These are essentially fixed charge requirements contracts for the fuels from a specific reactor or reactors which can be processed in the NFS plant, with the utility agreeing that in the event the load is less than that which would produce a stated dollar amount of processing work the utility will make up the load from any other reactor it might own or operate. The contract provides that if the utility sells the subject reactor, it will obtain an agreement from the buyer to have the reactor's irradiated fuel elements chemically processed by NFS. If the utility should enter into an arrangement with a private supplier of fuel elements under which such supplier reserves the right to process the elements when irradiated, the utility must secure an agreement from such supplier that fuels used in the reactor must be chemically processed by NFS.

The term of the contract covers irradiated fuel elements discharged from the subject reactor from the date of execution until December 31, 1980. However, if the utility receives a bona fide offer from another commercial chemical processor, at any time after 5 years from the date NFS receives its first shipment from the utility, at a lesser cost (including freight) than would be incurred under the NFS contract, the utility may terminate the contract on 1 year's notice unless NFS meets the lower offer. The relationship of this "competitive out" provision to the language dealing with a utility's processing arrangements with a private supplier of fuel elements, referred to above, is not entirely clear although the "competitive out" provision would appear to govern.

In the event the utility proposes to deliver an irradiated fuel which is within the capability of the NFS plant but which deviates from the fuels originally proposed for chemical processing the contract provides for arbitration of any disagreement over terms and conditions, provided that either party may appeal to the AEC for a final determination of the reasonableness of such terms and conditions. If AEC determines them reasonable, the fuels shall be chemically processed by NFS in accordance with such terms and conditions. If the AEC determines that such terms and conditions are unreasonable, NFS shall not be obligated to process the fuels and the utility may have such fuels processed by the AEC or another processor upon terms and conditions determined by the AEC to be reasonable, unless NFS shall agree to process the fuels upon such terms and conditions.

The contract contains a provision reducing NFS' charges, within certain limits, in the event the total load in the NFS plant in any 1 year exceeds 300 revenue units. There is a "most-favored-nation” article which states that if NFS subsequently enters into a new contract with any other customer which, taken as a whole, is more favorable the utility may have its contract amended so that it, taken as a whole, is equally favorable. If the utility requires conversion of the end product of the chemical processing (plutonium nitrate or uranyl nitrate) into other forms, NFS has the right of first refusal to perform such service. The utility agrees that it will not accept an offer from others to perform such conversion services at a price or upon terms less favorable to the utility than the price or terms offered by NFS.

A copy of the latest undated draft of the proposed NFS-Utility contract, which has been furnished to us, is attached hereto as Attachment "C.”

We understand that NFS is planning to offer similar contracts to other prospective customers, including foreign entities. We further understand that the extent to which NFS would be willing to deviate from its position as stated in those contracts would depend in some measure on the agreement by its other customers that they would not insist upon a similar deviation in their contracts under the provisions of the most-favored-nation article.

V. AEC'S RELATIONSHIP TO NFS, ITS POTENTIAL CUSTOMERS AND OTHERS-APART FROM THE NFS-AEC CONTRACT

The AEC has a number of relationships with NFS, and the nuclear industry concerning this venture which extend beyond the proposed NFS-AEC baseload contract. There is, of course, AEC's regulatory responsibility with respect to the project. In this connection, NFS submitted its application to AEC for a construction permit in July 1962. In January 1963, ARDA joined in the application. ARDA is to own the plant site in the name of the State of New York. ARDA is also directly responsible for assuring perpetual control for the State of New York of any wastes buried on the site.

The Atomic Safety and Licensing Board which heard the case issued its Initial Decision on April 20, 1963. In accordance with this decision and a Commission order authorizing the decision to become effective 10 days after date of

issuance, the provisional construction permit to NFS and ARDA was issued on April 30, 1963.

The AEC has attempted to take all necessary steps to facilitate competition in irradiated fuel processing and to provide a framework which would be conducive to its eventual establishment. Thus, in announcing in March 1962 the AEC's decision to commence detailed discussions of the proposed venture with NFS, the AEC made known its willingness to make available an equivalent load of irradiated fuels to another qualified chemical processor as a baseload for a second private plant. AEC is prepared to supply such a load. This offer will remain open after the expiration of the term of the proposed NFS contract. As noted under III, above, the AEC also plans, as part of its baseload contract with NFS, to obtain appropriate rights (including rights of dissemination) with respect to patents, technical information and cost information concerning design, construction and operation of the NFS plant, and would make such information available to a potential competitor. Finally, as discussed more fully below, the AEC would have the opportunity to review NFS charges and terms and conditions for providing services to industry to assure that the services were available on a reasonable basis and to continue to provide processing services in any instance where AEC determined that the NFS charges, terms and conditions were not reasonable.

AEC's review of NFS terms and conditions for providing services to industry is of prime importance, since at the heart of the NFS proposal is the premise that AEC would cease receiving licensee irradiated fuels, so as not to compete with NFS for the available commercial business. In accordance with the policies expressed in the Atomic Energy Act of 1954, as amended, to the extent that NFS makes available to the industry chemical processing services for specified fuels at reasonable terms and charges, the AEC will no longer accept such fuels under its March 1957 announcement. We should note here that an AEC determination as to whether it will receive any specific licensee fuel would become pertinent and necessary only where voluntary arrangements cannot be agreed upon between the reactor operator and NFS. However, before determining to cease receiving a specific irradiated fuel from a licensee, the AEC would assure itself that chemical processing services for that fuel were available at charges and under terms and conditions considered by the AEC to be reasonable. In general, therefore, in view of its responsibilities to the nuclear industry, the AEC would cease receiving fuels for chemical processing only to the extent that private processing services were actually available at reasonable charges and terms. The AEC does not feel that it can, at this time, commit itself to a complete withdrawal from the chemical processing field, thus forcing licensees to deal with NFS on NFS terms. For example, the AEC would not withdraw from receiving fuels for which commercial processing charges have not been established. We should emphasize, however, that while chemical processing costs represent a significant fraction of the total cost to the reactor operator of the nuclear fuel cycle, the differences in processing costs that would result from the NFS proposed schedule of charges will normally be very small. For example, for the Yankee Atomic Electric Co.'s reactor the increased cost of chemical processing resulting from the NFS charges relative to the charges currently being made by the Government for chemical processing services represents only 0.03 mill per kilowatt-hour of electricity produced. The impact of the NFS project on the cost of nuclear power and the cost to the consumer of electricity, accordingly, is very small.

The AEC does not expect to become a party to negotiations between NFS and its potential customers. We would hope that in all cases agreement could be reached voluntarily. In this regard, however, the AEC has attempted to assure that its views with respect to certain important terms and conditions of the proposed NFS-utility contracts were made known to the utility industry at an early date. The Commission met on February 15. 1963, to discuss these matters with representatives of NFS, a number of utility companies having or proposing to have large nuclear power plants, and the Atomic Industrial Forum. At this meeting, the Commission stated that it could not cease being available to receive licensee fuels where the effect of such action would be to compel the utility to accept a chemical processing contract under which it would be firmly committed to NFS through 1980. This position is intended to facilitate competition. However, the Commission fully recognized that long-term contracts could be an essential ingredient in the successiul financing of any private chemical processing plant, and reiterated the Commission's lack of any objection to long-term con

tracts voluntarily agreed to by NFS' customers. The Commission at this meeting also made clear that in considering the question of "reasonableness" of charges, it must regard chemical processing charges for new and improved fuels, or for fuels of current design irradiated more severely, in a broader context than only the cost to NFS for their processing. For example, AEC would not permit the future development of more economic fuels, or more economic methods of using fuels of current design, to be inhibited by high chemical processing charges as a result of design limitations in the NFS plant or of the limited quantity of the improved fuels.

VI. THE PROSPECT OF EARLY DEVELOPMENT OF A COMPETITIVE PLANT

From the outset of this project the AEC has given careful consideration to the potential problems associated with NFS' position as the sole private supplier of chemical processing services during the early period of its plant's operation. In this connection, AEC's current projections of fuel availability, as shown on attachment "A," indicate that there will be a few years beyond the term of the proposed NFS-AEC contract before 1 ton per day of irradiated fuel (the nominal capacity of the NFS plant) will be available from sources other than the Government. We further recognize that the size of the potential commercial load of irradiated fuel is such that, even with a Government base load, it may be some time before another commercial plant could operate competitively. The commercial load is increasing at a rapid rate, however, and on the basis of our projection could reach 2 tons per day by about 1977, and 4 tons per day by 1980. There are other considerations, however, favoring early development of a competitive plant. Firstly, AEC's calculations (based upon data supplied by NFS) indicate that NFS would require approximately 220 revenue units per year in order to meet its estimated financial obligations without profit. Thus, if the AEC were to provide an equivalent base load to a competitor of NFS, i.e., approximately 150 revenue units per year, without supplying any load to NFS, a competitive plant of the same size as the NFS plant could be economically feasible even if only 70 revenue units per year from private sources were available to such a competitor. Accordingly, a total private load of only 290 revenue units per year, with NFS receiving 220 revenue units and a competitor 70, could conceivably support two competitive plants. Such a private load, according to attachment "A,” would be available by 1973. Of course, if AEC were to supply base loads to both competitive plants, competition could arise even earlier.

Secondly, the cost of fuel transportation is a significant component of the total cost of the reactor operator of disposing of irradiated fuel elements. Accordingly, transportation costs can have a significant influence on the location of chemical processing plants and the development of a chemical processing industry. As an example, based on current estimates, fuel transportation costs are equivalent to 22 percent of the chemical processing costs for a plant such as the Pacific Gas & Electric Co.'s Bodega Bay reactor in California while they are only equivalent to 11 percent for the Yankee Atomic Electric Co.'s reactor in Massachusetts. The high cost of transportation for west coast utilities, together with the increasing percentage of the total irradiated fuel originating on the west coast, we believe, will tend to encourage the construction of a chemical processing facility on the west coast earlier than might be indicated by the simple analysis of the total load of irradiated fuel available for processing, given above.

CONCLUSION

To summarize, AEC is of the opinion that it is highly desirable from the standpoint of the national atomic energy program that a private chemical processing facility be constructed as soon as practicable. In view of the current state of the nuclear industry, it is obviously not economically feasible for more than one such plant to be constructed at this time. However, there are many reasons to believe that with the growth of the industry a competitive plant, probably on the west coast, will be built in the relatively near future. In light of the alternatives available to AEC, the NFS proposed venture, including the AEC baseload contract, represents the most practicable device to assure the development of a private chemical processing capability during the term of the AEC's contract. AEC has recognized the potential problems associated with NFS's position as the first private chemical processor and has attempted to take every action which is required to assure that processing charges will not impose unreasonable or unfair financial burdens on the nuclear power industry and its consumers during

the interim period when the NFS plant will be the sole private processing facility, and to maximize the possibility of a competitor entering the processing field, while preserving the viability and attractveness of the NFS project. If any minimal risk of restriction on competition remains, it can endure for only a very brief period and, in our opinion, is far outweighed by the very high desirability of effecting the establishment within the private economy of chemical processing capacity to serve the expanding nuclear power industry.

In view of the importance of this matter, and the fact that negotiations of the NFS-AEC contract are drawing to a close, we should appreciate having the benefit of your advice as soon as your convenience will permit.

Sincerely yours,

JOSEPH F. HENNESSEY, Esq.,

JOSEPH F. HENNESSEY,
General Counsel.

U.S. DEPARTMENT OF JUSTICE,
Washington, D.C., August 9, 1963.

General Counsel, U.S. Atomic Energy Commission,
Washington, D.C.

DEAR MR. HENNESSEY: This will acknowledge your letter and enclosures of July 2, 1963, dealing with certain proposed contractual arrangements for the establishment of a privately owned chemical processing plant for treating irradiated fuel elements from nuclear reactors owned by the United States, licensees of the Atomic Energy Commission, and foreign governments. You have requested that we review the proposed arrangements "from the standpoint of any inconsistency with the antitrust laws.” We summarize below the considerations which you have placed before us :

The plant in question would begin operations in 1966 and would be owned by Nuclear Fuel Services, Inc., which is the joint venture of W. R. Grace & Co. and American Machine & Foundry Co. Nuclear Fuel Services, Inc., proposes to enter into a contract with AEC for a 5-year period and a contract with five utility companies for a 15-year period.

While AEC has chemical processing facilities of the type in question, Nuclear Fuel Services, Inc., proposes to establish the first privately owned processing plant of that nature. Moreover, that plant will be able to process certain materials which AEC would not be able to handle without a plant expansion involving the expenditure of several million dollars.

The proposed plant will require an investment of $25 or $30 million in a new and uncharted field; and, if there has been any mistake in the calculations, it can develop into an unprofitable venture. In order for Nuclear Fuel Services, Inc., to break even, the new plant will have to perform about 220 days of processing operations per year, but the utilities' processing needs will require only about 90 days of work per year during the first 5 years (1966-70). To get the plant built at this time, it is essential that AEC give the plant 125 days of processing work per year during the first 5 years. Because of the limited amount of private work available during that period, it would be impracticable for more than one private plant to be established at this time. AEC has undertaken to assure that processing charges will not impose unreasonable or unfair financial burdens on the nuclear power industry and its consumers during the interim period when the proposed plant will be the sole private processing facility.

The private demand for processing services is expected to increase rapidly after 1970. In 5 years or so, a competitor could begin construction of a plant, planning to enter the field in the 1970's, in anticipation of receiving, from AEC, the same volume of Government business that is being given the currently proposed plant. The proposed processing plant would be established in western New York State. And, while the ratio of transportation cost to processing cost would be about 11 percent for a Massachusetts utility, it would be about 22 percent for a California utility. This, of course, would serve to encourage the development of a plant on the Pacific coast in the 1970's. AEC would seek to encourage such development by a company other than Nuclear Fuel Services, Inc., or its parent corporations.

In light of the present state of the art of processing irradiated nuclear fuel elements, and in light of the assurances you have given with respect to current and anticipated developments in that industry, we conclude that the joint venture of W. R. Grace & Co. and American Machine & Foundry Co., the proposed 5-year contract between Nuclear Fuel Services, Inc., and AEC, and the proposed 15-year contracts between Nuclear Fuel Services, Inc., and the five utility com

panies, should not be deemed impermissible from the standpoint of antitrust law or policy. However, we do believe that fewer problems of an antitrust nature would arise if the proposed plant were the undertaking of a single company rather then being a joint venture shared by two very large firms. We think you will agree that it is desirable that the Government encourage as much independence of action as possible on the part of firms capable of entering this processing field on an individual basis. Moreover, while there may be justification for 15-year commitments in the initial contracts between Nuclear Fuel Services, Inc., and the five utility companies, antitrust problems are less likely to arise in the future if subsequent processing contracts involve commitments for 5 years or less. We would hope that, at such time as the total demand for processing services becomes large enough to warrant the establishment of a competing processor, the entry of such a competitor will not be frustrated because the potential customers are virtually all tied to Nuclear Fuel Services, Inc., by longterm contracts.

Sincerely yours,

WILLIAM H. ORRICK, Jr.,

Assistant Attorney General, Antitrust Division.

Dr. WILSON. This will be the only plant presumably for at least 5 years and maybe longer. When we really finalize this contract, we expect to submit it to the Justice Department for their approval. Representative PRICE. I think since it is 12 o'clock and the House is in session at 12, the committee will recess until 2 o'clock this afternoon, and the chairman will resume sitting with the witnesses now before us.

(Whereupon, at 12 noon, the committee recessed, to reconvene at 2 p.m., the same day.)

AFTER RECESS

(The Joint Committee reconvened at 2 p.m., Representative Melvin Price presiding.)

Present: Representatives Price and Westland.

Representative PRICE. The committee will be in order.

The committee will resume to review the proposed arrangement for the construction and operation of the first privately owned facility for the chemical reprocessing of reactor fuels in the United States.

The Chair understands that Mr. Ramey has an early appointment this afternoon. Would you care to make any comments that you desire to make on this subject before taking off?

FURTHER STATEMENTS OF ROBERT E. WILSON, COMMISSIONER; JAMES T. RAMEY, COMMISSIONER; GEN. A. R. LUEDECKE, GENERAL MANAGER; GEORGE F. QUINN, OFFICE OF GENERAL MANAGER; HAROLD PRICE, DIRECTOR OF REGULATION; JOHN ABBADESSA, CONTROLLER; JOHN VINCIGUERRA, DIRECTOR OF CONTRACTS; JOSEPH HENNESSEY, GENERAL COUNSEL; AND BERT SCHWARTZ, DIVISION OF PRODUCTION, ATOMIC ENERGY COMMISSION

Mr. RAMEY. Thank you, Mr. Price.

GOVERNMENT SUPPORT IN THE FIELD OF FUEL REPROCESSING

I have always favored the private provision of reprocessing services for the Commission. I made a speech to that effect in 1957. It always seemed strange to me, then, that the Commission was somewhat allergic to the Government construction of power reactor prototypes,