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CHEMICAL REPROCESSING PLANT

TUESDAY, MAY 14, 1963

CONGRESS OF THE UNITED STATES,
JOINT COMMITTEE ON ATOMIC ENERGY,

Washington, D.C. The Joint Committee met at 10 a.m., pursuant to call, in room AE-1 the Capitol, Senator John 0. Pastore (chairman of the Joint Committee) presiding

Present: Senators Pastore, Anderson, and Curtis; Representatives Price, Morris, Westland, and Anderson.

Also present: Senator Dirksen.

Staff members present: John T. Conway, Executive Director; Edward J. Bauser, Assistant Director; Jack R. Newman, staff counsel; and Robert L. Hart, GAO consultant.

Chairman PASTORE. The committee will be in order.

The Joint Committee opens public hearings today on proposed arrangements for the construction and operation of a major chemical reprocessing plant in New York State. These hearings were announced on May 2, 1963, and I will insert a copy of the Joint Committee press release in the record at this point.

(The press release follows:)

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[Press release from the Office of the Joint Committee on Atomic Energy, May 2, 1963]

HEARINGS ANNOUNCED BY THE JOINT COMMITTEE ON ATOMIC ENERGY ON

CHEMICAL REPROCESSING PLANT

Public hearings on proposed arrangements for the construction and operation of a major chemical reprocessing facility in New York State were announced today by Senator John O. Pastore, chairman of the Joint Committee on Atomic Energy.

The chemical reprocessing plant, the first commercial facility of its kind, would be operated by Nuclear Fuel Services, Inc. (NFS), a corporation formed by W. R. Grace & Co. and the American Machine & Foundry Co. The planta would be located in New York State on land leased from the New York State Atomic Research & Development Authority. An essential element of the arrangements is a contract between the AEC and NFS under which the AEC would guarantee to provide a definite baseload of Government fuels for processing at the NFS plant.

In announcing the hearings, Chairman Pastore stated :

“This project will be the first venture by private industry into this important phase of the atomic energy business. It involves some major Government commitments which will affect the future of the civilian power reactor program. In view of these facts, I believe it is important for the Joint Committee to obtain and place on public record all of the available information on this proposed project."

Witnesses from the AEC, NFS, and the New York State Atomic Research & Development Authority will be invited to testify.

The hearings will begin at 10 a.m. on May 14 in the Joint Committee on Atomic Energy open hearing room, U. S. Capitol, Washington, D.C.

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Chairman PASTORE. This proposed plant, the first privately owned facility of its kind, would be operated by Nuclear Fuel Services, Inc., on land leased from the New York State Atomic Research and Development Authority. The arrangements for this plant involve some major Government commitments which may vitally affect the future of civilian nuclear power. The project also involves the entry of private industry into one of the two remaining areas of the atomic energy industry which are totally Government-operated, the other being the Government diffusion plants.

Therefore, I believe it is necessary and appropriate to obtain, and place upon the public record, all of the available information on this project. The committee received letters from the Commission on February 28, 1962, and December 3, 1962, which generally described the contractual negotiations and the status of the project and I will insert both letters in the record at this point. (The letters follow:)

ATOMIO ENERGY COMMISSION,

Washington, D.O., February 28, 1962. Hon. CHET HOLIFIELD, Chairman, Joint Committee on Atomic Energy, Congress of the United States.

DEAR MR. HOLIFIELD: In my letter of February 1, 1962, I informed you that the General Electric Co. and the Davison Chemical Co. had submitted plans in regard to private industry participating in the chemical processing phase of the fuel cycle.

With respect to the General Electric submission, the Commission has concluded that this plan, which is based upon large-scale use of Government-owned facilities and a combine of companies, is not compatible with the development of a fully private processing industry. Leasing of the AEC facilities for a 10-year period as suggested by General Electric would probably prevent achieving the Commission's objective of having a completely private facility available as it became necessary to process fuel elements from private owned plants and would delay this goal for at least that length of time.

The Davison plan, on the other hand, appears to satisfy the basic considerations which AEC has continuously stressed since 1956 in discussions with industry, and is the result of 2 years of intensive technical study and negotiations with private reactor companies. The Commission has determined it is impracticable to attain the Commission's fundamental objectives in this area by inviting new competitive proposals at this time and intends to commence negotiations with the Davison Chemical Co. I should like to note that the proposed arrangement with Davison would involve a 5-year commitment for no more than 50 percent of the nonproduction fuels that AEC estimates will be available to it for reprocessing. AEC is, therefore, in a position to provide an equivalent quantity to another processor on a competitive basis. In this way AEC would help to establish the first private chemical processing facility, and would be able to provide similar assistance to a competitive facility at the appropriate time.

The Commission appears to have the requisite legal authority to follow the course of action outlined above. However, the Davison plan envisions a 5-year contract with the AEC for chemical processing services. Although the Commission possesses the authority to enter into long-term contracts in certain situations under section 161 u. of the Atomic Energy Act, the legislative history of that section raises a question as to congressional intent with respect to longterm contracts for chemical reprocessing services. Specifically, we have in mind the following languages in the 1958 Joint Committee report with respect to subsection 161 u. (1):

The most immediate urgency expressed by the Commission during the hearing was the need for more test reactor services. If additional authority is needed at a later date for long-term contract authority for reprocessing materials, a fur: ther amendment to the act to provide such authority can be requested by the Commission at that time." (H. Rep. No. 2272, 85th Cong., 2d sess.—"Amending the Atomic Energy Act of 1954, as amended," p. 7.)

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Because of this doubt as to the intent of the Congress, it is possible that legislative action by Congress may be necessary or desirable for this project.

In the light of these facts, the Commission intends to proceed with the Davison Chemical Co. in the development of a satisfactory basis for arrangement. If a satisfactory arrangement is agreed upon we would plan to submit it to the Joint Committee and if legislativ action appears necessary, to request such legislation. Sincerely yours,

A. R. LEEDECKE,

General Manäger.

ATOMIO ENERGY COMMISSION,

Washington, D.C., December 3, 1962. Hon. CAET HOLIFIELD, Chairman, Joint Comniittee on Atomic Energy, Congress of the United States.

DEAR MR. HOLIFIELD: On February 28, 1962, we advised you that we were entering into discussions with the Davison Chemical Division of W. R. Grace & Co. looking toward an arrangement under which Davison would design, construct, and operate a privately financed plant for processing spent fuel elements from private reactors. The conteinplated arrangements would also include a contract under which the AEC would provide an annual base fuel load of 100 days for the initial 5 years of plant operation. Subsequently, W. R. Grace & Co. and the American Machine & Foundry Co. formed a new corporation, Nuclear Fuel Services, Inc., (NFS) to implement their fuel processing program.

Nuclear Fuel Services, Inc., has recently submitted its contemplated charges, and supporting cost data, as part of its proposal to AEC on providing processing services to industryOn October 8, NFS advised that if the project is to go forward on the present schedule, which provides for construction to be initiated in the spring of 1963, NFS must reach agreement with the Commission prior to December 31, 1962, on the contract under which the AFC would furnish a fuel load of 100 days per year for a period of 5 years. NFS requested that the AEC ipdicate its proposed charge schedule is reasonable, and that the AEC withdraw, at the time agreement is reached on the base load contract, its offer to process those privatë fuels which are within the capability of the NFS plant.

The information presented by NFS has been intensively studied by the AEC. It has been concluded that, although there are a number of components of the arrangement, which still need to be finalized, the AEC should, on the basis of the information submitted, offer to negotiate a base load contract since analysis of the NFS proposal to date has revealed no reasons to prevent further con. sideration of the proposed basis of arrangement.

The AEC has not made a determination on the reasonableness of NFS.contemplated guaranteed charges for individual fuels. It will first be necessary to explore with NFS possible methods for reducing the proposed charges for certain types of fuels and for small reactors. In addition to the stated charges for processing specific fuels, the AEC's reasonable charge determination must also consider the arrangements to be provided in NFS contracts with utilities now being developed and the anticipated profit on the basis of the guaranteed charges. The AEC must be assured that the contractual terms and conditions applied to the specified charges constitute a reasonable arrangement since these terms and conditions have financial implications to the reactor operators.

On October 31, 1962, NFS was advised by letter that (1) while the AEC is prepared to undertake negotiations of the baseload contract, we cannot at this time make a determination that the NFS charges are reasonable, (2) the AEC's determination of the reasonableness of NFS. charges must consider, in addition to the guaranteed charges and associated processing rates, the terms of the arrangements to be developed during negotiations between NFS and the utilities, and (3) the AEO would announce at the time agreement is reached on the baseload contract the prospective withdrawal of its offer to receive spent fuels effective upon NFS demonstration of capability to process specified fuel types. Addi

tional information on the progress of arrangements with NFS are discussed in our October 31 letter to Mr. Runion, a copy of which is attached for your ipformation. On November 1, 1962, NFS accepted the AEO's offer to negotiate a baseload contracte

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NFS' current time schedule calls for fieldwork to commence at the New York State Nuclear Service Center on or about May 1, 1963. NFS has stated that, prior to proceeding with the construction of a commercial chemical processing plant, the following conditions must be satisfied:

(a) It will be necessary for NFS to reach agreement with private utility companies with nuclear reactors to furnish NFS a substantial load of nuclear fuels requiring processing over the next 15 years.

(6) It will be necessary for the Bechtel Corp., the general contractor for the construction of the project, to guarantee that the construction costs will not exceed an acceptable peak figure.

(c) It will be necessary for NFS to reach suitable lease arrangements with the State where the plant will be located.

(d) It will be necessary for NFS to reach an agreement with the Atomic Energy Commission for additional load for the plant from Government fuels, and for the other arrangements, in connection with the construction and operation of this plant.

NFS has informed the AEC that it has obtained from Bechtel Corp. a guarantee that the construction costs of the project will not exceed an acceptable peak figure if fieldwork is commenced by May 1, 1963. NFS also has informed the AEC that it possesses an option to lease a suitable location in the State of New York on a satisfactory basis. The option must be exercised by December 31, 1962. NFS is, therefore, striving for the completion of its contracts with the utilities and AEC by the end of this calendar year.

We would be happy to discuss further the status of the project with you if you so desire. Sincerely yours,

A. R. LUEDECKE, General Manager.

ATOMIC ENERGY COMMISSION,

Washington, D.O., October 31, 1962. Mr. T. O. RUNION, President, Nuclear Fuel Services, Inc., Washington, D.O.

DEAR MR. RUNION: Your letter of October 8, 1962, outlining the current timing established by Nuclear Fuel Services, Inc., for initiating construction of the proposed processing plant at the Western New York Nuclear Service Center indicates an urgent need to reach agreements on the details of the arrangements under which NFS plans to provide private processing capability. We recognize you must also complete arrangements with the utilities including guaranteed processing charges and with New York State; we recognize that you must also complete sufficient design to assure initiation of construction by spring 1963, if your overall schedule is to be met.

In my letter of March 12, 1962, you were advised that the Commission, on the basis of your tentative proposal, had approved initiation of discussions with your company with a view to development of a satisfactory basis of arrangement. After discussions with AEC, and at our request, you submitted on June 18, 1962, a proposal which consolidated the NFS position on providing such services to the industry. This proposal has been supplemented by a series of letters, the latest being your letter of September 21, 1962, transmitting cost and charge information, I wish to express our appreciation for the considerable effort that has gone into the preparation of the basic data leading to the June 18 proposal and its supplements. This information has been under intensive review by the AEC. Although addtional information is necessary, the review to date has revealed no reason why the AEC should not undertake negotiation of the definitive terms and conditions of the proposed 100-day baseload contract as well as the other aspects of the overall basis of arrangements for commercial chemical processing. We would like to be informed of your acceptance of our offer to negotiate such a baseload contract.

To facilitate these negotiations, we should be provided with a single, self-contained and updated document to replace the series of documents which have previously been submitted as part of your proposal. Documents you have supplied since June have resulted in considerable changes to the basic June 18 proposal. However, no cross reference has been made to your earlier submission, nor have we been advised of the specific material which has been superseded. Thus, we are lacking at this time a complete understanding of the current position of NFS on all aspects of the project. The preparation of this new document, however, need not delay the start of negotiations on the baseload contract.

We feel that, as a part of negotiations, NFS should furnish to AEC a current statement of the conditions under which W. R. Grace and AMF are willing to support the project financially. Such a statement would serve to update and amplify the general conditions contained in your June 18 letter. This seems particularly pertinent since some of the conditions stated earlier now may be outdated. We have recently discussed with you and members of your staff our analyses of the loads potentially available for processing; these analyses indicate that the obtaining of 300 revenue-days per year by NFS from its contemplated customers is not assured. Thus, the financial resources available to NFS must be defined. In addition, present data and information available to us indicate the need for some measure of additional financial support by the sponsoring companies and/or others. We request that you explore the possibility of obtaining further financial guarantees from the sponsoring companies.

Your October 8 letter requested that AEC indicate that the NFS rate schedule is reasonable. Our determination of the reasonableness of NFS charges must consider, in addition to your quoted charges and associated processing rates, the terms of the arrangements as developed in NFS contracts with utilities and the NFS cost-profit position on the basis of NFS guaranteed charges. The AEC does not intend to participate in negotiations of NFS-customer contracts; we are relying upon the informal industrial negotiation framework to yield mu. tually acceptable contract terms. But the essential terms of the contracts that would be available to the utilities must be finalized before we could make the determination. In summary, therefore, while the AEC is prepared to undertake negotiation of the baseload contract, we cannot at this time make the determination that the NFS rate schedule is reasonable as requested in your October 8 letter. However, when NFS has finally determined the essential terms of the contracts that would be available to the reactor operators, including guaranteed charges for defined services, the AEC would then be in a position to determine the reasonableness of NFS charges.

Two of the four conditions set forth in the June 18 proposal require NFS reaching agreements on the arrangements for providing processing services to private utility companies and to the AEC. It is clear from the conditions and the time schedule for initiating construction that NFS must conduct concurrent negotiations with AEC and the utilities. Although AEC negotiations can now be undertaken and the AEC contract with NFS could be executed after reaching agreement, it would be conditioned upon completion of the agreements with the utilities having the private load prerequisite to construction. It is anticipated that the AEC baseload contract will contain a commitment by NFS to provide defined services to industry and AEC for specified types of fuels at guaranteed charges for at least the term of the baseload cor

In your October 8 letter you also requested that the Commission withdraw, at the time agreement is reached on the baseload contract, its offer to process the fuels of the utility companies insofar as such fuels are within the capabilities of the NFS plant. At the time a baseload contract is executed, the AEC will announce that it will discontinue receiving for financial settlement those irradiated fuel types which NFS has agreed to process in its plant. Such withdrawal would be effective when the NFS plant demonstrates capability of processing such specified fuel types in accordance with design expectations and would apply for such period of time as NFS guarantees its willingness and capability to process these fuel types at specified charges and under terms and conditions found by AEC to be reasonable.

In preparing for these negotiations, the following matters should receive your immediate attention. You will be contacted shortly by Mr. F. P. Baranowski, Director, Division of Production, for early discussions to identify and clarify the additional data which also is to be submitted as part of your updated consolidated proposal document.

1. The information in support of NFS financial qualifications contained in the proposal and its supplements should be amplified as discussed with you by the staff and later revised when NFS will be in a position to guarantee charges under contracts.

2. Our analysis of the cost information transmitted has developed that your contemplated charges for small reactor operators need to be further explored. Consideration should be given to an adjustment in your turnaround formula for small reactor operators. Further, the processing rates for the high-enriched

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