[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


                                 ______

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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

                              ----------                              

                               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

                              ----------                              


                        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.*
---------------------------------------------------------------------------
    * Exhibits 1-2 have been retained in committee files.
---------------------------------------------------------------------------
    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.

                                    

      
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