[Federal Register Volume 82, Number 88 (Tuesday, May 9, 2017)]
[Notices]
[Pages 21594-21631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09243]



[[Page 21593]]

Vol. 82

Tuesday,

No. 88

May 9, 2017

Part II





Department of Energy





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Excess Uranium Management: Secretarial Determination of No Adverse 
Impact on the Domestic Uranium Mining, Conversion, and Enrichment 
Industries; Notices

  Federal Register / Vol. 82 , No. 88 / Tuesday, May 9, 2017 / 
Notices  

[[Page 21594]]


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DEPARTMENT OF ENERGY


Excess Uranium Management: Secretarial Determination of No 
Adverse Impact on the Domestic Uranium Mining, Conversion, and 
Enrichment Industries

AGENCY: Office of Nuclear Energy, Department of Energy.

ACTION: Notice.

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SUMMARY: On April 26, 2017, the Secretary of Energy issued a 
determination (``Secretarial Determination'') covering continued 
transfers of uranium for cleanup services at the Portsmouth Gaseous 
Diffusion Plant. The Secretarial Determination covers transfers of up 
to the equivalent of 200 metric tons of natural uranium (``MTU'') in 
the second quarter and up to 300 MTU per quarter in the third and 
fourth quarters of 2017 and up to the equivalent of 1,200 MTU in 2018 
and each year thereafter. For the reasons set forth in the Department's 
``Analysis of Potential Impacts of Uranium Transfers on the Domestic 
Uranium Mining, Conversion, and Enrichment Industries,'' which is 
incorporated into the determination, the Secretary determined that 
these transfers will not have an adverse material impact on the 
domestic uranium mining, conversion, or enrichment industry.

DATES: Effective April 26, 2017.

ADDRESSES: The 2017 Secretarial Determination and supporting documents 
are available on the Department's Web site at: https://energy.gov/ne/downloads/excess-uranium-management.

FOR FURTHER INFORMATION CONTACT: Ms. Cheryl Moss Herman, U.S. 
Department of Energy, Office of Nuclear Energy, Mailstop NE-32, 19901 
Germantown Rd., Germantown, MD 20874-1290. Phone: (301) 903-1788. 
Email: [email protected].

SUPPLEMENTARY INFORMATION: The Department of Energy (DOE) holds 
inventories of uranium in various forms and quantities--including 
natural uranium--that have been declared as excess and are not 
dedicated to U.S. national security missions. Within DOE, the Office of 
Nuclear Energy (NE), the Office of Environmental Management (EM), and 
the National Nuclear Security Administration (NNSA) coordinate the 
management of these excess uranium inventories. Much of this excess 
uranium has substantial economic value on the open market. One tool 
that DOE has used to manage its excess uranium inventory has been to 
enter into transactions in which DOE exchanges excess uranium for 
services. This notice involves uranium transfers by the Office of 
Environmental Management (EM) in exchange for cleanup services at the 
Portsmouth Gaseous Diffusion Plant.
    These transfers are conducted in accordance with the Atomic Energy 
Act of 1954 (42 U.S.C. 2011 et seq., ``AEA'') and other applicable law. 
Specifically, Title I, Chapters 6-7, 14, of the AEA authorizes DOE to 
transfer special nuclear material and source material. LEU and natural 
uranium are types of special nuclear material and source material, 
respectively. The USEC Privatization Act (Pub. L. 104-134, 42 U.S.C. 
2297h et seq.) places certain limitations on DOE's authority to 
transfer uranium from its excess uranium inventory. Specifically, under 
section 3112(d)(2) of the USEC Privatization Act (42 U.S.C. 2297h-
10(d)(2)), the Secretary must determine that the transfers ``will not 
have an adverse material impact on the domestic uranium mining, 
conversion or enrichment industry, taking into account the sales of 
uranium under the Russian Highly Enriched Uranium Agreement and the 
Suspension Agreement'' before DOE makes certain transfers of natural or 
low-enriched uranium under the AEA.
    On April 26, 2017, the Secretary of Energy determined that 
continued uranium transfers for cleanup services at Portsmouth will not 
have an adverse material impact on the domestic uranium mining, 
conversion, or enrichment industry (``2017 Secretarial 
Determination''). This determination covers transfers of up to the 
equivalent of 200 metric tons of natural uranium (``MTU'') in the 
second quarter and up to 300 MTU per quarter in the third and fourth 
quarters of 2017 and up to the equivalent of 1,200 MTU in 2018 and each 
year thereafter. The Secretary based his conclusion on the Department's 
``Analysis of Potential Impacts of Uranium Transfers on the Domestic 
Uranium Mining, Conversion, and Enrichment Industries,'' which is 
incorporated into the determination. The Secretary considered, inter 
alia, the requirements of the USEC Privatization Act of 1996 (42 U.S.C. 
2297h et seq.), the nature of uranium markets, and the current status 
of the domestic uranium industries, as well as sales of uranium under 
the Russian HEU Agreement and the Suspension Agreement.

    Issued in Washington, DC, on April 26, 2017.
Raymond Furstenau,
Acting Assistant Secretary for Nuclear Energy, Office of Nuclear 
Energy.

    The full text of the 2017 Secretarial Determination is set forth 
below.

Secretarial Determination for the Sale or Transfer of Uranium

    Since May 1, 2015, the Department of Energy (``Department,'' 
``DOE'') has transferred natural uranium and low-enriched uranium in 
specified amounts and transactions, subject to a determination made on 
that date pursuant to Sec.  3112(d)(2) of the USEC Privatization Act, 
42 U.S.C. 2297h-10(d).
    After reviewing the 2017 ``Analysis of Potential Impacts of Uranium 
Transfers on the Domestic Uranium Mining, Conversion, and Enrichment 
Industries,'' prepared by DOE, considering responses to the 
Department's solicitations for public input, noting the Department's 
goals regarding the projects being partly supported by uranium 
transactions, and recognizing the Department's interest in maintaining 
healthy domestic nuclear industries, I have concluded that the lower 
rates of uranium transfers described herein are appropriate. I have 
therefore determined to permit transfers only at the lower rates 
described below.
    Accordingly, I determine that the following uranium transfers will 
not have an adverse material impact on the domestic mining, conversion, 
or enrichment industry:
    For the remainder of calendar year 2017, up to an additional 800 
MTU contained in natural uranium hexafluoride, transferred to 
contractors for cleanup services at the Portsmouth Gaseous Diffusion 
Plant, in transfers of up to 200 MTU in the second quarter and up to 
300 MTU per quarter in the third and fourth quarters.
    For calendar year 2018 and thereafter, up to 1,200 MTU per calendar 
year contained in natural uranium hexafluoride, transferred to 
contractors for cleanup services at the Portsmouth Gaseous Diffusion 
Plant, in transfers of up to 300 MTU per quarter.
    I base my conclusions on the Department's 2017 ``Analysis of 
Potential Impacts of Uranium Transfers on the Domestic Uranium Mining, 
Conversion, and Enrichment Industries,'' which is incorporated herein. 
As explained in that document, I have considered, inter alia, the 
requirements of the USEC Privatization Act of 1996 (42 U.S.C. 2297h et 
seq.), the nature of uranium markets, and the current status of the 
domestic uranium

[[Page 21595]]

industries. I have also taken into account the sales of uranium under 
the Russian HEU Agreement and the Suspension Agreement.

    Dated: April 26, 2017.

Richard Perry,

Secretary of Energy.

Analysis of Potential Impacts of Uranium Transfers on the Domestic 
Uranium Mining, Conversion, and Enrichment Industries

April 26, 2017

Executive Summary
    The Department of Energy (``Department'' or ``DOE'') currently is 
transferring excess uranium at a rate of 1,600 metric tons (MTU) per 
year in exchange for cleanup services at the Portsmouth Gaseous 
Diffusion Plant. A prerequisite to continuation of these transfers 
after May 1, 2017, pursuant to the USEC Privatization Act, is a 
determination by the Secretary of Energy that the planned transfers 
will not have an adverse material impact on the domestic mining, 
conversion, or enrichment industry. In support of a 2017 determination 
the analysis below assesses the potential impact of planned transfers 
going forward.
    This analysis considers two different scenarios for planned 
transfers of natural uranium (NU) for cleanup services at Portsmouth--
transfers of up to the equivalent of 1,600 MTU of NU for calendar years 
2017 and thereafter (``Base Scenario''), and transfers at a rate of up 
to 1,200 MTU per year beginning in May 2017 until the current stockpile 
of natural uranium is exhausted. The Department concludes that 
transfers at either rate will not have an adverse material impact on 
the domestic mining, conversion, or enrichment industry. The Department 
further notes that transfers at the lower rate of 1,200 MTU per year 
will have lesser impacts than the Base Scenario.
    In sum, for purposes of the Secretarial Determination, transfers 
are deemed to have an ``adverse material impact'' if a reasonable 
forecast predicts that an industry will experience ``material'' harm 
that is reasonably attributable to the transfers. This analysis 
compares the expected state of each industry in light of the planned 
transfers to the expected state of each industry without the planned 
transfers and examines to what degree the effects of DOE's future 
planned transfers would impact the industries. In this case, the 
Department regards an ``adverse material impact'' as a harm of real 
import and great consequence, beyond the scale of what normal market 
fluctuations would cause.
    This analysis evaluates six factors for each industry: Changes to 
prices; changes in production levels at existing facilities; changes to 
employment in the industry; changes in capital improvement plans; the 
long-term viability of the industry; and, as required by statute, sales 
under certain agreements permitting the import of Russian-origin 
uranium. The analysis relies on various inputs, including a report 
prepared for the Department by consultant Energy Resources 
International, Inc., market data and forecasts from several sources, 
reports by other market consultants, and submissions in response to the 
Department's requests for public comment.
    The uranium mining industry serves the market for uranium 
concentrates. DOE's transfers under the Base Scenario constitute 4% of 
global demand and 13% of U.S. demand for uranium concentrates in the 
near-term, 2017-2019. The Department forecasts, on the basis of results 
from multiple economic models that transfers will tend to suppress 
prices in the next decade by approximately $1.40 per pound, and in the 
near-term (2017-2019) by approximately $1.60 per pound. These impacts 
are about 6 or 7% of current spot market price. Transfers at the lower 
rate of 1,200 MTU per year are expected to have a smaller effect. The 
level of price suppression under either scenario is within the range of 
recent market price fluctuations. The impact on production and 
employment under either scenario in the industry will also be limited. 
In the long-term, the Department concludes that the effect of its 
transfers under either scenario would delay decisions to expand or 
increase production capacity but would not change the eventual outcomes 
in this regard.
    The uranium conversion industry processes uranium concentrates into 
uranium hexafluoride suitable for enrichment. DOE's transfers, under 
the Base Scenario, constitute 4% of global demand and 14% of U.S. 
demand for conversion services in 2017-2019. Most conversion is sold on 
long-term contracts, and the sole domestic converter makes essentially 
all of its sales that way. The Department concludes that the term price 
will be relatively stable despite DOE's transfers. Although DOE 
transfers are projected to cause a suppression of the global spot price 
by about $0.30 per kgU in the next decade, about 5% of current spot 
prices, the domestic industry has little exposure to the spot price. As 
with uranium concentrates, transfers at the lower rate of 1,200 MTU per 
year are expected to have lesser impacts. As a result the Department 
concludes that its transfers under either scenario will have, at most, 
limited impact on employment and plans for capital improvement and 
expansion.
    The enrichment industry provides enriched uranium, which has higher 
levels of U\235\ than natural uranium. For context, this analysis also 
discusses the effects of DOE's planned transfers of LEU, which are not 
part of the action being approved by the Secretarial Determination. 
This analysis concludes that the planned transfers of natural uranium 
will not have a direct effect on the enrichment industry because 
transfers of natural uranium only directly impact the uranium mining 
and conversion industries. This analysis does take into account, 
however, indirect effects, including the effects on operational 
decisions in the enrichment industry potentially caused by a larger 
supply of natural uranium. The Department concludes that production at 
existing enrichment facilities and employment in the industry are 
affected by the current imbalance in supply and demand, with only a 
limited portion of that effect being reasonably attributable to DOE 
transfers.
    The Department has made its projections in recognition of current 
conditions in the market, and acknowledges that these conditions have 
been challenging for all three industries. Answering the analytical 
question posed by section 3112(d)(2) of the USEC Privatization Act 
requires a forecast of only the additional harm industry would suffer 
that can reasonably be attributed to its future planned transfers of 
uranium. The Department concludes that the potential effects to the 
domestic uranium mining, conversion, and enrichment industries from 
future transfers under either the Base Scenario or at the lower rate of 
1,200 MTU per year will not constitute adverse material impacts.

Table of Contents

I. Introduction
    A. Review of Procedural History
    B. Legal Authority
    C. Recent DOE Transfers and Excess Uranium Inventory
    D. Transfers Considered in This Determination
II. Overview of Uranium Markets
    A. The Nuclear Fuel Cycle
    B. The Uranium Markets
    C. The Nature of Demand for Uranium
    D. The Nature of Uranium Supply
    E. Uranium Prices
III. Analytical Approach
    A. Overview

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    B. Factors To Be Considered
    C. Comments on DOE's Analytical Approach
IV. Assessment of Potential Impacts
    A. Uranium Mining Industry
    B. Uranium Conversion Industry
    C. Uranium Enrichment Industry
V. Other Comments
VI. Conclusion

I. Introduction

A. Review of Procedural History

    The Secretary has periodically determined whether certain transfers 
of natural and low-enriched uranium will have an adverse material 
impact on the domestic uranium industries. DOE issued the most recent 
Secretarial Determination under Section 3112(d) covering transfers for 
cleanup at the Portsmouth Gaseous Diffusion Plant and down-blending of 
highly-enriched uranium (HEU) to low-enriched (LEU) on May 1, 2015.\1\ 
The 2015 Secretarial Determination and Analysis recounted in detail the 
history of prior DOE uranium transfers and the 2008 and 2013 DOE excess 
uranium inventory management plans. Introductory information provided 
in the 2015 Secretarial Determination and Analysis, and other 
information as noted below, is incorporated by reference and repeated 
here in part or updated as appropriate.
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    \1\ See Excess Uranium Management: Secretarial Determination of 
No Adverse Impact on the Domestic Uranium Mining, Conversion, and 
Enrichment Industries, 80 FR 26366 (May 7, 2015) (hereinafter 2015 
Secretarial Determination), and the analysis incorporated by 
reference in the 2015 Secretarial Determination (hereinafter 2015 
Secretarial Determination and Analysis).
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    In preparation for this Secretarial Determination, DOE sought 
information from the public through a Request for Information (RFI) 
published in the Federal Register on July 19, 2016 (81 FR 46917). DOE 
specifically requested comment on the uranium markets and the potential 
effects of planned DOE uranium transfers on the domestic uranium 
industries. In response to the RFI, DOE received comments from a 
diverse group of parties representing interests across the nuclear 
industry, including members of the uranium mining, conversion, and 
enrichment industries, trade associations, nuclear utilities, local 
governmental bodies, and members of the public.
    In addition, DOE tasked Energy Resources International, Inc., (ERI) 
to assess the potential effects on the domestic uranium mining, 
conversion, and enrichment industries of the introduction of DOE excess 
uranium inventory in various forms and quantities through sale or 
transfer during calendar years 2017 through 2026 (``2017 ERI Report'').
    On March 9, 2017, DOE published a Notice of Issues for Public 
Comment (NIPC) in the Federal Register (82 FR 13106) (``NIPC''). That 
notice announced the public availability of comments received in 
response to the July 2016 Request for Information, the 2017 ERI Report, 
and a list of factors for analysis of the impacts of DOE transfers on 
the uranium mining, conversion, and enrichment industries. DOE received 
comments from members of the uranium mining, conversion, and enrichment 
industries, trade associations, and DOE contractors.\2\ Citations to 
comments received in response to the RFI or NIPC are denoted by the 
commenter and page number of comments submitted; e.g., ``NIPC Comment 
of Uranium Producer, at 3,'' is found on page 3 of ``Uranium 
Producer's'' comments submitted in response to the NIPC.
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    \2\ The 2017 ERI Report and the comments received in response to 
the RFI and the NIPC are available at http://www.energy.gov/ne/downloads/excess-uranium-management. Some comments were marked as 
containing confidential information. Those comments are provided 
with confidential information removed.
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B. Legal Authority

    DOE manages its excess uranium inventory in accordance with the 
Atomic Energy Act of 1954 (42 U.S.C. 2011 et seq., ``AEA'') and other 
applicable law. Specifically, Title I, Chapters 6-7, 14, of the AEA 
authorizes DOE to transfer special nuclear material and source 
material. LEU and NU are types of special nuclear material and source 
material, respectively. The USEC Privatization Act (Pub. L. 104-134, 42 
U.S.C. 2297h et seq.) places certain limitations on DOE's authority to 
transfer uranium from its excess uranium inventory. Specifically, under 
Section 3112(d)(2)(B) of the USEC Privatization Act (42 U.S.C. 2297h-
10(d)(2)(B)), the Secretary must determine that certain transfers of 
natural or low-enriched uranium ``will not have an adverse material 
impact on the domestic uranium mining, conversion, or enrichment 
industry, taking into account the sales of uranium under the Russian 
Highly Enriched Uranium Agreement and the Suspension Agreement'' before 
DOE makes these transfers under its AEA authority (hereinafter referred 
to as ``Secretarial Determination'' or ``Determination''). Section 
306(a) of Division D, Title III of the Consolidated and Further 
Continuing Appropriations Act, 2015 (Pub. L. 113-235), limits the 
validity of any determination by the Secretary under Section 
3112(d)(2)(B) of the USEC Privatization Act to no more than two 
calendar years subsequent to the determination.
    Section 3112(e) of the USEC Privatization Act (42 U.S.C. 2297h-
10(e)), however, provides for certain transfers of uranium without the 
limitations of Subsection 3112(d)(2). For example, under Subsection 
3112(e)(2), the Secretary may transfer or sell enriched uranium to any 
person for national security purposes. Nevertheless, this analysis 
considers the impact of transfers made pursuant to Section 3112(e) 
along with other DOE transfers in any determination made to assess the 
adverse impacts of the Department's transfers under Section 3112(d).

C. Recent DOE Transfers and Excess Uranium Inventory

    DOE has detailed its transfers up to 2014 in the 2015 Secretarial 
Determination and Analysis.\3\ Pursuant to the 2015 Secretarial 
Determination, DOE transferred 2,500 MTU NU equivalent in calendar year 
2015, broken down as follows: 500 MTU of NU equivalent in the form of 
LEU transferred for down-blending services and 2,000 MTU of NU 
equivalent for cleanup services at the Portsmouth Gaseous Diffusion 
Plant. From the beginning of calendar year 2016 until now, DOE has 
transferred at a rate of 2,100 MTU per calendar year NU equivalent, 
broken down as follows: Up to 500 MTU per year of NU equivalent in the 
form of LEU transferred for down-blending services, with the balance 
transferred for cleanup services at the Portsmouth Gaseous Diffusion 
Plant. Transfers for cleanup services at the Portsmouth Gaseous 
Diffusion Plant from January through April of 2017 have been about 530 
MTU.
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    \3\ 2015 Secretarial Determination, 80 FR at 26367, 26366, 
26369.
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    Table 1 provides an overview of DOE's inventory of excess uranium 
as of December 31, 2016.
1. Current Excess Uranium Inventory

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                   Table 1--Overview of DOE Excess Uranium Inventories as of December 31, 2016
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                                                                                NU equivalent
              Inventory                  Enrichment  level           MTU        million lbs.   NU equivalent MTU
                                                                                    U3O8
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Unallocated Uranium Derived from      HEU/LEU                             4.5             2.0       [dagger] 774
 U.S. HEU Inventory.
Allocated Uranium Derived from U.S.   HEU/LEU                             8.6             4.2      [dagger] 1607
 HEU Inventory.
U.S.-Origin NU as UF6...............  NU                                3,194             8.3              3,194
Russian-Origin NU as UF6............  NU                                2,091             5.4              2,091
Off-spec UF6 as LEU.................  LEU                               1,218             5.2              2,015
Off-spec Non-UF6....................  NU/LEU                              221             1.6                600
Depleted Uranium Hexafluoride (DUF6)  DU                              300,000         208-260     80,000-100,000
 *.
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[dagger] The NU equivalent shown for HEU is the equivalent NU within the LEU derived from this HEU, most of
  which will be retained by DOE in the timeframe under consideration herein. This table includes LEU down-
  blended from HEU and HEU that is to be down-blended or that is in the process of being down-blended.
* DUF6 quantity is based on uranium inventories with assays greater than 0.25% U \235\ but less than 0.711% U
  \235\. The amount of NU equivalent is subject to many variables, and a large range has been shown to reflect
  this uncertainty. DOE has additional DUF 6 inventory that is equal to or less than 0.25% U \235\ that is not
  reported in this Table.

D. Transfers Considered in This Determination

    This section provides an overview of the various uranium 
transactions considered in this analysis. The first category are 
transfers that DOE plans to undertake during the next two years 
pursuant to today's determination under section 3112(d). The second 
category includes other transfers that have been made or may be made 
that are not subject to section 3112(d), but which may be relevant to 
DOE's analysis of the possible impacts of transfers in the first 
category. The third category includes transfers that may be subject to 
section 3112(d) but do not impact the commercial domestic uranium 
markets, and are included for completeness without further 
consideration. The fourth category are transfers made under the Russian 
HEU Agreement and Suspension Agreement, which do not directly involve 
DOE, but are considered as required under section 3112(d).
1. Planned Transfers Covered by This Secretarial Determination Under 
Section 3112(d)
    Today's determination concludes that transfers of natural uranium 
for cleanup services at the Portsmouth Gaseous Diffusion Plant at the 
rate of 1,200 MTU per year will not cause an adverse material impact on 
the domestic uranium industries.
    Through its Office of Environmental Management (EM), DOE contracts 
with Fluor- BWXT Portsmouth for cleanup services at the Portsmouth 
Gaseous Diffusion Plant. This work involves decontamination and 
decommissioning of approximately 415 facilities (including buildings, 
utilities, systems, ponds, and infrastructure units) that make up the 
former uranium enrichment facility. In recent years, work under this 
contract has been funded through both appropriated dollars and uranium 
transfers. As the value of transferred uranium changes depending on 
market prices and on the Department's decisions regarding how much 
uranium to transfer, uranium can constitute a greater or lesser 
proportion of the total funding.
    This analysis considers planned transfers of natural uranium 
hexafluoride for cleanup services at the Portsmouth Gaseous Diffusion 
Plant under two scenarios. The first scenario consists of continued 
transfers at the current rate of 1,600 MTU per year until the 
Department's natural uranium supplies are exhausted in 2020. The second 
scenario consists of transfers for the remainder of calendar year 2017 
and thereafter, at a rate of 1,200 MTU per year, until the Department's 
uranium supplies are exhausted in 2021. This scenario accounts for 
transfers that have already occurred in 2017 at the higher rate of 
1,600 per year and initiates the lower rate of 1,200 MTU per year 
beginning May 2017.
2. Uranium Transfers Considered But Not Covered by This Secretarial 
Determination
    In addition to transfers described above, this analysis considers 
several transfers that are not covered by today's determination, for 
various reasons. Although some of these transfers are not subject to 
section 3112(d), this analysis considers the potential impacts on 
domestic industries and the expected impacts of those yet to be carried 
out, to provide a complete picture of the Department's uranium 
transfers.\4\
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    \4\ The 2015 Secretarial Determination also considered uranium 
transfers under the TVA BLEU program, a program dating from 2005 
where TVA has been blending off-spec HEU from the NNSA for use in 
its reactors. Since 2015, NNSA has not finalized plans for 
additional down-blending of off-spec HEU, and therefore there are no 
further transfers of material associated with the TVA BLEU program 
in the 2017 to 2026 time period. 2017 ERI Report, 22, 23.
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i. NNSA Transfers for HEU Down-Blending
    As discussed in the NIPC, NNSA transfers of LEU for HEU down-
blending services were determined to serve a national security purpose 
in supporting the Department's nonproliferation goals and are thus 
covered by Section 3112(e)(2). Pursuant to Section 3112(e), these 
transfers for down-blending purposes no longer require a Secretarial 
Determination under Section 3112(d). However, this analysis still 
considers proposed NNSA LEU transfers of 500 MTU per year from 2017 to 
2019 for the purposes of assessing the impact of DOE's natural uranium 
transfers for EM cleanup services at the Portsmouth Gaseous Diffusion 
Plant.
ii. Depleted Uranium Hexafluoride to Energy Northwest
    This analysis considers uranium transfers made in the past that 
continue to displace commercial supply. In 2012 and 2013, DOE 
transferred 9,075 MTU of high assay depleted uranium hexafluoride 
(DUF6) tails to Energy Northwest. Energy Northwest then 
contracted with USEC, Inc.--now known as Centrus Energy Corp.--to 
enrich the tails to LEU. Energy Northwest sold most of the resulting 
LEU to TVA, for use in its reactors between 2015 and 2022. Energy 
Northwest retained the remaining LEU for us in its own reactors. DOE 
accepted title to 8,582 MTU of secondary tails resulting from the 
enrichment of the high-assay tails.
iii. Depleted Uranium Hexafluoride to Global Laser Enrichment and Off-
Spec Inventory Transfers
    This analysis also considers certain planned and future DOE 
transfers which are outside of the two-year window of

[[Page 21598]]

the Secretarial Determination. In July 2013, DOE issued a Request for 
Offers (RFO) for the sale of depleted and off-specification uranium 
hexafluoride inventories. These inventories include large amounts of 
high-assay and low-assay DUF6, approximately 538 thousand 
MTU of DUF6 in over 65,000 cylinders located, and smaller 
amounts of ``off-spec'' (meaning material that does not meet American 
Society for Testing and Materials specifications) uranium hexafluoride, 
approximately 1,106 MTU contained in 239 cylinders, located at DOE's 
Portsmouth and Paducah sites.
    Previously, in 2008, a DOE contractor issued a Request for 
Proposals for the sale and disposition of off-specification, non-
UF6 uranium located at Portsmouth. This inventory consists 
of approximately 4,461 MTU of uranium in various forms, including 
metal, oxides, fluoride, and aqueous solution.
    Following the July 2013 RFO, DOE entered into negotiations with GE-
Hitachi Global Laser Enrichment, LLC (GLE) for the sale of the 
DUF6, which resulted in an agreement in November 2016. 
Subject to the terms and conditions of the agreement, in 2024, DOE 
expects to begin annual transfers of depleted uranium to GLE, in an 
amount equal to 2,000 MTU of NU equivalent. GLE would enrich the 
depleted uranium to NU at a new laser enrichment facility it intends to 
build near the Paducah site.
    Also in connection with the July 2013 RFO, DOE announced in 
November 2013 that it would enter into negotiations with AREVA for the 
sale of off-spec uranium hexafluoride in the form of LEU.
    To date, the proposed sales of off-specification LEU and off-
specification non-UF6 have not been concluded. If concluded, 
DOE expects that off-spec LEU in an amount equal to approximately 456 
MTU as natural uranium equivalent would enter the market in 2020, and 
off-spec non-UF6 in an amount equal to approximately two MTU 
as NU equivalent would enter the market in 2021 or 2022.
iv. Uranium Transfers for Research Applications and Medical Isotope 
Production
    DOE also transfers LEU enriched to assays between 5 and 20 wt-% 
U\235\ (hereinafter high-assay LEU) for domestic and foreign research 
applications. Most of these transfers are conducted in accordance with 
section 3112(e) of the USEC Privatization Act, such as transfers to 
domestic and foreign research reactors; however, some may fall within 
section 3112(d), such as transfers for use in commercial research and 
isotope production applications. DOE issued two Secretarial 
Determinations under section 3112(d) to cover transfers of high-assay 
LEU in connection with the development and demonstration of, and the 
establishment of production capabilities for, respectively, the medical 
isotope molybdenum-99.\5\
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    \5\ See Excess Uranium Management: Secretarial Determination of 
No Adverse Impact on the Domestic Uranium Mining, Conversion, and 
Enrichment Industries, 80 FR 65727 (October 27, 2015), and Excess 
Uranium Management: Secretarial Determination of No Adverse Impact 
on the Domestic Uranium Mining, Conversion, and Enrichment 
Industries, 81 FR 1409 (January 12, 2016).
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    In general, these transfers of high-assay LEU do not contribute to 
any impacts that DOE uranium transfers overall have on domestic uranium 
industries because the transfers do not displace commercially supplied 
uranium, conversion, or enrichment from the market. No commercial 
supplier is currently capable of providing high-assay LEU, so a 
research reactor operator would not be able to replace DOE-sourced 
material by buying uranium hexafluoride and having it enriched to those 
levels. In general, it would also be technologically infeasible for 
research reactor operators to replace DOE-sourced high-assay LEU by 
converting the reactors to use commercial-assay LEU and retain the 
ability of the reactor to be used for research. Even if these reactors 
could use LEU (either at high or low assay) from commercial suppliers, 
the amounts are extremely small. Thus, DOE's supply of high-assay LEU 
for research applications and medical isotope production has at most a 
de minimis effect on the commercial uranium markets, and this analysis 
therefore does not consider these transfers further.
3. Transactions Under Russian HEU Agreement and Suspension Agreement
    As explained above, section 3112(d) of the USEC Privatization Act 
states that a Secretarial Determination must take into account the 
sales of uranium under two agreements relating to uranium from the 
Russian Federation: 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, Feb. 18, 1993 (``Russian HEU Agreement''), and the 
Agreement Suspending the Antidumping Investigation on Uranium from the 
Russian Federation, 57 FR 49220, at 49235 (Oct. 30, 1992) (``Suspension 
Agreement'').
    The 2015 Secretarial Determination and Analysis detailed the 
history of transfers which have taken place under the Russian HEU 
Agreement, the last of which took place in 2013, and those which may 
occur in the future under the Suspension Agreement. The specific 
volumes of uranium, conversion, and enrichment allowed into the United 
States from Russia under the Suspension Agreement are discussed below. 
Material imported under the Suspension Agreement would not involve DOE 
transfers but would be accounted for in the various projections and 
models of the uranium markets that are considered in this analysis.
    Two developments with respect to the Suspension Agreement since the 
2015 Secretarial Determination bear mention. First, the Suspension 
Agreement requires the Department of Commerce to adjust the export 
limits in 2016 and 2019 to take account of changes in projected reactor 
demand for uranium, and Commerce proposed such adjustments in September 
2016 and requested comment from interested parties. Letter from Sally 
C. Gannon, International Trade Administration, Department of Commerce, 
Sept. 9, 2016. The proposed adjusted export limits are, on average, 6.6 
percent above current limits over the remaining years of the agreement. 
Commerce has not yet issued final adjusted export limits.
    Second, the Suspension Agreement requires Commerce to conduct 
sunset reviews in 2011 and 2016. In February 2017, the Department of 
Commerce initiated the fourth sunset review. 82 FR 9193 (Feb. 3, 2017). 
Commerce expects to issue final results of this review within 120 days 
of publication of the initiation. In the previous five-year review, 
Commerce determined that termination of the Suspension Agreement and 
underlying anti-dumping investigation would likely lead to a 
continuation or recurrence of dumping and therefore declined to 
terminate the Agreement. 76 FR 68404, at 68407 (Nov. 4, 2011). DOE's 
analysis assumes that the Suspension Agreement will remain in effect 
through 2020.

II. Overview of Uranium Markets

    The nuclear fuel market consists of four separate industries: 
Mining/milling, conversion, enrichment, and fabrication. These 
industries interact in complicated and sometimes counterintuitive ways. 
In order to analyze the effect on the various industries of introducing 
a given amount of uranium into the market, it is necessary to 
understand how uranium is processed into nuclear fuel, how the 
different aspects of this process interact,

[[Page 21599]]

and how the consumers of uranium--nuclear reactor owners/operators--
procure uranium. This section provides an overview of these industries 
and markets, beginning with the process for producing nuclear fuel from 
uranium ore. The 2015 Secretarial Determination and Analysis discussed 
the primary players and drivers of the U.S. uranium industries. As in 
section I of this analysis, the information in this section 
incorporates by reference and repeats in part the information provided 
in the 2015 Secretarial Determination and Analysis, updated as 
appropriate.

A. The Nuclear Fuel Cycle

    In order to be useful as fuel for a reactor, uranium must be in a 
specific chemical form, it must have the correct isotopic 
concentration, and it must be fabricated into the correct physical 
shape and orientation.
1. Mining
    The first step in the nuclear fuel cycle is mining. Uranium is 
relatively common throughout the world and is found in most rocks and 
soils at varying concentrations. There are two primary methods of 
mining uranium: Conventional and in-situ recovery. Which method is used 
for a particular deposit depends on the specific characteristics of the 
deposit and surrounding rock. Conventional mining can involve either 
open pit or underground removal of uranium ore. Once removed from the 
ground, the uranium ore must be transported to a mill for processing. 
Many mining operations are located close to mills; where mines are 
close together, one mill may process ore from several different mines. 
Once at the mill, the ore is crushed and chemically treated to remove 
the uranium from the other minerals, a process called ``leaching.'' The 
solids are then separated from the solution and dried. The final result 
is a powdered uranium oxide concentrate, often known as ``yellowcake'' 
and predominately made of triuranium octoxide, or 
U3O8. This powdered yellowcake can be packed in 
drums and shipped for the next stage of processing.
    An alternative mining process is known as in-situ recovery (ISR). 
In ISR mining, the uranium ore is not removed from the ground as a 
solid. Instead, an aqueous solution--either acid or alkali--is pumped 
into the ground through injection wells, through a porous ore deposit, 
and back out through production wells. As the solution moves through 
the ore deposit, the uranium in the ore dissolves or leaches into the 
solution. Once the uranium-laden solution is pumped out, it is pumped 
to a treatment plant where uranium is recovered and dried into 
yellowcake. In order to maintain a stable rate of production, 
wellfields must be continually developed and placed into production.
    There are several key differences between conventional and ISR 
mines. ISR mining typically has lower costs, both capital and 
operational. ISR mines also have a shorter lead-time for development. 
There are other advantages compared to conventional mining such as 
decreased radiation exposure for workers, reduced surface disturbance, 
and reduced solid waste. However, ISR mining can only extract uranium 
located in deposits that are permeable to the liquid solution used to 
recover the uranium, and the permeable deposit must have an impermeable 
layer above and below to prevent the solution from leaching into 
groundwater. To the extent that uranium is located in other types of 
deposit, ISR mining may not be possible.
2. Conversion
    The second step in the nuclear fuel cycle is conversion. When 
yellowcake arrives at conversion facilities it may contain various 
impurities. Conversion is a chemical process that refines the uranium 
compounds and prepares it for the next stage.
    As discussed in the next section, most nuclear reactors require 
uranium that is enriched in the isotope U\235\.\6\ The enrichment 
process typically requires uranium to be in a gaseous form. To meet 
this need, U3O8 is converted into uranium 
hexafluoride (UF6), which sublimes--i.e. converts directly 
from solid to gas--at a temperature (at normal atmospheric pressure) of 
approximately 134[emsp14][deg]F (56.5 [deg]C). The UF6 is 
then loaded into large cylinders and shipped to an enrichment facility.
---------------------------------------------------------------------------

    \6\ Some nuclear reactors, particularly pressurized heavy water 
reactors, may use natural uranium.
---------------------------------------------------------------------------

3. Enrichment
    The third step in the nuclear fuel cycle is enrichment. As found in 
nature, uranium consists of a mixture of different uranium isotopes. 
The two most significant isotopes are U\235\ and U\238\. The relative 
concentration of the various isotopes of uranium in a given amount is 
referred to as the isotopic concentration or ``assay.'' \7\ NU consists 
of approximately 0.711% U\235\, 99.283% U-238, and trace amounts of U-
234.
---------------------------------------------------------------------------

    \7\ The measure of assay is sometimes referred to in terms of 
``weight-percent'' or ``wt-%.''
---------------------------------------------------------------------------

    Nuclear reactors typically require uranium that is enriched in the 
isotope U\235\, meaning that it has a higher concentration of U\235\ 
compared to natural uranium. Commercial light water reactors, which are 
the most common type of nuclear reactor, typically require an assay of 
3% to 5% U\235\. Uranium enriched in the isotope U\235\ is referred to 
as LEU if the assay is less than 20% but above 0.711%, and as HEU if 
the assay is greater than 20%.
    There are many different enrichment processes, but only two have 
been used commercially: Gaseous diffusion and gas centrifugation. 
Currently, all commercial enrichment services use gas centrifuge 
technology; the last commercial-scale gaseous diffusion facility ceased 
operating in 2013. After UF6 arrives from a conversion 
facility, this UF6 or ``feed'' is introduced into the 
enrichment centrifuges. The centrifuges exploit the slight mass 
difference between U\235\ and U\238\ atoms and separate the isotopes 
into varying levels of enrichment. Two streams of material are 
produced: Product and tails. The product is the enriched UF6 
or LEU output (also referred to as Enriched Uranium Product or EUP), 
which is pumped into a 2.5 ton cylinder and shipped to a fabrication 
facility. To achieve a concentration increase from 0.711% to 5% in a 
centrifuge, material passes sequentially through many stages of 
centrifugation.
    Just as the product stream has a higher proportion of U\235\ to U-
238 than the original feed, the other stream, the tails, has a lower 
proportion of U\235\ to U\238\. This material is sometimes referred to 
as ``depleted.'' The assay of U\235\ in the tails from an enrichment 
process depends on what concentration of U\235\ was needed in the 
enriched product and how much natural uranium was used as feed. Typical 
tails assays range from 0.1 wt-% to 0.4 wt-%. Tails are pumped into 
large (typically 10 or 14 ton) cylinders and then stored on-site at the 
enrichment facility for eventual disposal or other use. Some depleted 
uranium may be of value to the market depending on the assay level, 
cost to re-enrich and other market conditions.
    Enrichment services are sold in ``separative work units'' (SWU). 
One SWU is the amount of effort it takes to enrich uranium of a given 
isotopic concentration to a specified enriched level with a specified 
tails assay for the depleted uranium.
4. Fabrication
    The final step in the process is fabrication. Almost all commercial 
nuclear reactors require fuel to be in the form of uranium dioxide 
(UO2). At the fabrication facility, the enriched 
UF6 is converted into UO2 powder, and then formed 
into small ceramic pellets. These

[[Page 21600]]

pellets are then loaded into metal tubes and attached together to form 
fuel assemblies. Fuel design is reactor specific, and thus each fuel 
assembly is manufactured to the unique specifications of the reactor 
operator. Although fabrication is an important step in the fuel cycle, 
this analysis does not cover effects in the fabrication market.
5. Secondary Supply
    Uranium that undergoes the above-described four steps without any 
intermediate use is generally termed ``primary supply.'' However, there 
are other sources of uranium available in the market. Uranium from 
these other sources is collectively known as ``secondary supply'' and 
may include government inventories of uranium, commercial inventories 
(some strategic and some resulting from shutdown nuclear power plants), 
uranium produced by re-enriching depleted tails, and uranium resulting 
from enricher underfeeding. An additional source of secondary supply is 
from recycled uranium and plutonium either from reprocessing of 
commercial spent fuel or from weapons-grade plutonium disposition. The 
product of these processes enters the fuel cycle and is fabricated into 
mixed oxide (MOX) fuel.
    Most secondary supply comes from utilization of excess enrichment 
capacity by underfeeding or re-enriching tails. Due to technical 
constraints, enrichers generally cannot easily decrease capacity that 
is already constructed and operating. If an enricher were to shut down 
a centrifuge that is currently spinning, it may not be possible to 
restart the centrifuge. Doing so would risk damaging the machine and 
destroying the substantial capital investment. As a result, enrichers 
that have unsold capacity will tend to apply the excess enrichment work 
in one of two ways.
    First, enrichers can apply extra separative work to a given amount 
of uranium feed material, thus extracting more of the U\235\. This is 
known as ``underfeeding'' because it enables the production of a given 
amount of enriched product with a smaller amount of feed material. 
Normally, a purchaser of enrichment services seeking a specific amount 
of enriched product would need to determine (1) how much natural 
uranium feed to provide and (2) how much SWU to apply to it. Increasing 
the amount of enrichment services has a cost, but the additional work 
will extract more of the U\235\ content of the feed material so that 
less feed material is needed, at less cost. The relationship between 
the prices of uranium concentrates, conversion, and enrichment can be 
used to determine the amount of feed and SWU--and thus also the 
resulting tails assay that will lead to the lowest cost per kilogram of 
enriched product. This is known as the ``optimal tails assay.'' If an 
enricher has excess capacity, it may choose to feed in a smaller amount 
of natural uranium and apply more SWU to that material than was 
purchased. Thus, the end result is the customer's desired amount of 
enriched product plus depleted tails as well as the natural uranium 
that was delivered to the enricher but not fed into the enrichment 
process. The enricher can then sell this excess natural uranium on the 
open market.
    Second, enrichers can feed depleted tails back into the enrichment 
process and apply additional separative work to them. This is known as 
re-enrichment of tails. Over time, depleted tails may accumulate and an 
enricher may choose to feed them back into the enrichment process. 
These tails can be enriched up to the level of natural uranium (0.711%) 
or higher. The enricher may then sell the resulting natural uranium or 
LEU on the open market.
6. Note on Units
    Uranium concentrates are generally measured in pounds 
U3O8, conversion services are generally measured 
in kgU as UF6, and enrichment services are measured in SWU.
    It is worth noting that the measures of uranium concentrates and 
conversion services are not identical for several reasons. In addition 
to the fact that one is denominated according to U.S. customary units 
and the other is denominated under the international system of units 
(SI), the measure of uranium concentrates refers to the mass of 
U3O8 whereas the conversion metric refers only to 
the mass of the uranium atoms. Only about 85% of the mass of 
U3O8 consists of uranium. Thus, one kilogram of 
U3O8 contains approximately 0.848 kgU. 
Furthermore, converting between pounds U3O8 and 
kgU as UF6 must take into account an estimated 0.5% loss 
during the conversion process. Taking all this into account, one pound 
U3O8 is equivalent to 0.383 kgU as 
UF6, and one kgU as UF6 is equivalent to 2.61 
pounds U3O8.
    Converting between uranium concentrates or conversion services and 
enrichment is more difficult because the amount of SWU necessary to 
produce a given amount of product depends on the desired product assay, 
the feed assay, and the tails assay. An example will serve to 
illustrate the significance of different assumptions. Assuming a tails 
assay of 0.30%, enriching 1,000 kgU as UF6 of natural 
uranium to an assay of 4.50% would require approximately 609.7 SWU and 
would yield 97.9 kgU of enriched uranium; if a tails assay of 0.20% is 
used instead, enrichment would require approximately 913.9 SWU and 
would yield 118.8 kgU of enriched uranium.
    DOE typically describes its uranium inventory in terms of MTU for 
natural uranium and MTU ``natural uranium equivalent'' for depleted and 
enriched uranium. These terms have a slightly different meaning 
depending on the form. For natural UF6--i.e. with an assay 
of 0.711%--1 MTU would represent 2,610 pounds 
U3O8, 1,000 kgU as UF6 of conversion 
services, and 0 SWU. For enriched or depleted UF6, the 
amount of natural uranium equivalent depends on the assay. For depleted 
UF6, DOE calculates natural uranium equivalent as the amount 
of natural uranium product that could be produced by re-enriching the 
depleted material. For the purposes of this analysis, DOE assumes the 
enrichment process would use a tails assay of 0.20%. As an example, 
1,000 MTU of DUF6 with an average assay of 0.40% would yield 
approximately 390 MTU natural uranium equivalent. For LEU, DOE 
calculates natural uranium equivalent as the amount of natural uranium 
that would be needed as feed material to produce the LEU, given the 
assay of the LEU and assuming a tails assay of 0.20% and a feed assay 
of 0.711%. For LEU resulting from down-blending of HEU, DOE then 
subtracts out the amount of natural uranium feed--``diluent''--that is 
necessary to down-blend the HEU to the desired product assay. The 
amount of diluent required is typically equivalent to approximately 10% 
of the natural uranium that would be needed as feed for enrichment. 
This subtraction is appropriate for purposes of section 3112(d) 
analysis to indicate how much natural uranium a given amount of LEU 
would displace from the market. Because DOE's contractor procures 
diluent on the market (rather than from DOE inventory) in order to 
produce the transferred LEU, the transfer displaces that much less 
commercially supplied natural uranium.

B. The Uranium Markets

1. The Uranium Markets Are Separate, But Interrelated
    Uranium concentrates, conversion services, and enrichment services 
are traded in separate markets, with the demand for each tied to both 
technical specifications and utility procurement strategies. Prices for 
uranium

[[Page 21601]]

concentrates are typically quoted in terms of dollars per pound 
U3O8. Prices for conversion services are 
typically quoted in terms of dollars per kilogram uranium (kgU). Prices 
for enrichment services are typically quoted in terms of dollars per 
SWU.
    A typical transaction may involve a single purchaser purchasing a 
given amount of uranium concentrate through a contract directly with 
the mining company. The uranium concentrate is typically delivered 
directly to a conversion facility rather than to the purchaser. The 
purchaser will also enter into a separate contract for conversion 
services. The terms of this contract will require the purchaser to 
deliver U3O8 to the converter, and the converter 
will provide UF6 in return. The UF6 will then be 
shipped directly to an enricher. As with conversion, the purchaser will 
enter into a separate contract for SWU from an enricher. Contracts 
terms vary, but this contract will likely require the purchaser to 
deliver a specific amount of natural UF6 feed and the 
enricher to deliver a specific amount of UF6 enriched to the 
desired assay. This LEU will typically be delivered directly to the 
fabricator to be made into nuclear fuel.
    Although there are separate markets for each step in the process, 
the different steps are sometimes combined. It is possible to buy 
natural UF6, which would reflect both the uranium 
concentrate and the conversion services. Similarly, it is possible to 
buy enriched UF6--usually known as enriched uranium product 
(EUP)--which would reflect all three steps. The price for these 
products is typically developed by adding the cost of the various steps 
together. Thus, the price of EUP would be based on the price of an 
equivalent amount of uranium concentrates, conversion, and enrichment. 
In practice, however, the price of a product material, like EUP or 
natural UF6, may occasionally differ somewhat from the sum 
of the input prices. In addition, the price of a product material 
reflects transaction and shipping costs needed to move material through 
the various steps.
    In addition, even though the three components are traded 
separately, there is some interrelationship between the prices. Since 
optimal tails assay is a function of the relative price of uranium 
concentrates, conversion, and SWU, changes in one price can lead to 
shifts in demand and supply in the other markets. Similarly, excess 
enrichment capacity used for underfeeding or re-enrichment of tails 
increases supply of uranium concentrates and conversion services. Thus, 
changes in enrichment supply may contribute to changes in uranium 
concentrate and conversion prices.
2. Uranium Is Fungible
    Uranium at each stage of the fuel cycle is fungible. As long as the 
basic characteristics like form and assay are the same, one kilogram of 
material is essentially the same as any other.\8\ Accounting mechanisms 
allow the ownership of each kilogram of material to be traceable, and 
they also allow ownership to be exchanged freely without physically 
manipulating the material.
---------------------------------------------------------------------------

    \8\ Other important characteristics include the presence and 
concentration of contaminants, some of which can render material 
unusable as nuclear fuel. Industry standards specify the acceptable 
levels of contamination.
---------------------------------------------------------------------------

    A simple example illustrates the types of transaction that this 
fungibility enables. After U3O8 is converted into 
UF6, it will typically be shipped to a specific enrichment 
facility. If the uranium was mined and converted in North America, it 
will typically be sent to an enricher in North America. However, the 
purchaser is not necessarily required to purchase enrichment services 
from the company whose facility the material is shipped to. Instead, 
the purchaser may be able to exchange ownership of an amount of 
UF6 located at a North American enrichment facility with an 
equivalent amount located at a facility in Europe. This is referred to 
as a ``book transfer.''
    An entity can also sell conversion services or enrichment services 
without actually physically converting or enriching any material. A 
person that owns enriched UF6 may enter into a contract to 
sell SWU whereby it provides the desired amount of enriched 
UF6 in exchange for the cost of the SWU and a specific 
amount of natural UF6 feed. A person can also use natural 
UF6 to sell conversion services by exchanging it for the 
cost of the conversion services plus the equivalent amount of 
U3O8.
3. The Uranium Markets Are Global
    Uranium, conversion, and enrichment markets are generally global in 
nature. Purchasers are able to buy from suppliers worldwide and vice 
versa. Pricing for uranium concentrates and enrichment are essentially 
the same worldwide. Shipping costs are relatively low compared to other 
components of the prices, and the fungibility of the material allows 
suppliers and purchasers to minimize shipping costs through book 
transfers.
    Although conversion services also trade on a worldwide market, in 
recent years there has been a persistent difference between prices in 
North America and those in Europe. DOE believes this stems from a 
geographical imbalance in conversion capacity relative to enrichment 
capacity. There is more conversion capacity in North America than 
enrichment capacity, and conversely in Europe there is more enrichment 
than conversion capacity. Consequently, there is a regular net flow of 
conversion services from North America to Europe. Meanwhile, it seems 
likely that the cost of shipping is larger relative to the conversion 
price than it is relative to the price of uranium or enrichment--mainly 
because conversion is the least costly input among the three. DOE 
believes the price difference between North American conversion and 
European conversion reflects simply the additional cost of shipping 
converted material from North America to Europe, together with the fact 
that net flow is from North America to Europe.

C. The Nature of Demand for Uranium

1. Utility Use and Procurement of Uranium
    The vast majority of uranium in commercial use is fuel for 
commercial power generation. According to the International Atomic 
Energy Agency (IAEA), there are 449 commercial reactors operating 
worldwide, 99 of these are in the United States.\9\ The total installed 
electricity generation capacity of all reactors worldwide is 392,232 
MWe (megawatt electrical), 99,869 MWe of which is 
from U.S. reactors. Id.
---------------------------------------------------------------------------

    \9\ See IAEA, ``Power Reactor Information System,'' March 2017, 
http://www.iaea.org/pris/ (accessed March 24, 2017).
---------------------------------------------------------------------------

    Nuclear reactors typically provide what is known as ``baseload'' 
electricity supply. This means that nuclear reactors generally operate 
close to their full practical capacity continuously. Thus, the amount 
of uranium needed for each reactor in a given year does not generally 
fluctuate with electricity use patterns. It depends instead on the 
total capacity of the reactor and the fuel reload schedule. Reload 
schedules vary, but reactors typically must reload a portion of the 
total fuel in the core every 18 to 24 months.
    According to the World Nuclear Association (WNA), a typical 1,000 
MWe light water reactor operating today requires 
approximately 24 MTU of LEU at an assay of 4% each year. At a tails 
assay of 0.25%, this corresponds to approximately 140,000 SWU of

[[Page 21602]]

enrichment, 195,000 kgU of conversion services, and 510,000 pounds 
U3O8.\10\
---------------------------------------------------------------------------

    \10\ See WNA, ``The Nuclear Fuel Cycle,'' March 2017, http://www.world-nuclear.org/information-library/nuclear-fuel-cycle/introduction/nuclear-fuel-cycle-overview.aspx/ (accessed April 5, 
2017).)
---------------------------------------------------------------------------

    For a given reactor operator, this predictability enables the 
operator to purchase uranium, conversion, and enrichment on long-term 
contracts. These contracts often have first delivery as much as five 
years in the future and can extend as long as ten or even fifteen years 
from the contract date. In addition, because shutting down a reactor 
for refueling is a complex and carefully orchestrated process that 
requires extensive planning, a reactor operator generally has strong 
incentives to ensure well in advance of each refueling that the reactor 
will be sufficiently supplied with fuel. Long-term contracts help meet 
that goal by providing a reactor operator guaranteed quantities of 
supply. Consequently, the vast majority of purchases of uranium 
concentrates, conversion, and enrichment are through term contracts.
    A utility's procurement goal is to secure supply of nuclear fuel 
from reliable sources at competitive prices. When purchasing fuel, 
utilities generally seek bids for nuclear fuel products and services 
and assess those bids against the current portfolio of contracts and 
inventory, balancing a number of objective and subjective criteria 
related to security of supply as well as cost. To enhance reliability, 
U.S. utilities may seek a diversity of suppliers in uranium, conversion 
and enrichment. U.S. utilities are generally able to purchase from 
suppliers worldwide, subject to trade and export licensing constraints 
or trade remedies such as the Russian Suspension Agreement. Utility 
fuel purchase contracts must also be consistent with U.S. non-
proliferation commitments such as those in 123 Agreements and export-
related regulations. There is currently no U.S. policy regarding 
reliance on foreign suppliers providing nuclear fuel to U.S. utilities.
2. Uranium Requirements
    As noted above, the amount of fuel necessary to keep a reactor 
operating is relatively predictable. Although there is always the 
possibility of unplanned outages, reactor operators generally know how 
much enriched uranium they will need. The amount of uranium needed to 
fuel operating reactors is generally referred to as ``requirements.'' 
Small uncertainties in predictions about requirements are possible in 
the short run because an operator can vary its need for fuel to some 
degree by changing operating conditions.
    Aggregate requirements are also relatively predictable. However, 
long-term projections of future requirements must take into account 
changes in requirements from short-term outages, permanent shutdowns, 
and new reactor construction. Unforeseen events, such as an unplanned 
shutdowns, can affect the accuracy of long-term projections. Various 
entities develop and publish projections of future uranium requirements 
based on different assumptions about the rates of these changes, as 
well as different assumptions about operating conditions like reload 
schedules and fuel utilization (``burnup''), and about the possibility 
of unplanned outages or other temporary fluctuations in nuclear fuel 
use. These requirements forecasts typically are based only on the 
nuclear fuel expected to be used in operating reactors; they do not 
include purchases of strategic or discretionary inventory. Other 
forecasts may include these strategic or discretionary purchases--these 
may be referred to as ``demand'' forecasts.
3. Requirements Versus Demand
    Demand for uranium, conversion, or enrichment is generally not the 
same as reactor requirements in a given year. Some sources of demand 
are either in excess of or unconnected to reactor requirements. For 
example, many reactor operators hold strategic inventories of uranium 
beyond their requirements. This material provides flexibility in the 
event of a supply disruption. Different operators may have different 
strategic inventory policies, and those policies will shift over time. 
Changes in the level of strategic inventories held by individual 
reactors can produce additional demand or remove demand. Demand from 
reactor operators purchasing uranium for strategic inventory is 
commonly referred to as ``discretionary demand.''
    In addition to reactor operators purchasing in excess of demand, 
there are a number of market participants that do not operate reactors 
at all. These include traders, brokers, and investment funds. These 
entities may purchase uranium when prices are low and resell it under 
future delivery contracts. Discretionary purchases are likely to be 
driven by spot price considerations and can constitute a large 
percentage of spot market purchases and thus can be a large driver of 
spot market price indicators. These activities mostly involve only 
uranium concentrates. Discretionary purchasing has a larger impact on 
uranium demand than demand for conversion and enrichment.
    Finally, changes in optimal tails assay can affect demand in a 
given year. Estimates of future reactor requirements typically assume a 
specific tails assay for enrichment. However, if enrichment prices 
change relative to uranium concentrate and conversion prices, some 
purchasers may have flexibility to specify a different tails assay for 
enrichment. This changes the amount of uranium concentrates, 
conversion, and SWU that are necessary to produce a given amount of 
fuel.
4. Price Elasticity of Demand
    Price elasticity of demand is an economic measure that shows how 
the quantity demanded of a good or service responds to a change in 
price. If purchasers are highly responsive to changes in price, demand 
is relatively elastic. If purchasers are weakly responsive to changes 
in price, demand is relatively inelastic. If purchasers demand the same 
amount regardless of the price, demand is perfectly inelastic.
    In general, demand for uranium, conversion, and enrichment are 
relatively inelastic. Since requirements are largely fixed, changes in 
price have a weak effect on demand. However, uranium markets exhibit 
different degrees of elasticity on different time frames.
i. Short Term
    In the short term, DOE expects that demand is more elastic than in 
the medium and long terms. Some of the behaviors discussed in the 
previous section are responsive to short term changes in price. Traders 
and investment funds are more likely to make speculative purchases when 
prices are low. Similarly, large-scale strategic buying, as China is 
doing, has corresponded with a period of very low prices. It seems 
likely that these purchases would decrease if short term uranium prices 
increased substantially. Utilities may also make strategic purchases at 
times of low spot prices but these rising prices may incent utilities 
to look at security of supply and their long-term fuel procurement 
plans as rising prices could signal a perception that supplies will be 
more scarce in the future.
    As mentioned above, these behaviors are much more prevalent in the 
uranium concentrates markets. Demand in the conversion and enrichment 
markets may therefore exhibit less elasticity in the short term than 
the uranium market.

[[Page 21603]]

ii. Medium and Long Term
    DOE expects that demand in the medium and long term is less elastic 
than in the short term. A change in the relative prices of uranium 
versus enrichment will affect the relationships between those markets 
by changing the optimal tails assay, potentially affecting demand in 
all three markets. A change in price may affect the term and type of 
fuel contracts that utilities seek--longer-term contracts versus 
shorter-term contracts and the mix of pricing mechanisms in those 
contracts--market-based versus fixed price or base price-escalated 
contracts. However, in the longer-term, these changes are not likely to 
affect overall requirements significantly.
    In the long-term, elasticity of demand for nuclear fuel would 
reflect decisions about whether to construct new reactors or shut down 
existing reactors in response to long-run prices for fuel. This 
contribution to elasticity is likely to be small because fuel costs are 
a small portion (~19.5 percent)\11\ of the overall cost of nuclear 
power. Even a large increase in fuel price would be unlikely to 
significantly affect decisions about new reactor construction. 
Meanwhile, for existing reactors the capital costs are ``sunk.'' And 
ongoing variable fuel costs for nuclear power are, at current prices, 
lower than for most other types of generation.\12\ Thus, among existing 
plants, it would take a very large increase in the cost of fuel to 
influence significantly a decision about whether to shut down a reactor 
early.
---------------------------------------------------------------------------

    \11\ NEI, Nuclear by the Numbers (2017), p. 9, available at 
https://www.nei.org/CorporateSite/media/filefolder/Policy/Wall%20Street/Nuclear_by_the_Numbers.pdf?ext=.pdf. 2015 generating 
costs are as follows: Fuel--$6.91/MWh; Capital--$7.97/MWh; 
Operations--$20.62/MWh and Total--$35.5/MWh.
    \12\ Compared to a hypothetical new advanced nuclear plant, 
variable costs are higher for natural gas generation by a factor of 
4. The only technologies with lower variable costs are geothermal, 
wind, solar, and hydro. Energy Information Administration (EIA), 
Levelized Cost and Levelized Avoided Cost of New Generation 
Resources in the Annual Energy Outlook 2016, August 2016, at 6, 
https://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf.
---------------------------------------------------------------------------

    Demand for uranium is not constant. However, the changes in long-
term demand are unlikely to be responses to uranium price signals. For 
these reasons, the analysis below will assume that medium- and long-
term demand has low elasticity.

D. The Nature of Uranium Supply

1. Primary Versus Secondary Supply
    As explained above, supply of uranium concentrates, conversion, and 
enrichment includes both primary and secondary supply. According to 
ERI, global supply of uranium concentrates in 2016 was approximately 
198 million pounds U3O8. 2017 ERI Report, 11. 
Secondary supply is expected to total approximately 40 million pounds, 
about 20% of the total. Over half of secondary supplies of uranium 
concentrates come from enricher underfeeding and tails re-enrichment. 
Other sources of secondary supply include DOE inventory, plutonium/
uranium recycle (MOX), and other commercial inventories. 2017 ERI 
Report, 10. Prior to 2014, the natural uranium component of LEU 
delivered under the Russian HEU Agreement represented a significant 
source of secondary supply. This program ended in 2013.
    As with enrichment, conversion supply includes both primary 
production and secondary supplies. For conversion services, ERI expects 
that total supply in 2016 was approximately 60 million kgU as 
UF6, with secondary supply representing about 25%. 2017 ERI 
Report, 14. As with uranium concentrates, over half of secondary 
supplies of conversion come from enricher underfeeding and tails re-
enrichment. Other sources of secondary supply include DOE inventory, 
plutonium/uranium recycle (MOX), and other commercial inventories. 2017 
ERI Report, 14.
    For enrichment services, ERI expects that total supply in 2016 was 
approximately 63 million SWU, with secondary supply representing 
between 4 and 5 million SWU or about 8%. 2017 ERI Report, 17. Unlike 
uranium concentrates and conversion services, underfeeding and tails 
re-enrichment do not constitute a secondary supply of enrichment 
because those processes utilize enrichment capacity. Sources of 
secondary supply of enrichment include DOE inventory, plutonium/uranium 
recycle (MOX), and other commercial inventories. Id. However, a 
significant portion of excess supply is directed toward uranium 
production, reducing enrichment supply by about 10 million SWU.
2. Global Characteristics
    Many foreign governments (other than the United States, Canada and 
Australia) either own or exert significant control over nuclear fuel 
assets. Notably, all operating enrichment plants are fully or partially 
owned by foreign governments. U.S. suppliers are generally able to sell 
their products and services globally, with the key exceptions of 
countries such as Russia and China. For strategic reasons, Russia and 
China choose to power their reactors only with their domestic resources 
or through carefully curated strategic partnerships.
3. Price Elasticity of Supply
    Price elasticity of supply measures how the quantity supplied of a 
good or service responds to a change in price. If suppliers are highly 
responsive to changes in price, supply is relatively elastic. If 
suppliers are weakly responsive to changes in price, supply is 
relatively inelastic.
    Enrichment services are relatively inelastic, and conversion 
services are complicated by pricing phenomena described below. With 
respect to uranium concentrates, the level of elasticity in the uranium 
markets varies depending on the time frame, just as demand elasticity 
does.
i. Short Term
    In the short term, supplies of uranium concentrates from primary 
producers are relatively inelastic. There is some limited capability 
for mines to decrease production. Conventional mines may choose to 
continue operation and stockpile uranium ore without milling it into 
yellowcake. ISR mines require constant development of new wellfields; 
these mines may slow production gradually by slowing wellfield 
development. These measures may take many months. Thus, in the short 
term, mines will be weakly responsive to changes in price. In contrast, 
secondary sources of uranium concentrates may respond more to changes 
in price. Underfeeding and tails re-enrichment, for example, depend on 
the relationship between SWU and uranium concentrate prices. In the 
short-term, enrichers cannot increase or decrease capacity, but they 
can quickly shift how much capacity is devoted to underfeeding versus 
primary enrichment.
    Primary supply of conversion services is relatively inelastic in 
the short term. Conversion plants typically have high fixed production 
costs. Thus, there is relatively little incentive to change production 
in response to changes in price. (As discussed below, conversion supply 
has fluctuated in recent years; but those changes were not necessarily 
caused by price changes.) Secondary supplies of conversion, however, 
are more able to respond to changes in price. Underfeeding and tails 
re-enrichment results in natural UF6, which includes both 
uranium concentrates and conversion services. Since the price of 
uranium concentrates is a larger proportion of the value of that 
UF6, secondary supplies of conversion from these two sources 
can be expected to respond more strongly to the uranium

[[Page 21604]]

concentrates price than to the conversion price.
    Primary supply of enrichment is also relatively inelastic in the 
short term. As discussed above, enrichers typically cannot remove 
machines from production due to technical concerns. Enrichers also 
cannot bring additional machines online in the short term to respond to 
changes in price because it takes several years to add new machines. 
Secondary supply of enrichment is a smaller proportion of the total 
supply than for uranium concentrates or conversion services. In 
addition, enrichers can change the amount of capacity devoted to 
primary enrichment as opposed to underfeeding. This small proportion of 
supply is more able to respond to changes in price.
ii. Medium and Long Term
    In the medium and long term, primary supplies of uranium 
concentrates and enrichment should be more elastic than in the short 
term. Producers can develop and install additional capacity in response 
to projections that prices will increase. These decisions, however, 
typically involve very long time frames. It may take several years of 
active development before a new mine may begin production. New 
enrichment and conversion capacity may take on the order of ten 
years.\13\ Alternatively, producers can reduce production and 
accelerate plans to retire capacity if prices are projected to 
decrease. URENCO, for example, has chosen to retire enrichment capacity 
at its European facility without replacement. See 2017 ERI Report, 16.
---------------------------------------------------------------------------

    \13\ Louisiana Energy Services, LLC, now a subsidiary of URENCO, 
submitted a license application for a gas centrifuge enrichment 
plant in late 2003. The facility, known as URENCO USA (UUSA), began 
operation in mid-2010, almost seven years after the license 
application was submitted. Given the licensing process, planning for 
the facility would have had to have begun well before the license 
application was submitted. Similarly, the timeline for AREVA's 
COMURHEX II conversion project included feasibility and design 
studies taking place between 2004 and 2007, with full production 
capacity reached in 2019. AREVA, ``COMURHEX II: Investing for the 
Future,'' Nov. 2010, available at http://www.areva.com/mediatheque/liblocal/docs/activites/amont/chimie/plaket%20CXII%20GB%20MD.pdf. 
Also See UxC Conversion Market Outlook, December 2016.
---------------------------------------------------------------------------

E. Uranium Prices

    Uranium markets function in two ways, broadly speaking: Short-term 
deliveries, called the spot market, and longer-term commitments, called 
the term market.
1. Spot and Term Prices
    For all three markets discussed here, there is a price for an 
immediate delivery, called the spot price, and a price for long-term 
contractual commitments, commonly called the term price. The U.S. 
Energy Information Administration (EIA) defines spot contracts as 
``contracts with a one-time uranium delivery (usually) for the entire 
contract and the delivery is to occur within one year of contract 
execution (signed date).'' EIA, 2015 Uranium Marketing Report, 1 
(2016). EIA considers long[hyphen]term contracts as ``contracts with 
one or more uranium deliveries to occur after a year following the 
contract execution (signed date) and as such may reflect some 
agreements of short and medium terms as well as longer term.'' The vast 
majority of purchases on these markets are through term contracts. 
According to data from EIA, 79% of purchases of uranium by U.S. owners 
and operators of nuclear power reactors in 2015 were through term 
contracts. In addition, EIA reports that approximately 92% of 
enrichment services purchased by U.S. owners and operators in 2015 were 
through term contracts. Id. at 39. EIA does not report data on 
conversion contracts, but Ux Consulting Company, LLC (UxC), a private 
consulting firm, publishes data on spot and term contract volume for 
conversion services. UxC Conversion Market Outlook--Dec 2016 (2016). 
Information regarding spot and term contracting activity for conversion 
services is described below in section IV.B.1.iii.
    Medium-term contracts have increased in importance in recent years. 
Such a contract entitles a buyer to delivery of material at a future 
date between one and a few years after contract execution. Although 
medium term contracts are considered ``term'' contracts, they differ 
from traditional term contracts in that they involve one-time-only 
deliveries and that buyers ordinarily do not use them to secure long-
term fuel supplies. In that sense, these contracts form an extension of 
the spot market to deliveries up to a few years in the future and 
affect uncommitted demand in these future years.
2. Price Information
    Unlike many other commodities, most uranium contracts are not 
traded through a commodities exchange. Instead, a handful of entities 
with access to the terms of many bids, offers, and contracts develop 
what are called ``price indicators'' based on those transactions. Two 
private consulting firms--UxC and TradeTech, LLC (TradeTech)--publish 
monthly spot and term price indicators for uranium concentrates, 
conversion, and enrichment. Both also publish weekly spot price 
indicators for uranium concentrates.\14\ Note, however, that the UxC 
and TradeTech indicators do not summarize completed transactions.\15\ 
The UxC and TradeTech price indicators are influential as market 
participants may utilize market-based sales contracts that are based on 
one or both of these price indicators.
---------------------------------------------------------------------------

    \14\ The Euratom Supply Agency (ESA) also publishes spot and 
term price indicators for U3O8 based on 
deliveries to EU utilities. These prices are published annually 
rather than monthly or weekly. See ESA, ``ESA Average Uranium 
Prices,'' http://ec.europa.eu/euratom/observatory_price.html 
(accessed April 13, 2017).
    \15\ TradeTech's Weekly U3O8 Spot Price 
Indicator is TradeTech's judgment of the price at which spot 
transactions for significant quantities of natural uranium 
concentrates could be concluded as of the end of each Friday. The Ux 
U3O8 Price[supreg] indicator is based on the 
most competitive offer of which UxC is aware, subject to specified 
form, quantity(> = 100,000 pounds), and delivery timeframe (< = 3 
months) and origin considerations and is published weekly. It is 
thus not necessarily based on completed transactions (although a 
transaction embodies an offer and its acceptance).
---------------------------------------------------------------------------

    There are also a number of related published prices for 
U3O8. These include a Broker Average Price (BAP) 
and a Fund Implied Price (FIP), both published by UxC. The former is 
based on pricing data from ``commodity style'' brokers that have agreed 
to provide information to UxC and the latter is based on the traded 
value of the Uranium Participation Corporation (UPC) compared to its 
uranium holdings.\16\ UxC Uranium Market Outlook--Q1 2017, 34-36 
(2017). Futures contracts for U3O8 are also 
traded through CME/NYMEX. Through this platform, futures contracts are 
traded with delivery dates ranging from a month to five years.\17\ 
Other entities, such as Uranium Markets LLC, a uranium brokerage, 
provide the markets with a range of pricing data for specific 
transactions at specific timeframes and locations in order to 
facilitate uranium trade. These types of brokers provide additional 
price information to the nuclear fuel marketplace.\18\
---------------------------------------------------------------------------

    \16\ UPC is a publicly traded holding company that invests 
substantially all of its assets in uranium. UPC's stated investment 
strategy is to buy and hold uranium rather than actively trading in 
response to short-term shifts in prices. UPC, Investor Update 
Presentation, 13 (April 2017), available at http://www.uraniumparticipation.com/i/pdf/ppt/Investor-Update-April-2017.pdf.
    \17\ See CME Group, UxC Uranium U3O8 
Futures Contract Specs, http://www.cmegroup.com/trading/metals/other/uranium_contract_specifications.html (accessed April 7, 2017).
    \18\ http://www.uraniummarkets.com/home.html (accessed April 7, 
2017).
---------------------------------------------------------------------------

III. Analytical Approach

A. Overview

    Section 3112(d) states that DOE may transfer ``natural and low-
enriched

[[Page 21605]]

uranium'' if, among other things, ``the Secretary determines that the 
sale of the material will not have an adverse material impact on the 
domestic uranium mining, conversion, or enrichment industry, taking 
into account the sales of uranium under the Russian HEU Agreement and 
the Suspension Agreement.'' In the 2015 Secretarial Determination and 
Analysis, DOE explained in detail its analytical approach to determine 
adverse material impact within the meaning of the statute and under the 
factual conditions existing at the time of a Secretarial 
Determination.\19\ The full explanation is incorporated by reference 
and repeated here to the extent necessary to provide an overview of the 
analytical approach DOE will use in this Determination.
---------------------------------------------------------------------------

    \19\ 2015 Secretarial Determination, 80 FR at 26367; 26379-
26383.
---------------------------------------------------------------------------

    Of note, DOE has described transfers as having an ``adverse 
material impact'' when a reasonable forecast predicts that an industry 
will experience ``material'' harm that is reasonably attributable to 
the transfers. As further explained in the 2015 Secretarial 
Determination and Analysis, in DOE's view the proper inquiry is to what 
degree the effects of DOE's transfers would make an industry weaker 
based on an analysis reflecting existing conditions. As a general 
proposition, ``adverse material impact'' would be a harm of real import 
and great consequence, beyond the scale of normal market fluctuations, 
such as those that threaten the viability of any industry. DOE's 
understanding of the term ``material'' was shaped by the legislative 
history of Section 3112 and the statute's permissiveness for transfers 
under the Russian HEU Agreement.
    DOE has interpreted the relevant terms in this analysis in 
advancement of the purpose of section 3112(d) to help preserve, to the 
degree possible, viable mining, conversion, and enrichment capacity in 
the United States. DOE interprets the word ``domestic'' to refer to 
activities taking place in the United States, regardless of whether the 
entity undertaking those activities is itself foreign. Hence, a 
facility operating in the United States would be part of ``domestic 
industry'' even if the facility is owned by a foreign corporation. DOE 
believes that the phrase ``uranium mining, conversion or enrichment 
industry'' includes only those activities concerned with the actual 
physical processes of mining, converting, and/or enriching uranium. 
Thus, acting solely as a broker for material mined, converted, or 
enriched by other entities does not constitute part of the domestic 
``industry.'' That purpose depends on the actual operation of 
facilities. To that end, DOE believes ``domestic industry'' should also 
include, to some extent, activities to develop and activate a facility 
in the United States, even if the facility has not yet entered 
production.
    In this analysis, DOE understands transfers to have an ``impact'' 
where those impacts have a causal relationship to the specific set of 
DOE transfers being considered. Thus, in assessing a given transfer, 
DOE will essentially evaluate two forecasts: One reflecting the state 
of the domestic uranium industries if DOE goes forward with the 
transfer, and one reflecting the state of the domestic uranium 
industries if DOE does not go forward with the transfer. DOE will 
compare these two forecasts to determine the relevant and actual 
impacts on the domestic uranium industries.

B. Factors To Be Considered

    In the NIPC, and consistent with the 2015 Secretarial Determination 
and Analysis, DOE has identified the six factors it will use in this 
analysis to arrive at a determination of adverse material impact.\20\ 
Those six factors are:
---------------------------------------------------------------------------

    \20\ Excess Uranium Management: Effects of Potential DOE 
Transfers of Excess Uranium on Domestic Uranium Mining, Conversion, 
and Enrichment Industries; Notice of Issues for Public Comment, 82 
FR 13106, 13109 (Mar. 9, 2017).

1. Prices
2. Production at existing facilities
3. Employment level in the industry
4. Changes in capital improvement plans and development of future 
facilities
5. Long-term viability and health of the industry
6. Russian HEU Agreement and Suspension Agreement

    As previously explained, while no single factor is dispositive of 
the issue, DOE believes that these factors are representative of the 
types of impacts that the proposed transfers might have on the domestic 
uranium industries. Not every factor will necessarily be relevant on a 
given occasion or to a particular industry; this list of factors serves 
only as a guide to DOE's analysis.

C. Comments on DOE's Analytical Approach

    Throughout the public process initiated by the July 2016 RFI, 
several commenters have taken issue with DOE's understanding of what 
constitutes an adverse material impact under the USEC Privatization 
Act. For example, commenters have suggested that DOE reconsider its 
definition of ``adverse material impact'' to encompass scenarios where 
DOE transfers are not the primary cause of losses in one of the 
domestic uranium industries. See, e.g., RFI Comment of ConverDyn, at 1; 
RFI Comment of Energy Fuels, at 1-2; RFI Comment of UPA, at 1. Several 
commenters have also suggested that DOE's standard for ``adverse 
material impact'' be directly linked to production costs for the 
uranium mining, conversion, and enrichment markets. RFI Comment of 
ConverDyn, at 2. DOE has addressed these comments questioning whether 
this interpretation of the definition of adverse material impact is 
sufficient in the NIPC.\21\ In the NIPC, DOE explained its position 
that production costs alone should not be used to determine adverse 
material impact, but in this analysis, DOE has considered production 
costs as a factor in determining whether its uranium transfers are 
having an adverse material impact on the market. Comments received in 
response to the NIPC inform DOE's understanding about production costs 
in the uranium mining, enrichment and conversion industries.
---------------------------------------------------------------------------

    \21\ Id.
---------------------------------------------------------------------------

    Furthermore, DOE has taken into account the qualitative and 
quantitative statements made by UPA and others in evaluating the 
current state of the uranium industries. E.g., NIPC Comment of UPA, at 
1-2; NIPC Comment of TMRA, at 1; NIPC Comment of URENCO, at 1-3. While 
these assertions provide valuable context for DOE's analysis, DOE 
maintains that its current interpretation of ``adverse material 
impact'' is a clear standard under which DOE ensures that the 
Secretarial Determination is in compliance with the USEC Privatization 
Act. This analysis accounts for information provided by commenters as 
to the six factors in the sections below.
    Finally, several commenters cited the ConverDyn litigation (a 
lawsuit in which ConverDyn challenged, among other things, the 2014 
Secretarial Determination) as requiring DOE to change its definition 
and methodology for reaching a determination on adverse material impact 
because the court held DOE's method to be in violation of law. See RFI 
Comment of Energy Fuels, at 1; NIPC Comment of UPA, at 5-6. As noted in 
the NIPC, while DOE is mindful of the results of the litigation, the 
ConverDyn litigation does not mandate a change in DOE's method of 
determining adverse material impact.\22\
---------------------------------------------------------------------------

    \22\ UPA highlights specific findings from the Sept. 2014 
Memorandum Opinion in the ConverDyn case. NIPC Comment of UPA, at 5-
6. DOE notes that that opinion considered DOE's approach in the 2014 
Secretarial Determination, not the 2015 Secretarial Determination 
and Analysis, which the analytical approach described above builds 
upon.

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[[Page 21606]]

IV. Assessment of Potential Impacts

    This section assesses the potential impacts of DOE transfers at the 
levels and for the purposes described above in Section I.D.1. In 
particular, DOE is assessing the impacts of transfers under two 
scenarios, which correspond to ERI's Base Scenario and Scenario 2 in 
the 2017 ERI Report. The Base Scenario consists of continued transfers 
at the current rate of 1,600 MTU per year, and Scenario 2 consists of 
transfers at a lower rate of 1,200 MTU per year. This analysis assesses 
the impact of continued EM transfers at these rates beginning in May 
2017.\23\ Because the impacts of transfers at the 1,200 MTU rate are 
expected generally to be lower than those under the 1,600 MTU Base 
Scenario rate, unless otherwise specified, in the analysis below, DOE's 
conclusions about the effects of transfers under the Base Scenario will 
bound the effects of transfers at the lower rate of 1,200 MTU.\24\ 
Considering the difference in impacts between these two scenarios and 
ERI's Scenario 1, where no future EM transfers would be conducted, we 
come to the conclusions that transfers under either scenario would not 
cause an adverse material impact to the domestic uranium industries.
---------------------------------------------------------------------------

    \23\ DOE notes that the lower rate of 1,200 MTU per year 
beginning in May 2017 does not precisely follow the assumption in 
ERI's Scenario 2, which has the 1,200 MTU per year rate beginning in 
January 2017. Nevertheless, DOE considers the impacts of this 
scenario to fall within the bounds of, and to be covered by the 
impacts forecasted under the Base Scenario and Scenario 2.
    \24\ DOE notes that for two years, 2020 and 2021, Scenario 2 
involves a larger volume of transfers than the Base Scenario due to 
the fact that DOE's natural uranium inventory will be exhausted 
sooner with a higher transfer rate. DOE notes that in these two 
years, the effects of Scenario 2 may be higher than those under the 
Base Scenario. But at least for the near-term, i.e. 2017-2019, the 
effects under the Base Scenario should be higher.
---------------------------------------------------------------------------

    This assessment assumes that DOE transfers for cleanup at the 
Portsmouth Gaseous Diffusion Plant may continue at either the Base 
Scenario rate or 1,200 MTU; however, other rates of transfer are 
presented to provide comparison and context for the analysis of impacts 
on the state of the domestic uranium, conversion, and enrichment 
industries with and without the EM transfers. In particular, DOE tasked 
ERI with analyzing two additional scenarios, one in which DOE ceases 
transfers for EM beginning in 2017, and one in which DOE transfers 
uranium at a rate of 2,000 MTU. This assessment makes no conclusion as 
to whether transfers at the rates described in these other scenarios 
would constitute an adverse material impact on the domestic uranium 
industries.

A. Uranium Mining Industry

    The domestic uranium mining industry consists of a relatively small 
number of companies that either operate currently producing mines or 
are in the process of developing projects expected to begin production 
at some point in the near future. These projects are mostly 
concentrated in the western states--in recent years, there have been 
producing facilities in Nebraska, Utah, Texas, and Wyoming. Most 
uranium mining facilities are owned and operated by publicly traded 
companies based in the United States or Canada. According to EIA, the 
preliminary estimate of production from domestic producers in 2016 
totaled approximately 2.9 million pounds U3O8. 
EIA, Domestic Uranium Production Report Q4 2016, 2 (January 2017). For 
comparison, the World Nuclear Association (WNA) reports that worldwide 
production in 2015 was approximately 157 million pounds 
U3O8.\25\
---------------------------------------------------------------------------

    \25\ World Nuclear Association, World Uranium Mining Production, 
updated July 2016, http://www.world-nuclear.org/information-library/nuclear-fuel-cycle/mining-of-uranium/world-uranium-mining-production.aspx (accessed April 7, 2017).
---------------------------------------------------------------------------

1. Prices for Uranium Concentrates
    The effect of DOE transfers on prices is one of the chief vehicles 
through which the transfers can cause impacts on an industry. 
Accordingly, DOE has considered numerous inputs to forecast how 
continuing transfers at the current level will affect prices. DOE 
analyzes both market prices and the prices that, on average, industry 
actually realizes for its products. The EIA average delivered price in 
the United States is representative of realized prices for the uranium 
industry on a global basis. Realized prices may be significant for 
assessing the impact of transfers, but they are not necessarily the 
same as market prices at any given time.
    As discussed in Section II, market prices for uranium concentrates 
are described in terms of the spot price and the term price. Although 
there are other types of published uranium prices, these two price 
indicators are the ones most frequently used as the basis for pricing 
terms in contracts for the purchase and sale of uranium concentrates. 
In this section, we discuss the potential future impacts of DOE's 
transfers on spot and term prices for uranium. For reference, as of 
April 17, 2017, UxC's spot price indicator was $23.50 per pound 
U3O8. As of March 27, 2017, UxC's term price 
indicator was [REDACTED] per pound U3O8.\26\
---------------------------------------------------------------------------

    \26\ UxC, Ux Weekly, April 17, 2017 (Volume, 31, Number 16) at 
1. UxC publishes a weekly update to its spot price indicator. UxC's 
term price indicator for uranium concentrates and the spot and term 
price indicators for conversion and enrichment are updated monthly.
---------------------------------------------------------------------------

    DOE has reviewed several different estimates of the effect of DOE 
transfers on the market prices for uranium concentrates based on 
different economic models. These estimates appear in market analyses 
from different market consultants: ERI, UPA (citing TradeTech) and 
Fluor-BWXT Portsmouth (FBP) (citing Capital Trade, Inc.). DOE has 
reviewed and evaluated to the extent possible the methodology, 
assumptions, data sources, and conclusions of each of the market 
analyses.
i. Energy Resources International Report
    DOE tasked ERI with estimating the effect of DOE transfers on the 
market prices for uranium concentrates for the period 2017 through 
2026. Specifically, DOE tasked ERI with estimating the effects under 
four scenarios, explained below. In all four scenarios NNSA would 
transfer 500 MTU natural uranium equivalent of LEU from 2017 to 2019, 
after which NNSA would halt uranium barters. As noted above, the two 
scenarios assessed in this analysis correspond to ERI's Base Scenario 
and ERI's Scenario 2, and this assessment makes no conclusion as to 
whether transfers under the other scenarios would constitute an adverse 
material impact on the domestic uranium industries. Nevertheless, ERI's 
estimates of the effect of DOE transfers under these other scenarios 
has aided DOE's analysis.
    Base Scenario: EM would transfer 1,600 MTU in the form of natural 
UF6 in 2017 and 2018, 1,569 MTU in 2019 and 559 MTU in 2020.
    Scenario 1: EM would halt uranium transfers for services between 
2017 and 2026. (``No Transfer Scenario'')
    Scenario 2: EM would transfer 1,200 MTU in the form of natural 
UF6 per year until 2020 and 528 MTU in 2021, when 
UF6 supplies are exhausted.
    Scenario 3: EM would transfer 2,000 MTU in the form of natural UF6 
per year in 2017 and 2018 and 1,328 MTU in 2019, when UF6 
supplies are exhausted.
    The varying transfer rates in these scenarios refer only to the 
level of uranium transfers for cleanup at the Portsmouth Gaseous 
Diffusion Plant; the amount transferred for down-blending of LEU is 
constant across the scenarios. For each scenario, ERI also analyzes the

[[Page 21607]]

impacts of transfers under the following programs: past releases of 
depleted uranium to Energy Northwest, future sale of depleted uranium 
to GLE, and potential future transfer of off-specification uranium. The 
level of transfers across these three programs is the same in all three 
scenarios, and ERI's predictions about market price reflect these 
transfers as well as the cleanup services and down-blending transfers. 
As in previous analyses, ERI notes that uranium transfers do not 
necessarily impact the market at the time of transfer. In general, the 
market impact will take place at the point in time where the transfer 
displaces commercial supply. This can be estimated based on the 
expected schedule for delivery as reactor fuel. Thus, even though most 
of the Energy Northwest transfers have already taken place, ERI 
estimates that these transfers will affect the market at various times 
in the future based on the expected delivery schedule. 2017 ERI Report, 
22.
    In the 2017 ERI Report, as in previous analyses, ERI estimated this 
effect by employing two different types of models that rely on somewhat 
different assumptions and methods: A market clearing price model and an 
econometric model to establish a correlation between the spot market 
price for uranium concentrates and active supply and demand. For its 
market clearing price model, ERI constructs individual supply and 
demand curves and compares the clearing price with and without DOE 
transfers. In any particular year, the market clearing price for 
uranium concentrates, for example, is based on the cost of production 
of the last increment of uranium that must be supplied by the market in 
order to provide the total quantity of uranium concentrates that is 
demanded by the market during that year. 2017 ERI Report, 2. To develop 
its supply curves, ERI gathers available information on the costs 
facing each individual supply source. ERI then uses that information to 
estimate the marginal cost of supply for each source using a discounted 
cash flow analysis, when possible. 2017 ERI Report, 44 n.33. ERI's 
market clearing price methodology assumes a perfectly inelastic demand 
curve based on its Reference Nuclear Power Growth forecast. ERI assumes 
that secondary supply is utilized first, followed by primary production 
because in an over-supplied market, such as the current market, ``the 
amount of primary production required to meet requirements, including 
normal strategic inventory building, is well below actual production.'' 
2017 ERI Report, 45.
    Distinct from previous analyses, in the 2017 ERI Report, ERI 
applied its clearing price methodology on an annual and cumulative 
basis. The annual clearing price methodology is similar to past 
analyses conducted by ERI; the cumulative methodology represents a new 
approach by ERI to assess market price impacts. It is important to 
emphasize that, under either approach, the estimates do not constitute 
a prediction that prices will decrease by the specified amounts 
following DOE transfers under a new determination and, further, that 
the impact of prior transfers is already taken into account by the 
market in the current spot prices.
    ERI's annual methodology assumes that the supply curve in a given 
year is independent of the DOE inventory releases in prior years. 2017 
ERI Report, 49. The cumulative clearing price methodology takes into 
account inventory releases from prior years in the supply curve. While 
both methodologies account for past DOE transfers in current prices, 
they differ in approaches to estimating the supply side of the 
equation. 2017 ERI Report, 52. According to ERI, the cumulative 
methodology, when applied retroactively, takes into account that the 
reduction in one supply source can influence the behavior of other 
suppliers. Consequently, the cumulative methodology may show a more 
substantial effect than what is indicated by the annual methodology. 
ERI presents the impact of historical and scenario-based transfers of 
uranium under both the annual or cumulative methodologies. Note that 
ERI states that the price effects attributed to DOE inventory releases 
are already built into current market prices. This means that if no DOE 
inventory releases took place since 2009, then future market prices 
would be higher by the amount estimated as the DOE price effect for 
that given year. 2017 ERI Report, 50, 54. DOE has considered the 2017 
ERI Report and ERI's explanation of its market clearing price 
methodology. Most aspects of ERI's market clearing approach are 
essentially the same as those used in the 2015 ERI Report except that 
they have been updated to include recent information. With respect to 
the annual clearing price approach and to ERI's general approach to 
developing supply curve information, DOE adopts and incorporates by 
reference its conclusion from the 2015 Secretarial Determination and 
Analysis that ERI's market clearing approach methodology is reasonable 
for estimating the impact of DOE transfers. For this reason, DOE 
continues to rely on ERI's annual market clearing price approach in 
this Determination.
    DOE has also considered ERI's explanation of its cumulative market 
clearing price approach. According to ERI, this approach takes account 
of the fact that the reduction in one supply source affects the 
behavior of other suppliers. In general, DOE believes that the 
methodology underlying ERI's cumulative model is reasonable because it 
takes account of the possibility that DOE uranium transfers may not in 
fact displace primary production in the year of the transfer.\27\ 
Certain market actors maintain uranium inventories above requirements 
and may strategically hold these inventories depending on market prices 
in a given year. Since these inventories may add to supply in a given 
year, the total volume of strategic inventories potentially available 
to enter the market can be looked to as a proxy for expectations about 
market prices--likely as a supplement to published market price 
predictions. Thus, to the extent that DOE inventories do not displace 
primary production, it is reasonable to assume that they may affect 
decisions of uranium suppliers not just in the year of initial entry 
into the market, but also in future years. ERI does not detail how it 
predicts how supplier behavior would change, however. Nevertheless, DOE 
believes that ERI's predictions are reliable because they are based on 
ERI's production costs estimates, which are based on ERI's extensive 
collection of data about the production costs for various aspects of 
supply.\28\
---------------------------------------------------------------------------

    \27\ In UPA's comment in response to the NIPC, UPA criticizes 
the ERI cumulative analysis for presenting an average impact rather 
than adding the price effects in each year to arrive at a total 
price effect as TradeTech did. Had ERI taken this approach, UPA 
asserts, the total cumulative impact between 2014 and 2016 would be 
$15.40 per pound according to ERI's analysis. For the same reasons 
that DOE disagrees with TradeTech's cumulative figure, explained 
below in section IV.A.1.ii, DOE disagrees that it is appropriate to 
simply add up ERI's average effect from separate years to arrive at 
a ``cumulative impact.''
    \28\ In addition, as noted in the 2015 Secretarial Determination 
and Analysis, DOE also believes that the future year supply curves 
that ERI utilizes in its annual market-clearing price model are 
reasonable because they are based on ERI's estimates of production 
cost for various aspects of supply. 2015 Secretarial Determination, 
80 FR at 26386-88.
---------------------------------------------------------------------------

    Using the market clearing price model, under the annual and 
cumulative methodologies, ERI estimates of the level of price 
suppression attributable to DOE transfers are listed in Tables 2 and 3, 
respectively. Again, these numbers do not constitute a prediction that 
prices

[[Page 21608]]

will decrease by the specified amounts following DOE transfers under a 
new determination and, further, that the impact of prior transfers is 
already taken into account by the market in the current market prices. 
2017 ERI Report, 50, 54.

  Table 2--ERI's Estimate of Effect of DOE Transfers on Uranium Concentrate Spot and Term Prices in $ per Pound
                                                      U3O8
                                        [Annual market clearing approach]
----------------------------------------------------------------------------------------------------------------
                                       ERI Scenario 1--  ERI Base Scenario    ERI Scenario 2     ERI Scenario 3
                                       no EM Transfers     current level       lower level        higher level
                                                          (1,600 MTU/year)   (1,200 MTU/year)   (2,000 MTU/year)
----------------------------------------------------------------------------------------------------------------
2017................................              $0.30              $1.40              $1.10              $1.60
2018................................               0.30               0.80               0.70               1.00
2019................................               0.60               1.40               1.20               1.30
2020................................               0.40               0.60               0.90               0.40
2021................................               0.80               0.80               2.40               0.80
2022................................               1.10               1.10               1.10               1.10
2023................................               0.90               0.90               0.90               0.90
2024................................               1.70               1.70               1.70               1.70
2025................................               2.10               2.10               2.10               2.10
2026................................               2.60               2.60               2.60               2.60
Average (2017-2026).................               1.10               1.30               1.50               1.30
----------------------------------------------------------------------------------------------------------------


  Table 3--ERI's Estimate of Effect of DOE Transfers on Uranium Concentrate Spot and Term Prices in $ per Pound
                                                      U3O8
                                      [Cumulative market clearing approach]
----------------------------------------------------------------------------------------------------------------
                                       ERI Scenario 1--  ERI Base Scenario    ERI Scenario 2     ERI Scenario 3
                                       no EM Transfers     current level       lower level        higher level
                                                          (1,600 MTU/year)   (1,200 MTU/year)   (2,000 MTU/year)
----------------------------------------------------------------------------------------------------------------
2017................................              $4.40              $5.50              $5.30              $5.50
2018................................               3.20               4.70               4.50               5.30
2019................................               2.80               5.00               4.30               5.30
2020................................               1.10               3.70               3.50               3.70
2021................................               0.40               2.70               2.70               2.70
2022................................               0.10               1.40               1.40               1.40
2023................................               0.00               2.10               2.10               2.10
2024................................               1.60               1.70               1.70               1.70
2025................................               2.00               2.30               2.30               2.30
2026................................               0.70               1.30               1.30               1.30
Average (2017-2026).................               1.60               3.00               2.90               3.10
----------------------------------------------------------------------------------------------------------------

    Although DOE believes that ERI's cumulative method is a reasonable 
approach to predicting the effect of future DOE uranium transfers, the 
specific figures listed in ERI's Tables 4.4, 4.5, and 4.6, do not 
isolate the effects of EM transfers in future years. It is possible to 
isolate the effects of these transfers based on the difference in 
market clearing price in any given year between a scenario with zero EM 
releases of uranium (Scenario 1) compared to the scenarios where EM 
uranium is released at different rates. In other words, we present the 
price effects on a marginal or incremental basis as this price effect 
reflects the state of the domestic uranium industry with the EM future 
transfers, and the state of the industry without the EM future 
transfers. This calculation is significant because the analysis for 
this Determination, at its core, answers the question of the effect on 
the uranium industry from future DOE transfers for EM cleanup work. 
That effect is evaluated by comparing the effects on markets with those 
future DOE inventory releases, and without those future DOE inventory 
releases. DOE believes it is reasonable to rely on this marginal price 
effect because it is itself derived from and based on ERI's cumulative 
market clearing methodology, which as explained above, provides a 
reasonable prediction of the effect of uranium transfers on market 
prices.
    To determine the marginal price effect, DOE has used Scenario 1 as 
the point of reference because Scenario 1 includes the price effects 
from prior DOE uranium inventory releases plus an increment for the 
NNSA transfers. The price effects attributable to only the different 
levels of EM releases under the cumulative method can be found by 
calculating the difference between the price effect in Scenario 1--the 
No EM Transfers scenario--and the price effect in these other 
scenarios. For example, the marginal price effect attributable to DOE 
transfers under the Base Scenario in 2017 would be $1.10, the 
difference between the cumulative price effect under the Base Scenario 
($5.50) and the cumulative price effect under Scenario 1 ($4.40). 
Because DOE is currently transferring at 1,600 MTU per year, the 
current market prices already reflect the level of price suppression 
predicted by ERI's Base Scenario. Thus, if DOE were to transfer 0 MTU 
for EM in 2017, the price in 2017 would be expected to be higher by 
$1.10 compared to continued transfers at 1,600 MTU. Similarly, were DOE 
to transfer 1,200 MTU in 2017, the price in 2017 would be expected to 
be higher by $0.20 compared to continued transfers at 1,600 MTU (the 
difference between the marginal effect under the Base Scenario and the 
marginal effect

[[Page 21609]]

under the 1,200 MTU Scenario).\29\ Table 4 provides the price effects 
estimated by ERI for the varied scenarios of EM transfers under the 
cumulative method expressed as the marginal price effect.
---------------------------------------------------------------------------

    \29\ DOE acknowledges that these two calculations are 
hypothetical because DOE has already conducted several transfers in 
the early part of 2017. Thus, it would not be possible for DOE to 
transfer 0 MTU in 2017. Further, as explained above, transfers at 
the lower rate of 1,200 MTU would not begin until May 2017. Due to 
the transfers in early 2017, the total amount of EM transfers in 
calendar year 2017 under the 1,200 MTU scenario would actually be 
somewhat higher than 1,200 MTU.

             Table 4--Marginal Price Effect of Varied Rates of Uranium Transfers--Cumulative Method
----------------------------------------------------------------------------------------------------------------
                                                         ERI Base Scenario    ERI Scenario 2     ERI Scenario 3
                                                           current level       lower level        higher level
                                                          (1,600 MTU/year)   (1,200 MTU/year)   (2,000 MTU/year)
----------------------------------------------------------------------------------------------------------------
2017...................................................              $1.10              $0.90              $1.10
2018...................................................               1.50               1.30               2.10
2019...................................................               2.20               1.50               2.50
2020...................................................               2.60               2.40               2.60
2021...................................................               2.30               2.30               2.30
2022...................................................               1.30               1.30               1.30
2023...................................................               2.10               2.10               2.10
2024...................................................               0.10               0.10               0.10
2025...................................................               0.30               0.30               0.30
2026...................................................               0.60               0.60               0.60
Average (2017-2026)....................................               1.40               1.30               1.50
----------------------------------------------------------------------------------------------------------------

    Illustrating the marginal price effect under the cumulative 
methodology is useful in isolating the price effect of only the EM 
transfers. While useful, this approach does not account for the added 
effect of other future uranium transfers that will impact the market--
the NNSA transfers for down-blending, the ENW transfers of LEU, and the 
depleted uranium transfers to GLE and potential transfers of off-spec 
uranium. The annual clearing price methodology, however, does provide 
the combined effect of future DOE transfers in the year they are 
transferred. In theory, DOE could perform the same marginal or 
incremental analysis to the annual clearing price effects, to isolate 
the effects of only the EM transfers. DOE considers both approaches, 
which present different but complimentary perspectives on how to 
estimate future price effects, to be reasonable and informative. 
Looking at price effects from both perspectives adds an additional 
dimension to the analysis, and assists DOE in understanding forecasted 
price impacts.
    As yet another means to understand the price effect, ERI presented 
information on the cumulative clearing price effect relative to ``No 
DOE'' clearing prices for uranium, where the ``No DOE'' clearing price 
assumes that DOE releases from 2009 onward were zero. 2017 ERI Report, 
58. Table 4.7 in the ERI Report provides an assessment of price impacts 
going forward, for the period 2017 to 2026, and the estimated change in 
the uranium clearing price attributable to the DOE inventories under 
the four scenarios relative to the ``No DOE'' market prices. As in the 
discussion above, understanding the price impacts of the ``No DOE'' 
cumulative clearing price analysis requires a calculation of the 
marginal percentage change with and without the EM releases. Using the 
percentages from ERI's Table 4.7, Scenario 1, and comparing those 
percentage in each year to the other EM release scenarios. Table 5 
presents the marginal price effect expressed as a percentage of market 
price.

              Table 5--Cumulative Marginal Price Effects as Percentage of ``No DOE'' Clearing Price
----------------------------------------------------------------------------------------------------------------
                                                         ERI Base Scenario    ERI Scenario 2     ERI Scenario 3
                                                           current level       lower level        higher level
                                                          (1,600 MTU/year)   (1,200 MTU/year)   (2,000 MTU/year)
                                                             marginal %         marginal %         marginal %
----------------------------------------------------------------------------------------------------------------
2017...................................................                  3                  2                  3
2018...................................................                  4                  3                  5
2019...................................................                  6                  4                  7
2020...................................................                  7                  6                  7
2021...................................................                  6                  6                  6
2022...................................................                  3                  3                  3
2023...................................................                  5                  5                  5
2024...................................................                  1                  1                  1
2025...................................................                  1                  1                  1
2026...................................................                  2                  2                  2
Average (2017-2026)....................................                  3                  3                  3
----------------------------------------------------------------------------------------------------------------

    For example, as ERI notes, under Scenario 1, where EM transfers are 
halted starting in 2017, average uranium prices for the period 2017-
2026 would be expected to be 3% higher than under the Base Scenario 
(the difference between 7%, the average price suppression over the ten 
year period under the Base Scenario and 4%, the

[[Page 21610]]

average price suppression over the ten year period under Scenario 1). 
Stated otherwise, the percentage price effect for each scenario other 
than Scenario 1 is the difference between the cumulative percentage for 
the Scenario in question and the cumulative percentage change for 
Scenario 1. E.g., in year 2020, prices would be 6% higher under 
Scenario 2 (9%-3%).
    In addition to its market clearing price models, ERI also used an 
econometric model to estimate the effect of DOE transfers on spot 
market price.\30\ ERI calculated a correlation between the monthly spot 
prices published by TradeTech with the active spot market supply and 
active spot market demand, also published by TradeTech. ERI used the 
correlation to estimate how the spot market prices would respond to the 
availability of new supply from DOE. 2017 ERI Report, 61-62.
---------------------------------------------------------------------------

    \30\ In its comment in response to the NIPC, UPA criticizes 
ERI's econometric model, noting that it is not used in ERI's overall 
analysis. NIPC Comment of UPA, at 8. Although it is unclear what UPA 
means in referring to ERI's ``overall analysis,'' DOE notes that ERI 
has presented the results of its econometric model in past reports. 
As noted below, DOE believes ERI's econometric model is similar in 
certain respects to the TradeTech model.
---------------------------------------------------------------------------

    Compared to the market clearing analysis, the econometric model 
deals mostly with short-term supply and demand and spot prices. 
Applying the correlation results in an estimated spot market price 
effect of $5.30 per pound U3O8 over the last 
three years and a projected spot market price effect of $3.5 per pound 
U3O8 over the next 10 years. 2017 ERI Report, 61-
62. This model shows a DOE price effect being higher in the near-term 
(2017-2020), because the price effect is on future spot market prices, 
which are projected to eventually rise with or without DOE inventory 
releases. Because this regression is based on historical trends in the 
spot market price series, it is most useful to provide an understanding 
of recent years' price effect, and provides limited reliable 
information about future price effects. The econometric model makes 
calculations based on a functional relationship between published 
prices and certain supply and demand variables representing, in 
essence, uncommitted supply and demand, to predict future prices based 
on the future course of the supply and demand variables. Forecasts of 
uncommitted supply and demand require assumptions not only about how 
supply and uranium requirements will evolve, but also about how 
suppliers and purchasers will vary their mix of long-term and short-
term purchasing. In the short-term, the mix of long- and short-term 
purchasing can be predicted based on the mix in recent years and on the 
estimates of uncovered supply. Such forecasts become significantly less 
reliable for later years. DOE therefore relies on ERI's market clearing 
price methodology as the more reasonable approach to forecasting future 
price effects.
ii. TradeTech Analysis
    The Uranium Producers of America (UPA) attached to its comment in 
response to the RFI, and re-incorporated in its comments in response to 
the NIPC, an analysis it commissioned from TradeTech, LLC, a uranium 
market consultant. RFI Comment of UPA, Attachment, ``TradeTech UPA DOE 
Request for Information Response'' (2016) (hereinafter ``TradeTech 
Analysis''). UPA also included in its comments on the NIPC additional 
critique of the ERI Report.
    The TradeTech Analysis provides information on spot prices for 
uranium since 2011, after Fukushima, indicating a decline in prices of 
60 percent as of mid-July 2016. TradeTech Analysis, at 4. TradeTech 
presents an estimate of the cumulative impact of DOE transfers on the 
Exchange Value (TradeTech's monthly U3O8 spot 
price) over the period of 2012-2015. TradeTech presents the median 
impact in each year of this period as follows: $2.79 in 2012, $3.81 in 
2013, $4.18 in 2014, and $6.17 in 2015. TradeTech then presents the 
``total cumulative impact from DOE transfers 2012-2015'' as $16.95 per 
pound, a figure evidently calculated by adding together the median 
impact for each year in the time period. More generally, TradeTech 
explained there is a downward trend in recent years for uranium 
production and demand, producer profit margins, and long-term 
contracting practices. Without citing to any additional quantitative 
analysis or modeling, TradeTech concludes that DOE material transfers 
entering the spot market will continue to have a measurable adverse 
material impact on uranium market prices and, by extension, uranium 
producers. TradeTech believes that if DOE were to cease its transfers, 
producers would see improvement in the market. TradeTech Analysis, at 
8.
    TradeTech does not explain the methodology it used to estimate the 
impact of DOE transfers. For the purposes of this analysis, DOE assumes 
that the estimate is based on the same Dynamic Pricing Model described 
in a 2015 TradeTech report submitted in response to the 2015 Request 
for Information on the 2015 Secretarial Determination. To the extent 
that the 2017 TradeTech Analysis is based on a similar model, DOE 
adopts its conclusions with respect to that model from the 2015 
Secretarial Determination and Analysis. That is, the TradeTech model is 
similar to the methods ERI uses in its econometric approach, which may 
provide a reasonable estimate of the price response under short-term 
conditions, but it is not an accurate prediction of the effect of 
future DOE transfers. Although TradeTech does not forecast the effects 
of future transfers, UPA suggests that future transfers will have an 
impact equal to at least the median impact in 2015--i.e. $6.17. 
Alternatively, UPA suggests that that impact can be expected to 
continue rise at rate of roughly 30% each year--i.e. $8.10 in 2016, 
$10.64 in 2017, and $13.97 in 2018. See RFI Comment of UPA, 5. DOE does 
not believe these numbers are accurate, and that UPA incorrectly 
assumes that trends evident in TradeTech's model of past transfers 
would automatically carry forward into future years. In any case, even 
if TradeTech had prepared a forecast of the impacts of future DOE 
transfers, DOE believes that ERI's market clearing model is a more 
reasonable approach to estimating medium- and long-term effects.
    With respect to the ``cumulative'' figure presented in Figure 3 of 
the TradeTech Analysis, neither TradeTech nor UPA attempts to justify 
the economic principles behind this approach. DOE does not believe it 
is appropriate to simply add the median impacts in successive years to 
determine the ``cumulative'' impact for at least three reasons. First, 
it is unclear why the time period should be divided by year rather 
than, say, quarterly, monthly, or even weekly or daily. If it is 
appropriate to add the median impact in successive years, it follows 
logically that it is also appropriate to add the median impacts across 
other time periods. This would lead to the illogical result that the 
``cumulative'' impact could be the sum of the average price impacts for 
each individual day in the study period.
    Second, TradeTech's own chart does not support the assertion that 
DOE transfers have suppressed the market price by $16.95. Figure 3 of 
the TradeTech Analysis charts in linear form the actual market price 
versus the expected price with no DOE transfers. At the end of the 
study period, the difference between the lines on the figure appear to 
be roughly the same as the 2016 median impact--i.e. roughly $6.00--
rather than the larger number presented as the cumulative impact.

[[Page 21611]]

    Third, the figures cited by TradeTech and UPA do not align with 
recent market dynamics. Considering that DOE transfers are less than 5% 
of worldwide requirements, this number is unrealistically large. 
Applying the approach suggested by UPA and TradeTech of adding together 
the expected price suppression in 2015 and 2016 based on ERI's price 
forecast would yield a ``cumulative'' price effect of $10.50 per pound 
compared to the overall price decline in that same period reported by 
ERI of roughly $17 per pound. If this were correct, it would mean that 
DOE's transfers alone accounted for over 50% of the price decline, even 
though DOE's transfers in that same period made up only about 15% of 
the total domestic uranium requirements and 5% of worldwide 
requirements. Furthermore, UPA claims that the cumulative impact of DOE 
transfers from 2012 to 2018 will reach $49.64. These numbers are simply 
too large to be realistic. While DOE understands that in an 
oversupplied market, as has been the case in recent years, secondary 
supply sources may be used before primary supply sources, it is not 
reasonable to conclude without further support that the total 
cumulative effect of DOE transfers account for more than half of the 
market price decline, given other market factors at play, e.g., the 
early closure of nuclear power plants in the U.S. and Western Europe, 
and the reduction of nuclear energy in France based on legislation 
passed in 2015. 2017 ERI Report, 4. For these reason, DOE believes the 
cumulative approach of UPA and TradeTech of simply adding each median 
annual effect together does not present an accurate assessment of price 
effects from DOE transfers.
iii. Capital Trade Inc. Analysis
    FBP attached to its comments in response to the NIPC an analysis it 
commissioned from Daniel Klett, an economist and principal with Capital 
Trade, Inc. NIPC Comment of FBP, Attachment, ``Review of ERI Price 
Effect Estimates for Uranium Associated with DOE Inventory Releases,'' 
(2017) (hereinafter ``Capital Trade Analysis''). As explained by FBP, 
ERI's use of the cumulative price clearing methodology found larger 
price effects by including not only inventories sold into the market by 
DOE each year, but also ``inventory overhang'' price effects associated 
with DOE inventories held by users. NIPC Comment of FBP, at 3. The 
Capital Trade Analysis commissioned by Fluor argues that this approach 
is flawed for numerous reasons and is without a theoretical basis in 
economics. Capital Trade Analysis, 5. The Capital Trade Analysis 
concludes that DOE should continue to rely on ERI's annual methodology 
for estimating the price effects of DOE inventory releases. Capital 
Trade Analysis, 7.
    The Capital Trade Analysis makes three essential arguments. DOE 
believes Capital Trade has misunderstood ERI's cumulative approach. DOE 
continues to believe that ERI's cumulative method is reliable, and 
therefore, that DOE's use of ERI's cumulative market clearing price 
information to calculate the marginal price effect of future EM 
transfers is reasonable. DOE also continues to believe, and agrees with 
Capital Trade, that ERI's annual methodology is a reasonable approach 
and should be relied upon for estimating price effects.
    First, Capital Trade argues that ERI's cumulative methodology 
``violates'' the principle that price equals marginal cost. This 
position appears to be based on a misunderstanding of ERI's cumulative 
methodology. ERI's cumulative methodology, as compared to the annual 
methodology, involves adjusting the supply curve in each year to take 
account of supply and demand conditions in prior years. This accounts 
for the possibility that the volume a particular supplier may be able 
to supply at a given price is dependent on investment decisions made in 
prior years. In this manner, a change in supply in one year can affect 
the supply curve in later years to the extent that it influences the 
investment decisions of the suppliers that would otherwise make up the 
supply curve in future years. ERI's cumulative approach simply takes 
this elasticity of supply into account in developing estimates of 
future supply curves. In all cases, the market clearing price would 
continue to be determined by the intersection of the demand curve and 
the supply curve, i.e. the marginal cost of production of the last unit 
supplied.
    Second, Capital Trade argues that the ``inventory overhang'' effect 
may affect the timing of price effects but not the magnitude. As 
explained above, DOE believes that in referring to ``inventory 
overhangs,'' ERI is taking account of the possibility that not all DOE 
transfers displace primary production. Certain market actors may hold 
uranium inventories in excess of reactors requirements for reasons such 
as strategic investment or to guarantee security of supply. These 
strategic inventory holders decide how much to hold in reserve based at 
least in part on market prices. Because inventories held in excess of 
requirements can potentially reenter the market in future years, 
perceptions about the total size of such inventories may affect 
supplier (and purchaser) investment decisions. To the extent that DOE 
transfers do not displace primary production and instead add to the 
total volume of reserves in excess of reactor requirements that are 
potentially available to enter the market in future years, that 
addition to secondary supply could conceivably have price effects that 
are both delayed and magnified to the extent that suppliers look to the 
total volume of reserves held in excess of requirements in making 
investment decisions.
    Third, Capital Trade states that ERI is unclear and inconsistent 
with regard to when and how a particular volume has an effect on market 
price and that ERI does not explain how the shutdown of primary mines 
factor into the cumulative methodology. DOE acknowledges that ERI has 
declined to provide specific information regarding its estimates of 
supply curves in future years. ERI explains that it develops its 
proprietary supply curves based on available information on costs 
facing each individual supply source from publicly available sources, 
including public filings from various mining companies, and evidence of 
how suppliers have responded to changes in the past. DOE believes that 
ERI's approach to estimating production costs would yield reliable 
predictions of supplier behavior. To the extent that ERI predicts 
primary mine shutdowns, these would be accounted for in the supply 
curves that ERI builds for each year in order to determine market 
clearing price.
    For these reasons, DOE believes that ERI's cumulative method is 
reasonable, and therefore, it is appropriate for DOE to rely on the 
cumulative marginal price effects of EM transfers predicted by ERI's 
cumulative method.
iv. Effect of DOE Transfers on Market Prices
    Based on the foregoing discussion of market analyses and DOE's 
consideration of the information, DOE concludes that pursuing the level 
of EM transfers under the Base Scenario will suppress the market price 
of uranium concentrates in the next decade by an average of either 
$1.30 or $1.40 per pound U3O8, based on the 
annual clearing price approach or the marginal cumulative clearing 
price approach, respectively.
    As described in Section II.a.i, both the annual and the marginal 
cumulative clearing price projections provide valuable and 
complementary insight into the future price effects of DOE transfers. 
As in the past, DOE relies on

[[Page 21612]]

ERI's annual market-clearing approach to assess the impact of future 
DOE transfers. Now, DOE also relies on the marginal cumulative market-
clearing approach to assess the effect of future EM transfers. After 
analyzing these estimates, DOE bases its conclusions here on the larger 
projected price effect of the transfers on average over the next 
decade--the cumulative marginal market-clearing price effect of $1.40 
per pound U3O8. This estimate is close to the 
average price effect for the near-term time period--from 2017 through 
2019--of $1.20 (annual) or $1.60 (cumulative marginal) per pound 
U3O8. Further, if DOE transfers are conducted at 
the lower Scenario 2 rates, this would create a lesser suppression on 
market prices as compared to transfers under the Base Scenario in the 
near-term of roughly $1.00 (annual) or $1.20 (cumulative marginal) per 
pound U3O8, the difference from 2017 to 2019 
between the Base Scenario and Scenario 2 under the annual and marginal 
cumulative methods, respectively.
    The significance of price suppression at this level depends, in 
part, on current and forecasted market prices. Recent spot and term 
price indicators published by UxC for the first quarter of 2017, were 
$23.50 per pound U3O8 on the spot market as of 
April 17, 2017 and [REDACTED] per pound U3O8 on 
the term market.\31\ The forecast price effect reasonably attributable 
to DOE transfers under the Base Scenario based on the marginal 
cumulative approach ($1.40) represents 6% and 4% of current spot and 
term prices, respectively. This percentage change is similar to the 
percentage change anticipated in the 2015 Determination for prices 
relative to the existing spot and term prices at that time--6.8% and 
5.5%, respectively. And, a similar result is shown in Table 4, which 
reflects in 2017 a 3% marginal cumulative price effect for DOE 
transfers in the Base Scenario under the ``No DOE'' clearing price 
approach.
---------------------------------------------------------------------------

    \31\ UxC Nuclear Fuel Price Indicators, Weekly Spot Ux 
U3O8 Prices as of March 27, 2017, https://www.uxc.com/p/prices/UxCPrices.aspx (accessed April 5, 2017).
---------------------------------------------------------------------------

    Moreover, this price effect is within the range of market 
fluctuations experienced in the uranium industry in recent years. ERI's 
statistical model of price volatility on an annualized basis (as shown 
in Figures 4.34 and 4.35) illustrates the conclusion that historical 
price volatility is noticeably higher for the uranium and conversion 
markets than for the enrichment market over the long term, although 
enrichment term price volatility has been higher and conversion term 
price volatility has been lower in recent years. 2017 ERI Report, 94-
96. Even in the last three years, the U3O8 price 
has experienced significant volatility, with annual price volatility 
increasing during 2014 and 2016. For example, the spot prices of 
uranium from January 2015 to December 31, 2016, went from a 46% decline 
to a 21% increase from December 31, 2016, to the current March 2017. 
Term prices for uranium also have experienced a range of price changes, 
with a decrease of 40% between January 2015 and December 31, 2016, to 
an increase of 3% from December 31, 2016, to March 2017. Price effects 
that are in the range of 6 and 4 percent are not substantial or outside 
historical experience in the uranium markets.
    DOE believes that it is appropriate to compare the price effect in 
future years to forecasted market prices in those years. Using near-
term projected market clearing prices from ERI's Nuclear Fuel Cycle and 
Price Report December 2016 Update (at 4-17) [REDACTED] DOE calculates 
that the average price effect of planned DOE transfers under the Base 
Scenario assuming a price effect of $1.40 per pound would cause an 
average percent decrease in the near-term of 6% per year. Looking at a 
10-year average of forecasted prices from this same report yields a 4% 
impact from the DOE transfers' projected price effect. While ERI's 
market-clearing price effect is not intended to be a direct price 
forecasting tool, using the ERI Reference Case price forecasting data 
allows us to derive an approximate percentage future effect. This is 
also another mechanism to compare the average percentage cumulative 
marginal effect projected by ERI for the same time period.
v. Effect on Realized Prices
    A principal mechanism through which a change in market price could 
impact the domestic uranium mining industry is through the effect on 
the prices that various production companies actually receive for the 
uranium they sell--the ``realized price.'' The market price indicators 
published by TradeTech and UxC are based on information about recent 
offers, bids, and transactions. This information includes activity that 
does not involve the domestic uranium producers--i.e. transactions 
involving international producers, traders, and brokers. In addition, 
the current market prices do not reflect the fact that many uranium 
producers actually achieve prices well above the market prices due to 
the prevalence of long-term contracts that lock in pricing terms over a 
period of several years.
    As previously noted, most deliveries of uranium concentrates take 
place under term contracts. According to data from EIA, 79% of 
purchases of uranium by U.S. owners and operators of nuclear power 
reactors in 2015 were through term contracts. EIA, 2015 Uranium 
Marketing Report, 1 (2016). UxC data indicates that spot contracts made 
up [REDACTED] of total contracting volume in 2016, and term contracts 
[REDACTED].\32\ U.S. utilities, in particular, have increasingly tended 
toward mid-term contracts. UxC Uranium Market Outlook--Quarter 1 
(2017), 27.
---------------------------------------------------------------------------

    \32\ [REDACTED] UxC Uranium Market Outlook--Quarter 1 (2017), 
ii.
---------------------------------------------------------------------------

    ERI assumes that 50% of the NU that EM transfers is introduced 
through spot markets and 50% through term market contracts. 2017 ERI 
Report, 38. If this assumption is not exact and more or less than 50% 
of DOE transfers for Portsmouth cleanup are not sold through term 
contracts--in that they do not affect the term price indicators 
published by UxC and TradeTech--such an error in ERI's assumptions 
would simply decrease the reliability and certainty of ERI's 
econometric forecast in the mid- to long-term. As described above, DOE 
concludes that ERI's econometric analysis is likely to be less reliable 
over the longer term anyway, because predictions about uncommitted 
supply and demand in future years are uncertain.
    The actual effect experience by a primary producer would be the 
proportionate change in its realized prices. FBP and UPA, in comments, 
have provided information on realized prices. In its comment on the 
RFI, FBP noted that Peninsula Energy, parent of Strata Energy, signed 
four contracts from 2011 through 2016 for a total of 8.2 million pounds 
at an average price of over $54 per pound; UR Energy reported contracts 
with deliveries from 2016 through 2021 with average prices of $49.81 
per pound, and Energy Fuels reported sales of 1.1 million pounds in 
2015 at an average price of $56 per pound. NIPC Comment of FBP, at 13. 
Conversely, TradeTech reported that in 2015, 21 percent of uranium 
concentrates was purchased under spot contracts at a weighted average 
price of $36.80 per pound. RFI Comment of UPA, at 5. TradeTech cites 
EIA figures showing that 6 percent of U.S, utility purchases were of 
U.S.-origin in 2015, at a weighted-average price of $43.86 per pound, 5 
percent below the weighted-average price for all purchases. RFI Comment 
of UPA, at 6. TradeTech opines that this decline is part of a

[[Page 21613]]

larger trend in realized prices, and is expected to continue as legacy 
contracts signed over the last 10 years are fulfilled. Id. EIA reported 
in 2015 realized prices of $42.91 per pound. Id. at 7.
    Table 6 provides data on sales and realized prices for U.S. uranium 
producers in 2016 from public filings. The data in Table 6 demonstrate 
that several of the producers obtained a realized price above the 2015 
realized price cited by EIA. Although realized price data was not 
available for Energy Fuels, a statement from its SEC 10-K form 
indicates that ``[t]hree of our four supply contracts contain favorable 
pricing above current spot prices.'' Energy Fuels Inc., Management's 
Discussion and Analysis, Year Ending December 31, 2016, at 119 (Dec. 
2016). New long-term and mid-term contracts among all U.S. uranium 
producers are likely to have similarly high prices relative to the spot 
market.

      Table 6--Reported Sales and Realized Price by U.S. Producers
------------------------------------------------------------------------
                     Information from public filings
-------------------------------------------------------------------------
                                                   2016 Sales
                    Producer                       (lbs U3O8)   Realized
                                                                  price
------------------------------------------------------------------------
Uranium One \33\...............................        56,100        $27
Ur-Energy \34\.................................        22,191      41.38
Cameco \35\....................................           N/A        N/A
Energy Fuels \36\..............................     1,147,933      47.42
Uranium Energy Corp.\37\.......................           N/A        N/A
------------------------------------------------------------------------

    To the extent that contracts have floor price provisions, the 
prices realized by producers may not fully reflect any market decline. 
2017 ERI Report, 71. [REDACTED] UxC Uranium Market Outlook--Quarter 1 
(2017), at 31. Realized prices and the exposure to the spot market in 
the U.S. uranium industry vary between companies. ERI reports that the 
share of U.S. production coming from companies that are effectively 
unhedged (no long-term contracts with higher fixed prices) has declined 
from about 25% in 2012 and 2013 to about 3% in 2015 and 2016. 2017 ERI 
Report, 73. ERI emphasizes, however, that it does not appear that 
removing the DOE inventory from the market and adding back the 
cumulative price effect attributed to the DOE inventory material in 
2016 in the Base Scenario would necessarily increase current prices 
enough to markedly change the realized prices for new production 
centers in the U.S. 2017 ERI Report, 73-74.
---------------------------------------------------------------------------

    \33\ These figures represent sales through Dec. 31, 2016. 
Uranium One operates the Willow Creek mine in Wyoming. Uranium One 
Inc., Operating and Financial Review, 4, 16 (Dec. 2016), available 
at http://www.uranium1.com/index.php/en/investor/financial-reports-and-filings/annual-reports.
    \34\ UR-Energy operates the Lost Creek ISR mine in Wyoming. UR-
Energy Inc. Form 10-K, Securities and Exchange Commission, at 49 
(Mar. 3, 2017) https://www.sec.gov/Archives/edgar/data/1375205/000155837017001345/urg-20161231x10k.htm (accessed April 11, 2017).
    \35\ Cameco operates the Smith Ranch-Highland (Wyoming) and Crow 
Butte (Nebraska) ISR mines. Cameco, Annual Report 2016, Management's 
Discussion and Analysis, at (Feb. 9, 2017), https://www.cameco.com/invest/financial-information/annual-reports/2016.
    \36\ Energy Fuels operates the White Mesa conventional mill in 
Utah, the Nichols Ranch ISR mine in Wyoming, and the Alta Mesa 
Project in Texas. Energy Fuels Inc., Management's Discussion and 
Analysis, Year Ending December 31, 2016, at 4 (Dec. 2016), available 
at http://www.energyfuels.com/wp-content/uploads/2017/03/2016.12.31-10K-FINAL-Reduced-Size.pdf
    \37\ Uranium Energy Corp. (UEC) operates the Hobson/Palanga ISR 
mine in Texas. UEC reports that as of July 31, 2016, it had no 
uranium supply or ``off-take'' agreements in place. UEC states that 
future uranium concentrates sale are expected to occur at the spot 
price. Uranium Energy Corp. Form 10-K, Securities and Exchange 
Commission, at 6, 72 (Dec. 2016), available at https://www.sec.gov/Archives/edgar/data/1334933/000127956916004485/v449966_10k.htm.
---------------------------------------------------------------------------

    EIA provides data about sales using different pricing mechanisms. 
EIA reports that of the approximately 19 million pounds 
U3O8 equivalent purchased by U.S. reactor 
operators from domestic sources \38\ and delivered in 2015, 13.9 
million pounds were purchased based on fixed or base-escalated 
pricing--approximately 73%--with a weighted-average price of $40.34. 
Approximately 876,000 pounds were purchased based purely on spot-market 
pricing--approximately 5%--with a weighted-average price of $38.22. The 
remaining 3.9 million pounds--approximately 21%--was sold based on some 
other pricing mechanism with a weighted average price of $53.59. EIA, 
2015 Uranium Marketing Annual Report, 22-24 (2016). DOE understands 
that the realized prices received for natural uranium in the last year 
have been lower than in the several previous years. However, the long-
term forecasts do not indicate that this steep decline will continue.
---------------------------------------------------------------------------

    \38\ Note that EIA's figure includes purchases of U.S.-origin 
uranium as well as purchases from a firm located in the United 
States. Therefore, this number includes uranium from sources other 
than the domestic uranium industry. EIA, 2015 Uranium Marketing 
Annual Report, 22 (2016).
---------------------------------------------------------------------------

    Given that ERI reports that essentially all U.S. producers have at 
least some long-term contracts with fixed prices above the spot market 
price \39\ and that the average realized price continues to be above 
the current spot price, it appears that the domestic uranium industry 
is somewhat insulated from the impact of DOE transfers on uranium 
prices. In particular, price suppression attributable to DOE transfers 
under either scenario does not have a significant effect on 
preexisting, long-term contracts that were entered into at higher 
prices. That said, DOE transfers will have an effect on the contract 
price for spot and term contracts entered into in the future. For those 
contracts, and as explained above, the anticipated effect of EM 
transfers is expected to be relatively small--approximately 6% of 
expected near-term prices--and well within the range of normal market 
price fluctuations.
---------------------------------------------------------------------------

    \39\ 2017 ERI Report, 121.
---------------------------------------------------------------------------

2. Production at Existing Facilities
    DOE believes that primary producers consider a range of different 
inputs in determining whether to decrease, continue, or increase 
production at currently operating facilities. Market prices are 
certainly one element of this calculation, but producers also consider 
contractual obligations (and what these contracts may mean for realized 
prices), projections about future prices, and the various costs 
associated with changing production levels. In order to forecast how 
DOE transfers will affect production levels, DOE has considered how 
producers have responded to price changes in the past, and the 
relationship between market prices and production costs.
    EIA reports data on production levels in the domestic uranium 
industry on a quarterly and annual basis. According to EIA, U.S. 
primary production in 2015 stood at 3.34 million pounds 
U3O8. EIA's most recent quarterly report provides 
preliminary data for 2016. EIA's preliminary figures for 2016 indicate 
that U.S. production of uranium concentrates declined 13% from 2015 
production to 2.92 million pounds U3O8. ERI's 
projection that 2016 U.S. production was expected to decline below 3.0 
million pounds is consistent with EIA's preliminary data. 2017 ERI 
Report, 68. U.S. uranium production peaked in 2014 at 4.9 million 
pounds. Although there were a number of new starts that were spurred by 
the price run-up in 2006 and 2007, a number of these facilities have 
limited production in response to the decline in prices since that 
time.
    In 2016, Cameco halted new wellfield development at its Crow Butte 
and Highland/Smith Ranch centers, which resulted in a production 
decline of 36% from 2015 levels. Production at the Highland/Smith Ranch 
center is expected to further decline by more than 50% in 2017. 
Cameco's curtailment at its U.S. properties follows Willow Creek, 
Palangana, and Alta Mesa halting new wellfield installation in 2013 and

[[Page 21614]]

2014, resulting in minimal or no production from these facilities in 
2015 and 2016. ERI reports that Energy Fuels' White Mesa mill operated 
at low levels, processing alternative feed material and stockpiled ore 
from prior conventional mining in Arizona. ERI further reports that 
newer in-situ recovery projects at Nichols Ranch and Lost Creek held 
production steady rather than continue to ramp up to planned levels. 
Peninsula's Lance ISR project (part of the Ross permit area) began 
operation in late 2015 and began shipping drummed uranium for 
conversion services in mid-2016. ERI suggests that these production 
trends will continue into 2017 although Lance is expected to add some 
production. 2017 ERI Report, 7.
    EIA reports that the same number of uranium concentrate processing 
facilities--seven--operated in 2016 as in 2015. In 2016, production 
from Hobson/Palangana ceased, while production from the Ross Central 
Processing Plant/Lance began. EIA Domestic Uranium Production Report Q4 
2016, 4-6 (January 2016).
    ERI presents a figure (Figure 4.24) showing various industry 
contracting and production events as compared to both the spot and term 
price of uranium. 2017 ERI Report, 74. That figure shows that most new 
U.S. production was supported by long-term contracts in the range of 
$55 to $70 per pound. However, one producer entered into contracts when 
long-term prices were in the $45 to $50 per pound range in late 2014 to 
early 2016, which allowed new operations to begin. ERI notes that, ``At 
least one of these companies has stated that the project would not have 
been able to proceed if the initial contracts had been made at then-
current price levels ($45 to $50 per pound long-term).'' 2017 ERI 
Report, 73. In March 2017, Energy Fuels Resources received all 
licenses, permits and approvals permits to allow wellfield development 
at its Jane Dough property, an expansion of its currently-producing 
Nichols Ranch property. Energy Fuels opined that, ``Uranium spot prices 
are up over 40% since early December 2016, and we are optimistic that 
we will continue to see positive market catalysts as the year goes on. 
As uranium prices continue to rise on a sustained basis, we expect to 
resume wellfield construction at Nichols Ranch, which is expected to 
include the Jane Dough wellfields in the future.'' It has been reported 
that a company official said that Energy Fuels will consider production 
from Jane Dough after spot prices reach the $40/pound 
U3O8 level.
    ERI's Figure 4.24 also shows the price levels at the time cutbacks 
were announced by various U.S. suppliers. This graphic depicts price 
points for cutbacks at select operations: $45 per pound in the spot 
market for conventional mines in Utah; $40 per pound in the spot market 
for an-situ-leach operations; and $35 per pound in the spot market for 
an additional in-situ leach operation and conventional mines, as well 
as a uranium mill. As prices declined to less than $30/pound in early 
2016, Cameco halted all new U.S. well field development, as noted 
earlier in this section. 2017 ERI Report, 74.
    ERI estimates average production costs for existing mines by 
referring to EIA's published data on production expenditures across the 
uranium industry. Using a three-year average to smooth out year-to-year 
differences, ERI notes that average production costs remained fairly 
constant from 2009 to 2012 at about $40 per pound. However, EIA reports 
that average production costs have declined since that time as U.S. 
producers curtailed operations at some higher cost mines. Using the EIA 
data, ERI calculates a three-year average production cost for $31/pound 
in 2015. 2017 ERI Report, 75. ERI further reports that it estimates 
average production costs at U.S. in-situ-leach facilities, which 
includes exploration and development drilling costs needed to keep the 
mine producing, at $37/pound in 2015, and expects that this will 
decline further to $35/pound in 2016. 2017 ERI Report, 76.
    UxC has developed and reported upon production cost data in its 
Uranium Market Outlooks and a 2015 Production Cost Study. UxC Uranium 
Market Outlook, Q1 2016 (2016); UxC Uranium Production Cost Study 
(2015). UxC developed a production cost curve for operating projects 
that assumes a [REDACTED] return. UxC describes the forward costs 
estimates as ``the minimum sales price a producer might accept under a 
new contract if recovery of sunk costs is not required.'' UxC divides 
the various production centers into cost bands. [REDACTED] UxC, 2015 
Production Cost Study, 92.
    Actual production levels and costs are usually proprietary 
information, so DOE must generally rely on estimates. ERI's estimates 
and UxC's estimates are generally consistent, given what we know about 
efficiency improvements at some facilities and operational changes in 
others as wellhead development slowed or ceased. In 2015, DOE found 
that the production cost estimates from TradeTech, NAC, and UxC were 
all generally consistent with ERI's conclusions. ERI utilized the same 
methodology in 2017. We consider that ERI's analysis is likely in line 
with other market experts.
    ERI also reports that while the spot uranium price averages $36.76/
pound in 2015, it averaged less than $26/pound in 2016. The term and 
spot prices reported by UxC at the end of March 2017 are below the 
estimated production cost for in-situ properties as well as the U.S. 
average for all properties. However, the relationship between current 
production decisions and prices is also affected by the contract 
portfolios of various uranium producers and how much they are exposed 
to the spot market. ERI estimates that the share of U.S. production 
coming from companies that are effectively unhedged, with no long-term 
contracts at higher prices, has declined from about 25% in 2012 and 
2013 to just 3% in 2015 and 2016. 2017 ERI Report, 121.
    In addition to prices, production decisions are also related to 
company-specific production strategies such as Cameco's decision to 
limit its production to its three most efficient large mines in Canada 
and Kazakhstan. One commenter opined that even if EM's transfers are 
eliminated, that the level of U.S. production would not increase 
because U.S. uranium production is less competitive than other mines so 
producers would ramp up production at their most efficient mines 
outside the U.S. first. That commenter also noted that if the 2015 
percentage of U.S. to non-U.S. supply is applied--EIA reports that 94% 
of the uranium delivered to U.S. utilities in 2015 was foreign origin--
to replace supply displaced by DOE inventory, then the resulting 
increase in U.S. sales would be a very small amount. RFI Comment of 
FBP, at 6-8.
    Based on the spot price at the end of March 2017, it does not 
appear that adding the estimated incremental $1.40 impact of EM 
transfers at the Base Scenario levels as compared to no EM transfers 
back to that spot price would incentivize additional U.S. production. 
ERI states that term prices would still be below the level required for 
new conventional production to move forward, but notes that some lower 
cost in situ production may be able to move forward at current term 
prices.
    In addition, realized prices of U.S. producers were presented in 
the previous section. It does not appear that the incremental $1.40 
change in spot price between no uranium transfers by EM and transfers 
at the current rate would cause realized prices to be below production 
costs at any particular facility, especially with the limited number of 
companies that remain unhedged. DOE recognizes that

[[Page 21615]]

receiving prices barely above production costs would not provide enough 
return to justify investing in production, as a producer requires a 
certain amount of expected margin. Even considering a small effect on 
the margin, DOE concludes that ceasing EM transfers entirely would not 
cause U.S. producers to increase production levels substantially in the 
near-term.
    Some NIPC commenters reported that they had to reduce production 
levels in response to low uranium market prices. UPA indicated that 
domestic production had declined from 4.9 million pounds in 2014 to 2.9 
million pounds in 2016. Comment of UPA, at 13. DOE recognizes that 
production levels are lower but not in their entirety attributable to 
DOE transfers. DOE believes that it is an appropriate implementation of 
the analytical approach discussed above to compare the likely state of 
affairs with the considered transfers and without the considered DOE 
transfers in order to understand the impact reasonably attributable to 
its transfers. DOE has drawn this comparison in concluding that 
continuing transfers under the Base Scenario would not result in U.S. 
production being markedly lower than it would in the absence of DOE 
transfers.
3. Employment Levels in the Industry
    DOE has considered information from EIA reports relating to 
employment in the domestic uranium production industry. EIA's most 
recent Uranium Production Report states that employment stood at 625 
person-years in 2015, a 21% decrease from the 787 person-years in 2014. 
EIA, 2015 Uranium Production Report, 10 (May 2016). EIA notes that this 
is the lowest level since 2014. Exploration employment was 58 person-
years, down from 86 in 2014 and 149 in 2013, a 33% and 61% drop 
respectively. Mining employment was 251 person years, an increase of 2% 
from the 246 level of 2014 but a 36% decline from the 2013 level of 392 
person-years. Milling and processing employment decreased 32% from 
2014. EIA further reports that reclamation employment declined 28% to 
116 person-years from the 2014 level of 161 person-years, and 42% from 
the 199 employed in reclamation in 2014, a 12-year high. Employment for 
2015 was in nine states: Arizona, Colorado, Nebraska, New Mexico, 
Oregon, Texas, Utah, Washington, and Wyoming.
    In its analysis, ERI compared EIA's employment figures with changes 
in uranium spot and term prices. Based on a statistical correlation, 
ERI infers that employment responds to changes in price, observing that 
mining, milling and processing employment was more closely correlated 
with term price and exploration employment with spot price. 2017 ERI 
Report, 64-65. ERI then uses this correlation to estimate that the 
decrease in uranium prices over the course of 2012-2015 resulted in 
employment lowered by an average of 30 person-years or that employment 
was 3.1% lower in those four years than if no releases had occurred. 
Using the cumulative methodology, the correlations indicate than the 
DOE transfers lowered employment by an average of 73 person-years 
during 2012-2015, or lowered by 7.2%. 2017 ERI Report, 66.
    Looking forward, ERI correlates employment and price over the 10-
year period 2017-2026 for the Base Scenario, which represents the 
current rate of EM transfers, and estimates an average loss of 19 
person-years or a 2.9% reduction in employment over the ten-year 
period. The cumulative method yields an employment loss of 40-person-
years or 6.0% over the 10-year period. Using the cumulative 
methodology, under Scenario 1 (halting EM transfers), employment would 
still be lowered by an average of 31 person years or 4.7%. Thus, the 
marginal employment effect based on the cumulative methodology between 
EM transferring uranium at current levels versus not transferring 
uranium is a change in average employment over the next ten years is 9 
person-years, or 1.3%. It is important to note the cumulative effect of 
past releases is already in place and that transfers that occurred in 
past years will continue to have an impact in future years.
    Using their employment-spot price correlation, ERI estimates that 
uranium industry employment is expected to decline by an additional 111 
person-years from the 2015 level. ERI opines that this is consistent 
with announcements that have been made in the domestic industry. 2017 
ERI, 65.
    Some commenters stated that the uranium production industry has 
lost half its workforce since May 2012. RFI Comment of Energy Fuels, at 
3; RFI Comment of Uranium Producers of America, at 4. EIA figures 
demonstrate a 48% loss in employment from 2012 to 2015. EIA Uranium 
Production Report (May 2016), 9. However, for predicting the effect of 
DOE's transfers it is important to understand what portion of recent 
employment decreases is reasonably attributable to past DOE transfers. 
No commenter attempted such an estimation. While it is difficult to 
infer causal connections between employment and any particular market 
phenomenon, DOE thinks it is likely that most of the reduction in 
employment in the mining industry since 2011 can reasonably be 
attributed to the downturn in the demand for uranium, primarily due to 
the Fukushima events and premature closure of nuclear plants.
    DOE believes that ERI's method for attributing an employment effect 
to DOE transfers is reasonable. ERI's method is based on an empirical 
observation that prices (particularly the two-year moving average of 
price) have been strongly correlated with employment over the last 
decade. This correlation exists despite the fluctuations in market 
conditions that have taken place in that period. The relatively small 
price effects likely to result from DOE's transfers are much smaller 
than the price variations of the past decade. Therefore, the 
correlation ERI observes should hold true for these small price 
effects. In addition, it is reasonable to expect that prices and 
employment will continue to correlate in such a way, because the 
correlation reflects persistent market phenomena. DOE expects that a 
producer increases or decreases employment in order to increase or 
decrease production, and it does so in response to increases or 
decreases in the price it will receive. For any given producer the 
relationship between employment and price will depend on multiple 
factors such as the producer's cost of production and its cost 
structure (e.g. what proportion of cost depends on employee numbers) 
and the producer's sales/contracting structure and realized prices. 
Aggregated over producers, the result would be the sort of correlation 
between prices and employment that ERI observes.
    Several NIPC commenters indicated that they had been forced to 
reduce employment levels due to continued weakness in the uranium 
markets. UPA in their comment at 15 noted that employment fell by 45.9% 
(531 jobs) from 2013 to 2015 and that in 2016 several UPA members 
announced they were anticipating further employment cuts. While 
industry did not predict the impact of future DOE transfers, as noted 
above, based on ERI's cumulative methodology, the marginal effect of EM 
transfers on employment is expected to average 9 person-years or 1.3% 
over the next 10 years. Given the size of recent employment 
fluctuations and the size of future expected changes (in the 100s of 
person-years), this effect is well within the range of existing 
fluctuations. Further, the employment effect of DOE transfers is not 
expected to be large enough to negatively affect the retention of 
intellectual experience and ``know-how'' in the industry.

[[Page 21616]]

4. Changes in Capital Improvement Plans and Development of Future 
Facilities
    As stated above, ERI reports that five new production centers began 
operation since 2009: Two in 2010, one in 2013, one in 2014, and one in 
2015. 2017 ERI Report, 67. ERI explains that the new production centers 
may have been able to begin operations only because they were supported 
by fixed price term contracts that were signed when prices were 
substantially higher than they are currently--i.e. $55 to $70 per pound 
term price. At least one of these companies has directly stated that 
its project would not have been able to proceed if the initial 
contracts had been made at the then current price levels--$45 to $50 
per pound term price. ERI also reports that some owners of proposed 
conventional mines outside the U.S. have stated that prices in the 
range of $60 or more per pound would be necessary for further 
development. 2017 ERI Report, 73.
    EIA reports that U.S. uranium production expenditures were $119 
million in 2015, down by 14% from the 2014 level. EIA reports that 
uranium exploration expenditures were $5 million and decreased 56% from 
the 2014 level. EIA, 2015 Domestic Uranium Production Report, 2 (2016). 
ERI looked at the average production cost plus development drilling 
costs, to show that ongoing costs have declined from $49/pound in 2012 
to $37/pound in 2015. Production plus development costs for U.S. 
facilities are expected by ERI to average about $35/pound in 2016. 2017 
ERI Report, 76.
    Based on the above, ERI concludes, ``it does not appear that 
removing the DOE inventory from the market and adding back the $5 per 
pound cumulative price effect attributed to the DOE inventory material 
in 2016 . . . in the Base Scenario would necessarily increase current 
prices enough to change the situation regarding the viability of new 
production centers in the U.S., that is, current spot prices would 
remain less than $30 per pound and current term prices would still be 
less than $40 per pound.'' ERI goes on to suggest that higher price 
signals appear to be required to move forward with the development of 
new conventional mines in the U.S but notes that some lower cost ISL 
projects may still be able to move forward at current term prices 
(which include the DOE inventory price effect). '' 2017 ERI Report, 73-
74.
    In the UxC Uranium Production Cost Study (2015), UxC refers to 
facilities that are ``planned'' and that are ``potential.'' UxC notes 
that, [REDACTED]. UxC also notes that planned projects have higher 
risks than operating projects, which would necessitate higher rates of 
return. UxC Uranium Production Cost Study, 60. UxC states that there is 
a lower level of confidence in estimates about potential facilities. In 
addition, UxC states that [REDACTED]. UxC Uranium Production Cost 
Study, 62, (2015). As an example of some of the difficulties facing 
potential facilities versus planned facilities, UxC refers to a 
potential project in Virginia, where there is a statewide ban on 
uranium production.
    UxC divides the planned and potential projects into cost bands. 
According to UxC, [REDACTED]. We believe that some of the differences 
between ERI and UxC may be attributable to the assumptions regarding 
the construction of production cost factors, such as reclamation costs, 
and the fact that UxC's 2015 report does not take account of efficiency 
improvements at some facilities in the last 18 months.
    DOE's task is to assess what the state of affairs would be with and 
without the planned transfers. DOE believes that industry reports such 
as UxC's, which provide data about the expected costs of actual 
projects, provide an additional foundation upon which to conduct its 
analysis. Since uranium prices decreased in the recent past, it is not 
surprising that producers have reduced their activities to develop new 
resources, as reflected in the EIA data. However, consistent with the 
analytical approach described above, the relevant question is what will 
be the effect on these activities of DOE transfers in the future.
    DOE believes that one approach is to compare the expected market 
price with and without DOE transfers to estimated production costs at 
potential new production centers. The incremental impact of $1.40 per 
pound under the Base Scenario as assessed by DOE does not appear to 
markedly change decisions whether to develop future production centers. 
On this basis, DOE agrees with ERI's conclusion that whether DOE makes 
these transfers is not likely to affect the economic viability of new 
U.S. production centers in development.
    Furthermore, DOE believes that future capital projects and 
production decisions are more likely to be based on future expectations 
about market prices, which we believe are tied closely to an expected 
increase in demand and the impact of recent production cutbacks, as 
well as contracting trends, rather than on a straightforward comparison 
of current market prices to production cost. New production centers are 
a long-term investment, and new facilities require several years of 
lead-time before production can begin. Many producers are unwilling to 
bring a new facility into production without long-term supply contracts 
in place that reflects expected market conditions.
    Additionally, as a long-term investment, the outlook for financing 
any development or expansion of uranium projects should be tied to the 
long-term expectations for growth in nuclear power. However, the 
current outlook for certain plants facing premature closure, due in 
part to electricity market challenges, has colored the near-term 
outlook of investors and may have made financing these projects more 
challenging. Market capitalization is representative of a company's 
ability to raise funds needed to move a project through licensing, 
which can take many years, as well as through initial project 
development. ERI observed that the market capitalization of the smaller 
mining companies is more sensitive to changes in the spot market price 
compared to the larger companies. 2017 ERI Report, 70.
    Some NIPC commenters indicated the necessity to suspend development 
plans or to limit production expansion. One indicated it was deferring 
well-field development. Another commenter noted a drop in EIA's 
reported development and exploration expenditures and suggested these 
numbers be used as a proxy to measure corporate decisions on capital 
expenditures. DOE believes the overall market pricing condition is the 
most significant driver for capital development plans. Based upon our 
analysis of price effect of future transfers, DOE does not believe that 
its near-term future transfers will have an adverse material impact on 
uranium mining industry development plans.
    DOE concludes that transfers at the Base Scenario level, which 
represent about 4% of global supplies in 2017-2019, seem unlikely to 
change whether a uranium project proceeds as the other market forces 
and expectations will have significant influence on these longer-term 
decisions.
5. Long-Term Viability and Health of the Industry
    ERI reports that five new production centers began operation since 
2009: Two in 2010, one in 2013, one in 2014, and one in 2015. 2017 ERI 
Report, 67.
    ERI also presents its future expectations regarding demand for 
uranium. ERI's most recent Reference Nuclear Power Growth forecasts 
project global requirements to grow to

[[Page 21617]]

approximately 190 million pounds annually by 2025. ERI attributes this 
increase in global requirements to an expansion of nuclear generation 
in China, India and South Korea, as well as new nuclear power entrants. 
While global demand for uranium is expected to increase, projected U.S. 
requirements will remain generally steady. 2017 ERI Report, 18-19. 
Overall, ERI's Reference Forecast for total world nuclear power 
generation capacity is consistent with a steady average annual nuclear 
capacity growth rate of 2% through 2035. A 9% decline is projected in 
the U.S. by 2035, with a 30% decline in Western Europe. 2017 ERI 
Report, 7. ERI notes that its Reference Forecast for nuclear fuel 
requirements in its 2017 Report is lower than its Reference Forecast in 
its 2015 Report due to assumptions of a slower pace of restart of 
Japanese reactors and the announced and projected premature closing of 
nuclear power plants in the U.S. and Western Europe. A reduction in 
nuclear power in France and slower than previously projected growth of 
nuclear power in Russia contribute to the lesser increase in nuclear 
capacity growth between 2020 and 2026. 2017 ERI Report, 4-5.
    There are a number of important market factors that have influenced 
the relationship between supply and demand (hence price) since DOE 
inventory transfers began. These other factors include: Demand losses 
due to the Japanese reactor shutdowns following the Fukushima Daiichi 
accident, demand losses due to changes in German energy policy, 
increased uranium production in Kazakhstan, increased secondary supply 
created using excess enrichment capacity (both underfeeding and upgrade 
of Russian enrichment tails), the planned ramp-up of Russian uranium 
under the Suspension Agreement, and the end of the U.S. Russian HEU 
Agreement in 2013. The effect of DOE inventory can be considered in the 
broader context of other market factors. ERI notes that DOE inventory 
was equivalent to about 6% of all the uranium market factors (including 
DOE) in 2012, rising to 9% in 2013-2014 before declining back to 7% in 
2016. ERI predicts that the total of all the non-DOE uranium market 
factors is expected to remain fairly constant over the next decade as 
the slow increase in Japanese reactor restarts is offset by additional 
retirements in Germany. The Base Scenario DOE share remains in the 7%-
8% range with the exception of 2020 and 2021 when it drops to 5% and 
1%, respectively. If Scenario 1 DOE inventory is assumed, the DOE share 
declines to just 1% over the next decade. Scenario 2 averages 6% while 
Scenario 3 averages 8% in 2017-2026. 2017 ERI Report 100-101.
    The TradeTech Report in the UPA RFI comments cites many of the same 
market factors which ERI has accounted for, including persistent 
oversupply in the uranium market and reduced demand as a result of 
premature plant closures, as well as the DOE supplied uranium.
    Several commenters in response to the July 2016 RFI predict a 
recovery in either spot or term uranium prices. Cameco, in its comment, 
states that while ``the long-term future of the uranium industry is 
strong, the market remains oversupplied due in part to the slow pace at 
which Japanese reactors have come back on line since the Fukushima 
accident and the closure of a number of U.S. reactors.'' RFI Comment of 
Cameco, at 1.
    DOE recognizes that, as with any prediction, the future course of 
events may differ from forecasts. However, as explained in this 
analysis as well as in the 2015 Secretarial Determination and Analysis, 
DOE believes it is possible to forecast reactor requirements with a 
fairly high degree of precision. The various sources DOE has consulted, 
including the ERI report, offer similar forecasts, and DOE concludes it 
is appropriate to rely on those forecasts.\40\ Alternately, forecasts 
of production may be somewhat more uncertain. DOE draws similar 
conclusions in this Determination as in 2015: In aggregate, overall 
forecasts of aggregate supply are appropriate predictions of the 
likeliest course of events, and the various sources DOE has consulted 
offer similar forecasts, and DOE concludes it is appropriate to rely on 
them.
---------------------------------------------------------------------------

    \40\ DOE notes that even though the 2015 Secretarial 
Determination and Analysis described an expected price recovery 
predicted by various market forecasts, uranium prices have decreased 
since May 2015. Despite that decrease, it is notable that those same 
market forecasts continue to forecast an increase in price, although 
they have adjusted the expected timeline for such a recovery. As 
emphasized in the 2015 Determination and Analysis, this is to be 
expected given the uncertainty of future market predictions, 
especially in the short-term. Nevertheless, DOE continues to believe 
that over the long-term, the rough course of future supply can be 
predicted with a reasonable degree of certainty.
---------------------------------------------------------------------------

    Commenters note that DOE transfers have affected and will affect 
the industry in other ways. ConverDyn stated that uncertainty related 
to DOE uranium transfers adds to the difficult conditions currently 
facing the industry. RFI Comment of ConverDyn, Enclosure 1, at 2. 
Energy Fuels Resources (Energy Fuels), in its comment, hypothesizes 
that the value of domestic uranium mines and projects has diminished 
due to declining uranium prices since 2011 and an oversupplied market. 
RFI comment of Comment of Energy Fuels, at 2. Energy Fuels notes that 
``persistent oversupply from price insensitive sources and limited 
uncommitted demand.'' RFI Comment of Energy Fuels, at 3. This view is 
reiterated in RFI comments by the New Mexico Mining Association, noting 
that ``DOE's material effectively consumes any available uncommitted 
demand available to (potential New Mexico) producers.'' RFI Comment of 
New Mexico Mining Association, at 1.
    Additionally, a number of commenters have pointed out that excess 
inventory needs to be absorbed before a market recovery can occur. 
Commenters point to EIA data showing an increase in U.S. utility 
inventory. Energy Fuels and the Uranium Producers of America state 
that, ``the excess supply is absorbed primarily by the trading 
community that then finances the material for forward sales. As a 
result, this delays the prospects for a price recovery by ``stealing'' 
future uncommitted demand that would otherwise be available in upcoming 
years.'' RFI Comment of Energy Fuels, at 5; RFI Comment of UPA, at 7.
    Energy Fuels also remarks, ``[a]s more reactors go offline and 
higher priced long-term pre-Fukushima legacy contracts expire, along 
with DOE material continuing to enter the market, conditions will 
continue to deteriorate for the production industry.'' Comment of 
Energy Fuels, at 5. Additional commenters shared this view. FBP 
commented that U.S. producers are ``far less competitive than available 
non-U.S. supply'' and that non-U.S. producers are better poised to meet 
any increase in demand because they can provide material at production 
costs that are below those of U.S. producers. RFI Comment of FBP, at 5. 
UxC's Uranium Production Cost Study supports the view that [REDACTED].
    Regarding supply, FBP notes the increase in global production since 
2007, despite falling prices and reduced reactor demand. RFI Comment of 
FBP, at 5. ``The failure of primary supply to reduce production to 
match needs is encouraged by long-term contracts at higher than current 
spot market prices and the significant supply controlled by Sovereign 
governments.'' Citing the NAC International Fuel-Trac data base, FBP 
notes that ``it is estimated that around 60% of the 2016 production was 
controlled by Governments,'' and suggests that, ``[d]ue to the large 
excess worldwide production increases, neither spot market prices, nor 
U.S.

[[Page 21618]]

production competitiveness are expected to improve appreciably in the 
near-term.'' RFI Comment of FBP, at 8. DOE notes that the largest 
producer in the world--Kazakhstan--has indicated that it will reduce 
production by 10% in the coming years. This will help bring supply and 
demand into balance sooner than if they had continues to produce at 
prior levels. FBP also suggests that exchange rates have affected 
competitiveness resulting in lower effective production costs for non-
U.S. suppliers. RFI Comment of FBP, at 10. [REDACTED] UxC in their 
Uranium Market Outlook, Q1 2016, 6 and Uranium Production Cost Study, 
107-108.
    The Wyoming Mining Association suggests that the Department 
consider drilling as a ``harbinger metric for the uranium recovery 
industry's maintenance and growth.'' RFI Comment of Wyoming Mining 
Association, at 2. EIA reports that the number of holes drilled for 
exploration and development in the U.S. in 2015 was 1,218, down from 
11,082 in 2012 and 5,244 in 2013, declines of 86% and 71%, 
respectively. Similarly, EIA reports 878 thousand feet drilled in 2015, 
down from 7,156 thousand feet in 2012 and 3, 845 thousand feet drilled 
in 2013, declines of 88% and 77%, respectively. EIA, 2015 Domestic 
Uranium Production Report (2016), at 3. UxC points out that during 
periods of sustained low prices, development is discouraged and higher 
price mines may be forced to close. [REDACTED] UxC Uranium Market 
Outlook, Q1 2016, 6.
    Even if existing production centers continued producing uranium at 
their current rates, prices could be expected to increase as 
requirements increase. Consistent with the ordinary operation of supply 
and demand, higher prices would be necessary to bring additional 
supplies into the market. In fact, as existing production centers are 
depleted, the predicted replacements will have slightly higher 
production costs. Thus, higher prices will be necessary in the future 
even to maintain production at current levels. For these reasons the 
price of uranium is likely to increase over the coming decade.
    Based on the incremental impact of DOE EM transfers on price, and 
the predicted future increases in price, these DOE EM transfers will 
not prevent new facilities from coming online, but could potentially 
affect the timing of such supply additions. DOE does not believe that 
this impact is significant enough to appreciably affect the long-term 
viability and health of the industry.
    FBP, in its NIPC comments at 3 noted that FBP's subcontractor 
Traxys has sold DOE-FBP-Traxys material to a Wyoming uranium production 
who is using the purchased material to deliver on high-priced 
contracts. FBP notes that ``this support was a direct result of the 
U.S. miners calling upon the Department and FBP to make DOE uranium 
available to U.S. producers that they could then deliver into their 
long-term contracts.'' FBP notes that this offset foreign imports and 
that Traxys has extend this offer to other U.S. producers as well. Thus 
the bartered material, in some cases helps support U.S. industry. FBP 
NIPC comment, 3.
    In addition, some NIPC commenters stated that the uranium market 
remains oversupplied due to a number of factors. Those factors include 
the slow pace of return of Japanese reactors after the Fukushima 
accident, early permanent shutdown of a number of existing U.S. 
reactors and delayed construction of new U.S. reactors. While UPA noted 
that this oversupply is an unhealthy situation threatening the long-
term viability of the domestic market Cameco stated that they believe 
that the long-term future of the uranium industry is strong. NIPC 
Comment of UPA, at 16. DOE believes the world-wide construction of new 
reactors, return of many of the Japanese reactors and construction of 
new reactors in the United States will be positive for the uranium 
market and that the long term viability of the industry.
6. Russian HEU Agreement and Suspension Agreement
    Section 3112(d) of the USEC Privatization Act requires DOE to 
``take into account'' the sales of uranium under the Russian HEU 
Agreement and the Suspension Agreement. Consistent with this 
instruction, DOE believes this assessment should consider any sales 
under these two agreements that are ongoing at the time of DOE's 
transfers.
    Under the Russian HEU Agreement, upon delivery of LEU derived from 
Russian HEU, the U.S. Executive Agent, USEC Inc., was to deliver to the 
Russian Executive Agent, Techsnabexport (Tenex), an amount of natural 
uranium hexafluoride equivalent to the natural uranium component of the 
LEU. The USEC Privatization Act limited the volume of that natural 
uranium hexafluoride that could be delivered to end users in the United 
States to no more than 20 million pounds U3O8 in 
each year after 2009. ERI has in the past analyzed material from the 
Russian HEU Agreement as part of worldwide secondary supply. DOE notes 
that the Russian HEU Agreement concluded in December 2013. Thus, there 
are no ongoing transfers under this agreement.
    The current iteration of the Suspension Agreement, described above 
in Section I.D.3.ii, sets an annual export limit on natural uranium 
from Russia. 73 FR 7705 (Feb. 11, 2008). That agreement provides for 
the resumption of sales of natural uranium and SWU beginning in 2011. 
While the HEU Agreement remained active (i.e., 2011-2013), the annual 
export limits were relatively small--equivalent to between 0.4 and 1.1 
million pounds U3O8. After the end of the Russian 
HEU Agreement, restrictions range between an amount equivalent to 11.9 
and 13.4 million pounds U3O8 per year between 
2014 and 2020. 73 FR 7705, at 7706 (Feb. 11, 2008). As mentioned above, 
in September 2016, the Department of Commerce proposed to adjust the 
export limits under the agreement to take account of changes in 
projected reactor demand. The proposed adjusted limits would allow an 
additional 429,000 pounds U3O8 from Russia into 
the United States between 2016 and 2020. The additional amount varies 
by year, but on average, the proposed limits are 6.6% higher than 
current limits.
    Material imported from Russia in accordance with the Suspension 
Agreement is derived from primary production rather than from down-
blended HEU. The 2017 ERI Report takes account of uranium entering the 
United States under the current Suspension Agreement limits as part of 
total worldwide primary supply. The 2017 ERI Report does not consider 
the effect of the additional amount that would be allowed into the 
United States were the Department of Commerce to adopt the adjusted 
limits as proposed.
    DOE believes that it is still appropriate to rely on ERI's analysis 
without adjusting for the proposed changes to the Suspension Agreement 
quota limits. As an initial matter, it bears emphasis that the volume 
of the proposed adjustment is small relative to the current limits 
under the Suspension Agreement, to United States requirements, and 
worldwide requirements. Nominally, the adjustment adds no more than 
180,000 pounds U3O8 in any given year. Further, 
it is not clear that Russia would increase production of uranium 
concentrates to take advantage of this additional quota. Even without 
the change to the Suspension Agreement, Russia is still free to seek 
buyers for its uranium in other countries. More important, there is 
reason to believe that Russian suppliers would not take full advantage 
of the adjusted quota with respect to natural uranium. DOE understands 
that a

[[Page 21619]]

significant portion of Russian uranium entering the United States under 
the agreement enters via SWU-only contracts.\41\ Unlike EUP, which 
contain the Russian uranium component, SWU-only imports do not. This is 
because the purchaser would be required under the contract to deliver 
to the seller an amount of natural uranium equivalent to that contained 
in the enriched uranium. That natural uranium would need to be 
purchased on the open market, i.e., from non-Russian sources.
---------------------------------------------------------------------------

    \41\ Taking information from the ERI Report on the proportion of 
material supplied under the Suspension Agreement in the form of EUP 
sales, DOE assumes at least 20% of material going to SWU-only 
contracts. 2017 ERI Report, 102.
---------------------------------------------------------------------------

    For these reasons, DOE's analysis takes sales of uranium under the 
Suspension Agreement into account as part of overall supply available 
in the market, and the proposed adjustments are small enough that even 
if they are adopted, the adjusted figures would not significantly alter 
DOE's analysis.
7. Mining Industry Conclusion
    After considering the factors discussed above, DOE concludes that 
transfers under either the Base Scenario, which represents the current 
rate of EM transfers, or the lower transfer rate of 1,200 MTU per year 
beginning in May 2017 will not have an adverse material impact on the 
domestic uranium mining industry. As explained above, DOE transfers 
under the Base Scenario will continue to exert some downward pressure 
on the market price for uranium concentrates. However, the forecasted 
price effect of $1.40 per pound U3O8 reasonably 
attributable to DOE transfers is somewhat smaller than the effect 
attributable to transfers in the past few years. DOE believes that 
transfers at the lower rate will have a slightly lower effect on market 
prices.
    Because the majority of deliveries of uranium concentrates take 
place under long-term contracts that allow producers to realize prices 
based on term prices prevailing at the time the contracts were entered 
and because essentially all U.S. producers have at least partially 
hedged from the spot price, DOE concludes that the average effect on 
the realized price of U.S. producers under current contracts is less 
than that amount. For future term contracts, price suppression 
associated with DOE transfers would decrease the base price of future 
long-term contracts, potentially decreasing the average realized price 
over the life of each contract. However, DOE concludes that this type 
of effect will be minimal because the impact of the transfers under 
either scenario is small and within the range of normal market 
fluctuations.
    DOE transfers are expected to have a small effect on employment in 
the domestic industry, but the magnitude of this effect is well within 
the range of employment fluctuations the industry has experienced in 
the past due to market conditions unrelated to DOE transfers.
    Even focusing on the entities most likely to be impacted--i.e., 
producers that sell primarily on the spot market and are thus not as 
protected from fluctuations in the spot price--it is not likely that 
removing the price effect attributable to DOE transfers would be enough 
to materially change the relationship between price and cost for any 
producer with respect to production levels at currently operating 
facilities or decisions whether to proceed with developing new 
production centers. Both types of decisions involve considerations 
beyond current spot prices, and they likely will be based on 
expectations about future trends in market price. DOE concludes that, 
given the expected increases in future demand for uranium concentrates 
and, more importantly, the expected increases in market prices, the 
price effect attributable to DOE might delay decisions to expand or 
increase production capacity but would not change the eventual 
outcomes. DOE does not believe that these effects have the substantial 
importance that would make them ``adverse material impacts'' within the 
meaning of section 3112(d).
B. Uranium Conversion Industry
    The domestic uranium conversion industry consists of a single 
facility, the Metropolis Works (MTW) in Metropolis, Illinois. This 
facility is owned and operated by Honeywell International Inc. MTW has 
a nameplate capacity of 15,000 MTU as UF6. ConverDyn, Inc. 
(ConverDyn) is the exclusive marketing agent for MTW. MTW and ConverDyn 
may be referred to interchangeably, because the two appear to have 
essentially the same interests in uranium markets.
1. Prices for Conversion Services
    Prices in the conversion markets are generally described in terms 
of spot and term price, like the uranium concentrates market. The 
following discusses the potential impact of DOE transfers on these two 
prices. For reference, as of April 17, 2017, UxC spot price indicator 
was $5.85 per kgU as UF6, and the [REDACTED].\42\ DOE 
obtained information about conversion services prices from Energy 
Resources International. In its NIPC comment, ConverDyn shared that 
conversion services spot prices are 30% lower and long-term prices 22% 
lower than compared with the prices used in the 2015 Secretarial 
Determination. NIPC Comment of ConverDyn at 1.
---------------------------------------------------------------------------

    \42\ UxC, Ux Weekly, April 17, 2017 (Volume, 31, Number 16) at 
1.
---------------------------------------------------------------------------

i. Energy Resources International Report
    In the 2017 ERI Report, like the 2015 ERI Report, ERI estimated the 
effect of DOE transfers on the market prices for conversion services 
using a market clearing price methodology. As with the uranium 
concentrates, ERI conducted the clearing prices analysis on both an 
annual and cumulative basis, constructing individual supply and demand 
curves for conversion services and estimating the clearing price with 
and without DOE transfers. 2017 ERI Report, 44. ERI's clearing price 
effect on conversion services represents a change in the market-
clearing price for spot prices. The same DOE transfer scenarios 
described in Section IV.A.1 were used in the analysis.
    Like the uranium concentrates analysis, we first present the 
estimates of the price impacts in the market clearing models using the 
two different supply side approaches. It is important to emphasize 
that, under either approach, these numbers do not constitute a 
prediction that prices will decrease by the specified amounts following 
DOE transfers under a new determination and, further, that the impact 
of prior transfers is already taken into account by the market in the 
current spot prices.
    To gain additional perspective, we then assess the impact of future 
DOE transfers under the cumulative methodology based on the difference 
in market clearing price in any given year between a scenario with zero 
EM releases of uranium (scenario 1) compared to the scenarios where EM 
uranium is released at different rates.
    Using the market clearing price model, on an annual and cumulative 
basis, ERI estimates that DOE transfers will have the price effects on 
the conversion services industry listed in Tables 7 and 8, 
respectively.

[[Page 21620]]



           Table 7--ERI's Estimate of Effect of DOE Transfers on Conversion Prices in $ per kgU as UF6
                                        [Annual market clearing approach]
----------------------------------------------------------------------------------------------------------------
                                                              ERI Base
                                      ERI  Scenario 1--   Scenario current    ERI Scenario 2     ERI Scenario 3
                                       no  EM transfers  level  (1,600 MTU/    lower level        higher level
                                                               year)         (1,200 MTU/year)   (2,000 MTU/year)
----------------------------------------------------------------------------------------------------------------
2017................................              $0.10              $0.40              $0.30              $0.40
2018................................               0.00               0.10               0.10               0.10
2019................................               0.20               0.60               0.50               0.50
2020................................               0.20               0.30               0.40               0.20
2021................................               0.00               0.00               0.10               0.00
2022................................               0.10               0.10               0.10               0.10
2023................................               0.10               0.10               0.10               0.10
2024................................               0.40               0.40               0.40               0.40
2025................................               0.50               0.50               0.50               0.50
2026................................               0.50               0.50               0.50               0.50
Average (2017-2026).................               0.20               0.30               0.30               0.30
----------------------------------------------------------------------------------------------------------------


           Table 8--ERI's Estimate of Effect of DOE Transfers on Conversion Prices in $ per kgU as UF6
                                      [Cumulative market clearing approach]
----------------------------------------------------------------------------------------------------------------
                                                              ERI Base
                                       ERI Scenario 1--  Scenario  current    ERI Scenario 2     ERI Scenario 3
                                       no  EM transfers  level  (1,600 MTU/    lower level        higher level
                                                               year)         (1,200 MTU/year)   (2,000 MTU/year)
----------------------------------------------------------------------------------------------------------------
2017................................              $0.90              $1.10              $1.10              $1.10
2018................................               1.10               1.10               1.10               1.20
2019................................               1.60               2.30               2.10               2.30
2020................................               1.50               1.90               1.90               1.80
2021................................               0.10               0.70               0.80               0.70
2022................................               0.20               0.20               0.20               0.20
2023................................               0.10               0.10               0.10               0.10
2024................................               0.40               0.40               0.40               0.40
2025................................               0.50               0.50               0.50               0.50
2026................................               0.50               0.50               0.50               0.50
Average (2017-2026).................               0.70               0.70               0.90               0.90
----------------------------------------------------------------------------------------------------------------

    We next determine the marginal price effect under the cumulative 
methodology. For the same reasons described in Section IV.A.1, the 
impact of future DOE transfers is best understood and expressed as the 
marginal or incremental difference between zero EM transfers compared 
to scenarios with EM transfers. Scenario 1 serves as the point of 
reference for the analysis of price effects from the other scenarios of 
DOE releases because it includes the price effects from prior DOE 
uranium inventory releases plus an increment for the NNSA transfers but 
no EM transfers.
    Table 9 provides the price effects estimated by ERI for the varied 
scenarios of EM transfers under the cumulative method expressed as the 
marginal price effect.

   Table 9--Marginal Price Effect of Varied Rates of DOE Transfers on Conversion Prices in $ per kgU as UF6--
                                                Cumulative Method
                                      [Cumulative market clearing approach]
----------------------------------------------------------------------------------------------------------------
                                       ERI Scenario 1--  ERI Base scenario   ERI  Scenario 2    ERI  Scenario 3
                                       no EM transfers     current level       lower level        higher level
                                                          (1,600 MTU/year)   (1,200 MTU/year)   (2,000 MTU/year)
----------------------------------------------------------------------------------------------------------------
2017................................              $0.00              $0.20              $0.20              $0.20
2018................................               0.00               0.00               0.00               0.10
2019................................               0.00               0.70               0.50               0.70
2020................................               0.00               0.40               0.40               0.30
2021................................               0.00               0.60               0.70               0.60
2022................................               0.00               0.00               0.00               0.00
2023................................               0.00               0.00               0.00               0.00
2024................................               0.00               0.00               0.00               0.00
2025................................               0.00               0.00               0.00               0.00
2026................................               0.00               0.00               0.00               0.00
Average (2017--2026)................               0.00               0.20               0.20               0.20
----------------------------------------------------------------------------------------------------------------


[[Page 21621]]

    Table 9 illustrates that, for example, the price effect 
attributable to DOE transfers under the Base Scenario in 2017 would be 
0.20, the difference between the cumulative price effect under the Base 
Scenario ($0.30) and the cumulative price effect under Scenario 1 
($0.10). In other words, prices would be suppressed by the marginal or 
incremental amount of $0.20 if DOE pursues the EM transfers under the 
Base Scenario, not $0.30, as the current price already includes the 
price suppression of $0.10 (Scenario 1 point estimate price) from 
previous DOE releases.
    ERI also presented information on the cumulative clearing price 
effect relative to ``No DOE'' clearing price for uranium, where the 
``No DOE'' clearing price assumes that DOE releases from 2009 onward 
were zero. 2017 ERI Report, 60. Table 4.8 in the ERI Report provides 
assessment of price impacts going forward, for the period 2017 to 2026, 
and the estimated change in the conversion clearing price attributable 
to the DOE inventories under the four scenarios relative to the ``No 
DOE'' market prices. The cumulative percentage change in prices noted 
in ERI's Table 4.8 also can be expressed as a marginal effect to better 
represent how future EM inventory releases would affect prices.
    Table 10 presents the marginal price effect expressed as a 
percentage of market price.

             Table 10--Cumulative Marginal Price Effects as Percentage of ``No DOE'' Clearing Price
----------------------------------------------------------------------------------------------------------------
                                                         ERI Base scenario   ERI  Scenario 2    ERI  Scenario 3
                                                           current level       lower level        higher level
                                                          (1,600 MTU/year)   (1,200 MTU/year)   (2,000 MTU/year)
                                                             marginal %         marginal %         marginal %
----------------------------------------------------------------------------------------------------------------
2017...................................................                  2                  2                  3
2018...................................................                  1                  1                  2
2019...................................................                  5                  4                  5
2020...................................................                  3                  3                  2
2021...................................................                  5                  5                  5
2022...................................................                  0                  0                  0
2023...................................................                  0                  0                  0
2024...................................................                  0                  0                  0
2025...................................................                  0                  0                  0
2026...................................................                  0                  0                  0
Average (2017--2026)...................................                  3                  3                  3
----------------------------------------------------------------------------------------------------------------

    For example, under Scenario 1, where EM transfers are halted 
starting in 2017, average conversion prices for the period 2017-2016 
would be 3 higher (7% - 4%) than under Scenario 1. Stated otherwise, 
the percentage price effect for each scenario other than Scenario 1 is 
the difference between the cumulative percentage for the Scenario in 
question and the cumulative percentage change for Scenario 1. E.g., in 
year 2020, under the Base Scenario prices would be 3% (15% - 12%) 
higher than under Scenario 1.
    As with uranium concentrate pricing, DOE has considered the 2017 
ERI Report and ERI's explanation of its market clearing price 
methodology with respect to the conversion market. With respect to the 
spot market, DOE's conclusions regarding ERI's methodology apply 
equally to conversion as they do to uranium concentrates. However, for 
the reasons explained in the 2015 Secretarial Determination and 
Analysis, DOE believes that the clearing price model will greatly 
overestimate the effect of DOE transfers on the conversion term price. 
In essence, ERI's market clearing approach--either annual or 
cumulative--assumes that the conversion price arises from a competitive 
market price-setting mechanism. This does appear to be the case for the 
spot market, which has a large number of suppliers and appears to 
quickly respond to changes in supply in demand. The term price, 
however, does not appear to arise from a competitive price-setting 
mechanism. Certain aspects of the conversion services market lend 
support to this conclusion. For one, the term conversion market is 
highly concentrated and consists of a very small number of primary 
suppliers. Highly concentrated markets such as these may be susceptible 
to parallel pricing such that pricing decisions may be unresponsive to 
changes in supply and demand. In addition, demand for nuclear fuel is 
relatively inelastic in the mid-term--this is particularly true for 
conversion services given that conversion makes up a smaller proportion 
of the price of enriched uranium product than enrichment or uranium 
concentrates. Meanwhile, conversion is a necessary step in the fuel 
cycle, and conversion facilities operate with a relatively high degree 
of investment compared to their variable costs. To ensure that 
conversion capacity remains available, it could be rational for 
utilities to accept and commit to higher prices than a free price 
mechanism reflecting available supply and demand would produce.
    This is consistent with how the conversion term price has reacted 
in recent years to changes in supply in demand. The 2015 Secretarial 
Determination and Analysis described the response of the conversion 
term price to market changes prior to 2015. Since then, although the 
conversion term price has fallen, it still remains at more than twice 
the current spot price. Furthermore, there is reason to believe that 
the recent decline in conversion term price does not necessarily 
reflect a decrease in the price that primary converters are able to 
command for long-term contracts. As reported by UxC, [REDACTED]. UxC 
Conversion Market Outlook at 33. [REDACTED] Id. at 32. [REDACTED] Id. 
at 51. This supports the notion that utilities have been willing to 
accept and commit to higher prices than a competitive price mechanism 
would produce. For these reasons, although ERI's market clearing 
approach provides a reasonable estimate of the effect of DOE transfers 
on the conversion spot price, it likely significantly overstates the 
effect on the conversion term price.
ii. Effect of DOE Transfers on Market Prices
    Based on the foregoing discussion of market analyses and DOE's 
consideration of the different

[[Page 21622]]

methodologies, DOE concludes that pursuing the level of transfers under 
the Base Scenario will suppress the spot market price of uranium 
conversion on average in the next decade in either $0.20 or $0.30 per 
kgU, based on the marginal cumulative clearing price approach and the 
annual clearing price approach, respectively. After analyzing all of 
the estimates available, DOE bases its conclusions here on the largest 
possible price effect of the transfers in any given year, in this case 
the annual market-clearing price effect of $0.30 per kgU. This estimate 
is approximately the same as the average price effect for the near-
term--from 2017 through 2019--of $0.30 (cumulative) or $0.36 (annual) 
per kgU. Further, DOE transfers will be conducted at rates even lower 
than the Base Scenario, closer in effect to those posited in Scenario 
2, creating a positive effect on market prices of roughly $0.10 in 2017 
as compared to the Base Scenario, the difference between the Base 
Scenario price effect ($0.40) and Scenario 2 price effect ($0.30) under 
the annual method. DOE further concludes that its transfers will have 
essentially no effect on the term price for conversion.
    Similar to uranium concentrates, the significance of price 
suppression at this level depends, in part, on current and forecasted 
market prices. UxC's Nuclear Fuel Price Indicators, showed $5.85 per 
kgU as the spot market price at the end of March 2017. The forecast 
price effect reasonably attributable to DOE transfers ($0.30 per kgU) 
represents about 5% of these current market values. This result is more 
conservative than that shown in Table 10, which reflects in 2017 only a 
2% marginal cumulative price effect for DOE transfers in the Base 
Scenario under the ``No DOE'' clearing price approach. However, in any 
case, most conversion is sold under long-term contracts not using spot 
prices, and the sole domestic converter makes most of its sales that 
way.
    Moreover, the price effect of $0.30 is within the range of market 
fluctuations experienced in the conversion industry in recent years. As 
previously noted, ERI's statistical model of price volatility on an 
annualized basis (as shown in 2017 ERI Report, Figures 4.34 and 4.35) 
illustrates the conclusion that historical price volatility is 
noticeably higher for the uranium and conversion markets than for the 
enrichment market over the long term, although enrichment term price 
volatility has been higher and conversion term price volatility has 
been lower, relatively, in the last two years. 2017 ERI Report, 94-96. 
For example, the spot prices of conversion from January 2015 to 
December 31, 2016 declined by 30%, and from December 31, 2016 to the 
March 2017, declined by 2.5%. For term prices, the change from January 
2015 to December 31, 2016 was 19%. Price effects that are about 5% are 
not substantial or outside historical experience in the conversion 
markets.
    It is also appropriate to compare the price effect in future years 
to forecasted market prices in those years. Using near-term projected 
spot market prices from UxC's Conversion Market Outlook--Dec 2016, at 
78, [REDACTED], DOE calculates that the average price effect of planned 
DOE transfers under the Base Scenario assuming a price effect of $0.30 
per kgU would cause an average percent decrease in the near-term of 5% 
per year. Looking at UxC's 10-year average price projections yields a 
[REDACTED] price change. While ERI's market-clearing price effect is 
not intended to be a direct price forecasting tool, using the ERI 
Reference Case price forecasting data allows us to derive an 
approximate percentage future effect. This is also in line with the 
average percentage cumulative marginal effect calculated based on ERI's 
projected percentage changes.
iii. Effect on Realized Prices
    A principal mechanism through which a change in market price could 
impact the domestic conversion industry is through the effect on the 
prices that they actually receive for the uranium they sell--the 
``realized price.'' As with uranium concentrates, market prices would 
affect MTW chiefly through their effect on the price it actually 
realizes for its services. Since the domestic conversion industry 
consists of only one producer, the effect of DOE transfers depends on 
the mix of contracts on which MTW's services are sold: the proportion 
of spot and term contracts, and the extent to which these contracts 
lock in prices higher (or lower) than current market prices or 
conversely expose MTW to spot prices. ERI projects that global uranium 
conversion services requirements will average 58.7 million kgU/year 
between 2017 and 2019. U.S. requirements are expected to average about 
17.2 million kgU in the same timeframe. 2017 ERI Report, 84. Based on 
transfers at the Base Scenario level, ERI projects that DOE transfers 
will constitute approximately 4% of the global requirements for 
conversion services in 2017-2019. 2017 ERI Report, 43.
    No commenter provided specific information about the current 
realized prices achieved in the conversion industry, and no commenter 
directly estimates the effect of DOE's transfers on realized prices. As 
stated above, DOE understands that the conversion market generally 
relies on mid- and long-term contracts. UxC Conversion Market Outlook--
December 2016, 30-31. [REDACTED] 43 44 45Id. at 33. 
[REDACTED] Id. at 29. [REDACTED] Id. at 29.\46\ Assuming this spot 
contracting activity was divided proportionately by production among 
the Western converters based on UxC's estimated production levels over 
that time period, ConverDyn's share would have been roughly 1,000,000 
kgU spread out over three years.\47\ If trends continue at this rough 
rate, DOE conservatively estimates that ConverDyn's exposure to the 
spot market price could be no more than 350,000 kgU per year, or less 
than 4% of estimated production over that period.\48\
---------------------------------------------------------------------------

    \43\ UxC Conversion Market Outlook, December 2016, 68.
    \44\ UxC Conversion Market Outlook, December 2016, 51.
    \45\ UxC Conversion Market Outlook, December 2016, 71.
    \46\ [REDACTED], Id. at 29.
    \47\ The converters are typically divided into two groups, the 
``Western'' converters and the ``non-Western'' converters in Russia 
and China. The Western converters consist of MTW, Cameco's Port Hope 
facility in Ontario, Canada, and AREVA's Comurhex facility in 
France. There is also a very small conversion facility in Sao Paulo, 
Brazil, with a capacity of approximately 100,000 kgU as UF6.
    \48\ DOE believes this is a conservative estimate for several 
reasons. First, as mentioned above, the primary converters have been 
a significant purchaser in the spot market in recent years; in fact, 
[REDACTED]. Second, 2016 spot contracting activity was lower than in 
previous years, a trend that may continue into 2017 and 2018. Third, 
it appears that not all spot contracting for conversion in 2015 and 
2016 were filled by primary supply, even when the seller was a 
primary converter. [REDACTED] Id. at 29
---------------------------------------------------------------------------

    To the extent that ConverDyn engages in spot sales, they represent 
no more than 4% of its total sales, and likely represent significantly 
less. Considering this in combination with ConverDyn's past statements 
about its contracting practices, namely that ConverDyn's long-term 
contracts are priced at the prevailing term price (with some escalation 
for inflation), and that [REDACTED], DOE concludes that ConverDyn has 
virtually no exposure to the spot price.
    As explained above, the Department concludes that the term price 
will remain relatively stable despite DOE's transfers. Therefore, DOE 
concludes that planned uranium transfers under the Base Scenario will 
not appreciably affect ConverDyn's realized price for its services.
2. Production at Existing Facilities
    There is only one existing conversion facility in the United 
States, the Metropolis Works facility (MTW) in Metropolis, Illinois, 
operated by

[[Page 21623]]

Honeywell International. ConverDyn is the exclusive marketing agent for 
conversion services from this facility. RFI Comment of ConverDyn, at 1; 
2015 ERI Report, 64. This section focuses on the potential effects of 
DOE transfers on production at MTW, including the impact on sales 
volumes and changes in average production costs.
    ERI estimated the effect of DOE transfers on production at MTW 
based on a series of assumptions about ConverDyn's production volume 
and market share derived in part from various statements from 
ConverDyn.\49\ Based on publicly available information, including a 
declaration presented by ConverDyn in support of litigation against 
DOE, DOE's 2015 Secretarial Determination and Analysis, and an estimate 
by another converter, ERI estimates that ConverDyn's annual production 
volume is 10 million kgU. 2017 ERI Report, 81.
---------------------------------------------------------------------------

    \49\ The analysis below differs from the discussion above 
regarding production by the domestic mining industry. The two 
industries and markets have different characteristics. With respect 
to mining, the presence or absence of DOE transfers is expected to 
result in a small change in uranium prices. The result of a price 
increase or decrease would be to motivate a production increase or 
decrease, respectively, by the producers with marginal costs in the 
relevant range. By contrast, as discussed below, converters 
generally have relatively low variable costs. DOE estimates that 
ConverDyn's marginal cost is substantially lower than the current 
spot price for conversion. Thus, changes in price do not motivate 
production in the same way as in the uranium markets, and a 
different approach is warranted for estimating production changes.
---------------------------------------------------------------------------

    In estimating the effect of DOE transfers on ConverDyn's sales 
volume, ERI assumes that 50% of the material EM transfers in exchange 
for cleanup services and 100% of all other DOE material enters the U.S. 
market. 2017 ERI Report, 82. Based on statements from ConverDyn, ERI 
assumes that ConverDyn's current share of the U.S. market for 
conversion services is 25% and that its share of the international 
market is 24%. 2017 ERI Report, 86.
    ERI also estimates the effect of DOE transfers on ConverDyn's 
production costs. To calculate this effect, ERI assumes that 
ConverDyn's production cost would be $15 per kgU if DOE material was 
not being introduced into the market. ERI further assumes that 80% of 
Metropolis Works' costs are fixed. ERI then applies these assumptions 
to its estimate, described above, of the effect of DOE transfers on 
ConverDyn's sales volume. The reasoning being, if MTW produced 
additional conversion in the quantities estimated, the 80% fixed cost 
would be spread over a greater sales volume, and only 20% of the costs 
would scale to match production.
    A summary of ERI's estimates of the effect of DOE transfers on 
ConverDyn's sales volume and production costs appears in Table 11. 
Applying ConverDyn's U.S. market share of 25% and the remaining world 
market share of 24% to the volume of DOE inventory expected to be 
introduced into the market in 2018, results in a volume effect of 0.4 
million kgU in the U.S. market and 0.2 million kgU effect in the 
remaining world market for a total of 0.6 million kgU, under the Base 
Scenario, for an increase in production costs of 5%.
    In Scenario 1, in which UF6 associated with prior 
releases of DUF6 to ENW enter the market, the introduction 
of DOE inventory results in a decreased volume of 0.6 million kgU and 
increased production costs of 1%. The introduction of DOE inventory 
into the conversion market results in a decreased volume of 0.5 million 
kgU and increased production costs of 4% in Scenario 2 and a decreased 
volume of 0.7 million kgU and increased production costs of 5% in 
Scenario 3. 2017 ERI Report, 85-89.
    As with ERI's price estimates discussed above, these estimates do 
not suggest that were DOE to transfer uranium in accordance with the 
Base Scenario, ConverDyn would lose the predicted volume of sales or 
that its production cost would increase. DOE has been transferring at 
or above the rate of the Base Scenario for nearly three years, and 
therefore these effects--or a similar level of effect--are currently 
being experienced by MTW due to transfers in prior years. Continued 
transfers at the Base Scenario rate would only continue these effects 
at the estimated levels.

  Table 11--ERI's Estimate of Impact of DOE Transfers on ConverDyn's Sales Volume and Estimated Production Cost
                                                    Increase
----------------------------------------------------------------------------------------------------------------
                                                                  Estimated change in        Production cost
                                                                   ConverDyn  volume        increase  (percent
                                                                     (million kgU)               change)
----------------------------------------------------------------------------------------------------------------
Base Scenario.................................................                      0.6                      5.0
Scenario 1....................................................                      0.2                      1.0
Scenario 2....................................................                      0.5                        4
Scenario 3....................................................                      0.7                        5
----------------------------------------------------------------------------------------------------------------

    DOE believes that ERI's approach to estimating lost sales volume 
based on market share is reasonable. DOE also believes that ERI's 
approach to estimating the change in average per unit production costs 
that volume decrease is straightforward. Average per unit production 
cost can be calculated by dividing the total production cost by the 
number of units produced. If MTW's costs were 100% variable, then 
average production costs would not change, regardless of the volume 
produced. However, if some portion of MTW's costs are fixed, then a 
decrease in the number of units produced would lead to increased 
production costs, and vice versa. If the proportion of fixed costs, 
current production volume, and current per unit production cost are all 
known, the change in average production cost can be easily calculated. 
ERI looked to various public sources and estimates to provide a basis 
for its assumptions. DOE believes that this a reasonable approach for 
estimating the effect of DOE transfers on production cost at MTW. That 
said, DOE has other available information that suggest that certain of 
ERI's assumptions may be outdated. To account for this information, DOE 
has developed its own estimate for sales volume loss and change in 
production cost based on ERI's methodology but utilizing the slightly 
different assumptions described below.
    ERI bases its estimate of MTW production levels at least in part on 
DOE's 2015 Secretarial Determination and Analysis. DOE has revisited 
and updated this information. In 2015, DOE relied on UxC's Conversion 
Market Outlook, [REDACTED]. UxC's most recent Conversion Market Outlook 
estimates [REDACTED]. UxC, Conversion Market Outlook, Dec. 2016, at 44. 
In addition, ConverDyn states in its comment in response to the NIPC

[[Page 21624]]

that it has halved its production capacity. ConverDyn NIPC Comment, at 
1. Honeywell's Web site similarly notes that ``Honeywell plans to 
reduce the production capacity of the Metropolis plant to better align 
with the demands of nuclear fuel customers.'' \50\ ConverDyn does not 
state the numerical capacity of MTW after the announced production 
capacity reduction. However, another commenter refers to an 
announcement from Honeywell that the nameplate production capacity of 
MTW--previously reported at 15 million kgU--will be permanently reduced 
to 7 million kgU through ``physical changes to the conversion plant as 
well as through workforce reductions.'' FBP at 3. Other sources have 
also reported the reduction in MTW's capacity to 7 million kgU.\51\ 
Given that this capacity reduction has been reported in multiple 
sources, DOE believes it is likely to be an accurate reflection of the 
upper bound of MTW capacity in the coming years.
---------------------------------------------------------------------------

    \50\ Statement from Honeywell, http://www.honeywell-metropolisworks.com/ (accessed Apr. 13, 2017).
    \51\ UxC has noted the reduction in capacity in a recent weekly 
report, UxC Weekly, April 10, 2017, at 3, and the World Nuclear 
Association has adjusted its world capacity information to reflect 
the decrease in capacity. http://www.world-nuclear.org/information-library/nuclear-fuel-cycle/conversion-enrichment-and-fabrication/conversion-and-deconversion.aspx (accessed Apr. 13, 2017).
---------------------------------------------------------------------------

    Therefore, DOE has applied ERI's approach to estimating reduction 
in sales volume and production costs with the assumption that MTW 
capacity has a maximum of 7 million kgU. Using this figure, MTW can be 
expected to experience a reduction in sales volume of about 400,000 kgU 
in 2017, 500,000 kgU in 2018, and 600,000 kgU in 2019.\52\ Using ERI's 
assumptions about fixed cost to variable cost ratio and ConverDyn's 
total production cost with DOE transfers, production costs would be 
expected to be higher by $0.80 on average between 2017 and 2019.
---------------------------------------------------------------------------

    \52\ DOE notes that ConverDyn has maintained that its capacity 
reduction is permanent. If this is true and ConverDyn is producing 
at or close to its maximum capacity, ConverDyn would not be able to 
increase primary production to absorb additional production volume. 
Nevertheless, DOE will assume for the sake of this analysis that 
ConverDyn could increase production to account for the additional 
sales volume.
---------------------------------------------------------------------------

    In addition, ConverDyn's comment in response to the RFI includes an 
enclosure with an estimate of its domestic cost of production for 
conversion services. ConverDyn RFI comment, Encl. 2. ConverDyn explains 
[REDACTED] Id. Altering this assumption in the above calculations would 
have a very minor effect on the estimates described above, regardless 
of which production level is assumed.\53\ Therefore, DOE believes it is 
reasonable to rely on the estimate described above that DOE transfers 
will affect ConverDyn's marginal production cost by roughly $0.80 
between 2017 and 2019.
---------------------------------------------------------------------------

    \53\ In at least one of the calculations, the change is not 
evident after the estimated change in production cost is rounded to 
the nearest $0.10.
---------------------------------------------------------------------------

    In recent years MTW has experienced several significant disruptions 
in its business that are not attributable to DOE transfers. These 
disruptions have caused MTW's annual production to vary significantly 
[REDACTED].\54\ Based on available information, it appears that MTW 
capacity may be permanently limited to an annual production of 7 
million kgU, a figure that is less than half of MTW's previously 
reported nameplate capacity. DOE notes that the predicted decrease in 
volume reasonably attributable to DOE under either set of assumptions--
about 600,000 kgU based on ERI's assumptions and as low as 400,000 kgU 
if MTW capacity is limited to 7 million kgU--are substantially smaller 
than the production decreases at MTW from these other disruptions. The 
production swings experienced at MTW in recent years have been as much 
as 7 times the magnitude of the sales volume decreases attributable to 
DOE. Given that ConverDyn has a significant proportion of fixed costs, 
these swings in production would be expected to alter ConverDyn's 
marginal production cost in a similar manner. Thus, the expected change 
in production cost--$0.80--is also well within the range of 
fluctuations experienced at MTW in recent years.
---------------------------------------------------------------------------

    \54\ UxC Conversion Market Outlook, December 2016, 44.
---------------------------------------------------------------------------

3. Employment Levels in the Industry
    ERI assumes in its analysis a staffing level of 242 employees in 
2017 \55\ for a production level of 10 million kgU. Previously, as in 
2015, ERI had estimated that Metropolis Works staffing would remain at 
270 employees, with an annual production rate of 10 million kgU. In the 
2015 Report, ERI noted that Metropolis Works restarted after an 
extended shutdown in summer 2013 with approximately 270 employees, 
which was a decrease from the previous employment of 334 people. 2015 
ERI Report, 72-73; 2014 ERI Report, 71. Information on the Honeywell/
Metropolis Works Web site \56\ indicates that the plant employs 250 
full-time employees. In January 2017, Honeywell announced a workforce 
reduction: ``Due to the significant challenges of the nuclear industry 
globally and the oversupply of uranium hexafluoride (UF6), 
Honeywell plans to reduce the production capacity of the Metropolis 
plant to better align with the demands of nuclear fuel customers. 
Because of this, the company intends to reduce its full-time workforce 
by 22 positions, as well as a portion of the plant's contractor team. 
We are taking this action to better position the plant moving 
forward.'' \57\ In its NIPC comments, ConverDyn noted that it has 
eliminated 87 positons since the last Secretarial Determination. NIPC 
Comment of ConverDyn at 1.
---------------------------------------------------------------------------

    \55\ ERI arrives at the 242 full-time employee (FTE) using 
information from press reports of staffing levels prior to the 
January 2017 reduction. 2017 ERI Report, 90.
    \56\ http://www.honeywell-metropolisworks.com/ (accessed April 
13, 2017).
    \57\ http://www.honeywell-metropolisworks.com/message-from-the-plant-manager/ (accessed April 13, 2017).
---------------------------------------------------------------------------

    ERI makes estimates regarding the impact of DOE uranium transfers 
on employment using the assumption that staffing is proportional to 
production rate but notes the limitations of such estimates. ERI 
suggests that it is unlikely that staffing is directly proportional to 
production volume, thus characterizes their assessment as conservative. 
2017 ERI Report, 90.
    Based on ERI's assumed staffing level of 242 FTE and a production 
of 10 million kgU, assuming that staffing is proportional to 
production, then for every 100,000 kgU reduction in annual production, 
there would be a 2.4 FTE loss in staff. Under the Base Scenario, ERI 
attributes a 0.6 million kgU reduction in production volume to DOE 
sales, which results in a 14 FTE loss. This compares to a 0.2 million 
reduction in production volume attributable to DOE sales with no EM 
uranium transfers, which would result in a 5 FTE loss. Therefore, the 
impact on employment would be the difference between the impact under 
the Base Scenario and the impact under Scenario 1, with no EM 
transfers, or 9 FTE (14 FTE -5 FTE).
    A reduction in employment of 9 person-years is relatively small, 
particularly in comparison to MTW's reduction of approximately 64 after 
the 2012-2013 shutdown, and the 87 FTEs that ConverDyn has eliminated 
since the 2015 Determination. The industry has been able to weather 
employment losses much larger than any that could reasonably be 
attributed to DOE transfers. In addition, it is clear that other 
factors, in addition to production volumes will affect employment 
levels.

[[Page 21625]]

4. Changes in Capital Improvement Plans and Development of Future 
Facilities
    Neither ERI nor any of the commenters provide an estimate of the 
effect of DOE transfers on new facility development or capital 
improvement plans. While DOE's task is to assess the state of the 
domestic uranium conversion industry with and without DOE transfers, we 
believe that activities in the global conversion industry may in some 
cases be relevant for assessing how DOE transfers will affect the 
domestic conversion industry.
    The Department is aware of limited uranium conversion development 
projects that are currently planned or underway outside the United 
States. AREVA's COMURHEX II facilities are under construction with full 
transition to the new COMURHEX II facility in the 2018-2021 period. In 
May 2016, Cameco and Kazatomprom announced that they are undertaking a 
feasibility study for a uranium conversion plant that will convert 
6,000 metric tons to U3O8 annually. That 
agreement provides that if the joint refinery is built, Kazatomprom 
will have the option to obtain UF6 conversion services at Cameco's 
Ontario, Canada -based Port Hope conversion facility.\58\ ERI also 
notes that expansion of Chinese conversion capacity is expected to meet 
indigenous requirements. Finally ERI notes that Russia's Rosatom 
Siberian Chemical Combine center is expected to add new capacity to 
come on line in 2019. 2017 ERI Report, 13.
---------------------------------------------------------------------------

    \58\ Cameco and Kazatomprom Sign Agreement to Restructure JV 
Inkai, (2016), https://www.cameco.com/media/news/cameco-and-kazatomprom-sign-agreement-to-restructure-jv-inkai (accessed April 
5, 2017).
---------------------------------------------------------------------------

    DOE is not aware of any conversion development or expansion plans 
in the United States. However, press articles report that the Wyoming 
Business Council is looking at permitting changes that may be needed to 
allow for the construction of a uranium conversion facility in the 
State to allow for upgrading of uranium mined in Wyoming before leaving 
the state. The goal appears to situate Wyoming as a potential uranium 
conversion site when the market will support another facility.\59\
---------------------------------------------------------------------------

    \59\ Uranium conversion potential for Wyoming, some say, Casper 
Star Tribune, Oct. 15, 2016, http://trib.com/business/energy/uranium-conversion-potential-for-wyoming-some-say/article_b0f1fb8b-4ad6-5dfd-8358-60b1e69cf2ea.html, (accessed April 5, 2017)
---------------------------------------------------------------------------

    The Honeywell/Metropolis Web site notes that Honeywell has spent 
over $177 million in capital improvements over the last 10 years, 
including $50 million for safety upgrades required by the U.S. Nuclear 
Regulatory Commission (NRC).\60\ In a message from the Metropolis Works 
Plant manager, the company notes that it intends to invest $10 million 
per year on projects that directly support health, safety and the 
environment.\61\ ConverDyn has not stated in its Comment in response to 
the RFI or NIPC whether they have any intentions to make updates and 
capital improvements to the Metropolis facility. As mentioned above, 
Honeywell recently apparently announced that they will permanently 
reduce capacity to 7 million kgU, this reduction will be at least 
partially be achieved by workforce reductions. Based on this 
information, it does not appear that there are any plans to expand 
capacity at MTW in the near future, but presumably, production could 
theoretically be ramped up again with additional capital improvements.
    Honeywell's current NRC operating license for MTW expires in May 
2017. In a November 1, 2016 meeting with NRC, Honeywell indicated that 
it would file an application in January 2017 for a renewal of its 
license for 40 years.\62\ However, UxC in its December 2016 Market 
Outlook reports that [REDACTED].\63\ It is not clear what capacity 
Honeywell will seek to relicense. However, with Honeywell's intent to 
seek a 40-year license renewal, DOE believes that it is likely that 
even if MTW will not invest in improvements aimed at increasing 
production capacity, MTW will continue to make capital improvements and 
refurbishments that are necessary to maintain current capacity for the 
foreseeable future. As noted earlier, Honeywell has invested a 
substantial amount in such capital improvements in recent years.
---------------------------------------------------------------------------

    \60\ http://www.honeywell-metropolisworks.com/about-us/, 
(accessed April 5, 2017)
    \61\ http://www.honeywell-metropolisworks.com/message-from-the-plant-manager/ (accessed April 5, 2017).
    \62\ Honeywell Presentation, NRC license discussion (Nov. 1, 
2016), https://www.nrc.gov/docs/ML1630/ML16309A092.pdf, (accessed 
April 5, 2017).
    \63\ UxC Conversion Market Outlook, December 2016, page 51.
---------------------------------------------------------------------------

    In any case, DOE does not believe that the price effect associated 
with DOE transfers would make a significant difference in plans for new 
facilities or other capital improvements at existing facilities. DOE 
transfers are expected to decrease ConverDyn's sales volume, but even 
without EM's transfers, ConverDyn's total sales would still be below 
MTW's previous maximum nameplate capacity. In addition, transfers under 
the Base Scenario will represent only about 4% of total global 
requirements in coming years. DOE concludes that eliminating this 
amount of conversion would not make a difference to the assessment that 
new capacity in the United States is not warranted.
5. Long-Term Viability and Health of the Industry
    ERI's November 2016 Reference Nuclear Power Growth forecasts 
project global requirements for conversion services to grow to 
approximately 62 million kgU by 2020, approximately 9% higher than 
current requirements. Global requirements are expected to continue to 
rise to a level of 80 million kgU by 2032 to 2035, approximately 40% 
higher than current requirements. 2017 ERI Report, 14.\64\ ERI presents 
a graph comparing global requirements, demand, and supply from 2016-
2035. That graph forecasts that global secondary supply and supply from 
primary converters will continue to exceed global demand until at least 
2035. ERI notes that the supply excess will average nearly 13 million 
kgU as UF6 annually over the next ten years (2017-2026), 
which they note is equivalent to 20% of requirements. 2017 ERI Report, 
13. ERI projects that global uranium conversion services requirements 
will average 58.7 million kgU/year between 2017 and 2019. U.S. 
requirements are expected to average about 17.2 million kgU in the same 
timeframe. 2017 ERI Report, 84. Under the Base Scenario, DOE inventory 
represents 4% of world conversion requirements in 2017-2019 and 3% of 
world conversion requirements in the 2017 to 2026 timeframe. ERI 
Report, 42. DOE uranium inventories represented 15% of secondary supply 
affecting the global conversion market in 2015 and 2016. 2017 ERI 
Report, 13. If markets that are deemed not to be accessible to U.S. 
producers are examined, DOE EM transfers under the Base Scenario 
represent 6% of accessible world conversion requirements in 2017 to 
2019 and 4% of world conversion requirements in the ten years 2017 to 
2026. 2017 ERI Report, 43.\65\
---------------------------------------------------------------------------

    \64\ ERI's reference requirements include anticipated future 
reactor shutdowns, both in the United States and elsewhere, due to 
reasons such as competition with natural gas and other energy 
sources.
    \65\ ConverDyn suggests that Russian, Chinese, and Indian demand 
should be excluded because these markets are closed to sales from 
the domestic conversion industry. DOE notes that even if North 
American converters lack access to these markets, converters in 
those countries have access to markets worldwide. ConverDyn does not 
contest the notion that conversion is essentially a global 
commodity. Thus, increased demand in Russia, China, and India will 
consume capacity with which ConverDyn would otherwise compete in 
markets that it can access.

---------------------------------------------------------------------------

[[Page 21626]]

    In its December 2016 Conversion Market Outlook, UxC predicts that 
demand is generally expected to increase over the next decade. 
[REDACTED] The above figures include reactor requirements as well as 
inventory building. Without inventory building, UxC's base demand in 
2016 [REDACTED].\66\
---------------------------------------------------------------------------

    \66\ UxC Conversion Market Outlook, December 2016, 40.
---------------------------------------------------------------------------

    Like ERI, UxC predicts that [REDACTED].\67\
---------------------------------------------------------------------------

    \67\ Id. at 44.
---------------------------------------------------------------------------

    Further UxC notes that [REDACTED]. UxC says, [REDACTED].\68\ 
Separately, UxC reports that [REDACTED].\69\ In the longer-term, UxC 
believes that [REDACTED].'' \70\
---------------------------------------------------------------------------

    \68\ Id. at 68.
    \69\ Id. at 51.
    \70\ Id. at 71.
---------------------------------------------------------------------------

    Given that conversion demand in North America is expected to remain 
relatively steady, and that UxC predicts [REDACTED], as well as the 
indication that Honeywell plans to operate for the long-term as 
indicted by their announced intent to apply for a 40-year license 
renewal, it is likely that the domestic uranium conversion industry 
will retain its capacity, either through continuing refurbishments at 
MTW or through the development of one or more new conversion 
facilities. As with uranium concentrates, DOE recognizes that the 
predictability of transfers from its excess uranium inventory over time 
is important to the long-term viability and health of the uranium 
conversion industry.
    Although DOE transfers may not have a large effect on the 
conversion term price, displaced production volume increases average 
production costs for primary producers. However, DOE does not believe 
this effect is significant enough to appreciably affect the long-term 
viability and health of the domestic uranium conversion industry.
6. Russian HEU Agreement and Suspension Agreement
    Section 3112(d) of the USEC Privatization Act requires DOE to 
``take into account'' the sales of uranium under the Russian HEU 
Agreement and the Suspension Agreement. As discussed above, DOE 
believes this assessment should consider any transfers under these two 
agreements that are ongoing at the time of DOE's transfers.
    Under the Russian HEU Agreement, upon delivery of LEU derived from 
Russian HEU, the U.S. Executive Agent, USEC Inc., was to deliver to the 
Russian Executive Agent, Technabexport (Tenex), an amount of natural 
uranium hexafluoride equivalent to the natural uranium component of the 
LEU. DOE notes that the Russian HEU Agreement concluded in December 
2013. Thus, there are no ongoing transfers under this agreement.
    The current iteration of the Suspension Agreement, described above 
in Section I.D.3.ii, sets an annual export limit on natural uranium 
from Russia. 73 FR 7705 (Feb. 11, 2008). That agreement provides for 
the resumption of sales of natural uranium and SWU beginning in 2011. 
While the HEU Agreement remained active (i.e., 2011-2013), the annual 
export limits were relatively small--equivalent to between 170,000 and 
410,000 kgU as UF6. After the end of the Russian HEU 
Agreement, restrictions range between an amount equivalent to 4,540,000 
and 5,140,000 kgU as UF6 per year between 2014 and 2020. 73 
FR 7705, at 7706 (Feb. 11, 2008).
    As mentioned above, in September 2016, the U.S. Department of 
Commerce proposed to adjust the export limits under the agreement to 
take account of changes in projected reactor demand. The proposed 
adjusted limits varies by year, but on average, the proposed limits are 
6.6% higher than current limits.
    Material imported from Russia in accordance with the Suspension 
Agreement is derived from primary production rather than from down-
blended HEU. The 2017 ERI Report takes account of enrichment entering 
the United States market under the current Suspension Agreement limits 
as part of total worldwide primary supply. The 2017 ERI Report does not 
consider the effect of the additional amount that would be allowed into 
the United States were the Department of Commerce to adopt the adjusted 
limits as proposed.
    DOE believes that it is still appropriate to rely on ERI's analysis 
without adjusting for the proposed changes to the Suspension Agreement 
quota limits. It bears emphasis that the volume of the proposed 
adjustment is small relative to the current limits under the Suspension 
Agreement, to United States requirements, and worldwide requirements. 
DOE's analysis already takes into account the amount of conversion 
services entering the United States from Russia under the current 
limits, and DOE does not believe that the adjusted limit would 
significantly alter DOE's analysis even if adopted.
7. Conversion Industry Conclusion
    After considering the six factors as discussed above, DOE concludes 
that transfers under either the Base Scenario or the lower rate of 
1,200 MTU per year will not have an adverse material impact on the 
domestic uranium conversion industry. The sole conversion provider in 
the United States, ConverDyn, continues to sell nearly exclusively on 
term contracts. Although the move towards more mid-term contracts has 
affected the term market, it is not clear that this has affected 
ConverDyn's realized price under its existing or new term contracts. 
DOE believes that price suppression of $0.30/kgU in the spot market 
will not be material for the domestic conversion industry.
    DOE forecasts that over time, MTW's production will be smaller than 
it would have been in the absence of DOE transfers by between 400,000 
kgU and 600,000 kgU. DOE conservatively estimates such a reduction 
would increase MTW's average production costs by about $0.80 between 
2017 and 2019. The reduced production may also lead to a decrease in 
employment, which is estimated to be 9 FTE. DOE does not believe these 
changes would constitute a material impact, within the meaning of 
section 3112(d), because they are well within the range of fluctuations 
that MTW has experienced in recent years independent of DOE transfers.
    Honeywell, the owner and operator of MTW, continues to invest in 
maintaining and refurbishing the MTW facility, has indicated that it 
will be applying for license renewal for a 40-year term and Even taking 
account of Honeywell's recent announcement to reduce MTW's capacity, 
DOE transfers are unlikely to appreciably change MTW's capital 
improvement and refurbishment plans. Furthermore, DOE transfers are 
unlikely to affect the decision whether to invest in new conversion 
capacity in the United States.
    DOE does not believe that any of the effects described above 
constitute an impact on the domestic uranium conversion industry of the 
substantial importance that would rank as ``material'' within the 
meaning of section 3112(d).

C. Uranium Enrichment Industry

    The domestic uranium enrichment industry consists of a relatively 
small number of companies. There is only one currently operating 
enrichment facility in the United States, the URENCO USA (UUSA) gas 
centrifuge facility in New

[[Page 21627]]

Mexico. DOE is also aware of additional planned enrichment facilities 
in Ohio, and North Carolina. The Paducah Gaseous Diffusion Plant closed 
in 2013. Centrus, formerly USEC Inc., the former operator of the plant, 
no longer produces enriched uranium but does sell uranium. The uranium 
sold by Centrus comes from its inventory, SWU purchased from other 
suppliers, and SWU purchased under a Transitional Supply Contract with 
TENEX. 2017 ERI Report, 92. The SWU purchased from Russia can be sold 
in limited quantities in the U.S., with the rest sold to non-U.S. 
customers. Id.
    According to URENCO's comments in response to the RFI and NIPC, the 
current capacity of the UUSA facility is 4.8 million SWU. For 
comparison, the World Nuclear Association reports that worldwide 
capacity in 2015 was approximately 59 million SWU and is expected to 
grow to almost 67 million SWU by 2020, with the vast majority of that 
growth in Russia and China.\71\ UxC reports a base case nameplate 
capacity of [REDACTED]. UxC projects [REDACTED]. UxC Enrichment Market 
Outlook, Quarter 1 2017, 46. Some of the capacity additional may be to 
maintain centrifuge manufacturing capabilities and some of it will be 
offset by slight capacity reductions in Europe. URENCO is reducing its 
capacity slightly by not replacing aging centrifuges at its European 
sites. 2017 ERI Report, 16.
---------------------------------------------------------------------------

    \71\ World Nuclear Fuel Report 2015, available at http://www.world-nuclear.org/information-library/nuclear-fuel-cycle/conversion-enrichment-and-fabrication/uranium-enrichment.aspx 
(accessed April 6, 2017). DOE believes that the Chinese capacity is 
being built for indigenous needs and that Russia's enrichment plans 
have slowed down since the WNA numbers were compiled.
---------------------------------------------------------------------------

1. Prices for Enrichment Services
    Like prices in the uranium concentrates and conversion markets, 
prices in the enrichment market are described in terms of spot and term 
price. The following section discusses the potential impact of DOE 
transfers on these two prices. For reference, as of April 17, 2017, the 
spot price indicator was $47 per SWU and the term price indicator was 
[REDACTED] per SWU.\72\ DOE obtained information about enrichment 
services prices from ERI and the UxC Enrichment Market Outlook Report 
for Quarter 1 of 2017. URENCO also provided information on prices in 
comments in response to the NIPC. NIPC Comment of URENCO, at 2. URENCO 
noted price declines since its comments to DOE in September 2016 on the 
RFI, from a spot price of $55/SWU and term price of $64/SWU to an April 
2017 spot price of $47/SWU and term prices of $50/SWU. Id.
---------------------------------------------------------------------------

    \72\ UxC, Ux Weekly, April 17, 2017 (Volume, 31, Number 16) at 
1.
---------------------------------------------------------------------------

    Like uranium and conversion markets, the enrichment market includes 
significant sources of secondary supply. The enrichment market is also 
characterized by excess capacity and very limited near-term demand. 
Finally, there is not a large gap between spot and term prices for 
enrichment, as there is for conversion. On the other hand, buyers may 
be more sensitive to enrichment prices because enrichment constitutes a 
larger portion of the total cost of enriched uranium product.\73\
---------------------------------------------------------------------------

    \73\ DOE believes the magnitude of any effect of DOE transfers 
on the uranium or enrichment price that is transmitted through the 
interaction with the enrichment or uranium price, respectively, is 
small.
---------------------------------------------------------------------------

    To be conservative, DOE will assume that a competitive price-
setting mechanism does determine enrichment prices. On that assumption, 
ERI's market-clearing price methodology should provide an appropriate 
forecast for the effects of DOE's transfers. To the extent that 
enrichment prices are uncompetitive, the price effect will tend to be 
smaller than what ERI forecasts.
i. Energy Resources International Report
    In the 2017 ERI Report, like the 2015 ERI Report, ERI estimated the 
effect of DOE transfers on the market prices for enrichment services 
using a market clearing price methodology. Like uranium concentrates 
and conversion, ERI conducted the clearing prices analysis on both an 
annual and cumulative basis, constructing individual supply and demand 
curves for enrichment services and estimating the clearing price with 
and without DOE transfers. ERI Report, 44. The same DOE transfer 
scenarios described in Section IV.A.1 were used in the analysis.
    Unlike the uranium concentrates and conversion prices, however, 
there is no difference in ERI's estimated price effect between any of 
the four scenarios because EM transfers of natural uranium do not 
include an enrichment component. Instead, the price effects indicated 
in the analyses are attributable to the planned NNSA transfers of LEU 
for national security purposes and past transfers of LEU that continue 
to displace supply in the market. The price effects are presented here 
and included as part of DOE's consideration and analysis of whether or 
at what level to conduct EM uranium transfers. Because there is no 
difference in price effects between the scenarios, there is no marginal 
or incremental price effects to be considered.
    Using the market clearing price model, on an annual and cumulative 
basis, ERI estimates the market clearing price with and without DOE 
inventory and the difference is the effect that DOE transfers will have 
on the market clearing price for the enrichment services industry 
listed in Tables 12 and 13, respectively. The ``No DOE Transfers'' 
market clearing methodology models the market as though no transfers 
have taken place since 2009, so the price effects attributed to DOE 
inventory are already built into the current market prices. If no DOE 
inventory release had taken place, then future market prices would be 
higher by the amounts stated. 2017 ERI Report, 54.

Table 12--ERI's Estimate of Effect of DOE Transfers on Enrichment Prices
                              in $ per SWU
                    [Annual market clearing approach]
------------------------------------------------------------------------
                                                             ERI--all
                                                             scenarios
------------------------------------------------------------------------
2017....................................................           $1.40
2018....................................................            1.80
2019....................................................            1.70
2020....................................................            0.10
2021....................................................            1.70
2022....................................................            1.70
2023....................................................            0.10
2024....................................................            0.10
2025....................................................  ..............
2026....................................................  ..............
Average (2017-2026).....................................            0.90
------------------------------------------------------------------------


Table 13--ERI's Estimate of Effect of DOE Transfers on Enrichment Prices
                              in $ per SWU
                  [Cumulative market clearing approach]
------------------------------------------------------------------------
                                                             ERI--all
                                                             scenarios
------------------------------------------------------------------------
2017....................................................           $9.70
2018....................................................            8.80
2019....................................................            7.30
2020....................................................            8.80
2021....................................................           14.90
2022....................................................           10.50
2023....................................................           10.10
2024....................................................            2.60
2025....................................................            7.50
2026....................................................            1.30
Average (2017-2026).....................................            8.20
------------------------------------------------------------------------

    As noted above, ERI also presented information on the cumulative 
clearing price effect relative to ``No DOE'' clearing price for 
enrichment services, where the ``No DOE'' clearing price assumes that 
DOE releases from 2009 onward were zero. 2017 ERI Report, 58. Table 14 
presents the price effect as a percentage of ``No DOE'' clearing price 
from Table 4.9 in the 2017 ERI Report, which provides an assessment of 
price

[[Page 21628]]

impacts for the period 2017 to 2026 as an estimated percent change in 
enrichment clearing price attributable to the DOE inventories under the 
four scenarios relative to the ``No DOE'' market prices. As with Tables 
12 and 13, there is no difference in the percentage of the price effect 
among the four scenarios, and therefore a calculation of the marginal 
or incremental effect is not conducted.

   Table 14--Cumulative Enrichment Price Effects as Percentage of ``No
                          DOE'' Clearing Price
------------------------------------------------------------------------
                                                             ERI--all
                                                             scenarios
                                                             (percent)
------------------------------------------------------------------------
2017....................................................              12
2018....................................................              11
2019....................................................               9
2020....................................................              10
2021....................................................              16
2022....................................................              11
2023....................................................              11
2024....................................................               3
2025....................................................               8
2026....................................................               1
Average (2017-2026).....................................               9
------------------------------------------------------------------------

    DOE also notes that ERI's analysis assumes demand for enrichment to 
be perfectly inelastic. This assumption is a reasonable approximation 
because nuclear utilities have predictable requirements that must be 
filled. In reality, demand may have some small degree of elasticity 
and, as such, the price effect would be smaller than what ERI 
forecasts.
ii. Effect of DOE Transfers on Market Prices
    Based on the foregoing discussion of market analyses and DOE's 
consideration of the information, DOE concludes that the level of EM 
transfers will not have a direct effect on the market price for 
enrichment. ERI's market clearing price analysis shows no difference in 
price between the scenario with no EM transfers and the scenarios with 
different levels of EM transfers. Separate and apart from the EM 
transfers that are the subject of this determination, DOE's transfers 
for NNSA down-blending and historical transactions involving LEU that 
continue to displace market supply will affect the SWU price because 
they contain an enrichment component. ERI estimates that DOE transfers 
of LEU will suppress the market price of enrichment on average in the 
next decade either $.90 or $8.20 per SWU, based on the annual and 
cumulative clearing price approach, respectively. We note that the 
average near-term effect using both methodologies is somewhat larger, 
$1.63 (annual) or $8.60 (cumulative) per SWU. This is understandable, 
since the near-term includes the NNSA transfers for LEU down-blending 
that will cease by 2019. The price effect significantly diminishes 
toward the end of the decade, when past transactions in addition the 
NNSA LEU down-blend transfers are no longer entering the market.
    As in the uranium concentrates and conversion industries, the 
significance of price suppression at this level depends, in part, on 
current and forecasted market prices. As stated above, the April 17, 
2017 spot price indicator was $47 per SWU and the term price indicator 
was [REDACTED] per SWU. UxC Weekly, Volume 31, Number 16 at 1. Using 
the annual method forecast, the price effect in the next decade 
reasonably attributable to DOE transfers represents about 2% of these 
current market values; the price effect in the near-term is about 3.5%. 
According to UxC's Quarter 1 Enrichment Market Outlook, 112, spot 
prices for SWU dropped [REDACTED]. Similarly, term price fell from 
$[REDACTED] by year's end. These represent declines of 22% and 
[REDACTED]%, respectively. Compared to these large overall price 
swings, price effects of 2-3.5% are well within the normal range of 
market fluctuations. Even under the cumulative method, with an average 
decline over the decade of $8.20/SWU would yield a price decline of 
17%, still within the range of recent market fluctuations.
    To reiterate, while DOE has considered here the projected price 
effect of the NNSA and other LEU transfers under all scenarios, the 
effect of only the EM transfers is the question this analysis must 
address. As noted earlier, EM transfers would have a small price effect 
on both the uranium and conversion markets. There is the possibility 
that DOE transfers of natural uranium could still have an effect on SWU 
prices indirectly due to the prevalence of ``underfeeding'' or re-
enrichment of tails. The amount of enrichment devoted to underfeeding 
at any given time depends in part on the relative prices of natural 
uranium hexafluoride and enrichment. Because EM transfers suppress the 
price of natural uranium without directly affecting the enrichment 
market, they tend to indirectly suppress the SWU price as well due to 
this interaction. Although ERI does not attempt to quantify this 
indirect effect on the SWU price, DOE notes that in the 2015 
Secretarial Determination and Analysis, DOE estimated that transfers at 
levels equivalent to the Base Scenario would cause enrichers to devote 
less primary supply to underfeeding by about 200,000 SWU. Based on 
available information, DOE cannot attribute a specific price effect to 
this interplay, but given the size of the effect compared to URENCO's 
nameplate capacity--4.8 million SWU at UUSA and between 13-15 million 
SWU in the EU--DOE believes that this effect is small enough not to 
affect the conclusion that continuing the EM transfers of natural 
uranium at either the Base Scenario rate or the 1,200 MTU per year rate 
beginning in May 2017 would not have an adverse material impact on the 
U.S. enrichment industry.
iii. Effect on Realized Prices
    As with uranium concentrates and conversion, the principal 
mechanism through which a change in market price would impact the 
domestic uranium enrichment industry is through the effect on what 
prices an enricher actually receives for its services. The market price 
indicators published by TradeTech and UxC are based on market 
information about recent offers, bids, and transactions, and are thus a 
snapshot of contracting activity at the time of the publication. 
Enrichment, like uranium concentrates and conversion, is primarily sold 
on long-term contracts. In 2015, of the total 54.5 million pounds 
U3O8 equivalent purchased by owners and operators 
of U.S. civilian nuclear power reactors, 78% was sold on long-term 
contracts. The price paid for enriched UF6 under the long-
term contracts versus spot contracts was $43.28 and $33.37, 
respectively. EIA Uranium Marketing Annual Report, 26 (2016). 
Consequently an enricher's actual revenues are somewhat insulated from 
short-run fluctuations in price.
    URENCO's Full-Year Audited Financial Results for 2016, which was 
submitted to the Department as part of URENCO's NIPC comments, reports 
a contract backlog that with a value of [euro]15.5 billion that extends 
into the latter half of the next decade. URENCO states that it will 
experience lower profit margins and reduced cash flow if pricing 
pressures persist in the middle and long-term. Specifically, URENCO 
states it will feel the impact of lower SWU prices ``primarily from the 
second half of the next decade, as until such time the majority of our 
revenues are at contracted prices.'' NIPC Comment of URENCO, Enclosure 
1, at 1. [REDACTED]. UxC Enrichment Market Outlook, Quarter 1 2017, 21. 
Based on this information, DOE concludes that URENCO is currently 
producing SWU to

[[Page 21629]]

fulfill its existing contracts, but it is unlikely to enter into new 
term contracts for significant volumes in the near future. Therefore, 
it does not appear that the SWU price suppression attributable to DOE 
transfers will have an appreciable effect on URENCO's realized price in 
the near-term.
    EM transfers are expected to have an effect on the uranium 
concentrate and conversion prices, as described in Sections IV.A.1 and 
IV.B.1. URENCO notes that a portion of UUSA's capacity is dedicated to 
underfeeding and re-enrichment of depleted tails but does not provide 
data regarding its sales in these markets. ERI notes that URENCO 
estimated in 2013 that it uses 10-15% of its capacity for underfeeding 
or re-enrichment of tails. 2017 ERI Report, 93. To the extent that 
URENCO sells the natural uranium that is the result of its underfeeding 
and re-enrichment on the spot market, it will receive a realized price 
that is lower by the level of the price suppression described above--on 
average over the next decade, $1.40 per pound 
U3O8 for uranium concentrates and $0.30 per kgU 
for conversion services. Based on available information, DOE is unable 
to determine the specific volume of natural uranium that URENCO sells 
on the spot market, but DOE reiterates its conclusions from the 
sections above that the price effects are within the range of those 
exhibited by normal market fluctuations.
2. Production at Existing Facilities
    As discussed above, the only existing U.S. enrichment facility is 
the UUSA gas centrifuge facility in New Mexico. URENCO reports a 
current capacity of 4.8 million SWU and notes that the regulatory 
approvals are in place to expand capacity.\74\ ERI reported that UUSA 
capacity is projected to increase to 5.7 million SWU by 2022, which we 
understand to be the completion of UUSA's Phase 3. 2017 ERI Report, 16. 
[REDACTED]. UxC Enrichment Market Outlook, 54. As noted earlier, the 
capacity expansion will serve to support an ongoing centrifuge 
manufacturing capability. URENCO's NIPC comments at 3 note that URENCO 
has cancelled Phase 4 of its construction plans at its plant in New 
Mexico, which would have added 2 million SWU capacity, because of 
market conditions. ERI also reports that, in 2016, URENCO reduced its 
production capacity at the Capenhurst site when it mothballed two 
production halls (out of 15). URENCO has also made small capacity 
reductions by not replacing aging centrifuges at its European sites 
when centrifuges go out of service. 2017 ERI Report, 16.
---------------------------------------------------------------------------

    \74\ URENCO, 2015 Annual Results Presentation, http://www.urenco.com/_/uploads/results-and-presentations/160301_URENCO_end_of_year_results_presentation_FINAL.pdf (Accessed 
February 7, 2017).
---------------------------------------------------------------------------

    ERI's November 2016 Reference forecast for enrichment services 
requirements projects that annual world requirements for enrichment 
services in 2016 are 45.4 million SWU, but are then projected to 
increase to 49 million SWU in 2017. 2017 ERI Report, 14. U.S. 
requirements are projected to be essentially flat, averaging almost 15 
million SWU per year between 2016 and 2035. The updated projections for 
average U.S. requirements for uranium and conversion services are lower 
than those used in the February 2015 ERI market analysis, although 
enrichment requirements have increased somewhat due to lower tails 
assay assumption. Projected U.S. uranium and conversion requirements 
have declined by 2% while U.S. enrichment requirements increased by 4%.
    URENCO's internal estimates suggest that global SWU inventories 
represent nearly two-year's worth of 2016 global SWU requirements. RFI 
Comment of URENCO, at 3. URENCO also notes very limited uncommitted 
demand in the next few years and notes that DOE inventories compete for 
these very limited pools of demand. Further, URENCO opines that the 
combination of low demand and excess supply is placing downward 
pressure on prices for uranium enrichment services, pointing out that 
prices have fallen considerably from the $79/90 spot/term prices at the 
time of the May 2015 Secretarial Determination. URENCO's 2016 Annual 
Results state that ``URENCO anticipates continued short to medium term 
pricing pressures until worldwide fuel inventories are reduced which 
may impact future profit margins.'' The 2016 Annual Results also note 
that the company is confident that global nuclear industry will 
continue to grow.\75\ Finally, these financial results note that URENCO 
is benefitting by the strength of the U.S. dollar in that two-thirds of 
its revenue is in U.S. dollars. The projections for increasing 
requirements for U.S. enrichment are expected to generate increased 
production at the UUSA facility.
---------------------------------------------------------------------------

    \75\ Id.
---------------------------------------------------------------------------

    DOE does not believe that its uranium transfers will not have a 
significant effect on production at the only existing U.S. uranium 
enrichment facility.
3. Employment Levels in the Industry
    ERI does not provide an estimate of the change in employment due to 
DOE transfers in the enrichment industry. However, URENCO shared in its 
NIPC comments that it expects to reduce our 2016 workforce of 280 by 50 
employees ``in the near-term.'' URENCO NIPC comment at 3. URENCO does 
not state what proportion of this employee reduction it believes is 
attributable to DOE transfers. DOE is not able to independently assess 
what, if any, portion of this 18% workforce reduction is attributable 
to DOE transfers, but believes it is reasonable to conclude that the 
DOE transfers do not contribute in significant part given other market 
conditions and factors.
4. Changes in Capital Improvement Plans and Development of Future 
Facilities
    As noted above, ERI reports that URENCO USA capacity increased to 
4.6 million SWU by the end of 2015, with plans to slowly increase to 
5.7 million SWU by 2022. 2017 ERI Report, 25. Another planned 
enrichment facility was announced by Global Laser Enrichment, a venture 
of GE-Hitachi and Cameco. The proposed facility will use laser 
enrichment technology developed by Silex Systems to enrich depleted 
uranium tails to the level of natural uranium, at a proposed location 
near Paducah, KY.\76\
---------------------------------------------------------------------------

    \76\ Energy Department Announces Agreement to Sell Depleted 
Uranium to be Enriched for Civil Nuclear Power, (Nov. 11, 2016), 
https://energy.gov/pppo/articles/energy-department-announces-agreement-sell-depleted-uranium-be-enriched-civil-nuclear (accessed 
February 22, 2017).
---------------------------------------------------------------------------

    The U.S. Nuclear Regulatory Commission granted two additional 
licenses for centrifuge enrichment plants. Centrus holds a license for 
the American Centrifuge Plant in Piketon, Ohio, while AREVA Enrichment 
Services holds a license for the Eagle Rock Enrichment Facility, 
planned for Bonneville County, Idaho. However, on March 10, 2017, AREVA 
informed the NRC that it does not plan to construct the Eagle Rock 
Enrichment Facility and asked that its license be terminated. The 
American Centrifuge Plant is not currently being developed; Centrus' 
Web site indicated that the company ``is continuing to explore 
technology refinements and other ways to deploy the most cost effective 
commercial enrichment capacity taking advantage of the current period 
of time when capacity expansion is not needed in the market.'' \77\ NRC 
also issued a license to GE-Hitachi for a laser enrichment facility in 
Wilmington, North Carolina. Development of that facility is also on-
hold and GE-Hitachi has announced its

[[Page 21630]]

plans to sell its shares and exit that venture.
---------------------------------------------------------------------------

    \77\ CentrusEnergy.com, http://www.centrusenergy.com/what-we-do/national-security/american-centrifuge/ (accessed April 14, 2017).
---------------------------------------------------------------------------

    As outlined above, planning for improvements or development of 
future enrichment facilities has slowed significantly due to market 
conditions. As previously noted, URENCO is currently working on Phase 3 
of its New Mexico plant, which is expected to bring capacity to 5.7 
million SWU but has cancelled the previously planned 2 million SWU 
Phase 4.
5. Long-Term Viability and Health of the Industry
    URENCO indicates that pressures on pricing and on competition for 
limited demand ``present significant challenges for the United States' 
only enrichment plant.'' The comments also indicate that some of UUSA's 
capacity is being directed towards underfeeding and for re-enrichment 
of its depleted tails so that URENCO is therefore affected by market 
pressures in the uranium and conversion markets. NIPC Comment of URENCO 
at 3.
    With total world enrichment supply currently projected to exceed 
requirements for enrichment services by a significant margin over the 
long term, it is expected that enrichers will continue to redirect 
excess enrichment capacity to underfeeding and re-enrichment of tails. 
The uranium market will continue to be of interest to enrichers as 
unfilled requirements in the uranium market increase in the future. 
Note, however, that this does put additional pressure on uranium 
producers. Unfilled requirements in the enrichment market are also 
projected to increase in the future. The sole U.S. enricher is 
currently benefitting from a strong U.S. dollar exchange rate. URENCO 
indicated that these pricing pressures have ``a direct impact'' on UUSA 
and pointed to a non-cash impairment charge against its UUSA operation 
of more than $800 million ([euro] 760 million) on its Full-Year 2016 
Audited Financial Statement. URENCO's Full-year 2016 Audited Financial 
Statement takes note of the pricing pressures facing the parent company 
and the enrichment market, but note that `we believe that the 
combination of our current robust finances coupled with our new 
strategic direction will enable us to remain a reliable and sustainable 
partner in the global nuclear industry. . . .''
    As noted in Section IV.A. 5 above, nuclear power requirements are 
expected to grow in the future. Increases in demand will minimize the 
need for enrichers to underfeed and/or re-enrich tails, which will also 
take pressure off the uranium and conversion markets. To the extent 
that enrichers have significant backlog of long-term contracts, some of 
which were likely signed prior to the 2011 Fukushima Daiichi accident 
that significantly changed market dynamics, the impact of DOE uranium 
transfers on the U.S. enrichment industry's will not have an adverse 
material impact on the long-term viability and health of that industry.
6. Russian HEU Agreement and Suspension Agreement
    Section 3112(d) of the USEC Privatization Act requires DOE to 
``take into account'' the sales of uranium under the Russian HEU 
Agreement and the Suspension Agreement. As discussed above, DOE 
believes this assessment should consider any transfers under these two 
agreements that are ongoing at the time of DOE's transfers.
    Under the Russian HEU Agreement, Russian HEU was down-blended to 
LEU and then delivered to USEC Inc. for sale to end users in the United 
States. DOE notes that the Russian HEU Agreement concluded in December 
2013. Thus, there are no ongoing transfers under this agreement.
    The current iteration of the Suspension Agreement, described above 
in Section I.D.3.ii, sets an annual export limit on natural uranium 
from Russia. 73 FR 7705 (Feb. 11, 2008). That agreement provides for 
the resumption of sales of natural uranium and SWU beginning in 2011. 
While the HEU Agreement remained active (i.e., 2011-2013), the annual 
export limits were relatively small--equivalent to between 100,000 and 
250,000 SWU. After the end of the Russian HEU Agreement, restrictions 
range between an amount equivalent to 2,750,000 and 3,110,000 SWU per 
year between 2014 and 2020. 73 FR 7705, at 7706 (Feb. 11, 2008).
    As mentioned above, in September 2016, the Department of Commerce 
proposed to adjust the export limits under the agreement to take 
account of changes in projected reactor demand. The proposed adjusted 
limits would allow an additional 990,000 SWU from Russia into the 
United States between 2016 and 2020. The additional amount varies by 
year, but on average, the proposed limits are 6.6% higher than current 
limits.
    Material imported from Russia in accordance with the Suspension 
Agreement is derived from primary production rather than from down-
blended HEU. The 2017 ERI Report takes account of enrichment entering 
the United States market under the current Suspension Agreement limits 
as part of total worldwide primary supply. The 2017 ERI Report does not 
consider the effect of the additional amount that would be allowed into 
the United States were the Department of Commerce to adopt the adjusted 
limits as proposed.
    DOE believes that it is still appropriate to rely on ERI's analysis 
without adjusting for the proposed changes to the Suspension Agreement 
quota limits. It bears emphasis that the volume of the proposed 
adjustment is small relative to the current limits under the Suspension 
Agreement, to United States requirements, and worldwide requirements. 
Nominally, the adjustment adds no more than 410,000 SWU in any given 
year--and as low as 70,000 SWU in 2017 and 2019. DOE's analysis already 
takes into account the amount of SWU entering the United States from 
Russia under the current limits, and DOE does not believe that the 
adjusted limit would significantly alter DOE's analysis even if 
adopted.
7. Enrichment Industry Conclusion
    In this analysis, DOE has considered the above six factors and the 
effect of all DOE transfers on the U.S. enrichment industry, including 
the NNSA transfers which are not the subject of this determination. DOE 
is cognizant of the challenges in the enrichment market.
    The NNSA LEU transfers for down-blending are the only forward 
looking transfers that would have a direct impact on the U.S. 
enrichment industry and are not the subject of this Determination. EM 
transfers have no direct effect on enrichment prices, but even if they 
did, URENCO currently realizes prices under its existing contract book 
of long-term contracts and is not expected to enter into an appreciable 
volume of new long-term contracts in the near future without a very 
significant increase in SWU prices. Thus, even if EM transfers did 
directly affect the enrichment prices and price suppression from DOE 
LEU transfers were included, there would not be any appreciable effect 
on URENCO's current realized price for enrichment services, employment 
at UUSA, or plans for capital improvement or expansion. Similarly, 
other potential entrants into the domestic enrichment market would 
require prices so much higher than current prices that DOE transfers, 
even including LEU, would not affect investment decisions with respect 
to new plants.
    That said, due to the enrichment industry practice of underfeeding 
and re-enriching tails, DOE concludes that the EM transfers of natural 
uranium will have a small impact on the U.S. enrichment industry due to 
the price

[[Page 21631]]

suppression in the uranium and conversion markets attributable to the 
transfers described above. Given that URENCO is primarily in the 
business of providing enrichment services, that it devotes 85% of more 
of UUSA's capacity to primary enrichment, and the fact that the price 
suppression on the spot prices for uranium concentrates and conversion 
is relatively small--$1.40 per pound U3O8 for 
uranium concentrates and $0.30 per kgU for conversion--the effect on 
URENCO would be relatively small and not one of real import or great 
consequence such that it would constitute an adverse material impact on 
the domestic enrichment industry.

V. Other Comments

    A number of commenters throughout the public participation process 
have expressed views on matters that were not specifically within the 
scope of this Determination, or may be related to the topic of DOE's 
uranium transfers but not specifically its Determination of adverse 
material impact.
    Some commenters commended DOE for undergoing an open and public 
process on this Determination, e.g., NIPC Comment of Duke Energy, at 1, 
while others commented that greater transparency in DOE uranium 
management and planning was important to promote predictability and 
stability in the nuclear fuel market. NIPC Comment of NEI, at 2. Some 
commenters supported DOE's transfers as a means to support continued 
cleanup at the Portsmouth site, FBP Comment, and others commented that 
funding for such activities should be obtained from Congress through 
appropriations. See NIPC Comment of Duke Energy, at 1, NIPC Comment of 
NEI, at 3. Comments ranged from requesting DOE halt all uranium 
transfers, NIPC Comment of UPA, at 2, 17, to, in the alternative, 
limiting DOE transfers to the least harmful of the three options, 
Scenario 2. NIPC Comment of ConverDyn, at 2.
    Certain comments from the public were out of scope of this 
Determination.
    Several members of the public requested that DOE transfer all 
surplus uranium to American reactors and cease exporting any uranium to 
foreign countries. NIPC Comment of Anne Marie Zeller at 1; NIPC Comment 
of Dawna Papenhausen, at 1. Other commenters' statements regarding the 
amount of uranium imported to power domestic nuclear reactors is 
illustrative only as to the international nature of the uranium 
markets. See, e.g., NIPC Comment of enCore Energy, at 1. U.S. origin 
uranium is not required for U.S. reactors to meet demand and, as 
demonstrated in this Analysis, much of the uranium used in domestic 
reactors is obtained from foreign suppliers.
    Comments related to proposed legislation also are outside the scope 
of this Determination. NIPC Comment of UR-Energy, at 2. The 
Administration has not taken a formal position on proposed legislation 
related to uranium management. In addition, UPA's comment as to the 
fair market value received for DOE transfers is outside the scope of 
this Determination, which addresses only the requirements of section 
3112(d)(2)(B) regarding market impacts. NIPC Comment of UPA, at 16-17. 
DOE evaluates whether it receives fair market value prior to each 
transfer through a separate process. Lastly, UPA's call for DOE to 
withdraw the December 2016 national security determination is outside 
the scope of this Secretarial Determination and Analysis, which only 
considers future EM transfers. NIPC Comment of UPA, at 2.
    Commenters also requested DOE consider foregoing the down-blend of 
highly enriched uranium to 5% enrichment or below in anticipation of 
demand for high-assay LEU not available currently in the market for use 
in advanced nuclear reactors and advanced nuclear fuel development. 
NIPC NEI Comment, at 2. In consideration of these comments, and 
notwithstanding policies suggested in proposed legislation, DOE is 
considering plans to issue a Federal excess uranium inventory 
management plan to provide additional information on DOE's uranium 
management planning and thereby increase transparency and reliability 
upon which the uranium industries can make investments and decisions.

VI. Conclusion

    For the reasons discussed above, DOE concludes that transfers under 
either the 1,600 MTU or 1,200 MTU scenarios will not have an adverse 
material impact on the domestic uranium mining, conversion, or 
enrichment industries, taking into account the Russian HEU Agreement 
and Suspension Agreement.

[FR Doc. 2017-09243 Filed 5-8-17; 8:45 am]
 BILLING CODE 6450-01-P