You would feel if we gave them these 5 years, we would have to give them a couple more?

Mr. ABBADESSA. This is a judgment factor that I will be better able to answer 5 years from now.

Dr. WILSON. We would not have to give them 125 days. There would be a tapering off.

Mr. CONWAY. That 1973 figure involves fuel that will be coming from reactors that as of now this plant would not be capable of processing. Is that not correct?

Dr. WILSON. I think not.

Mr. QUINN. These are fuels the plant should be able to handle. It represents nuclear plants with fuels that would be handled with aqueous technology.

Mr. CONWAY. Are you saying that the plant as designed now will be able to process fuels coming from reactors that will be in operation in future years?

Mr. QUINN. On the basis of our present estimates, that is right. However, reactor operators always have the flexibility of changing their fuel types.

Mr. CONWAY. If they do change their fuel types, it would affect this? Mr. QUINN. It would require some modification in order to permit the NFS plant to handle them.

Mr. CONWAY. The GAO report pointed out the possibility that some of these reactor operators might like to batch their fuels to get cheaper costs. This does not take into consideration the fact that they could be batching?

Mr. QUINN. That is correct.

MONOPOLY ASPECTS OF PROPOSED ARRANGEMENT

Senator ANDERSON. Has there been any Justice Department study of the monopoly features of this? This would be the only plant for a long time to come.

(Correspondence relating to the above matter follows:)

Mr. JOHN T. CONWAY,

U.S. ATOMIC ENERGY COMMISSION,
Washington, D.C., August 15, 1963.

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

DEAR MR. CONWAY: At the hearing before the Joint Committee on Atomic Energy on May 14, 1963, concerning the proposed Nuclear Fuel Services, Inc., plant. Commissioner Wilson indicated that the Commission expected to submit the proposed NFS-AEC base load contract to the Department of Justice for their review. By letter dated July 2, 1963, the Commission requested this review, and we have received a reply from the Department of Justice dated August 9, 1963. Copies of these letters are attached for your information.

Sincerely yours,

BERTRAM H. SCHUB,
Acting General Counsel.

Hon. ROBERT F. KENNEDY,
The Attorney General.

U.S. ATOMIC ENERGY COMMISSION,
Washington, D.C., July 2, 1963.

(Attention: Hon. William H. Orrick, Jr., Assistant Attorney General.)

DEAR MR. KENNEDY: The Atomic Energy Commission is planning, in the near future, to execute a contract with Nuclear Fuel Services, Inc. (hereinafter referred to as "NFS"), calling for NFS to provide chemical processing services for irradiated fuel elements from nuclear reactors owned by the United States, licensees of the AEC and foreign governments. From the outset of the development of this arrangement, the Commission has had in mind certain possible monopoly aspects due to the fact that the small amount of private reactor fuels available for reprocessing during the first few years of operation would make the operation of two competing private reprocessing plants economically impracticable. The Commission has taken precautions both to see that industry had a fair chance to compete for the establishment of this first private plant and that every opportunity would be provided for the entry of a competing enterprise into the field as soon as the quantity of private fuels available would justify construction of a second plant, which should be within a period of 6 to 10 years. The Commission has been negotiating this arrangement over an extended period with the purposes of providing maximum opportunity for the establishment of a competitive private industrial position and has taken certain steps toward that end which are described below; however, we would appreciate your review of the proposed arrangements from the standpoint of any inconsistency with the antitrust laws.

In order to assist you in reaching your conclusions, we would like briefly to review the history of chemical processing of irradiated fuel elements, the background of the proposed NFS-AEC contract, the essential terms of the proposed NFS-AEC contract, the contemplated arrangements between NFS and its customers other than the AEC, the prospect of early development of a competitive plant, and the AEC's relationship to NFS, its potential customers and others apart from the proposed NFS-AEC contract.

I. HISTORY OF CHEMICAL PROCESSING OF IRRADIATED FUEL ELEMENTS Fuel elements which have been irràdiated in nuclear reactors become unusable after a period of time and must be removed and replaced with new fuel elements. However, there remains a considerable amount of valuable special nuclear material (e.g., uranium enriched in U and/or U, and/or plutonium) in these removed fuel elements. To recover and separate these special nuclear materials, the irradiated fuel elements must be chemically processed to get rid of the radioactive fission products.

The AEC leases special nuclear material to private reactor operators for use as fuel, and is required to pay a "fair price" for special nuclear material produced by licensees in private reactors. Under section 161 m. of the Atomic Energy Act of 1954, as amended, AEC is authorized to provide for chemical processing services for special nuclear material utilized or produced by licensees in private reactors at prices which provide reasonable compensation to the Government and which will not discourage the development of sources of supplies independent of the AEC.

The AEC has constructed a number of Government-owned plants at AEC sites for the chemical processing of irradiated fuel elements from AEC's plutonium production, and certain other highly enriched reactors. However, in the mid1950's, when the first private nucelar reactor projects were getting underway, there was not available, either from the AEC or from private industry, a chemical processing service for these private reactors. Neither was there available any specific information on the costs of chemically processing the type of fuels discharged from these reactors.

Accordingly, in March 1957, a policy was announced under which AEC offered, under individually negotiated contracts, to accept irradiated nuclear fuel from licensees for financial settlement. The settlement included charges for chemical processing. In announcing this policy, the AEC made clear its desire to continue to encourage the development of a commercial capability for irradiated fuel processing by stating that in implementing this policy, contractual arrangements between AEC and licensees would expire on June 30, 1967, or earlier if the AEC determined that the required processing services would be commercially available at "reasonable" charges. As a basis for the charges AEC would make for chemical processing services for power reactor fuels where the technology had not been developed or demonstrated, a hypothetical multipurpose chemical processing plant was conceived by the AEC. The estimated costs associated with this so-called conceptual plant (which was preliminarily designed for the purpose of establishing charges, but which was never built) were the basis for the establishment of AEC's charges for chemical processing services. The AEC considered that such charges were reasonable in that they were not so high as to discourage the growth of nuclear power; nor were they so low that a private chemical processing service would be indefinitely deferred, in the light of the continuing development of chemical processing technology and the then-anticipated growth in availability of fuels which would require processing services.

The AEC has a fourfold objective in encouraging the development of a private chemical processing capability, viz,

1. To have privately owned processing plants in operation as it becomes necessary to process different types of fuel elements from privately owned. and other power reactors.

2. To eliminate the responsibility of the AEC to the reactor industry to provide for the processing of private reactor fuels.

3. To have available a private capacity for processing certain fuels from Government reactors, in order to supplement existing Government facilities and to avoid additional capital expenditures for storage and processing facilities.

4. Finally, and perhaps most important of all, to demonstrate as soon as practicable in a privately owned facility the economics of chemical procesing of different types of fuels for privately owned reactors in order to bring to bear the potential and capabilities of private industry in lowering the cost of this part of the fuel cycle.

In connection with the fourth objective noted above, chemical processing is an important part of the AEC's goal of achieving nuclear powerplant designs which will produce economically competitive power in the United States. Toattain this goal, the AEC has spent considerable sums on the total reactor program and undertaken a number of reactor demonstration projects. The cost: of chemical processing must be considered at an early stage in the conceptual design of a nuclear reactor as it could have a significant influence on the total cost of the power. Accordingly, in order for the reactor industry to be able to base its design decisions on true economics, it is important that the economics of fuel processing be known accurately at an early date.

Such knowledge would not be forthcoming if power reactor fuels were processed at the large Government facilities designed basically for the processing of very large quantities of irradiated fuels from the Commission's reactors that are utilized for the production of military materials and fuels from the Commission's reactors used for research and development purposes. The private reactor fuels, if so processed, would be of such small volume compared to the Government processing load that unit processing costs, with the advantage of a broad base for allocation of charges for depreciation and overhead, would be unrealistically low. Addition of auxiliary facilities (in the magnitude of several million dollars) to the Government processing plants would be necessary to permit handling the different types of private fuels, but amortization of such facilities, as well as determining appropriate allocation of amortization for the existing large facilities would present substantial problems and lead to further distortions. In addițion, the costs of operation of the Government: facilities would not be a meaningful index as to the cost of a private operation. Examples of costs that would be different in these Government facilities versus. a private plant are taxes, insurance, and administrative costs. Furthermore, in view of the intimate association of the large Government facilities with themilitary and other programs, and the possibility of wide fluctuations in the

utilization of those facilities for Government purposes, private reactor operators would be faced with considerable uncertainty concerning the future availability of these facilities for the processing of private reactor fuels, and the charges that the Government might make for processing of private fuels in these facilities. These were some of the problems which caused the AEC to formulate its chemical processing charges on the basis of a "conceptual plant," as discussed above.

The Commission considers it necessary for the future development of the nuclear power industry that those considering the construction of nuclear plants be able to make their decisions on the basis of reliable industrial experience that will have establish ed, under normal industrial conditions, the actual cost of chemical processing of fuel elements of various designs and compositions. The Commission would expect further that the early entry of private enterprise into this field would bring to bear industrial management capabilities and incentives that should effect efficiencies and economies leading to reduction in the cost of this element of the nuclear powerplant fuel cycle. Such participation, in the Commission's opinion, would serve to further the national policy established in the Atomic Energy Act that "the development, use, and control of atomic energy shall be directed so as to promote world peace, improve the general welfare, increase the standard of living, and strengthen free competition in private enterprise."

In 1956 and 1957, when it appeared to the AEC that the area of irradiated fuel processing was likely to continue to be a gap in a broadly based commercial nuclear industry, AEC undertook to discuss with industry representatives the AEC program of encouraging the development of a competitive, industrial irradiated fuel processing capability. In soliciting expressions of industry interest in the construction and operation of a private chemical processing plant, the AEC made known that it would consider as "reasonable" charges by industry on the order of 15 percent higher than the AEC charges based on the conceptual plant. That is, AEC would not offer its own services in competition with a private plant whose charges were on the order of 15 percent higher than conceptual plant charges. As another element of encouragement to the industry, AEC announced its willingness to make available, as a baseload to a private chemical processing venture, certain quantities of irradiated fuels to be discharged from Government-owned reactors. In 1957, AEC conferred with representatives of approximately 34 companies, including a number of leading chemical and refining firms, concerning possible private industrial participation in the chemical processing field. However, it soon became clear that most interested members of the industry considered the potential commercial load for such a facility to be inadequate to justify its early construction. As a result, AEC made preliminary plans to modify AEC chemical processing facilities to carry out power reactor fuel processing, but indicated its continued willingness to consider proposals from industry.

In 1959, however, a new industrial interest in chemical processing developed. The present NFS venture is the culmination of studies by five electric utilities building nuclear powerplants-Yankee Atomic Electric Co., Commonwealth Edison Co., Consolidated Edison Co., Northern States Power Co., and Power Reactor Development Co.-and the Davison Chemical Co., division of W. R. Grace & Co. (hereinafter referred to as "Davison"). These companies constituted themselves as the Industrial Reprocessing Group, or IRG, which was formed in 1959. On the basis of the industrial interest reflected by the IRG study, the AEC deferred proceeding with planned modifications of AEC facilities to permit power reactor fuel processing. The IRG continued its studies through 1961.

II. BACKGROUND OF THE PROPOSED NFS-AEC CONTRACT

In January 1962, Davison outlined to the AEC its plans for constructing the first privately owned chemical processing plant. Davison informed the AEC that the IRG had terminated its existence prior to that date, since its basic studies had been completed. Davison proposed to construct its plant on the condition that it could obtain, among other things, long-term contracts with utilities and a 5-year baseload contract from AEC. The AEC considered the Davison proposal and concluded that it appeared to hold promise of satisfying AEC's basic objectives noted above. Accordingly, in March 1962, the AEC notified Davison that its proposal to provide the commercial service, involving a baseload of Government fuels to supplement the fuels that would be supplied by

licensees and others, constituted a satisfactory basis for further negotiation and development of definitive plans. Soon thereafter, NFS, à Maryland corporation organized and owned jointly by W. R. Grace & Co. and the American Machine & Foundry Co., replaced Davison as the entity to undertake the venture.

NFS would own, in addition to the proposed irradiated fuel processing plant, (i) an existing fuel fabrication facility previously owned by American Machine & Foundry Co. and located at Port Hope, Ontario, Canada, and (ii) an existing facility for the chemical processing of unirradiated uranium, previously owned by Davison and located at Erwin, Tenn. NFS proposed to enter into a contract with the Bechtel Corp. for the design and construction of the new plant. In addition to the $8 million cash equity of the stockholders, NFS sources of funds include $13.3 million in bank loans and a $2 million grant from the Empire State Atomic Development Associates, Inc., a group of New York State utilities. The NFS plant would be located on a site in western New York State leased to NFS by the New York State Atomic Research and Development Authority (hereinafter referred to as “ARDA”), a public corporation of the State of New York. ARDA would also own and lease to NFS certain portions of the plant complex. The ARDA site and facilities are valued at $8.5 million. Since November 1962, negotiation of an NFS-AEC contract for the baseload of Government fuels has been actively underway.

III. ESSENTIAL TERMS OF THE PROPOSED NFS-AEC CONTRACT

As currently drafted, the proposed contract calls for AEC to deliver and NFS to process irradiated fuels equivalent to approximately 125 "revenue units" annually over a 5-year period ending no later than June 30, 1971. A “revenue unit" is equivalent to about 1 day's work in the NFS plant, at design rates. In addition, AEC would deliver, for processing, certain irradiated fuels previously delivered to AEC by licensed reactor operators under the terms of AEC's March 1957 announcement. NFS would construct a chemical processing plant, and would process the irradiated fuels delivered by AEC essentially for a fixed charge. NFS would agree to provide chemical processing services, within the capability of its plant, for any licensee of the AEC or foreign government, during the term of the AEC contract, at charges and upon terms and conditions which, taken as a whole, are no less favorable than those contained in any contract between NFS and any of its other customers. The patent provisions in the proposed contract are essentially in the standard form set forth in the Atomic Energy procurement regulations, insofar as AEC reserves the right, in the Government, to take title to patents on all inventions. This is consistent with the provisions of section 152 of the Atomic Energy Act of 1954, which vest in AEC title to all inventions made or conceived in the course of or under an AEC contract, when the inventions are useful in the production or utilization of special nuclear material or atomic energy, except as AEC may waive its rights. It is the usual AEC policy to retain all rights in the Government in any inventions useful in the production or utilization of special nuclear material or atomic energy, and to grant royalty-free licenses in those inventions to members of the public. The contractor is sometimes permitted to retain certain licensing rights in inventions for use for purposes other than in the production or utilization of special nuclear material or atomic enery, in cases in which such inventions relate only incidentally to research and development work of the AEC and are in a field in which the contractor has an established industrial or patent position. In addition, AEC would have the right of access to all technical and cost data developed in the course of design, construction or operation of the plant, and could disseminate to the public including potential competitors of NFS), without charge for use, the more significant portions of these data.

A copy of the latest draft of the proposed NFS-AEC contract (draft No. 5, dated May 2, 1963) is attached as attachment "B."

ARRANGEMENTS BETWEEN NFS AND ITS CUSTOMERS OTHER
THAN THE AEC

Concurrently with the development of the proposed contract with AEC, NFS has been negotiating processing contracts with the IRG members. To keep AEC informed and at AEC's request, NFS has furnished AEC with copies of its draft contracts with these utility companies, and we have been informed that there is now substantial agreement on their content although there may well be changes in these documents before they are executed.