COST OF NEW ISOTOPE SEPARATION FACILITIES; LEASE OF EXISTING

FACILITIES

Representative PRICE. They range from $750 million up over a billion dollars.

General NICHOLS. It depends on the size you are planning to build. My own feeling from what I know about it was you could start with a smaller plant than that, more on the order of $300 to $500 million, with planned expansion.

My own view is that the private enterprise should get into this by the route of first owning or operating existing plants. At least you explore that possibility.

Representative PRICE. On lease from AEC?

General NICHOLS. On lease from the Government or buying them from the Government.

Representative PRICE. If it came to the point where private industry would construct and operate its own diffusion plant, how long do you think it would be, under the present trend of nuclear developments, before it would be a profitable operation?

General NICHOLS. Do you mean after they built it?
Representative PRICE. Yes.

General NICHOLS. I would think they would try to go into it on the basis within 1 or 2 years after they start they would start making a profit and you could plan to expand the plant as the demand increased.

That is one of the advantages of the utility business. I am in it, and once you build a powerplant, there is not too much fluctuation in the use of that electricity so that anyone owning a gaseous diffusion plant or separation plant, if you knew what his competition was could be assured of the overall demand.

In other words, the demand is there because once you build an atomic powerplant, barring some unforeseen circumstances here which we do not contemplate happening

Representative PRICE. I recognize the fact that you are going to have to have more detailed study on the feasibility of such an operation and ownership of a plant. Do you think we are getting pretty close to that time when industry itself will want to build its own diffusion plant?

General NICHOLS. I felt it would be in the first half of the 1970's when private industry should start investing in a separation plant. If you consider that date is correct, you should be studying it today.

COMPETITIVE ASPECTS OF PRIVATE OWNERSHIP OF ISOTOPE SEPARATION

FACILITIES

Senator PASTORE. How about the competitive aspect of it? These plants are quite expensive. You would not expect everybody in the utility business to be building his own diffusion plant.

Would you not be placed at the mercy of some giant organizations that are going to invest? There will only be a few. It is like buying an automobile. You either buy Chrysler, General Motors, or a Ford and beyond that you can't select much further.

Usually you find the price is pretty much the same wherever you go. Look at the gasoline. Wherever you seem to buy your gasoline it seems to be the same. In other words, are you going to be in a better position or worse position?

I would not expect these plants to be all over creation. There would only be one or two of them at most and you are at the mercy of the giants. Who is going to own these plants?

General NICHOLS. I contemplated the initial ownership of a gaseous diffusion plant would be to own an existing plant.

Senator PASTORE. How would this be done?

General NICHOLS. You could follow somewhat the example of the Comsat.

Senator PASTORE. They are having their troubles.

We are starting hearings on that tomorrow.

On Comsat you have to realize they are under the jurisdiction of the FCC that regulates the rates which protects the public and protects the carriers.

General NICHOLS. You might have a similar organization under FPC. That should be studied by industry. When do you do this? What is the proper time?

Senator PASTORE. You are the boys who represent industry. I am all for your saying private industry should do this or that. I am one who feels that Government should not be doing anything private industry should do on its own.

General NICHOLS. The reason I stated the initial step should be private enterprise taking over existing plants is that it solves one of the problems what is the Government going to do with the existing plants will the Government be a competitor or not during the period when you first start in this venture?

Ultimately I can conceive of more than one owner, in other words, some competition in this field but I think initially you can only see one plant being profitable.

There is no doubt there has to be some control exercised over who owns such a plant and what are the prices charged during the initial period pending the time you can get some competition.

Mr. PICKARD. May I add a point to that, Senator?

There is one example that certainly is just a pilot step for this and that is the reprocessing activity that the Commission has transferred to industry. Admittedly it is a much smaller operation than a diffusion plant but at least its transfer can serve as an example.

Also, in the early period, which is the period that General Nichols is referring to, there seems to be some merit in there being both AEC operations and industry operations. There is some yardstick, if you will, possibilities with that kind of a dual operation which is useful. You will also find, I think, if we are right in the projections on the appearance of the breeder and the appearance of other schemes for enriching that there will be some competition for these diffusion facilities.

Senator PASTORE. It has to be analyzed very carefully and closely because we have had the experience with TVA which is Government owned and they do not pay taxes.

As far as developing the natural resources I am all for it. When they build steamplants and they are in competition with private ownership you have problems.

How privately owned companies will compete with the Government, with the Government not paying dividends to stockholders is beyond

me.

You fellows are proficient in this field and you had better come up with some fine ideas before we get into a web from which we cannot extricate ourselves.

When you pay dividends and you pay dividends to the stockholders it makes a big difference. And when the Government does not have to pay taxes, there is a big difference.

General NICHOLS. Industry is subject to paying taxes and one part of the country does not subsidize another.

CUSTOMERS' OPTION TO SELECT TAILS ASSAY; SELECTION OF SINGLE TAILS ASSAY BY AEC

Senator PASTORE. On page 4-this question is directed to Dr. Pickard-you say here on page 4 of your report toward the bottom of the page next to the last paragraph

The committee has further suggested that eventually an optimum tails assay should be selected on the basis of a price index for uranium concentrates and the most efficient separative plant operations relative to that index.

Could you explain what your recommendations are with regard to the customer choosing a specific tails assay in the operation of a diffusion plant and how you reconcile your recommendation to this? Or do you not see a conflict at all?

Mr. PICKARD. The committee as such was thinking in terms of how do you plan in the next few years of your operations so the first effort would be simply to get some kind of a tails assay on the record so we would know simply how to plan.

The other thought that I believe that the committee focused on was the possibility that as a uranium market stabilized, then one visualizes that the least expensive way to obtain enriched uranium is to operate the diffusion plant at the optimum tails associated with the then current market price of uranium. I believe that is essentially the nature of that suggestion.

Mr. CHARNOFF. There is no inconsistency here. What the committee had in mind in the early years when the AEC was in fact selecting the assay and not permitting the customer to select the assay, then we had in mind that this suggestion would be pertinent.

This would not be pertinent at a time when the AEC would allow customers to select their own tail assays.

Senator PASTORE. That is what we thought you intended but we thought we would clarify it on the record. If the AEC develops that policy then you would like to see these determinations made so you would know where you are.

$30 CEILING CHARGE PART OF CRITERIA

Mr. Pickard, it is our understanding and the Commission has so testified that the ceiling charge of $30 per unit of separative work is part of the criteria.

Therefore, what do you mean on page 3 of your August 1966 committee report where you say, "the committee believes that this assur ance," that is the $30 ceiling, "should be provided for in the criteria"! Mr. PICKARD. I believe it was the committee's feeling that that would give a little more assurance to the different organizations and firms who might be called on to use the enriching service and who are

not in a position to make long-term commitments under these longterm contracts. It was just simply a way of pegging the number down and being sure it was applicable.

Senator PASTORE. These are questions that have been prepared by our staff members. Are you familiar with these questions? Mr. PICKARD. Yes, sir; I have a copy.

Senator PASTORE. It comes as no surprise to you?

Mr. PICKARD. We got them shortly before 10 o'clock.

Senator PASTORE. If there is any need for further elaboration on these questions-they are not supposed to be tricky or involve any confusion--I usually like to have the staff submit them to you so you know what you are going to be asked.

Mr. CONWAY. These are based on your report and to clarify that question I think if you take a look on page 8 of the Commission's printed criteria, one finds the $30 ceiling set forth in the criteria themselves.

I think this question is to try to clarify your point that the charge should be set forth in the criteria per se. We are not quite sure what you mean. The $30 ceiling is set forth in the criteria as published by the Commission.

Mr. CHARNOFF. It is my understanding the criteria provide with respect to any person who executes an enrichment service contract with the Commission that for the term of that contract the ceiling charge would apply but it is my understanding, too, that the criteria used does not independently establish that anyone coming in at any particular time in the future would be eligible for the $30 price.

Mr. CONWAY. During the testimony before us we queried the Commission on whether, if they change this $30 ceiling in any way, that would constitute a change in the criteria requiring them to come before

us.

We have the requirement of a 45-day notice and their testimony as I recall it was to the effect that a change in the $30 ceiling would be a change of the criteria, so I am raising this right now with you to try to clarify the point.

I think the $30 ceiling is in the criteria per se. (See p. 288.)

Mr. CHARNOFF. If it is the Commission's understanding that this ceiling is established and is available to anyone coming in at a later date, wholly apart from the escalation

Mr. CONWAY. Unless the Commission changes this and they have testified they would give adequate prenotice to the industry.

General NICHOLS. We pushed for this to assure the limit as to how high the price would go particularly the foreign customer because they have never really believed our costs.

Mr. CONWAY. I believe in testimony before this committee on the printed criteria, I think you have made your point.

Senator PASTORE. Why do you not pursue these questions, Mr. Conway?

URANIUM 235 BALANCE VERSUS TOTAL URANIUM BALANCE; USE OF TAILS

Mr. CONWAY. Why do you believe a uranium 235 balance among feed, product, and tails is more equitable to the customer than a total uranium balance? For example, what use would be made of the tails whereby the U235 assay would be of significant importance?

Mr. PICKARD. The committee's feeling was that the valuable material was the U235 and not U238 and it was on that basis that a U235 balance should be used.

Mr. CONWAY. We have had some testimony the desire for tails was for the use of a future breeder, i.e., the use in the breeder of U238.

Mr. PICKARD. That is true. You will find U235 is also very valuable for the breeder. It is as important if not more so than the U238.

DELIVERY OF FEED MATERIAL TO THE AEC

Mr. CONWAY. On page 4 of your committee's report you foresee a temporary problem arising because of feed deliveries on January 1, 1969, and the waiver of the 90-day period between delivery of feed and product. The AEC does not foresee such a problem. Would you please amplify the reasons for your concern?

Mr. PICKARD. I think in this regard our feeling was simply one of quantity in hand like the quantity that might pile up at the input to the diffusion plant. There is no problem here if the AEC has the ability to handle the quantity.

Mr. CONWAY. The problem would be on the part of the AEC and not industry and AEC has testified they foresee no problem in handling that.

TERMINATION OF ENRICHMENT SERVICE CONTRACTS BY AEC'S CUSTOMERS

With regard to termination charges why should the Government or remaining customers undertake the risk of additional costs in the fourth year as the result of termination by a particular customer or customers?

I don't know whether you have had an opportunity to review the General Accounting Office report on this matter but as you recall the Commission originally spoke of a 5-year termination period in which they could assign costs to the party terminating the contract.

That was as they finally published it and I understand the forum's position prevailed, and that is limiting it to 3 years. Would you comment on the possibility that foreign customers may terminate en masse giving 3 years' notice and thus leave the domestic customers holding the bag for fourth-year charges?

Mr. PICKARD. The committee did not get into any detailed consideration of the foreign aspect of these because these contracts and the criteria were specifically oriented to the domestic supplier. I would like to say in this connection, and to this question, that nuclear fuels are unique in that they involve large inventories, and large investment costs associated with them.

As an example you may be talking about an investment in fuel of the order of $25 to $35 per kilowatt of capacity. With a fossil plant, you are talking in the range of $1.

So it becomes of considerable importance to the overall fuel management, that time intervals, schedules, and phasing of operations is planned carefully.

As a matter of fact, you may find because of this sort of a termina tion or the inability to have the possibility to recycle fuel may cause you to hold another year's inventory in your account which gets to be quite expensive.