price for uranium concentrates and the most efficient separative plant operations relative to such market price. We were pleased that Mr. Quinn, in his appearance before this committee 2 weeks ago, indicated that these factors would be taken into account.

CLASSIFICATION OF SEPARATIVE WORK TECHNOLOGY AND DATA

Although we are confident that either private industry or the Gov ernment will be able to assure the continued availability of adequate uranium enrichment capability in this country, the ad hoc committee is concerned that unnecessary classification of data relating to separative work technology and economics could discourage adequate planning for additional enrichment capability. We accordingly have urged that an intensive review of the classification status of such information be undertaken with the objective of declassifying as much significant information as is consistent with national security considerations. We understand that Dr. Seaborg suggested that additional enrichment capacity may be required as early as 1978. If so, it is not too early to begin considering the technological and economic factors involved in making such additions.

We are pleased to have the opportunity to submit the committee's views on these important uranium enrichment contract forms and criteria.

Thank you.

Senator PASTORE. Thank you very much.biz

I think General Nichols should make his statement and then we will get into questioning.

General NICHOLS. My name is K. D. Nichols. I am a consultant primarily in the field of commercial atomic power. I was invited to appear today as the chairman of the Atomic Industrial Forum Toll Enrichment Study Committee.

In July of 1964, the Atomic Industrial Forum appointed a toll enrichment study committee to review with the Atomic Energy Commission staff the uranium enrichment services criteria which the AEC proposed to establish. The study committee consisted of Manson Benedict, Percival F. Brundage, John F. Floberg, Louis H. Roddis, Jr., and myself as chairman.

During its study the committee consulted with an Advisory Committee on Toll Enrichment whose members included representatives of 25 forum member organizations. The study committee found the AEC staff most cooperative and the staff provided the study committee all the data the study committee believed necessary for its ap praisal and they gave generously of their time and experience in answering the many questions raised by the study committee.

The Atomic Industrial Forum published the study committee report in October 1965. With your permission I would like to submit a copy of this report for the record.

Senator PASTORE. Without objection, it is so ordered. (See app. 5, p. 317.)

General NICHOLS. This report was based on an AEC draft of the uranium enrichment services criteria, The following quotations from our report summarize the committee opinion of these criteria;

CHARGES AND COSTS FOR SEPARATIVE WORK

In our opinion, the proposed services, which will become available on January 1, 1969, are responsive to the needs of the nuclear power industry, domestic and foreign. We consider the bases used by the AEC in planning the future operation of the diffusion plants to be reasonable and we believe the current charge of $30 per Kg unit of separative work proposed as a ceiling by the AEC to be equitable and fair to users of enrichment services. This charge, in the opinion of the Study Committee, does not involve a government subsidy. Further, this ceiling charge, subject to escalation for the cost of electric power and labor, will be guaranteed for the entire term of an enrichment agreement.

The bases for toll enriching service charges are such as to provide reasonable compensation to the Commission. They are based on recovery of all costs that the Study Committee considers, after careful review, to be properly allocable to the enriching service.

The full cost of separative work to the AEC, averaged over the 1969-1975 period... is projected to remain below the ceiling price of $30 per Kg unit of separative work, even if currently estimated requirements for enriched uranium justify further reducing the electric power used in the diffusion plants. When the rate of growth of commercial requirements for separative work can be more definitely anticipated and when these anticipated requirements more nearly approach diffusion plant capacity, it may well be possible to reduce the unit charge for separative work below the $30 ceiling figure. It should be possible in approximately five years to anticipate such requirements. The Study Committee concurs with the AEC that a reduction now would not be timely, in view of uncertainties in the near-term commercial requirements and in the rate of growth of the nuclear power industry.

Further, the Study Committee is satisfied that the full cost of separative work in new U.S. diffusion plants need not exceed the $30 per Kg unit of separative work (escalated for electricity and labor), except for the effects of possible inflation, whether these plants are owned privately or by the AEC.

The Study Committee concurs in the AEC decision to accept uranium feed for toll enriching services only in the form of uranium hexaflouride (UF6).. We are pleased that the AEC has recognized, by indicating the terms under which it would consider terminating an enriching contract, the possible development of a commercial capability in the one phase of the fuel cycle that remains an exclusive government operation.

We are pleased that the AEC has decided to give its toll enrichment customers the option of taking delivery of depleted uranium (tails), as well as enriched product. We regret, however, that the AEC does not now see its way clear to permit a customer in his initial toll enrichment arrangements to choose a higher U-235 content of tails than that which corresponds to the tails assay selected by the AEC in establishing its toll enrichment schedules. As a consequence of selecting a higher U-235 assay of tails, a customer would be permitted to provide a greater amount of feed and to purchase a smaller amount of separative work than will now be the case.

CUSTOMER'S OPTION TO CHOOSE TAILS ASSAY

Senator PASTORE. Are you familiar with Mr. Quinn's testimony on this?

General NICHOLS. I have read it.

Senator PASTORE. What do you think of his observation on this point which you have raised? I think it is quite an important point. His argument is they are going to be more or less at the mercy of individual firms which are going to come in and make different demands which will throw them out of kilter in running the organization.

General NICHOLS. We discussed that at great length with Mr. Quinn. I personally do not think it is as complex as he thinks it is. The best argument he gave as he gave us the argument, it was the difficulty of preproduction. As long as you have a lot of preproduced material I don't see how you can vary the tails too much on that.

Even so I felt at a future time you could be changing to the customers desires on tails without complexity because you can start operating the plant that way.

I have operated those plants, and I don't see the great complexity from different percentages of tails. That is just a difference of opinion.

Senator PASTORE. It seems to be the only place where you are at a disagreement. You have been very laudatory about the cooperation you have received from the AEC staff and are pleased with the reaction of the Commission. You find no fault with the $30 price that is being cited. As a matter of fact, I take it that industry is pretty well satisfied with the whole business except on this point.

Am I right or wrong or am I simplifying it too much?
General NICHOLS. I think you are right.

Senator PASTORE. Let's simplify it so everyone can understand. This seems to be the only point of divergence.

General NICHOLS. It is only a point concerning the time when you can do it.

Senator PASTORE. Do you think possibly the AEC is overworking

the burden of this concession?

General NICHOLS. I personally think so. I think by 1969 it will clarify to the point where it will not present a problem.

Senator PASTORE. I want to compliment you for the presentation you have made here today. It shows a cooperative spirit and it looks as though the homework has been well done.

General NICHOLS. We had many differences of opinion with the AEC staff when we started. They could not see many of our points nor could we see theirs.

$30 SEPARATIVE WORK CHARGE PROVIDES FOR MORE THAN COSTS

Senator PASTORE. You say definitely the $30 price does not constitute any subsidy on the part of the Government and you feel they can do this at cost or at a little bit of profit.

General NICHOLS. If you want to call it a profit, yes. In fact, I think they are making a profit right now.

Mr. CONWAY. You don't see anything wrong with the Government making a profit?

General NICHOLS. No, generally speaking I think they should be open about whether it is a profit or not.

Senator PASTORE. You know how it is. You used to be with the AEC. Some of these fellows on this Board or the Chairman were connected with the AEC themselves, but things change.

General NICHOLS. I felt on this primarily we are going to go through a period where you have low production and it is most difficult to anticipate the length of that low period and try to equalize the costs over it in order to establish the most appropriate price. That is the basic problem in this thing.

We felt that the $30 would certainly cover the transition period with the way they were going to apply the cost and when you could see clear through the transition period a reduction in price is in order.

CUSTOMERS' OPTION TO SELECT TAILS

Senator PASTORE. Absolutely, including what you are talking about on this question of where you may withdraw from the cascade.

General NICHOLS. On tails, we suggested to George Quinn there should be an extra charge to the customer if they want to select special tails.

Senator PASTORE. From your experience you don't envision too much difficulty?

General NICHOLS. I envision a difference in cost but that should be given to the customer to evaluate as to what his price of uranium was and whether he wants to take advantage of it or not.

Mr. CONWAY. Would you not agree, General Nichols, that in the early days when there may be a limited amount of material brought in for the tolling it could then be a problem of allowing an individual to select his tails whereas later on assuming we have the growth we anticipate it will be easier to accommodate.

General NICHOLS. I felt you would accommodate by departing a little bit from what is in the proposed contract. You get the tails at the same time you get the enriched material and I think most customers would agree to certain adjustments. Say we want our tails at a certain percentage. We want the price figured accordingly but we are willing to wait 6 months for the tails; we are in no hurry to get them. That type of adjustment could be made.

Mr. CONWAY. As I understand from Quinn's testimony they would consider at some time in the future accommodating the industry. General NICHOLS. I think we have convinced them that is certainly in order. The only difference of opinion is as to when.

Senator PASTORE. Do you see any immediate need or use for the tails in the industry?

General NICHOLS. Not any great amount.

Senator PASTORE. It is a point that has to be clarified and I think we have reasonable businessmen here who know what is involved. General NICHOLS. We felt the free market should determine this. For what price can you buy uranium? What is the separative price? What do you want to do with the tails?

Senator PASTORE. Provided the Government does not work itself into the position of having to subsidize the cost.

General NICHOLS. We do not advocate that. If there is an extra cost, that should be in the Government price.

Mr. CONWAY. If you are running your plant at a heavier cost, then the industry might have to carry the additional burden.

General NICHOLS. Not if it is being run properly. This is not a major problem. It is something that should be clarified as soon as possible.

Senator PASTORE. You have good business minds on both sides of the fence.

PRIVATE OWNERSHIP OF ISOTOPE SEPARATION FACILITIES

General NICHOLS. In June of 1965, the study committee report was forwarded to the AEC. (See app. 5, p. 317.) In a letter to Chairman Seaborg forwarding the report we referred to the fact that the

report did not consider a second aspect of toll enrichment services which the Forum Board of Directors had asked us to assess-the feasibility of private ownership and/or operation of separative facilities. We stated, "*** we believe the second phase of the study should be initiated as soon as the Commission believes it feasible to do so we suggest the fall of 1965 or early 1966." In Chairman Seaborg's reply he proposed deferring this second phase until the fall of 1967 or early 1968. The Forum accepted the AEC position but recognized that changes might occur which would provide a rationale for initiating the study at an earlier date. It is my personal opinion that the recent large increase in atomic powerplant orders justifies advancing this date.

CRITERIA FOR URANIUM ENRICHMENT SERVICES

On July 1, 1966, the criteria were forwarded by the AEC to the chairman, Joint Congressional Committee on Atomic Energy. Certain changes have been made in the criteria as compared to the earlier draft criteria but, inasmuch as we have held no committee meeting subsequent to the issuing of these revised criteria, my comments on the changes should be considered as personal rather than as representing the Committee on the Forum. În my opinion, there are no changes that would materially affect the committee report, so the comments I have quoted and the report are still applicable. The final criteria are, in fact, an improvement over the draft criteria we considered in 1965. I am particularly pleased that the provisions for termination of a contract by the customer have been liberalized. In effect, the termination provisions reduce the penalty period from 5 years to 3 years and also delineate in greater detail the nature of the termination charges.

In conclusion, I wish to emphasize that the "uranium enrichment services criteria" are equitable and are responsive to the needs of the nuclear power industry, both domestic and foreign.

PRIVATE OWNERSHIP AND OPERATION OF ISOTOPE SEPARATION FACILITY

Representative PRICE. Mr. Chairman, may I ask one question? General Nichols, when you talk about getting into a study as early as possible on the feasibility of ownership and/or operation of separative facilities, what is your personal feeling as to the time when industry itself could profitably operate a separative facility?

General NICHOLS. That is one of the bases of making the study or the purpose of making the study to really determine that time.

My personal feeling is that this transition period to private ownership could occur sometime between 1970 and 1975, but that would be one of the things you would determine-just what is the best time to make the transfer if it is desirable.

Representative PRICE. Do you agree on some of the estimates of cost of construction of a new facility in testimony that has been given before the committee?

General NICHOLS. I am not sure of what they gave.

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