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uranium and thorium also neeä to be explored to determine if the charges can be reduced. Copies of our analyses have been supplied to you; we request your : comments concerning these analyses.

3. We would like to discuss further with you the statement in your October 8 letter that "NFS is satisfied that the plant as designed will operate successfully especially since it is based on established technology proven at AFC sites.".. We: do not regard the technology planned be employed by NFS, particularly for the head-end treatment and accountability aspects, pertaining thereto, as sufficiently proven to obviate the possible need for contingencies such as additional: R. & D. effort, additional startup time, equipment modifications, etc., before design performance is achieved. Since you have made your own evaluation of the status of applicable information, we believe that further detailed discussions in this area should be undertaken.

4. The AEC will comment on the perpetual care of radioactive wastes after it receives the pending NFS-NYS proposal on this subject.

5. We are ready to review with you the possible baseload combinations which may be offered over the 5 years in order for you to develop the impact on the economics of your proposal.. In this regard, it appears necessary to rely upon highly enriched fuel as part of the annual baseload. Your September 21 information on cost and charges has shown processing rates for highly enriched fuels substantially below those contained in the June 18 submission. You may wish: to consider design and charge arrangement alternatives providing for increased: processing capability for these fuels.

The development of an arrangement which will provide private processing capability requires decisions in a number of areas by all of the parties affected by the contemplated arrangements. We are encouraged by the progress and steps. which have been taken by NFS, the utilities, and New York State in this area and by your assurance that agreements with the utilities are expected by the first of the year.

If you have additional information or wish to discuss the subject further, please do not hesitate to contact me. Sincerely yours,

A. R. LUEDECKE, General Manager. Chairman PASTORE. In addition, we have briefly discussed the proposed arrangements in some informal meetings with the Commission. However, detailed information on the project was not submitted to the committee. In addition, as noted by the AEC's review committee, major changes have occurred during the course of the negotiations. In order to assist the committee in examining these arrangements, I requested a report, including the proposed contract, from the AEC and also a report from the General Accounting Office. These reports and the committee's requests for them will be included in the record. (See app. 1 and 2, pp. 103 and 187.).

Before we begin, I want to make it clear that these hearings are being held for the purpose of assuring that the committee, the industry, and the public are fully informed of the contractual arrangements and the implications of this project. My personal view, and I believe it is the view of the entire committee, is that private capital should be encouraged to enter the atomic energy industry. We must be sure, however, that these arrangements as I stated in my November speech before the Atomic Industrial Forum-are reasonable; that is, that the vital interests of the Government, the industry, and of course, the public, are adequately protected. : I am therefore happy to have this opportunity to review these arrangements with the representatives of the key parties--the AEC, Nuclear Fuel Services, Inc., and the New York State Atomic Research and Development Authority.

Now before we call upon the Commission to explain the situation, problem that he would like to discuss at this point. Now I call upon

em are associated with it, I understand that Mr, Dirksen has Mr. Dirksen.

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CONTRACT FOR THE PRODUCTION OF URANIUM HEXAFLUORIDE

Senator DIRKSEN. Mr. Chairman, if the members of the Commission will forbear about 10 minutes, we will try not to trespass further on your time. You are all familiar with this matter. It is the contract of the Allied Chemical at a new plant in Metropolis, Ill., that has been underway for some years. That contract will expire, and of course it is our hope that the Commission can renew the contract for the manufacture of uranium hexafluoride.

There are this morning, Mr. Chairman, five members of the industrial committee from Metropolis, Mr. Brannon, Mr. Sturgis, Mr. Koopman, Mr. Hard, and Mr. A. Brannon. Mr. Sutton is the technical adviser, but Mr. Chase has a brief statement that he would like to read into the record.

I am grateful that you give us this time.

Mr. CHASE. I am Robert Chase. Mr. William Brannon, chairman of the committee, is ill and unable to attend, and I speak on his behalf.

This committee requests the Joint Committee on Atomic Energy to urge renewal by the Atomic Energy Commission, through their contractual option, the Allied Chemical contract for the production of uranium hexafluoride for a full 5-year period following the term of their present contract.

Our request is based on the AEC general policy statement.published in their annual report to Congress for 1962, issued in January 1963. This policy states that the AEC has instructed their staff that industrial participation by private enterprise in the AEC program is Federal policy. The last sentence of the statement summarizes the policy as follows:

This Federal policy requires Government agencies to discontinue activities currently performed in Government-owned facilities if, and when, commercial facilities are available to do the job at reasonable cost.

This committee is convinced by the AEC's own testimony that Allied Chemical has demonstrated their commercial facilities for the past 4 years at reasonable costs to the Government. In appearances before the subcommittee of the Committee on Appropriations, House of Representatives, on public works appropriations for 1963, held in May 1962 (the Honorable Clarence Cannon, chairman), Dr. Seaborg, Commissioner Wilson and Deputy General Manager Quinn testified that the relative costs of the Allied production and Government facility production were generally comparable.”. This was during the period when Allied was amortizing their $12 million facility in their costs. Allied's new price proposal for an additional 5-year. period eliminates this amortization thereby reducing their cost to the Government to less than that which the AEC said was "generally comparable.”

This committee has heard that: AEC statements claim a $2 million per year..cost to the Government if Allied is continued in business. We believe this to be a misleading statement which is based on com parison of private industry costs with incremental AEC costs. We urgently protest that these are costs to the AEC budget only, not costs to the Federal Government. We have calculated that the Federal Government will lose $41/2 to $5 million in revenue if Allied Chemical is not kept in the UF, business. If I may interpolate for clarity, wo

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mean over a 5-year period there. These calculations are based on corporate taxes paid by Allied Chemical on UF. profits, Federal in"come taxes of vendors of manufacturing supplies, goods and services sold to Allied, unemployment insurance, property taxes, and the Federal income taxes of Allied Chemical employees. We point out to the Joint Committee that we believe the so-called cost to the Government to keep Allied in business is a paper cost, not a real cost.

We would point out to the Joint Committee that the language of the present contract allows for no negotiation between Allied Chemical and the AEC. The contract specifically states that the AEC has the option to acquire annual quantities during each year of the next 5-year period at a price and cost to be agreed upon by both parties. We have obtained a legal opinion that, since Allied has submitted their price, the only option left to the AEC is to continue or not continue the contract for a 5-year period. No other, or specifically lesser, period of time would comply with the contract language.

This committee understands that the problem which the AEC faces as mitigating against a 5-year contract renewal refers to their fiscal appropriations, which are on a year-to-year basis. We recommend to the Joint Committee that a contract amendment be approved whereby the option for renewal would be exercised for the 15-year period with the stipulation that the first-year quantities would be 4,240 tons of uranium and the quantities for the second through the fifth year would depend on acquisition of appropriation funds. It is our opinion that the Joint Committee on Atomic Energy has the necessary authority to recommend and approve such an amendment.

This committee believes that the entire nuclear industry will suffer a setback if private enterprise is eliminated. The nuclear power industry needs a lower and more stable price for UF: conversion than Allied can give them unless Allied is continued with a guaranteed baseload. The present conversion price published by AEC is about $1.20 per pound. The AEC has projected that this price can be dropped to $1 per pound. If Allied is continued it appears that Allied can offer UF, to private industry at a price of about one-half the $1.20 conversion cost of AEC. With the tremendous sums of taxpayers' money which have been spent in the nuclear energy field, this committee believes it is time to strengthen free competition in private enterprise"; the quotation is taken directly from the AEC general policy statement.

This committee is not particularly concerned about the welfare of Allied Chemical. Our primary concern is for our community, our secondary concern

is the encouragement of private enterprise throughout our Nation. Our community in southern Illinois is among those listed by the President as economically distressed. The Allied Chemical plant, built in 1958, has contributed direct employment to 250 of our citizens over a large area; it has supplied needed tax money to our schools and has affected the overall economic strength of many of our local businesses and retail groups. The loss of this plant would be a severe blow to our economy and large sums of State and Federal funds will be required to partially compensate the loss. We would point out the magnitude of the problem by noting the State of Illinois expenditure for the coming fiscal biennium is budgeted at $3.8 billion; of this, $1 billion is Federal funds for public aid and roads. Southern Illinois is scheduled for very little in terms of roads but will require a considerable amount of the public aid. Retention of Allied

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Chemical in our area will reduce our need for public aid and allow our citizens to work in dignity for their homes and families.

We respectfully ask that the Joint Committee on Atomic Energy give full consideration to each of our points listed above and find that their duty compels them to follow through to completion on the Allied Chemical contract renewal.

Mr. Chairman, we would invite questions. We have Mr. Alan Sutton, plant manager of the Metropolis works, if there are any technical questions.

Chairman PASTORE. First of all, this comes more or less as a surprise, I would assume, to the members of the committee. Mr. Dirksen did tell me that this meeting was being arranged. I don't know whether or not the members of the commission who are here have any knowledge of this, or the members of the comittee.

Representative PRICE. Mr. Chairman, in that connection, may I make a statement?

Chairman PASTORE. Yes, Mr. Price.

Representative PRICE. I regret that I was a few minutes late. I have been interested in this project for some weeks and brought it up before the committee in executive session. We have a pretty good record of this matter in executive session. However, I was not informed of the appearance of these gentlemen this morning, or I would have been here at the start of their statement.

I would think that we have been moving along very well in this matter, and I would think that perhaps we should continue in the fashion that we have been going in our contacts with the Commission and on the basis of our executive record. I suggest that we probably pass over this and consider it as we have been doing in executive session.

Senator DIRKSEN. Mr. Chairman, if I may respond, obviously I didn't know until last night, I think at 5 o'clock, when this group from Metropolis came to my office, and I discovered that you were in Buffalo yesterday.

Chairman PASTORE. Natick, Mass.

Senator DIRKSEN. Oh, you were. Then I discovered you were meeting this morning. Obviously it is money out of pocket for this committee to stay here, and I think it was very appropriate, indeed, that I should make every effort to come before the committee this morning and spread this on the record and make it possible for them to go about their business.

I have been interested in this for quite some time, myself. In fact, my interest goes back at least a year.

Representative PRICE. Mr. Chairman, I would like to also point out that Congressman Gray has been working on this very diligently. He has met with me on several occasions. He has met with the Commission, He was up here with me in our executive committee hearing room yesterday. We were going over the files in this case. The point is that perhaps we would be better able to hold a hearing on this matter this morning if we had been informed that these gentlemen were going to appear here.

Chairman PASTORE. I don't think any harm has been done one way or another. These men have come here and they have made this statement. This is not related to the hearing that was called this morning, but it has been done openly and this is a public hearing. I was just wondering if the Commission has any comment to make or any observation to make without divulging at this time matters that are sensitive and should be discussed in private.

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Dr. Wilson. I think I could simply say this. It would not be proper for me to indicate what decision we are going to make. As a matter of fact, the matter is coming up very shortly. We are very sympathetic with this situation, but we have an exactly similar situation with regard to the communities in Weldon Springs and Paducah, which tend to be depressed areas, too. With the outlook for reduced throughput the situation has quite changed from what it was a year ago. The economical thing to do seems to be to shut down one of those locations. The question is which would be the best to do. It is not an easy decision. We are very glad to have these remarks and this additional information, but it is not an open and shut proposition by any means. (Letter relating to the above matter follows:)

ATOMIC ENERGY COMMISSION,

Washington, D.O., September 27, 1963. Hon. JOHN O. PASTORE, Chairman, Joint Committee on Atomic Energy, Congress of the United States.

DEAR SENATOR PASTORE: As you know, contract NO, AT(40–1)-1798 was entered into with Allied Chemical Corp., General Chemical Division, effective November 30, 1956. The contract required construction of a facility at Metropolis, Ill., and delivery of uranium hexafluoride, UF, containing 4,240 tons of uranium annually, for a 5-year period expiring March 31, 1964. For this operation, AEC supplied. Allied with the raw feed in the form of ore concentrates. The net price agreed upon was $1.22960 per pound of uranium contained in UF4. The contract included an AEC option for additional quantities, said option to be exercised by March 31, 1963. By mutual agreement between Allied and the AEC, this option date was extended to September 30, 1963. The option does not fix the unit price to be paid but it stipulates that the price not include any amount representing amortization of and interest charges on facilities costs included in the original contract. . During the last several months very careful consideration has been given to possible renewal of the Allied contract beyond its present termination date, March 31, 1964. The AEC is now studying its future material requirements including the conversion of uranium to UF, and with uncertainties in these material requirements, it is not feasible at this time to extend the Allied contract beyond June 30, 1964. Hence, the AEC has agreed to extend the Allied contract at the contract annual rate of 4,240 tons uranium during the period April 1– June 30, 1964, and to request an extension to December 31, 1963, of the option contained in the contract for additional quantities of UF..

As studies of the AEC's material requirements are completed, the Commission will be able to define any of its future processing requirements to be supplied by the Allied plant. Sincerely yours,

A. R. LEEDECKE,

General Manager. Chairman PASTORE. You can state for the record, Dr. Wilson, why this shutdown has to take place and particularly here.

Dr. WILSON. Because of reduced demand.
Chairman PASTORE. Reduced demand for what?

Dr. Wilson. For UF.. Going through the stretchout period, as you know, and we have cut back the power in the diffusion plants and all that.

Mr. CHIASE. It is our understanding that Paducah has now been removed from the distressed list.

Dr. Wilson. Is that right?
Mr. CHASE. Yes, we understand that.

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