cores, there will be little replacement core business available to others until the midseventies.

The problem will be further aggravated if the reactor manufacturers decide to take further steps toward vertical integration in the nuclear fuel cycle. Each step taken by these companies would tend to bar potential competitors from participation in the smaller, specialized phases of the nuclear fuel business which otherwise would provide the sustenance essential to preserve competition until a free market develops for replacement fuel.

It is possible, therefore, that near term decisions by the Nation's electric utilities regarding replacement cores, in combination with decisions by the reactor suppliers regarding the degree to which they will vertically integrate, could foreclose the benefits which would otherwise accrue by having a number of viable suppliers competing for replacement fuel over the 35-year lifetime of a typical reactor plaut. The full impact of such a result may be appreciated by comparing the capital investment in a reactor with the fuel expenditures over its lifetime.

RELATIVE COST OF REACTOR FUEL AND PLANT

Although there are some pitfalls in direct comparisons, it is generally true that a utility will spend $3 on fuel over the lifetime of a power reactor for every dollar it spends on the construction of the plant. It seems clear that the utilities and their customers have a strong interest in assuring healthy competition in the nuclear fuel

business.

It seems equally clear, however, that the reactor manufacturers have an understandably strong interest in promoting the sale of their own fuel with each reactor they sell. If there is any doubt on this score, it is quickly removed by an analysis of the size of the nuclear fuel market in the years ahead. Based on what we believe to be conservative assumptions of nuclear power growth between 1971 and 1980 (40 to 60 percent of new capacity) fuel cycle expenditures in that decade alone will amount to between $7 and $10 billion. Table II, attached, provides a breakdown of these expenditures among the various components of the fuel cycle. It can be readily seen that each component is, in itself, a significant business. Projections beyond 1980 are, of course, even more impressive. Our growth forecast shows an installed nuclear capacity in the year 2000 in the range of 800,000 to 1 million megawatts, or more than six times the installed capacity we project for 1980. On this basis, between $70 and $100 billion will have been spent on nuclear fuel by the year 2000 with annual expenditures having reached more than $6 billion.

(The document referred to follows:)

Assumes: 1. Alternate nuclear power growth forecasts reflecting 40 and 60 percent of new capacity as nuclear; 2. Plutonium recycle; 3. Average uranium price-$8/lb UзO; 4. Separation work charge $25/kg U; 5. Plant factor--85 percent.

These figures readily indicate that the nuclear fuel cycle will be a very large business with an important impact on the national economy. But furthermore, they highlight the fact that the sale and distribution of fuel will be at least as important as the sale and distribution of hardware in determining the character of the industry. Bearing this in mind, it seems clear that each step taken by the principal hardware manufacturers toward further integration in the fuel cycle will have a profound effect on the competitive structure of the entire industry.

I believe that if this very large industry should come to be concentrated in a duopoly, then one of the basic policies expressed in the Atomic Energy Act of 1954, that is to "strengthen free competition in private enterprise," will have been frustrated.

The picture is not completely dark. New companies are demonstrating an increased interest in the nuclear fuel business and established companies have been able in the past year to share, to some extent, in the remarkable growth of nuclear power. These promising signs, however, do not justify any relaxation of concern.

I said in opening this subject that the degree and extent of competition in the nuclear fuel cycle will depend to a great extent on decisions made in the private sector of the economy. But I believe that with the two enlightened agencies created by the Atomic Energy Actthe Commission and this committee-the Government still retains a unique opportunity to choose, or at least strongly influence, a course of development which is in the public interest.

The questions that seem vital to us in making this choice are the following:

1. To what extent and on what basis are utilities committing themselves at the time of initial reactor purchase to the reactor equipment manufacturers for future nuclear fuel requirements?

2. To what extent are the reactor equipment manufacturers already integrated in the nuclear fuel cycle? Do they have plans for further integration?

3. If the problem warrants attention by the government, are the present laws affecting monopoly and restraint of trade adequate to protect the public interest?

We hope these questions will be aired thoroughly in these hearings as well as in the executive sessions of the committee and the commission. Our company has an important stake in this matter, but our interest does not begin to compare in importance with that of the American people whose investment has made this industry possible. If nuclear power, as now appears to be the case, is destined to supply the major portion of the Nation's electric power requirements, then it is vital that these questions be asked and that the answers be weighed in formulating Government policy in this important area.

Mr. Chairman, again I would like to thank you for the opportunity to present our views at these hearings. I hope that we have contributed in some constructive way to your work.

Representative YOUNG. We thank you for your contribution, Mr. Shapiro.

LOAN GUARANTEE PROGRAM FOR FUEL FABRICATORS

Have you presented to the AEC your suggestions with regard to a loan guarantee program for fabricators?

Dr. SHAPIRO. No; we have not done so as yet. It was our understanding, at least prior to the July 25 announcement, that the $6.70 price was going to be the maximum under the deferred payment or lease plans. Since that situation has changed, however, it is certainly desirable that we do discuss the matter with the Commission and we would hope to do so in the near future.

ENRICHING FOREIGN URANIUM

Representative YOUNG. Your position as a fabricator is pretty much like an independent in the petroleum field concerning imports? Do you believe the continued prohibition against toll enriching foreign uranium for domestic use is justified?

Dr. SHAPIRO. I think to a large measure that depends upon what is required in order to assure a viable domestic industry and a sufficient incentive on the part of the miners to do adequate exploration.

However, I believe that in the 1964 hearings, it was indicated that a civilian U ̧Ó, requirement of approximately 8,500 tons per year would make for a viable industry.

Very recently in a quarterly report of one of the mining companies, it was estimated that by 1971 the market would probably be close to 10,000 tons. Therefore, it would seem that the industry, if conditions have not changed appreciably, would, in fact, be in a viable position much earlier than originally expected.

Under these circumstances it would seem to me desirable for the Commission to reexamine the question of foreign importation. Moreover, in view of the Commission's position that it would like to share in the continued growth of the nuclear market by disposition of its own inventories, the Commission could, at the same time, reexamine the price at which it would make such dispositions.

Representative YOUNG. Are there any questions of the staff?

Mr. CONWAY. In view of the lateness of the morning hour I was going to suggest that the additional questions could be submitted to Mr. Shapiro and he could submit his answers in writing to the committee.

Representative YOUNG. Would you do that, Mr. Shapiro. I have a list of the questions and then we will make the questions and answers a part of the record.

Dr. SHAPIRO. I will be happy to do that.

Representative YOUNG. If there are no more questions, the committee is now adjourned. The committee will reconvene at 2 p.m. this afternoon.

(Additional questions submitted to Dr. Shapiro, and his responses, follow :)

Dr. ZALMAN M. SHAPIRO,

CONGRESS OF THE UNITED STATES,
JOINT COMMITTEE ON ATOMIC ENERGY,
Washington, D.C., August 20,

President, Nuclear Materials and Equipment Corp.,

Apollo, Pa.

1966.

DEAR DR. SHAPIRO: In the course of the Joint Committee's hearings on August 16 and 17 on the Atomic Energy Commission's criteria for toll enriching and

post-1968 policies, it was not possible to ask of all witnesses the entire set of questions that were prepared.

At Chairman Holifield's request I am enclosing questions that the members of the Committee did not get an opportunity to ask. The Committee believes that the answers to these questions will help make the record of our hearings more complete.

Your efforts in making yourself available for the Joint Committee's hearings and in completing the record by your answers to these questions are very much appreciated.

With all best wishes.
Sincerely yours,

JOHN T. CONWAY,
Executive Director.

SUGGESTED QUESTIONS FOR NUMEC (ZALMAN M. SHAPIRO)

1. Is it your understanding that the AEC is willing to offer a deferred payment plan to fuel fabricators whereby they may purchase enriched uranium from the AEC? Are you satisfied with this aspect of the Commission's proposed policy?

2. Are you advocating that the Commission drop its charge for the uranium component in its lease and sales charge to some lower figure based, for example, on a last-in-first-out method? Is the failure of the AEC so to lower its charge the fundamental cause of the competitive problem of the smaller fuel fabricator which you are describing?

3. Do you believe the in situ toll enriching plan announced by the AEC will encourage utilities to lease enriched uranium from the AEC during the 19691970 period? Will such continued leasing help the competitive position of smaller fuel fabricators?

4. What specific actions do you suggest the Government might take to encourage competition in the nuclear fuel supply business?

5. Do you believe the present laws affecting monopoly and restraint of trade are inadequate with respect to the nuclear industry?

6. Do you think the competitive state of the nuclear fuel business has changed for the better or the worse in the last two years?

7. One of our witnesses on August 16 was asked if he believed any additional measures by the utility industry were warranted at this time to enhance the degree of competition in the fuel fabrication business. He answered in the negative, and I assume you would disagree with him. Specifically, what would you suggest that the electric utility industry do to enhance such competition? 8. (a) Do you believe that AEC's licensees are currently maintaining records and other controls pertaining to special nuclear material which are adequate for the purpose of safeguarding against diversion of such material to unauthorized uses?

(b) Do you think substantial improvements are needed in hte AEC's regulations and procedures for safeguarding against diversion of special nuclear material in the hands of licensees?

(c) Do you think the AEC should specify (1) the material accountability and (2) the physical security procedures to be followed by AEC's licensees to safeguard against diversion?

(d) What are your views concerning the AEC's recently announced proposed changes in its regulations concerning safeguarding against diversion?

9. What are your views concerning the general question of whether an appropriate portion of excess capacity of the gaseous diffusion plants should be charged in terms of depreciation and interest to toll enrichment customers?

10. Do you believe that the gaseous diffusion plants should in the foreseeable future be operated "privately"? In view of the numerous special problems associated with this subject-such as the large investment required, the monopolistic nature of the service, and the need for Governmental control over many facets of the plants' operations-do you think a strong argument can be made that for the foreseeable future the plants should continue to be operated by the Government, or some kind of a Government corporation operating like a commercial enterprise? Can there really be “private” operation of a gaseous diffusion plant in any meaningful sense?

Mr. JOHN T. CONWAY,

NUCLEAR MATERIALS AND EQUIPMENT CORP.,
Apollo, Pa., September 26, 1986.

Executive Director, Congress of the United States,
Joint Committee on Atomic Energy,

Washington, D.C.

DEAR MR. CONWAY: This is in response to your letter of August 20 submitting a number of questions in connection with my testimony before the Joint Committee on August 17, 1966.

I hope that the attached responses will help to complete the record of the hearings. I sincerely appreciate this opportunity to present these views.

Very truly yours,

ZALMAN M. SHAPIRO, President.

ATTACHMENT

Q. Is it your understanding that the AEC is willing to offer a deferred payment plan to fuel fabricators whereby they may purchase enriched uranium from the AEC? Are you satisfied with this aspect of the Commission's proposed policy?

A. We understand that a deferred payment plan for the purchase of enriched uranium will be available from the AEC.

The efficacy of this plan is, however, fundamentally dependent on the value set by the Commission on the uranium component in its schedule of charges for enriched uranium in relation to the then current market price for natural uranium. As I noted in my testimony, "with Government uranium pegged at (the $8) price, the deferred payment plan cannot achieve its intended purpose of ‘maintaining a fair competitive situation among fuel fabricators', particularly in the period 1971-73 at any reasonably foreseeable market price for natural uranium during these years."

Nevertheless, future changes in the market price for uranium could provide an incentive for the use of the deferred payment plan. We are, therefore, pleased that the Commission will make this option available to the industry. In this regard, it would be helpful for planning purposes to have confirmation by the Commission of the terms and conditions of the plan, as outlined on page 23 of the Joint Committee's report on the private ownership legislation.

Q. Are you advocating that the Commission drop its charge for the uranium component in its lease and sales charge to some lower figure based, for example, on a last-in-first-out method? Is the failure of the AEC so to lower its charge the fundamental cause of the competitive problem of the smaller fuel fabricator which you are describing?

A. We do not advocate that the Commission establish a lower value on the natural uranium component in its lease and sales charges at this time. The Commission's decision on the $8 price was made, as I noted in my testimony, on the basis of considerations affecting the overall public interest and I intend no criticism of it. I believe, however, that in view of the rapidly accelerating demand for UsOs (and, hence, earlier potential date of viability for a domestic uranium industry), it would be appropriate to re-examine the price at a date earlier than that indicated by the Commission-perhaps 1971. I believe it would be in the public interest for the Commission to retain this flexibility in its uranium pricing policies.

Although the establishment of the $8 price sharply limits the usefulness of the deferred payment plan as a mechanism for promoting competition, there are, as I noted in my testimony, more fundamental problems affecting competition in the nuclear fuel business. We believe the matter requires continuing attention on a broad front, particularly in the coming critical decade of growth.

Q. Do you believe the in situ toll enriching plan announced by the AEC will encourage utilities to lease enriched uranium from the AEC during the 1969-70 period? Will such continued leasing help the competitive position of smaller fuel fabricators.

A. We believe that in situ toll enriching will have a tendency to encourage leasing of enriched uranium in the 1969-70 period. To the extent that it has this effect, it will tend to equalize the competitive position of fuel suppliers since they will all begin from the same basepoint in regard to the acquisition of enriched uranium.