department of
Energy. (Attach as an Exhibit.)
---------------------------------------------------------------------------
In conclusion, the USW urges Congress to limit the amount of LEU,
in any form--including sold under SWU contracts--to a reasonable quota
level now and after the conclusion of the Russian HEU Agreement. We
suggest that quota level be no more than twenty (20) percent of U.S.
demand for commercial nuclear fuel. SWU contracts must be included
within these limits for any effort to be effective. The USW will
support legislation if it also attains the following objectives of the
Administration:
full implementation of the 1993 Agreement between the
Government of the United States of America and the Government
of the Russian Federation Concerning the Disposition of Highly
Enriched Uranium Extracted from Nuclear Weapons (the HEU
Agreement);
continued production of nuclear fuel at the remaining
domestic uranium enrichment plant and maintaining stability in
the U.S. uranium market;
and timely completion of new and modernized facilities for
the production of nuclear fuel in the United States.\4\
---------------------------------------------------------------------------
\4\ Id.
Attached Exhibit
December 21, 2007.
Hon. Mitch McConnell,
Minority Leader, U.S. Senate, Washington, DC.
Hon. Jim Bunning,
U.S. Senate, Washington, DC.
Hon. Ed Whitfield,
U.S. House of Representatives, Washington, DC.
Dear Senator McConnell, Senator Bunning, Representative Whitfield:
You have requested the views of the Administration regarding H.R. 4929
and a companion bill S. 2531 that would amend the Tariff Act of 1930 to
make clear that all imports of low enriched uranium (LEU) are subject
to coverage under the antidumping law without regard to the nature of
the transactions pursuant to which they are imported. The
Administration strongly supports enactment of this legislation. By
overturning the decision of the U.S. Court of Appeals for the Federal
Circuit in Eurodif v. United States, the enacted legislation would
contribute greatly to the Administration's efforts to address future
imports of foreign uranium products, including LEU and enrichment,
consistent with our national security and energy security needs. These
objectives include:
full implementation of the 1993 Agreement between the
Government of the United States of America and the Government
of the Russian Federation Concerning the Disposition of Highly
Enriched Uranium Extracted from Nuclear Weapons (the HEU
Agreement);
continued production of nuclear fuel at the remaining
domestic uranium enrichment plant and maintaining stability in
the U.S. uranium market; and
timely completion of new and modernized facilities for the
production of nuclear fuel in the United States.
Among other matters, the Eurodif decision impairs an antidumping
proceeding on Uranium from Russia covering all forms of uranium,
including LEU, which could endanger the implementation of the HEU
Agreement. Prior to the Eurodif decision, imports of uranium from
Russia were regulated through the combined effects of the HEU Agreement
and a Suspension Agreement under the antidumping duty law. Under the
HEU Agreement, until the end of 2013, approximately 30 metric tons of
Russian weapons grade uranium is down-blended, annually, for use in
U.S. nuclear power plants, making an important contribution to
preventing the proliferation of nuclear weapons. Under the antidumping
Suspension Agreement, such down-blended uranium may enter the United
States without being subject to antidumping duties. The antidumping
Suspension Agreement effectively excluded all other forms of Russian
uranium from the U.S. market, The Eurodif decision now excludes certain
sales of LEU from the coverage of the antidumping duty law depending on
how the transaction for the LEU is structured. As a result, as long as
the Russians properly structure their transactions to be excluded under
the Eurodif decision, the limits imposed by the Suspension Agreement
can no longer apply. Such an unregulated increase in supply in the U.S.
market will undermine the effect of the Suspension Agreement and
thereby compromise the successful operation of the HEU Agreement.
At the end of the Cold War, the Russian Federation inherited the
nuclear weapons complex of the former Soviet Union. Consequently,
Russia's capacity to produce uranium products substantially exceeds its
domestic needs. European enrichment enterprises also have substantial
capacity and presence in the U.S. market. Unlimited exports of foreign
uranium products to the United States could also threaten the viability
of the only U.S. producer of enriched uranium, including that necessary
for the reactors that produce tritium for U.S. nuclear weapons: the
United States Enrichment Corporation (USEC). USEC is the U.S. Executive
Agent under the HEU Agreement and is obligated to accept certain
amounts of down-blended weapons grade uranium which it resells to
domestic utilities. If USEC cannot remain viable this could lead to
excessive U.S. dependence on foreign uranium for domestic generation of
electricity. At present, about 85 percent of the fuel for U.S. nuclear
reactors comes from foreign sources, primarily Russia. To fulfill the
objectives of the HEU Agreement and to maintain a viable commercial
nuclear fuel industry, critical to U.S, energy and national security
interests, we must maintain the ability to prevent massive imports of
dumped foreign uranium products.
At the same time, we must also ensure that the U.S. economy remains
open to trade with key partners, such as the Russian Federation, For
that reason, the Department of Commerce recently negotiated an
amendment to the 1992 Suspension Agreement on uranium products with the
Russian Federation. That draft agreement would permit Russia to
continue to export substantial quantities of uranium products to the
United States following the end of the HEU Agreement in 2013, without
jeopardizing the ability of domestic nuclear fuel suppliers to produce
nuclear fuel to meet our national security and energy security needs.
The proposed legislation also will ensure that the United States
remains at the forefront of nuclear technology development and has the
capability to maintain an adequate domestic source of enriched uranium
nuclear fuel for commercial and national security purposes.
We appreciate your leadership on this issue and look forward to
working with Congress to enact such measures and thus secure energy and
national security objectives vital to the United States.
Sincerely,
Patricia A, McNerney,
Department of State,
David M. Spooner,
Department of Commerce,
Joseph A. Benkert,
Department of Defense,
William H. Tobey,
National Nuclear Security Administration.
The Chairman. Thank you very much.
Our final witness today, Mr. Hinterreither, thank you for
being here.
STATEMENT OF REINHARD HINTERREITHER, PRESIDENT AND CEO,
LOUISIANA ENERGY SERVICES, EUNICE, NM
Mr. Hinterreither. Thank you, Chairman.
Chairman Bingaman, Senator Domenici, members of the
committee, thank you for the opportunity to speak with you
today regarding the recently signed Russian Suspension
Agreement amendment between the United States and the Russia
Federation, and the impacts on the United States domestic
enrichment market.
My name is Reinhard Hinterreither, I'm the President and
CEO of Louisiana Energy Services, LES, located in Eunice, New
Mexico. I have submitted written testimony to the committee,
and I would like to summarize that briefly.
As you know, in 2006, LES received the first license in
decade from the Nuclear Regulatory Commission, to build a major
nuclear project in the United States, the National Enrichment
Facility.
This would be the first plant in the United States to
enrich uranium using a low-energy, zero-emission, gas
centrifuge technology. We're on target to begin shipping low-
enriched uranium to United States utility customers in 2009,
and full operations in 2013.
The successful completion of the National Enrichment
Facility will require a massive investment in financial
resources and human capital. Due to the enormous investment
required to construct the National Enrichment Facility, LES
must make decisions based on its assessment of the long-term
growth potential, and predictability of the United States
market for uranium enrichment services. The most significant
risk we perceive for the long-term success of the National
Enrichment Facility is the excess enrichment capacity in Russia
and the potential for that excess enrichment capacity to flood
the United States market.
LES estimates current Russian capacity in enriched uranium
at around 26 million SWU per year, compared to indigenous
demand of just 8. The total excess enrichment capacity in
Russia exceeds the total United States enrichment demand, with
just 14 million SWU.
We are very concerned that unregulated supplies of fuel
from this excess Russian enrichment capacity has the potential
to make LES's investment uneconomic, as well as to discourage
further investment in the future.
LES believes that there needs to be a reasonable regulation
of Russian enrichment services delivered to the United States.
Such regulation should serve three purposes.
One, assure supply diversity for United States utilities.
Two, encourage the development for a domestic infrastructure
and promote the national energy security. As this committee
knows, the principal means for regulating the supply of Russian
enrichment services to the United States for the past 15 years,
has been the Russian Suspension Agreement, which has recently
been amended.
The Russian Suspension Agreement has operated in harmony
with the landmark 1993 agreement between the United States and
Russia in which Russia down-blends HEU, highly enriched
uranium, from dismantled nuclear weapons, for commercial
nuclear power plant fuel.
Unfortunately, the HEU deal is set to expire in 2013. LES
is not opposed to the Suspension Agreement, and recognizes the
valuable role the Administration has played in stabilizing
trade with Russia in the past.
However, the Suspension Agreement leaves open a back door,
whereby unregulated Russian SWU could enter the United States
market, and have a devastating effect on the domestic
enrichment industry.
LES believes it's time for Congress to consider new options
to balance the need of all stakeholders, including those in the
United States Government, and come up with the legislative
solution that should contain four key elements to ensure that a
robust domestic enrichment industry is allowed to take hold,
and flourish within the United States.
The four points are: First, enable United States utilities
to have direct and immediate access to reasonable quantities of
commercial Russian enrichment. Second, ensure long-term market
predictability, that is a prerequisite for new investments, by
legislating overall limits on Russian enrichment imports that
are reasonably consistent with quantities already agreed by
Russia under the Suspension Agreement. Third, provide
incentives to complete the current HEU Agreement to ensure
continued supply of commercial-grade fuel to United States
utilities. Finally, fourth, provide incentives to establish a
follow-on HEU Agreement that requires additional down-blend of
HEU from Russia's nuclear arsenal.
Again, my thanks to the committee for the opportunity to
express LES's concern regarding these vital issues relating to
United States energy security, and domestic enrichment supply.
I look forward to your questions.
[The prepared statement of Mr. Hinterreither follows:]
Prepared Statement of Reinhard Hinterreither, President and CEO,
Louisiana Energy Services Eunice, NM
Chairman Bingaman, Senator Domenici and members of the Committee,
thank you for the opportunity to speak to you today about the important
issue on the capability of the United States to maintain a domestic
enrichment industry after the recent amendment adopted to the Russian
Suspension Agreement. My name is Reinhard Hinterreither and I am
President and CEO of Louisiana Energy Services (LES) located in Eunice,
NM.
Following a 30 month licensing period that culminated in the U.S.
Nuclear Regulatory Commission issuing the first Combined Construction/
Operating License in June 2006, LES is more than one year into
construction of an advanced uranium enrichment plant in southeastern
New Mexico that is currently planned to be capable of providing
approximately 25% of U.S. demand for enriched uranium.
LES will employ a low-energy use, zero emission centrifuge
technology to enrich uranium that has been developed and commercially
proven in Europe by its parent company, Urenco. Centrifuge technology
lends itself to incremental expansion, which should serve the expanding
needs of a potentially larger U.S. nuclear fleet well into the future.
All uranium enrichment technology, however, is highly capital
intensive. LES' plant in New Mexico is projected to cost nearly $2
billion. Our closest competitor in the U.S., the United States
Enrichment Corporation (USEC) has estimated the cost of its similarly
sized centrifuge enrichment plant at $3.5 billion.
In order that enrichment activities can begin next year, LES
currently employs 190 full-time employees in New Mexico. In addition,
over 700 construction workers and construction managers and 235
contractors with more than 10,000 man-years of combined nuclear and
construction experience are currently working on-site. Such significant
investments in infrastructure, a skilled work-force and the community
necessarily demand long-term market stability for the many years
required to recover the substantial up-front capital costs associated
with a centrifuge facility. A key prerequisite for committing to make
this enormous investment were contracts with U.S. utilities to purchase
enrichment services from LES. While these contracts give some
confidence that LES is not constructing a financial white elephant,
long-term success and further investment in potential additional
capacity depends on a much longer-term predictability in enrichment
fuel markets than is afforded by LES' current contract portfolio. One
of the primary reasons LES did not commit to build a U.S. enrichment
plant from the late 1980's until June 2006 was that the U.S. market
environment was unstable and adjusting to significant new supply
sources--from Russia.
Russia enjoys an enormous excess of uranium enrichment capacity
largely built during the Cold War for weapons purposes. This capacity
was not developed in response to ordinary market supply and demand
signals. LES estimates a current Russian capacity to enrich uranium of
26 million Separative Work Units (SWU) per year, compared to indigenous
Russian demand (including demand in republics of the former Soviet
Union) of just 8 million SWU per year. The excess enrichment capacity
in Russia exceeds total annual U.S. enrichment demand, which is just
over 14 million SWU per year. We are very concerned that unregulated
supplies of fuel from this excess Russian enrichment capacity has the
potential to make LES' investment in domestic enrichment capacity
uneconomic. LES believes that there needs to be reasonable regulation
of Russian enrichment services delivered to the United States that
allows consumers to achieve supply diversity but that does not
discourage development of domestic infrastructure nor undercut national
energy security.
For the past 15 years, the Russian Suspension Agreement has been
the principal means for regulating the supply of Russian enrichment
services to the United States. The Suspension Agreement was negotiated
between the U.S. Department of Commerce and the government of Russia as
a resolution to an antidumping action that was brought in 1991. The
purpose of the Suspension Agreement has been to ensure that imports of
uranium products from Russia would not disrupt the U.S. market to the
detriment of domestic suppliers.
The Russian Suspension Agreement has operated in harmony with a
landmark 1993 Agreement between the United States and Russia under
which Russia down-blends highly enriched uranium (HEU) from dismantled
nuclear weapons into low enriched uranium (LEU) suitable for use as
commercial nuclear power plant fuel. To date, HEU from more than 13,000
nuclear weapons in Russia has been converted to nuclear fuel and
delivered to U.S. utilities. LES is fully supportive of the nuclear
non-proliferation goals achieved through the Agreement, and recognizes
the primacy of national security objectives associated with eliminating
nuclear weapons over competing commercial objectives. The Suspension
Agreement specifically permits the entry of low-enriched uranium
produced from HEU into the United States and, until the recent
amendments to the Suspension Agreement, did not provide for access to
the U.S. market for low-enriched uranium not derived from HEU. Under
the HEU Agreement, enriched uranium from Russia has been the single
largest source of supply to the U.S. market for the past 15 years.
The most recent amendment to the Suspension Agreement, published on
February 1, 2008, establishes export limits on the amount of Russian
uranium products that may be exported to the United States through
2020. Due to several developments, however, the stability afforded by
the combination of the Russian Suspension Agreement and the HEU
Agreement is nearing an end. First, the HEU Agreement, with its
concordant non-proliferation benefits, will expire in 2013. Second, the
efficacy of the Suspension Agreement as a means to regulate imports of
Russian uranium products has been undermined by Court decisions
determining that contracts for the provision of enrichment services
(``SWU Contracts'') fall outside of the scope of the antidumping laws.
Third, multiple legal challenges to the continuation of the Russian
Suspension Agreement--in any form--are also pending in the U.S. Court
of International Trade.
Each of these developments has important implications for LES. The
judicial determinations excluding SWU Contracts from the antidumping
laws are highly significant. These decisions mean that the apparent
limits on exports of Russian uranium products are essentially
meaningless. There is nothing in the Amended Suspension Agreement that
prevents Russia from exporting far more than the agreed-upon amounts
simply by structuring contracts so as to fall outside the coverage of
the antidumping laws. Finally, the pending litigation over the Russian
Suspension Agreement creates substantial uncertainty to whether the
Russian Suspension Agreement will continue to exist at all. In sum,
these developments result in an extremely unpredictable environment for
further investments in critically needed U.S. enrichment capacity.
LES is not opposed to the Amended Suspension Agreement and
recognizes the valuable role that it has played in stabilizing trade
with Russia in the past but it is time for Congress to consider new
options to balance needs of all stakeholders, including those of the
U.S. Government. LES believes that a legislative solution should
contain the following elements:
Enable U.S. utilities to have direct and immediate access to
reasonable quantities of commercial Russian enrichment to
ensure that their operations are not threatened;
Ensure long-term market predictability that is a
prerequisite for new investments in domestic nuclear fuel cycle
infrastructure by legislating overall limits on Russian
enrichment imports that are reasonably consistent with
quantities already agreed by Russia under the Amended
Suspension Agreement;
Provide incentives to complete the current HEU Agreement,
ensuring blend-down of the full scope of Russian nuclear
weapons envisioned under the 1993 Agreement and provision of
the resulting commercial-grade fuel anticipated by U.S.
utilities;
Provide incentives to establish a follow-on HEU agreement
that requires additional blend-down of HEU from Russia's
nuclear arsenal.
I thank the Committee for considering steps to address these vital
issues relating to energy security and enrichment supply and look
forward to your questions.
The Chairman. Thank you very much for your testimony.
Let me try to understand some of the disagreement, if there
is any disagreement, among the witnesses.
Mr. Fertel, let me start with you, and ask your response to
the four items that Mr. Hinterreither just went through for us.
He identified four items that he felt ought to be included in
legislation. Do you agree with those four points? Or do you
think we should go ahead with the legislation that has already
been introduced, which I take it, does not include all of those
items?
Mr. Fertel. I think that from the discussions we've had
with everybody on the front-end of the fuel cycle, and the
utilities, there would be strong agreement to look at how we
can codify something that would do what's being suggested in
the Russian Suspension Agreement, which includes utility access
to commercial SWUs between now and 2013. Some certainty on what
the SWU market penetration would be post-2013, so that people
can deploy here--everybody agrees.
Obviously, we have always, and continue to support, the
existing United States/Russia HEU Agreement, we think it's
incredibly important, and we would like to see more HEU
blended-down.
I think the only thing I would offer on the HEU side is a
fear that we have, is unintended consequences of how we might
try to get the Russians to do that. We all would like them to
blend-down more stuff, and we ought to figure out how to do it,
but we ought to figure out how to do it in a way where we have
a high degree, probability, that they will do it.
I don't think that the Russians have any intentions of
walking away from the current deal. I wouldn't want to do
anything to give them any reason to show that they might, as
they've done on gas and other things, as we've seen over in
Europe.
So, we would agree with all four points, and the only thing
I would caution is how to go about accomplishing them, we
should do with good forethought and good judgment, Mr.
Chairman.
The Chairman. Any of the other witnesses want to comment on
the four points Mr. Hinterreither has made, as to essential
elements in an agreement, here?
Mr. Welch, did you have a comment?
Mr. Welch. One comment--much of what he has talked about,
especially in the issues of immediate access and quotas are
very well laid out in the modification of the Suspension
Agreement and that is reflective of what an industry-consensus
position was, both among the miners and the enrichers.
We would all like to see the--we want to see the HEU
program go to completion, and we would like to see another one,
I mean, it's the right thing for the world.
The only thing I'd come back to is, a little bit, is on the
urgency of addressing this gap, or back-door way at additional
enrichment entering into the market, is that there is a time
sensitivity. So, the idea of being able to make that agreement
enforceable as quickly as possible, I think, we would also
support.
But, again, we're open to anything that would close that
loophole in the existing agreement.
The Chairman. Any of the other witnesses have a comment?
Mr. Malone.
Mr. Malone. Yes, Mr. Chairman, I think that from the
utility perspective, we would support the fundamental
underlying principles that were presented, and as Mr. Fertel
mentioned earlier, there was a meeting this morning at NEI of
the membership, and we were hashing out, basically, something
very similar to that, and that was the genesis of my offer to
work with the committee and the utilities, the suppliers--as a
group--to find the right way to get that legislation in place.
The Chairman. Mr. Hinterreither, let me just, to try to put
a finer point on this--the legislation that Senator McConnell
and Senator Bunning have now introduced is simpler than what
you have proposed, you've added a few things to it, as I
understand. They have proposed to essentially change the
definition so that enrichment would become a good, rather than
a service--or enriched HEU would be a good, rather than a
service.
Could you elaborate a little bit as to why you think
something else or something more is needed than just what has
been proposed?
Mr. Hinterreither. Absolutely, Mr. Chairman. First of all,
I would like to state that LES agrees with the intent of the
bill that was introduced by Senators McConnell and Senator
Bunning to fix what we call ``the back door'' in the amended
Russian Suspension Agreement.
But, we feel there is three points that are not address in
this solution. No. 1, should the Russian Suspension Agreement
go away in the very near term, because it's challenged on
several different fronts by court cases, then this piece of
legislation hinges on the Russian Suspension Agreement with the
Russian Suspension Agreement going away, this fix would go
away. What we need, what LES needs, is long-term predictability
of this situation, number one.
The Chairman. So, you're saying that we should be putting
in statute, provisions which would not be in place if there's
an effective challenge to the agreement?
Mr. Hinterreither. Correct.
The second point that I would like to address, is that LES
feels that theissue that we are trying to deal with here is the
massive excess over-capacity of Russian imports, and Russian,
Soviet-build enrichment capacity that is 18 million SWU over
capacity. But the solution introduced in the McConnell-Bunning
bill is a much broader solution, because it addresses all
imports into the United States, so we feel it's not a--it's a
broader solution required for a narrower problem.
The third point, why we are looking for a new solution for
this, would be that our customers clearly are adamantly opposed
to this legislation as well, and we do not want to get crossed
with our customers, customers are very important for the
National Enrichment Facility.
The Chairman. I've run over my time.
Are there any comments? Additional comments from the panel?
If not, I'll go on and allow other Senators to ask questions.
Go ahead, Senator Domenici.
Senator Domenici. I want to ask, our last witness--first,
it's good to see you again, it's a different circumstance, it
feels more comfortable out there in the field--are any of the
things that you are suggesting we do in addition to the bill
dependent upon Russia agreeing?
Mr. Hinterreither. No.
Senator Domenici. They all could be done by us?
Mr. Hinterreither. It's my understanding, yes.
Senator Domenici. OK. You want to make sure that the
definition of what is limited is just Russian and not all other
uranium enriched from other places in the world, is that
correct?
Mr. Hinterreither. That is correct.
Senator Domenici. I wonder, why is that so important? Could
you tell us one more time?
Mr. Hinterreither. Absolutely. The Russian capacity that we
are talking about here, the excess Russian capacity is 18
million SWU which was built during the cold war area mainly to
produce weapons for the Russian Federation.
At that point in time, that capacity would be unleashed on
the United States market. LES is very happy to compete with any
enrichment plant in the United States, or with other imports
that are based on Western-style economics. But, what we feel is
unfair, and what we feel is not, to compete with Soviet-style
capacity is not what we see as--a problem for us.
Senator Domenici. Right.
It was clear to me when I started looking into this, that
the competition that we speak of is non-existent in Russia,
because there is no market. Everything is under government
control, and no matter what they tell us, there is really no
market. As a consequence, we cannot inject into their
relationships, competitiveness as to price, because there is no
competitive price in Russia today. You're implying that also,
right?
Mr. Hinterreither. Yes, I'm not aware of any.
Senator Domenici. I've been told that there isn't any. That
it's all the same, and all owned by one.
I want to say, Mr. Ervin, for a moment, if I might talk
with you--first of all, I'm very glad to see you here. I think
you must understand now that you are looking at the possibility
for the construction of a number of nuclear plants in the
United States, that we have reached a situation in our country
where we don't have very many people left to go to work at
building the huge nuclear power plants that we intend to build.
If we were trying to build 3 or 4 at one time, I think you're
fully aware that we'd have difficulty finding the manpower. The
kind of people that are in your Union--we just don't have
enough of them anymore, we'd have a hard job, and you would be
part of filling that need--is that correct? That excites you
about the future, because it's good jobs again, people doing
big things, right?
Mr. Ervin. That is correct, sir. We are very excited about
being a part of the renaissance, and the renewed interest in
both domestic and global nuclear power.
Senator Domenici. Do you come to our assistance every now
and then, when you hear people that degrade this? That are
political allies of yours?
Mr. Ervin. Absolutely.
Senator Domenici. I wouldn't like to be on the other side
when you do. But, I think you probably do.
Let me ask you one last question--any of you. It's obvious
to me that one of the good things that has happened in the last
25 years, is the HEU Agreement with the Russians. It has been
tremendous with reference to getting SWU to America, eventually
getting SWU to American power plants at a reasonable price, and
at the same time it has been a terrific incentive for Russia to
understand that there is a great value in disarmament. That if
they had to get rid of thousands of weapons, the product that
comes out of it, by way of uranium, is sellable. That there's
one $350 million deal that they've already made, plus the other
deal on it.
Now, anything we do by way of new legislation, in my
opinion, has to make sure that it's not a disincentive to the
Russians to do more of what they did, when we entered into that
agreement--do you agree with that?
Mr. Fertel. Absolutely, Senator.
Senator Domenici. Is there anything that you have done, in
your recommendations, that would be a disincentive for them to
further negotiate with us, regarding their excess military
supplies?
Mr. Fertel. Certainly not consciously. We've--we're very
sensitive to that.
Senator Domenici. Don't you think the 20 percent limitation
that we're imposing, itself, might at least for a while make
them a bit upset?
Mr. Fertel. I think, sir, it's how it's presented to them.
They did agree, in the Suspension Agreement, to essentially a
20 percent--I get to sit, as I said in my testimony, with both
the buyers and suppliers as we try to provide advice, and the
buyers always want more, and the suppliers always want less.
But there are some natural snubbers, as Mr. Malone said,
there's a major risk management profile that every company
does, to make sure that--just like we do with our 401Ks and
other things--to make sure that they are not putting too many
eggs in one basket. If you were looking at the reliability of
supply, while the Russians have been a reliable supplier, from
an HEU standpoint--they're a new player, and they're a
different player. So, their risk profile is going to be
somewhat higher.
So, I think in the 20 to 25 percent range--I mean, if you
think about 5 major suppliers, and you gave each of them 20
percent, you've done a pretty good job.
Senator Domenici. Yes.
Mr. Fertel. So, I think it's how we present it, sir, and
how we work with them to get them to understand why what's
going on is fair.
Senator Domenici. Do any of you have any comments?
Mr. Welch. Yes, the one comment I would have--and it goes
back to the issue of--what we're trying to fix here is the fact
that an agreement that was put in place between the two
governments, which is--again, in my view, is a pretty good deal
for all of the parties involved. The Russians would get 20
percent access to the market, they have--initial cores are not
included in that figure, which is about 4 times what an annual
re-load is. There is an ability--if there is an emergency--to
bring that number up. So, it is a very good deal for the
Russians, except it has this one back-door measure in it.
The legislation that's been proposed by Senator Bunning,
Senator McConnell, would close that back-door gap. All it would
do would say that all of their imports would be subject to
trade law. It doesn't impact the amount of imports they would
have, it just gets rid of the unlimited version. So, it is a
very clear way to go solve that issue.
I, also--like you--would like to see more HEU down-
blending. So, whether there was a way to get that going,
because that's good for the world, and are there ways to
incentivize through the percentages of activity that's included
in the existing agreement--maybe that can be looked at. But,
when you look at the cleanest, fastest way to go solve the
issue, the proposed legislation would do it.
Senator Domenici. I want to close by saying this has been
tremendously informative to me, and I think I understand it
well enough to proceed at whatever pace the chairman desires.
But, I think many of us up here have gone through a
strenuous exercise in trying to change the American situation
of near-total dependence upon crude oil from overseas. It's up
to 60 percent now--it's an absolute disaster. To try lessen
that dependence has proven to be incredibly difficult.
I want to do everything within my power to see that we're
not getting in the same mess again. I mean, we have all this
hope built around nuclear power, from the standpoint of
thousands of good jobs again. Saying to people, we can build
big things again, and we don't all have to fight about it.
When that's out there, and you can feel it, and feel the
energy, and say, I want to be part of that, and then think that
we could mess ourselves up, or somebody could come along and
say, ``You don't have anything, because we control your
feedstock,'' to me is unbelievable. I mean, we can't do that.
So, whatever we can do to avoid that, I'm on that team, I
assure you, and I thank you for your help.
Thank you, Mr. Chairman.
The Chairman. Thank you.
I'm informed we have a vote at a quarter till five, so
Senator Craig, and then Senator Bunning after that.
Senator Craig. Let me pick right up where Senator Domenici
left off, Mr. Fertel. I think if you're in the Western European
energy business today, you're very concerned about how the
Russians play the game. How they turn the valve on their
pipelines.
Can you tell me what the nuclear industry is doing--or
planning to do--to ensure that 20 years from now, we are not
substituting a current addiction from Middle East oil, to
Russian enrichment?
Mr. Fertel. I think just the people sitting at the table,
Senator, are evidence of what's being done. As we've said,
everybody, I think--we're the only country in the world right
now that's looking to deploy four new enrichment technologies
and facilities, in the world.
It's taken a long time for us to get to this point, but
it's certainly very encouraging for that to be happening. All
of us--and I mean, all of us, in the industry--this is all of
the utilities and everybody else--want diversity of supply,
domestic production to be here. So, I think everybody's working
toward that.
If I were looking out 20 years, sir, as to what the fear
would be, it would be natural gas, not nuclear fuel, as where
we're going to be overly dependent from place we don't want to
be, and that's not necessarily, for us, Russia. It's probably
LNG facilities.
Senator Craig. I think, I too would be concerned if I were
to look at the field of Presidential candidates today, and
their attitudes about cap-and-trade and the kind of fuel-
switching that could go on in the next 10 years before we could
get up to speed on anything else, and watch the collapse of the
chemical industry, and all of those concerns--yes. I think I'd
be a bit more concerned about that, in the short term.
But, in the long term, we can clearly watch the Russians
move from petro-nationalism, if you will, to national
electrons, or however one would word it, and how they play the
game.
So, Mr. Malone--how far in advance do you contract for
uranium enrichment services, and how many suppliers do you
typically contract with at any one time?
Mr. Malone. Senator, we have several suppliers, as I
indicated, we are USEC's largest customer, we are also the
largest customer for LES.
We do currently have contracts with Urenco, coming out of
Europe, and we have contract with Eurodif. So, we have broad
coverage, and it's on purpose, because as we pointed out, we
have a risk management process that we go through, and I
cannot--by corporate regulation--have any more than 20 percent
at a particular place if it is not in the United States.
Now, we made a very specific exemption for uranium
enrichment, with respect to how much we can take from the
United States Because if the four facilities are successful,
then I would be very, very comfortable taking 100 percent of my
requirements from the United States, in that case.
But, I do have to diversify, even locally or domestically,
across as many suppliers as I can, while still being an
important customer to them.
With respect to how far in advance we procure, the
contracts typically will run a spectrum, depending on our
objective, in the case of LES, we were a launch customer for
them, and we agreed to a contract that goes out to the mid-
teens, on purpose, to give them a bankable contract so that
they could get into the business.
We're working on something similar with USEC right now,
with respect to the ACP. Our current contract with USEC goes
out about--2011, John?
Mr. Welch. Yes.
Mr. Malone. So, we have long-term, into the future, we're
well-covered, but we do require diverse supply, and we would
never sign up for anything more than 20 percent from Russia. I
couldn't put my company at that risk, sir.
Senator Craig. I'm glad to hear that. Recognizing time, let
me get Senator Bunning to the mic.
Thank you all, gentlemen.
The Chairman. Thank you.
Let me just say one thing before Jim starts his questions.
We are going to try to vote on Gregory Copeland who is the
President's nominee to be the General Counsel for the
Department of Energy in the President's Room following this
vote on the floor. If folks could try to help us get a quorum
there, that would be great.
Senator Bunning.
Senator Bunning. Thank you, Mr. Chairman.
Mr. Fertel, and Mr. Malone, the nuclear energy industry has
said it supports negotiating a new deal with Russia, is that
accurate?
Mr. Fertel. Yes.
Senator Bunning. The Administration has testified that they
support the legislation I and Senator McConnell introduced, and
that this problem poses a threat to the entire antidumping law
system.
If you intend to abide by the new agreement, and not use
this loophole to get around the antidumping law, will you
support the Bunning-McConnell and the other bill that's in the
House of Representatives?
Mr. Fertel. With respect, Senator, we don't support going
that way. There's been 7 years of legal battles, it's--I
listened to Secretary Spooner say that he just disagrees--well,
that's why we have a court system. To see whether or not it's
correct.
Now, Congress certainly can change the law. We believe that
right now, the way to deal with this and going to Senator
Domenici's concern about the Russians and how they may react--
they've seen something happen that seems to open up the market.
They did agree to a limitation on the market, and we believe we
should codify that limitation in some way, because we do want
to make sure we get the domestic deployment here, we do want to
see Paducah keep operating.
But we don't support going back and when we lose a court
case--if it is lost at the Supreme Court, just changing the
law, at that point. We don't believe that that's the right way
to go on this, and we think there could be unintended
consequences which, again, Secretary Spooner knows trade law
better--a lot better--than me.
Senator Bunning. What are the unintended consequences if we
do nothing?
Mr. Fertel. To be honest, we're not proposing we do
nothing. We're proposing we go forward and codify something
very close to what was agreed to in the Suspension Agreement,
so that there is certainty in the market.
Senator Bunning. Do you think that makes certainty in the
market?
Mr. Fertel. Yes, we think it does provide certainty in the
market, yes, sir. Because even if your legislation passed over
our objection, sir, it doesn't stop the Russians from selling
in the market, it just says they can't dump. We have to have
some confidence they won't dump.
Senator Bunning. Well----
Mr. Fertel. Why would they take below-market prices----
Senator Bunning. When dealing with Russia, I don't have
that same confidence, I'm sorry. You must have a much, much,
much broader of Russia than I do, since I have been here in the
United States maybe a shorter time than you.
I know I've talked with Mr. Ervin more than once,
positively--
Mr. Ervin. Absolutely.
Senator Bunning. I know that they are deeply concerned
about the agreement, and the loophole that it creates. Being
the only domestic producer of enriched uranium in the United
States presently--presently--they're worried about the dumping
of additional enriched uranium by the Russians, until we codify
the 20 percent that has been agreed on.
I really am concerned that the nuclear industry is putting
the short-term cost ahead of long-term national security, and
market stability. In the short-term, more imports from Russia
would bring down prices. Is that correct? In the nuclear
industry?
Mr. Fertel. In the short-term, sir, there's contracts, as
Mr. Malone said.
Senator Bunning. I know there are contracts. But what does
it do in the short-term?
Mr. Fertel. It doesn't matter if it comes from Russia, or
it comes from Urenco, or it comes from USEC--we get 40 to 50
percent of our fuel from Russia right now, sir, from the HEU
Agreement.
Senator Bunning. Thank God we do, or we wouldn't have
enough to supply the need in the United States. I know Mr.
Malone would not be able to buy enough.
Mr. Fertel. We have, over the next 6 years to the agreement
is over, with the Russians, on the HEU Agreement, there's
probably less than 8 million SWU over----
Senator Bunning. Have you dealt with Russia on other things
than uranium?
Mr. Fertel. We talk to Russia about a number of things,
like nonproliferation issues and other nuclear energy issues.
Senator Bunning. I've looked at Russia and the behavior of
theRussian Federation, once they have undercut our domestic
industry and force them out of business. You can be certain
that prices would increase.
Mr. Fertel. We agree. That's why the people won't put their
eggs in that basket.
Senator Bunning. They believe all of their nuclear
customers--those that Mr. Welch supplies, and others,
including--I can't pronounce your name for the life of me.
Mr. Hinterreither. Mr. Hinterreither.
Senator Bunning. OK.
[Laughter.]
Senator Bunning. How about Mr. H. just for the time?
Mr. Hinterreither. It's a toughie.
Senator Bunning. It would leave our nuclear energy
customers to foot the bill of higher prices, once the Russians
have cornered the United States market.
I know that there are other people that are supplying you
right now, Mr. Malone.
Mr. Malone. Yes.
Senator Bunning. From Europe?
Mr. Malone. Yes, that is correct.
Senator Bunning. Where do they get their enriched uranium?
Mr. Malone. They produce it in Europe, it's produced in the
U.K.
Senator Bunning. But how much, how much--of course they do,
because France uses----
Mr. Malone. Right.
Senator Bunning [continuing]. A great deal in their own
power generation, 80 percent of their generation is done by
nuclear energy.
Mr. Malone. That's correct.
Senator Bunning. Four percent, or 20 percent of the United
States power is done by nuclear energy. We're trying, by the
2005 bill, to move that up.
But I am really concerned, for the workers--not only at
Paducah, but at the new plant at Portsmouth. Generally
speaking, the investment it takes to build new nuclear power
plants. I mean, it's a horrendous undertaking, and until we
pass the 2005 bill, there is no certainty we're ever going to
have the same rules that you started with, when you finish the
plant.
I know, I went through one in Cincinnati with the Zimmer
nuclear plant--which turned out to be a Zimmer coal-fired
generating plant because of audits. But, I really am concerned
we lose our ability, domestically, to produce our own enriched
uranium if we don't secure certainty with the Russians on
buying their surplus.
Mr. Welch. Yes, OK.
Senator Bunning. Go ahead.
Mr. Welch. I think we agree with you, Senator Bunning.
Without a doubt, the quotas--the great irony is, that
modification of the Suspension Agreement is very close to what
we all believe will provide the stability to the market--the
quotas without the loophole--provides the stability to the
market that we can take to the investment community, and
support our large investment in plants, which----
Senator Bunning. How about your Portsmouth plant, and
building that?
Mr. Welch. It helps with Portsmouth plant, it helps with
LES, it helps with the proposed plants.
The stability in the market--and I'll give you one for
Paducah--the stability that's in the market today, and the
things that have been done at that plant, make it very
competitive today. Now, that could change, because it's very
power-dependent, but that's clearly a resource we're not going
to run away from any time soon, and that will also help deal
with these transition issues, relative to capacity.
But the quotas are absolutely critical to ensure that
there's--that you--they just don't come and dump into the
market, and it provides some certainly to go take a look at.
But this loophole, or way to get around it, is something
that has to be--
Senator Bunning. Has to be addressed.
Mr. Welch. Yes, sir.
Mr. Ervin. I think there's--
Senator Bunning. Go ahead, Rob.
Mr. Ervin. There are two points that I thought would be
certainly worthy to make note of at this point. One is, with
respect to the last question that Senator Domenici asked, and
that is the 20 percent of our market that the Russians will
have access to, is 20 percent more than we have access to their
markets.
The second thing is that the Commerce Department was asked
when they could anticipate a problem with dumping. The answer
is, ``We're not in control of that. The Russians will determine
when we are susceptible to dumping.''
Senator Bunning. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Domenici, did you have any other questions?
Senator Domenici. No. Mr. Chairman, I just would say to the
witnesses and those who they represent, that it's obvious
they've been very well prepared. We thank you for that, that
makes our job much easier, when you produce good testimony, and
you're succinct, and you're not frightened. You know what you
stand for. That's good, and makes it easier for us.
Second, I hope you know that we can't get things done as
quickly as some of you would like. But, I think this
committee--if we have ultimate jurisdiction, here, I don't know
whether that's the case or not--we have been pretty quick to
deal with important issues on the energy field, and I'm quite
sure if the chairman knows that this is our baby, and that
we've got to do something about it, we'll do it.
We thank you very much for your concern. Also, we thank you
for your great hope about the future success of nuclear power
in the United States and in the world.
Thank you very much.
Thank you, Senator.
The Chairman. Thank you all very much, I think it's been
very useful testimony.
We may have some additional questions submitted for the
record, which we would ask members to submit by the close of
business tomorrow. If you do receive any of those, we would
appreciate you answering them, if you could.
Thank you, again.
[Whereupon, at 4:50 p.m., the hearing was adjourned.]
APPENDIXES
----------
Appendix I
Responses to Additional Questions
----------
Responses of James P. Malone to Questions From Senator Bingaman
Question 1. Is it my understanding under the amended suspension
agreement, Exelon would still diversify suppliers of enrichment--how
would you diversify--according to market price or simply based upon
risk?
Answer. As the nation's largest owner and operator of nuclear power
plants, it is critical for Exelon to have a stable and reliable supply
of nuclear fuel.
In evaluating our supply options, we employ rigorous risk
management metrics to ensure that we are not overly dependent on any
single source of supply. Indeed, as I stated at the hearing, Exelon's
risk management practices prohibit the company from obtaining more than
20 percent of our nuclear fuel from any single source.
While price is one factor that we look at when we evaluate our mix
of suppliers, we diversify our fuel supply portfolio based upon a
number of other risks as well, including financial risk, political
risk, transportation risk, environmental risk--including adverse
weather, and operations risk.
Question 2. It is my understanding that the price of enrichment
based on a SWU is currently around $150 / SWU and has increased
steadily over the past two years from a price of $110/SWU. If Russia
has unrestricted enrichment access to U.S. markets, do you think the
price of enrichment would drop significantly?
Answer. No. The market already assures that Russian SWU will only
enter the U.S. market in an incremental fashion. U.S. utilities are the
only customers for Russian SWU in the United States, and those
utilities have already purchased--from existing suppliers--all or
nearly all of the SWU they will need for at least the next three or
four years. LES, the New Mexico enricher, is already sold out for its
first 10 years of production--the maximum period it was willing to
contract for.
U.S. SWU demand may start to become available around 2012 or 2013,
but then only in an incremental manner. As a result, imports of Russian
SWU could not increase dramatically even after 2013. And those
increases would be limited.
U.S. utilities are principally concerned with stability of supply--
knowing that in 5, 10, 15, even 20 years, we will have access to the
enrichment services we need to fuel our plants and provide power for
our customers. We achieve that stability of supply principally by
relying on a number of different enrichers rather than buying all of
our enrichment from a single source.
While Russian SWU could be an important additional source of
enrichment supply diversity, U.S. utilities would not likely increase
their reliance on that supply beyond 20 to 25 percentage of the U.S.
market since doing so could undermine the objective of maximizing the
stability of their supply.
Question 3. Your testimony says that a new government-to-government
agreement is needed, what incentive is there for Russia to enter into
such an agreement when under current court decisions they have
unrestricted access to U.S. enrichment markets?
Answer. Market participants place a high value on certainty. While
current court decisions have been favorable for Russia and other
exporters of nuclear fuel, the U.S. Supreme Court has not yet decided
whether to consider the current decision by the lower courts. A
government-to-government agreement could also provide certainty
regarding the potential for adverse legislative changes to current U.S.
trade law.
Market certainty is also an important factor for other enrichers
planning to establish facilities in the US. The financial community
will carefully scrutinize the probable success of any proposed
enterprise and market stability is an important factor in their
decision making process. The utility community is keenly aware of this
aspect of the financing process and has no desire to upset it.
Question 4. Would Exelon support extending the HEU agreement past
2013?
Answer. Yes. Exelon fully supports the goals of the HEU agreement,
and we are proud of our role in helping achieve the objectives of the
agreement. To date, Exelon has loaded the enriching services component
of over 2,600 Russian weapons into its reactors. Should the parties
agree to extend the current pact past 2013, Exelon would support such
an agreement.
______
Responses of John K. Welch to Questions From Senator Bingaman
Question 1. Does the current amended suspension agreement in
combination with the recent court decision that enrichment is a service
create uncertainty in financing USEC's new centrifuge plant?
Answer. Yes. The current amended suspension agreement specifically
states it will be applied consistent with the recent Eurodif court
decision. This means that transactions involving low enriched uranium
(LEU) excluded by the court decision are not covered by the suspension
agreement. This gap in coverage creates substantial concern among
current and future producers of LEU in the United States that Russian
LEU will be imported in such quantities that could jeopardize new
enrichment projects like USEC's American Centrifuge Plant. This concern
will result in uncertainties by the financial markets as to whether to
lend or invest in these new projects.
Question 2. Does USEC favor extending the HEU agreement past 2014?
Answer. Yes. The Russian HEU Agreement is a strategic and
successful nonproliferation program and USEC has always supported its
extension past 2014. Mr. William Tobey, Deputy Administrator for
Defense, Nuclear Nonproliferation in DOE's National Nuclear Security
Administration, indicated during the hearing that the U.S. would like
to extend the HEU agreement. However, such a step would not be straight
forward or simple because the Russians have consistently said that they
are not interested in such an extension.
Question 3. What are your current time-lines for opening your new
centrifuge plant?
Answer. In April 2007, we received a 30-year NRC construction and
operating license for the American Centrifuge Plant (ACP), and in May
2007 we officially commenced commercial plant construction. Activities
involved with initiating commercial operations at the ACP will occur in
2009 and approximately 11,500 of our AC100 first generation centrifuge
machines will have been deployed in 2012. We expect these machines to
produce LEU containing about 3.8 million SWU per year based on our
current estimates of machine output and plant availability.
Concurrent with our initial deployment of capacity for 3.8 million
SWU per year, we are analyzing the nuclear fuel market to determine the
economics of adding additional ACP capacity. We are also evaluating our
potential to continue to build and install later generation centrifuges
after the initial deployment.
Question 4. If there are delays in opening the centrifuge plant
will USEC still operate the Paducah plant?
Answer. USEC can continue to operate the Paducah facility well into
the next decade depending on SWU market prices and the availability of
an adequate supply of economically priced power. We also have been very
active at looking at continued productive uses for the plant, including
the enrichment of higher assay tails material. Of course, the future of
the plant is dependent on the strength of the market, and in
particular, the ability of the U.S. government to prevent an influx of
dumped imports.
______
Responses of David M. Spooner to Questions From Senator Bingaman
Question 1. Question: Do you believe that, if Russia were to resume
free sales of low-enriched uranium or enrichment services to the U.S.
today, the sale price would be sufficiently low as to qualify as
``dumping''?
Answer. Yes, we do believe this would be the case. In its recent
five-year sunset review of the suspension agreement, Commerce
determined that, in the absence of the agreement, there would likely be
an increase in supply of Russian uranium products into the U.S. market,
leading to a decline in prices of uranium products and a continuation
or recurrence of dumping in the U.S. market. Further, in a subsequent
remand redetermination pursuant to the U.S. Court of International
Trade's instruction to reconsider its sunset determination by excluding
imports of low-enriched uranium pursuant to separative work unit, or
``SWU,'' contracts, Commerce confirmed its original determination even
though its analysis excluded LEU pursuant to SWU contracts as defined
in the Eurodif litigation. Likewise, Commerce believes that the
loophole created by the Eurodif litigation could result in a similar
increase in supply, specifically of low-enriched uranium pursuant to
SWU contracts, leading to a decline in prices which threatens the
viability of USEC and the ability of companies in the United States to
develop and put into operation their new enrichment facilities.
Question 2. Did your periodic reviews of this agreement project far
enough into the future to account for other countries such as China,
which are aggressively expanding their enrichment capacities?
Answer. Our focus during our sunset review proceeding was on
whether Russian uranium products would continue to be dumped in the
U.S. market, but not on the future enrichment capabilities of third
countries. Our determination took into consideration, in large part,
Russia's enormous enrichment capacity and the fact that the United
States is the largest market for uranium products in the world. We did
consider in our analysis the presence of restrictions on imports of
Russian uranium products in third-country markets which would make it
even more likely that Russia would redirect its exports to the United
States in the absence of the suspension agreement.
Question 3. The Department of Energy and its predecessor, the
Atomic Energy Commission, provided the Paducah plant as a service to
the nuclear utilities for enrichment, which was authorized by Congress
in 1964. Did you account for this Congressional intent in determining
enrichment was a ``good'' and not a ``service''?
Answer. We did account for Congressional intent in determining
whether enrichment was a ``good'' and not a ``service.'' To administer
the antidumping law, the Department first looks to the antidumping
statute and then its various legislative histories to interpret any
term that appears in the law. In making its determination in the French
Low-Enriched Uranium case, the Department recognized that where a
manufacturing or production process leads to the creation of a tangible
good, the process is a manufacturing operation and not a ``service'' as
that term implies. For example, under the antidumping law where
Commerce must construct a normal value to determine whether foreign
merchandise is dumped, the statute instructs Commerce to include ``the
cost of materials and fabrication or other processing of any kind
employed in producing the merchandise.'' 19 U.S.C. 1677b(e)(1). Based
on the language in the statute, I believe Congress intended for
Commerce to capture the value of processing that leads to the
production of merchandise in its antidumping calculations. Commerce
normally would not look to the 1964 authorization for purposes of
statutory construction. Rather, in administering the dumping law,
Commerce first looks to the antidumping statute and its various
legislative histories to discern the intent of Congress. In addition,
Congress has also separately recognized that for purposes of
international trade in services, the term ``services'' means ``economic
activities whose outputs are other than tangible goods.'' 19 USC
2114b(5). Congress expressly listed services that do not result in the
production of tangible goods, such as banking, insurance, accounting,
construction, professional services, education, health care, tourism
and entertainment. Although Commerce specifically recognized that this
statutory provision does not pertain directly to the antidumping law,
it is a reflection on how Congress views the term ``services'' in the
international trade context.
With respect to the enrichment provided by Paducah to U.S.
utilities, Commerce examined the legislative history of the industry
support provisions of the antidumping law. In applying those provisions
in the case on Low-Enriched Uranium from France, Commerce determined
that USEC was the sole domestic producer of low-enriched uranium
because enrichment processing was determined to be an important
manufacturing operation in the production of low-enriched uranium. In
reviewing Commerce's industry support determination in light of the
legislative history, the U.S. Court of International Trade and the
Court of Appeals for the Federal Circuit in Eurodif upheld Commerce's
determination that USEC is a producer of low-enriched uranium based
solely on its enrichment processing operations.
Question 4. Do you believe that legislating enrichment as a
``good,'' and not a ``service,'' will set a precedent for other
services industries such as banking or insurance?
Answer. The legislation currently before Congress simply returns to
the status quo before the Eurodif decision was decided in 2005. Service
industries such as banking and insurance are inapposite to producers of
enriched uranium and are not subject to the dumping law. There is no
danger that they will be.
Question 5. If such legislation were enacted, do you believe other
WTO countries would likewise follow suit?
Answer. We cannot predict what other countries would do. Again, the
legislation currently before Congress would simply reverse an erroneous
court decision, returning us to Commerce's longstanding interpretation
of the law as it was in 2004. If other countries saw no need to act in
2004, they should see no need to act now. We understand that the EU has
limited imports of enriched uranium under the Corfu Declaration since
1994.
Question 6. How did Russia's 2002 reclassification from a non-
market economy to a market economy affect the calculation of anti-
dumping duties? When Russia was a non-market economy, what proxy
country was used to calculate the antidumping duty?
Answer. When Russia graduated to market-economy status in 2002, the
AD suspension agreement--under the non-market economy provisions of the
statute--continued in force unchanged. The recent amendments were made
to that agreement (under the non-market economy provisions of the
statute). Because no dumping duties were being collected under the
suspension agreement, there were no dumping calculations in this
uranium proceeding that were affected by Russia's graduation.
______
Responses of Reinhard Hinterreither to Questions From Senator Bingaman
Question 1. Does LES support legislating enrichment as a good?
Answer. LES recognizes that the bill introduced by Senator
McConnell and Senator Bunning to redefine enrichment as a good for
purposes of the antidumping laws seeks to close the ``back door'' to
the Russian Suspension Agreement that allows limitless quantities of
Russian uranium products to be supplied to the United States through
contracts for separative work units (``SWU''). While LES strongly
supports legislative action to prevent the excess enrichment capacity
that exists in Russia from destabilizing the U.S. market, LES believes
that amending the trade laws to define enrichment as a good is not the
optimal solution to this problem.
The proposal to legislate enrichment as a good for purposes of the
antidumping laws would enhance stability in the U.S. market only as
long as the Russian Suspension Agreement remains in effect. However,
the Russian Suspension Agreement is currently subject to two separate
challenges to its continued validity that are being litigated in the
Court of International Trade. If Plaintiffs were to succeed in either
case, the Russian Suspension Agreement would be eliminated. Under these
circumstances, legislation defining enrichment as a good would not be
effective in providing the stability necessary for LES and other
enrichers to make the massive investments required to build up a
healthy domestic infrastructure for uranium enrichment. Moreover, the
Russian Suspension Agreement permits Russia to withdraw from the
agreement upon 30 days' notice.
Similarly, LES is aware that many of its utility customers strongly
oppose legislation to define enrichment as a good. LES understands this
opposition to be based on several factors, including (i) a long history
of court litigation over this issue, (ii) concern that defining
enrichment as a good might impact the availability of enrichment from
foreign sources other than Russia, and (iii) concern that the
legislation might have unintended adverse consequences (e.g., tax
consequences) for utility purchasers. Based on testimony at the
hearing, LES believes that there are sufficient points of consensus
among industry participants to pursue an alternative legislative
solution that would not engender the same opposition from utility
customers as would defining enrichment as a good. In particular, LES
supports a legislative solution that is specific to the issue of excess
enrichment capacity in Russia and that addresses non-proliferation
objectives of achieving additional blending down of excess HEU stocks
in Russia into commercial nuclear fuel.
Question 2. Does the current agreement affect your ability to
expand the LES plant past 3 million SWU?
Answer. The potential for LES to expand beyond 3 million SWU will
depend on the ability of LES management to present a satisfactory
business case for expansion to the board of LES's corporate parent,
Urenco. The potential for unregulated supplies of enriched uranium from
Russia to overwhelm the U.S. market is definitely a very significant
risk factor that would be weighed in any future decision concerning
expansion of the LES facility.
Question 3. Are you aware of whether Europe has similar trade
restrictions on enrichment?
Answer. Yes. In Europe, the Euratom Supply Agency regulates the
amount of nuclear fuel that European utilities may contract for supply
from Russia pursuant to a protocol known as the Corfu Agreement. Under
this agreement, Euratom has limited enriched uranium from Russia to
approximately 20% of the European market.
Question 4. Would you support extending the current HEU agreement?
Answer. Yes. LES recognizes and strongly supports the non-
proliferation benefits that have been achieved through the current HEU
agreement. LES believes that a legislative solution to the issue of
excess Russian enrichment capacity should include incentives to
complete the current HEU agreement and incentives for additional HEU
blend-down following expiration of the current agreement in 2013.
Question 5. It would seem to me that having SWU as a good and not a
service would provide certainty for future LES expansions. Do you think
your parent company would support that?
Answer. For the reasons noted in LES's response to Question 1
above, LES does not believe that amending the trade laws to define
enrichment as a good would provide long-term predictability concerning
access of Russian SWU to the U.S. market. LES believes that an optimal
legislative solution would be specific to the issue of excess
enrichment capacity in Russia and provide for (i) direct access to
commercial Russian enrichment for U.S. utilities, (ii) overall limits
on imports of enriched uranium from Russia consistent with the
quantities agreed to in the Russian Suspension Agreement, (iii)
incentives for Russia to complete the current HEU Agreement, and (iv)
incentives to encourage further down-blending of excess HEU from
nuclear weapons in Russia.
______
Responses of William H. Tobey to Questions From Senator Bingaman
heu purchase agreement/suspension agreement
Question 1. Has Russia explicitly told the U.S. government their
intention not to renew the HEU agreement when it expires in 2014?
Answer. Russian officials have indicated numerous times in various
fora their unwillingness to extend the 1993 HEU Agreement or to
consider another such agreement. During formal HEU Transparency
negotiations in 2004 and several times since at the working level, the
Russian side has informed US Government representatives that it does
not intend to extend the Agreement. This message was also conveyed
during the negotiation of the amendment to the Russian Uranium
Suspension Agreement between the U.S. Department of Commerce and
Rosatom's Sergey Kiriyenko in June 2007. I understand that during those
discussions, the Russian negotiator confirmed that Russia had no
interest in extending the HEU Agreement. Kiriyenko has also stated
publicly in several press interviews that while Rosatom is committed to
implementing the HEU Agreement through 2013, there will not be a
follow-on agreement and that Russia's goal was to transition to normal
commercial interactions rather than continue through Government to
Government agreements.
nuclear deterrence
Question 2. We work routinely with the U.K. and other NATO allies
on nuclear deterrence and even stockpile stewardship, why cannot these
allies with enrichment programs assist us in the production of tritium?
Answer. Most, if not all, of our NATO allies are members of the
Nuclear Suppliers Group. As such, each government has pledged to export
tritium as well as equipment and materials for tritium production with
peaceful uses assurances. These assurances would not allow for
transferred tritium or tritium resulting from equipment or materials
transferred to the United States to be used in our military programs.
The DOE via the Atomic Energy Act does have a special relationship with
other states, but since tritium is integral to our defense needs, it is
not prudent to rely on other nations to ensure the continued function
of our nuclear deterrent.
heu
Question 3. The amended agreement keeps the importation threshold
of Russian uranium essentially on hold until the HEU agreement ends in
2014, so isn't there a penalty already in place for Russia to continue
blending down HEU to sell in the U.S. markets?
Answer. Unfortunately, the amended Suspension Agreement is not
comprehensive. Specifically, there is no penalty or limit on the
importation of enrichment services provided under certain types of
contracts, as was ruled and upheld on appeal in the case of Eurodif,
S.A. versus the United States (Eurodif). Per the Eurodif ruling, Russia
is now free to export commercial LEU services, outside of downblended
HEU from weapons, without restriction into the U.S. market since
enrichment services are no longer subject to U.S. antidumping laws. Any
such imports of Russian commercial LEU would be in direct competition
with the HEU Agreement and could threaten the viability of the HEU
Agreement by reducing or eliminating USEC's ability to sell the down
blended HEU at a profit.
heu agreement
Question 4. What steps would the administration take if Russia were
to suspend participation in the HEU agreement?
Answer. The HEU Agreement is our most significant nonproliferation
agreement with Russia on the irreversible elimination of excess
weapons-usable HEU. The United States would not take any move to
terminate it lightly. However, the HEU Agreement contains a provision
that allows either Party to terminate the agreement with one year's
written notice to the other Party. In the absence of specific
circumstances concerning a threatened Russian termination of the HEU
Agreement, speculation on potential steps that might be taken would be
inappropriate. Since the Agreement has a commercial impact on the
domestic nuclear industry, an analysis of current and projected market
conditions would also influence any Administrative action.
______
Responses of Robert C. Ervin, Jr., to Questions From Senator Bingaman
Question 1. Would you support extending the HEU agreement past
2013?
Answer. The USW certainly would support continued nuclear non-
proliferation efforts by our government provided that: (1) in any
extension of the HEU agreement with the Russian Federation beyond 2013,
the HEU down-blended would be counted within the 20 percent quota
limits set forth in the amended Russian Suspension Agreement (``RSA'')
for the life of the agreement; (2) the LEU produced from such down-
blended HEU by the Russians could not be sold under contracts for
separative work units (``SWU'') to circumvent that 20 percent RSA quota
limitation; and (3) any new HEU agreement could not conflict with the
quota limitations set forth in the amended RSA such that those quota
limitations would cease to have legal effect or that could cause, in
any manner, an ability to exceed the 20 percent quota limitations.
Question 2. Does the USW support the re-enrichment of depleted
uranium tails to help stabilize uranium supply?
Answer. The USW supports the re-enrichment of tails in the manner
described in House Resolution 4189 (110th CONGRESS 1st Session).
Appendix II
Additional Material Submitted for the Record
----------
Statement of the Uranium Producers of America
The Uranium Producers of America (``UPA'') was established in 1985
to promote the viability of the domestic uranium producing industry.
UPA member companies are actively pursuing exploration, development and
production of domestic uranium resources in Wyoming, Colorado, Texas,
South Dakota, Arizona, Nebraska, Nevada, Utah and New Mexico. We
appreciate the opportunity to provide comments on the recent amendments
to the Russian Suspension Agreement (``Suspension Agreement'').
The Suspension Agreement resulted from a trade action originated by
an ad hoc group of UPA members.\1\ Of the original petitioners, Power
Resources, Inc., Crow Butte Resources, Inc. and Uranium Resources, Inc.
remain as active parties in the Suspension Agreement. These Petitioners
(``Petitioners'') were required to approve the recent amendments to the
Suspension Agreement and did so. The Petitioners and UPA consulted with
the Commerce Department regarding the proposed amendment to the
Suspension Agreement. UPA supported a 20% LEU quota for the Russians as
called for by the amendment. This quota provides Russia with a market
share consistent with the expressed desires of our domestic utility
customers, yet maintains a diversity of fuel supply. When the proposed
amendment was published, the Petitioners provided extensive comments to
the proposal. A summary of the uranium producer comments is
attached.\2\
---------------------------------------------------------------------------
\1\ Agreement Suspending the Antidumping Investigation on Uranium
from Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Ukraine, and
Uzbekistan, 57 Fed. Reg. 49220 (Oct. 30, 1992).
\2\ See Exhibit 1. The complete Petitioner comments dated January
10, 2008, are part of the Commerce Department's record in the
proceeding to amend the Suspension Agreement.
---------------------------------------------------------------------------
As evidence by these comments, the Petitioners believed that
significant modifications could be made to strengthen the amendment. In
meetings subsequent to the submittal of these comments with the
Commerce Department, Department officials gave assurances that efforts
would be made to incorporate these comments as the amendment moved
forward.\3\
---------------------------------------------------------------------------
\3\ See Exhibit 2, January 29, 2008 letter from David Spooner to
Mark Pelizza.
---------------------------------------------------------------------------
Of primary concern to the Petitioners and UPA is that government
inventory sales, both U.S. and Russian, not adversely impact the
domestic uranium industry. UPA has been working with the Department of
Energy to prevent DOE uranium inventory sales from having such adverse
impacts. Working in conjunction with other stakeholders, a fuel
producer/utility consensus has been achieved concerning DOE inventory
sales.\4\
---------------------------------------------------------------------------
\4\ See Exhibit 3, copy of the Consensus Agreement on DOE uranium
inventory sales.
---------------------------------------------------------------------------
The industry consensus provides for DOE to make near term sales of
uranium for initial cores for new reactors and gradually increase other
DOE sales to 10% of the U.S. utility demands on an annual basis. The
gradual ramp up of DOE sales is vital to the ability of developing
domestic uranium companies to secure the necessary private investment
to finance the exploration, development and operation of new uranium
production facilities in the United States. The UPA's ability to reach
the consensus with other stakeholders on DOE uranium inventory sales
was premised on the quotas allowed the Russian Federation according to
the terms of the amendment to the Suspension Agreement. It is critical
to the domestic uranium industry that government sales, including the
U.S. and Russian Federation not exceed 30% of the commercial market at
any time. DOE is currently working on a policy to establish its uranium
sales, and it is UPA's hope that the industry consensus points will be
closely followed.
It has been suggested that the Russian Federation should be granted
incentives of a larger market share than 20% in order to extend the HEU
Agreement past 2013. While UPA supports the continuance of what has
been a remarkable agreement, we ask that these incentives not destroy
our members' ability to obtain the investment necessary to put this
country's tremendous uranium resources into production. If Russia must
be offered a higher market share percentage, then DOE must be required
to postpone or reduce sales from its inventories. The uranium industry
has witnessed relatively small DOE sales causing undue harm to market
prices, which has in turn discouraged capital investment required by a
growing industry. An over-reliance on government inventory sales will
stifle the domestic producing industry's ability to get projects into
timely production, just when they are perhaps needed most.
The domestic uranium industry seems to be the forgotten component
in current uranium fuel supply cycle discussions. It is analogous to
Congress and the Administration focusing on oil refineries without any
consideration of the crude oil that will supply them. The UPA agrees
that a healthy and vibrant domestic enrichment industry is critical to
our nation's energy security; however, to focus narrowly on this stage
of the fuel cycle is shortsighted. Once the leading uranium producing
country in the world, the United States' miners were almost destroyed
by misguided government policies in the 1990's. We have lost at least
two generations of human resources and must get it right this time to
assure that our skills and ability to produce uranium are not lost
forever. UPA members urge that the treatment of U.S. and Russian
Federation uranium inventories must be considered together. The impact
of all government inventory sales must be cumulatively accounted for in
establishing these important policies. The policy makers must determine
priorities with the knowledge that only so much government inventory
sales can be allowed without adversely impacting domestic producers.
The United States has substantial uranium resources that can
support a significant portion of our nation's nuclear power fuel
requirements. This Congress and our citizens should demand that we
develop and expand our domestic production to the greatest extent
possible in support of energy independence. We simply cannot allow a
dependence like our nation has on oil to exist in the electricity
production arena. Nuclear powered electricity must increase to meet our
energy needs and to combat global warming. Given a fair chance, UPA
members can provide a significant amount of the uranium to supply the
nuclear renaissance.
Exhibit 1.--Summary of Producer Comments to Proposed Amendments to
Russian Suspension Agreement
1. Support Amendment to Suspension Agreement that facilitates
the normalization of trade in Russian uranium products as a
necessary and positive development.
2. Amendment provides for a phase-in of quotas with
significant increases at expiration of U.S.-Russian HEU
Agreement.
3. Provides Russia with a market share consistent with the
expressed desires of U.S. utilities yet maintains diversity of
supply.
4. U.S. producers have accepted and planned for large
quantities of downblended Russian HEU that will enter the
market through the completion fo the HEU Agreement in 2013.
Commerce must make it clear the proposed amendment is
contingent on Russia's continued fulfillment of the HEU
Agreement through 2013. To assure this, producers urge the
inclusion of the following language:
The Department finds that this Suspension Agreement is in the
public interest because combined with the U.S.-Russia HEU
Agreement, and the USEC Privatization Act, it furthers the
security interests of the United States and provides for
orderly and predictable sale of Russian uranium in the United
States market. This public interest finding is based on the
premise that the Russian Federation will fulfill its delivery
obligations under the U.S.-Russia HEU Agreement, requiring the
blending down of 500 tonnes of HEU and the exportation of the
resulting LEU to the United States, through its termination in
2013. The Export Limits under Section IV of the Agreement are
conditioned upon the completion of all deliveries of LEU and
natural uranium required under the U.S.-Russia HEU Agreement
and the related commercial implementing agreements.
5. The draft Amendment does not provide mechanisms enabling
the Department to ensure that domestic uranium prices will not
be suppressed or undercut by Russian imports.
a. Department must expressly require that Russian
suppliers charge ``market rates'' for all Russian
Uranium Products exported to U.S. market.
b.Establish as part of contract reviews, procedures
that ensure that Russian exports are at market rates
and do not suppress or undercut U.S. producer prices.
6. The proposed quota provision for initial core sales must
be more clearly defined and take into account natural uranium
stockpiles that DOE intends to make available for the same
purpose.
a. Clearly define ``initial cores.''
b. Limit the quantities of initial cores consistent
with DOE's plans to market uranium for initial cores.
c. Establish mechanism to insure that Russian initial
core imports are only used for that purpose.
d. Ensure that U.S. utilities don't purchase
``initial core'' volumes in excess of what is needed
for any particular ``initial core.''
7. Initial cores for Russian should be limited to 10 initial
cores--20 million pounds, the same as DOE.
8. Require initial core sales be ``necessary for the first
loading of fuel into a new reactor for which a Combined
Operating License has been submitted to NRC, and accepted by
NRC for review.
9. Require a certificate from purchaser of initial core
material that material will only be used for initial core and
not for any other purpose. Purchaser shall establish a
dedicated account for such material, notify Commerce when
material moved from account for use, and notify Commerce of
material can't be used for initial core purpose.
a. If not used for initial cores must be used in
another initial core or only used if Commerce
determines use is market neutral.
b. Commerce and DOE shall coordinate to ensure no
``double dipping'' on initial core sales.
10. Commerce ability to increase Russian quota is
unacceptable. Any change is ``material'' and must go through
Amendment process, with opportunities for comment.
Exhibit 2
United States Department of Commerce,
International Trade Administration,
Washington, DC, January 29, 2008.
Mark S. Pelizza,
Uranium Resources, Inc., 405 State Highway 121 Bypass, Building A,
Suite 110, Lewisville, TX.
Dear Mr. Pelizza, I am writing to provide you with the following
assurances as to how the Department of Commerce (the ``Department'')
will administer the Agreement Suspending the Antidumping Investigation
of Uranium from the Russian Federation, as amended. The amendment was
published in the Federal Register on December 4, 2007 (72 Fed. Reg.
68124) and is scheduled to be signed, in the same form, here in
Washington on February 1, 2008.
First, a key purpose of the suspension agreement is and, under the
amended suspension agreement, will remain, to support the 1993
Agreement between the U.S. Government and the Government of the Russian
Federation Concerning the Disposition of Highly Enriched Uranium
Extracted from Nuclear Weapons and the associated implementing
agreements (the ``HEU Agreement''). If the Russian Federation were to
fall substantially short of fulfilling its obligations under the HEU
Agreement, the Department would, in consultation with the Departments
of State and Energy, give serious consideration to terminating the
amended suspension agreement.
Second, with respect to Section IV.B.2. of the amendment, the
Department understands the reference to ``contracts for the supply of
Initial Cores'' to refer to contracts for Russian Uranium Products that
are actually installed in new nuclear reactors in the United States and
used to start up those reactors. If Russian Uranium Products were
imported into the United States for use as Initial Cores, but were not
actually used for that purpose, the uranium in question would be
counted against the Russian Federation's export limit in Section IV.B.1
of the amendment, unless it were re-exported from the United States. We
believe that the Russian Federation shares this understanding.
Third, with respect to Section IV.B.4 of the amendment, which gives
the Department the unilateral right to raise the export limits in the
agreement, the Department regards this provision as only giving it the
flexibility to deal with unforeseen situations of substantial market
disruption. Such situations would not include normal, or even unusual,
fluctuations in the U.S. market price of uranium products. Any
adjustment under this provision to the export limits in the amended
suspension agreement would be made only in order to prevent serious
damage to the economy of the United States, and would occur only after
consultation with the U.S. uranium industry.
Fourth, the Department recognizes that the comments on the
initialed amendment that were provided to the Department by domestic
interested parties concerned, in significant part, issues pertaining to
the administration of the amended suspension agreement and the need for
clarity with respect thereto. In this regard, as has been the case with
certain past amendments to the suspension agreement, the Department
intends to clarify these issues through Statements of Administrative
Intent that will be issued as the Department moves into the
implementation phase of the amended suspension agreement.
Sincerely,
David Spooner,
Assistant Secretary for Import Administration.
Exhibit 3.--Industry Position on Disposition of DOE's Nuclear
Fuel Inventory
Principles agreed
1) Material is to be sold only to those entities possessing a
US NRC license.
2) DOE will establish a Strategic Reserve of 20 million
pounds U308 equivalent as LEU at 4.95 w/o. DOE will establish
procedures, with input from the industry, that govern access to
the strategic stockpile. Releases from stockpile should only be
authorized in cases of national energy emergency.
3) 20 million pounds U308 equivalent will be made available
for Initial cores of new reactor build projects on a first
come, first served basis at fair market value. In order to
qualify for the initial core material a utility must have
submitted a COL application to the NRC and the NRC must have
agreed to review the application.
4) An Advisory Committee of Industry participants will be
established to advise and assist DOE (or to oversee DOE's
performance) with respect to DOE's management of the uranium
sales program.
5) DOE sales of natural uranium on an annual basis will
follow the schedule in item 8 (natural U308 equivalent) and no
more than 50% of the annual quantity will be sold under long-
term contracts. DOE may begin to place material under contracts
with deliveries beginning in 2008.
6) Should DOE barter material for services, any material sold
by the recipient, shall be sold at fair market value and
considered a part of DOE's annual sales quantity for that year.
7) The industry will cooperate with DOE to lobby for Receipt
Authority for the revenues derived from the safe of DOE
uranium.
8) DOE's annual targeted delivery quantities are presented in
the following table:
----------------------------------------------------------------------------------------------------------------
Year Million lbs Natural U308
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------- -
----------------------------------------------------------------------------------------------------------------
2008 1.06
----------------------------------------------------------------------------------------------------------------
2009 1.06
----------------------------------------------------------------------------------------------------------------
2010 2.13
----------------------------------------------------------------------------------------------------------------
2011 3.12
----------------------------------------------------------------------------------------------------------------
2012 4.22
----------------------------------------------------------------------------------------------------------------
2013 5.3
----------------------------------------------------------------------------------------------------------------
2014 5.3
----------------------------------------------------------------------------------------------------------------
9) Any program sales beyond 2014 shall be reviewed by the
Advisory Committee in 2011.