Hearing of the Oversight and Investigations Subcommittee of the House Energy and Commerce Committee - Selling the Department of Energy's Depleted Uranium Stockpile: Opportunities and Challenges

REP. STUPAK: This meeting will come to order. Today we have a hearing titled Selling the Department of Energy's Depleted Uranium Stockpile: Opportunities and Challenges. Each member will be recognized for a five-minute opening statement. I'll begin.

Today's hearing will focus on what options the Department of Energy has to convert its depleted uranium into cache as a result of a huge jump in uranium prices. Energy has two choices. The Department of Energy has two choices: to quickly seize the opportunity, or push the decision to the next Administration. More than 700 tons of depleted uranium hexafluoride tails are stored in 63,000 cylinders in Paducah, Kentucky and Portsmouth, Ohio.

Eight years ago, this corrosive radioactive material was considered worthless and represented an environmental liability. Since 2000, however, uranium prices have jumped tenfold from around $8 per pound to $95 per pound for long-term contracts. Chart number one, which -- Kyle, can you get up -- shows how the spot prices spiked as high as $140 per pound last summer.

This sharp jump in price is due to tight uranium markets and has given American taxpayers a potential financial windfall. Approximately 260,000 tons of so-called "high assay tails" are now worth an estimated $7.6 billion, according to the Government Accountability Office. In order for the Department of Energy to capitalize on this potential windfall, they must act now. This year only 55 percent of the reactor fuel is met through mined uranium, but new mine production will start to catch up with demand over the next three to six years.

DOE has two primary ways to turn the excess depleted uranium into cash. Option number one is to auction the tails to utilities or uranium enrichment companies. The committee wrote Under Secretary Albright on February 14th asking that DOE solicit nuclear utilities to assess their interest in depleted uranium tails auction. Instead of a yes or no, DOE responded that they will be doing a cost-benefit study. This is puzzling and looks like a formula for paralysis by analysis.

At our request, GAO polled potential buyers and found utility industry interest high -- is very high in the assay tails. Slide three. Kyle, if you can put that one up. Slide three shows large amounts of uncovered utility demand for uranium over the next five years.

In order to auction the uranium tails, GAO cautions that the Department of Energy may need additional statutory authority. This hearing will seek DOE's views on whether it agrees that added legal authority is required.

Option two for Department of Energy -- to contract out re- enrichment of the high assay tails and then sell the enriched uranium. DOE faces a challenge with this option because there is a very limited available capacity at the nation's only uranium enrichment plant, which is operated by USEC. DOE could only re-enrich about 14 percent of the tails over the next four to five years. Nevertheless, this could yield as much as $1.4 billion after costs of re-enrichment.

To purchase enrichment services, DOE will have to negotiate a sole source contract with USEC. This hearing will explore whether DOE has enough bargaining leverage to negotiate a fee in addition to USEC's costs that is fair to the taxpayers. If USEC's monopoly position has the federal government over a barrel, what is DOE's strategy?

I note with irony that the bottleneck in enrichment capacity would not be confronting DOE today if even a handful of the lavish promises made by the committee by the advocates of USEC's privatization had been kept.

My good friend and subcommittee member, Ed Whitfield, has proposed legislation that directs DOE to enter into a sole source contract with USEC and commence tails enrichment in 120 days. While I commend his desire to see DOE take action, this proposal, I believe, would force DOE to bypass its procurement rules. Secondly, would not give DOE sufficient time to audit the reasonableness of USEC's actual costs. Third, fails to cap the fees and could be paid while DOE negotiates against the clock. And fourth, would not allow DOE to seek a better deal for taxpayers by auctioning the tails to utilities and letting them use their bargaining power with USEC.

The good news is that five to ten years out enrichment companies will increase capacity to re-enrich tails, thus helping to relieve the bottleneck. However, if DOE waits five years, there's a risk that prices could deflate and taxpayers will receive a significantly smaller return.

It's important to note that Congress is well aware of the negative impact on uranium sales and mining that occurred eight years ago when massive government stockpiles were liquidated through USEC's privatization. DOE must be careful not to flood the market and negatively impact the industry again. This may require establishing floor prices or quotas. This committee held a hearing on April 13, 2000 to look at how the domestic industry was damaged.

The uranium tails are currently a liability sitting in 63,000 metal containers, as you can see on the slide, at two government facilities. It should be noted that we've been down at the Paducah, Kentucky -- and, in fact, I think the slide right there, or the picture right there -- Ed, I think it's actually Paducah, Kentucky.

So we have the opportunity to convert this waste. And the whole purpose of this hearing is we have an opportunity to convert this waste into cash, and the American taxpayers expect the Department of Energy to seize the opportunity.

That ends my opening statement. Next turn to the Ranking Member, Mr. Shimkus from Illinois.

BREAK IN TRANSCRIPT

REP. STUPAK: Right. I think Tennessee has Oak Ridge in Congressman Wamp's area. Thanks for being here. That concludes the opening statement by members of the subcommittee. I now call our first panel while they're already up there. So we have the honorable Dennis Spurgeon, assistant secretary for nuclear energy at the U.S. Department of Energy, Mr. Robert A. Robinson, managing director for Natural Resources and Environment at the Government Accountability Office. Mr. Robinson is accompanied by Mr. Ryan Coles, the assistant director, and Ms. Susan Sawtelle -- is that how you say it right, Sawtelle? -- the associate general council of natural resources and environment at GAO.

It's the policy of this subcommittee to take all testimony under oath. Please be advised that you have the right under the rules of the House to be advised by council during your testimony. Do any of you wish to be represented by council? I see a nod of heads that would indicate no, so therefore -- ask you -- please rise and raise your right hand and take the oath. Do you swear or affirm the testimony you're about to give to be the truth, the whole truth, and nothing but the truth in this matter?

MR. SPURGEON: I do.

MR. ROBINSON: I do.

MR. COLES: I do.

MS. SAWTELLE: I do.

REP. STUPAK: Thank you. Records should reflect that the witnesses replied in the affirmative. You're now under oath. We will start with the opening statements, five minute opening statement. You may submit a longer statement for the record.

Mr. Spurgeon, we want to start with you, please, sir.

MR. SPURGEON: Thank you, sir.

REP. STUPAK: Thank you.

MR. SPURGEON: Chairman Stupak, Congressman Shimkus --

REP. STUPAK: Remember, microphone.

MR. SPURGEON: Sorry about that. Chairman Stupak, Congressman Shimkus, and members of the subcommittee, thank you for the opportunity to discuss the Department of Energy's inventory of depleted uranium and its potential sale. DOE is custodian of the of the federal government's inventory of uranium considered excess to national security needs, which is equivalent to about 59,000 metric tons of natural uranium contained in a variety of forms, most of which are not ready usable. This inventory is expensive to manage and to secure.

In light of the significant increases in market prices for uranium in recent years, the uranium in this inventory is a valuable commodity, both in terms of monetary value and the role it could play in achieving vital department missions in maintaining a healthy domestic infrastructure.

I would like to devote my time today to discussing the origin of this resource and outlining the precepts the Department uses to determine how best to manage our excess inventory.

Large scale uranium enrichment in the United States began as part of the atomic weapons development during World War II. Depleted uranium hexafluoride, or DUF6, results from the process of making uranium suitable for use as fuel for nuclear power plants or for Defense applications. The use or uranium in these applications requires increasing the proportion of the fissionable U-235 isotope found in natural uranium through an isotopic separation process called uranium enrichment. The byproduct of enrichment is DUF6, sometimes referred to as tails.

DOE maintains approximately 700,000 metric tons of DUF6 and approximately 59,000 cylinders stored at the Paducah and Portsmouth sites. Until recently, the entire inventory of DUF6 was considered a financial liability to the Department because it required safe storage and security until converted to a uranium oxide and dispositioned.

On March 12th, 2008, Secretary Bodman issued a policy statement on management of the Department of Energy's excess uranium inventory. This document establishes a framework by which the Department of Energy will prudently manage and disposition its excess uranium inventory. Mr. Chairman, I would like to request that this policy statement that the secretary issued be entered into the record.

REP. STUPAK: Without objection.

MR. SPURGEON: Thank you, sir. The Department has brought authority under the Atomic Energy Act of 1954 to loan, sell, transfer, and otherwise utilize its inventories of depleted, natural, and enriched uranium. In exercising this authority, the Department must act consistent with the other relevant statutory provisions, such as the USEC Privatization Act, which imposes limitations on certain specified actions.

DOE will maintain sufficient uranium inventories at all times to meet the current and reasonably foreseeable needs of its missions. The Department is working to ensure that these needs are identified, that the needed amounts and forms of uranium are quantified, and the uranium inventory appropriately maintained. DOE will only sell or transfer uranium that is in excess of those needs.

Implementation of our uranium inventory management policy must ensure transparent and competitive procedures. Transactions involving non-governmental entities will be undertaken in a transparent manner and in a competitive manner unless the Secretary of Energy determines in writing that overwriting departmental missions needs dictate otherwise.

All transactions involving excess uranium transfers or sales to non-U.S. government entities must result in the Department's receipt of reasonable value for any uranium sold or transferred to such entities. The Department will seek to manage its uranium inventories in a manner that is consistent with and supportive of the maintenance of a strong domestic nuclear industry.

As a general matter, the introduction into the domestic market of uranium from DOE inventories in amounts that do not exceed ten percent of the total annual domestic fuel requirements should not have adverse material impact on the domestic uranium industry. The Department anticipates that it may introduce into the domestic market in any given year less than that amount, or in some years for certain specific purposes, such as the provision of initial cores for new reactors, more than that amount. DOE will conduct analyses of the impacts of particular sales or transfers on the market and the domestic uranium industry prior to entering into any sales or transfers.

DOE has also determined that it may be feasible to manage its uranium inventories by entering into arrangements with existing and potential operators of nuclear fuel cycle facilities in a manner that supports the maintenance and expansion of the domestic nuclear fuel infrastructure. Any such arrangement, however, must contain reasonable terms and conditions and be competitive to the extent practicable.

Additionally, DOE will consider using its uranium inventory to address prolonged, severe disruptions in the supply of uranium that cannot be addressed practically through the marketplace or that threatened to cause shut down of commercial nuclear reactors in the United States. DOE's considering converting a portion of its uranium inventory into low-enriched uranium, or LEU. Conversion to LEU would in many cases reduce inventory levels, minimize inventory management, surveillance and maintenance costs, and provide DOE with increased flexibility for meeting potential future programmatic needs and enhance the value of the converted uranium.

As of March 31, 2008, the spot price for natural uranium was $71 per pound. Five years ago natural uranium was quoted at $10.10 per pound. As the uranium spot market price increased to above about $24 per pound, more of the high assay DUF6 became economically attractive to the commercial nuclear industry for purchase or enrichment. The Department has initiated the process of identifying categories of depleted uranium that have the greatest potential for market value and/or use by the Department, and then conducting an appropriate cost- benefit analysis to determine what circumstances would justify enriching and/or selling depleted uranium rather than pursuing current plans to convert it and ultimately dispose of it.

The Department will seek to obtain the best economic value for the Department in light of our identified objectives and needs. Actions consistent with the policy statement have been and are currently underway. The National Nuclear Security Administration is continuing its efforts to blend down HEU surplus to national security needs to meet its non-proliferation objectives. Additionally, DOE is conducting the necessary National Environmental Policy Act analysis on the re-enriching of DUF6 in the Department's inventory.

As DOE completes requisite analysis with respect to specific types of DUF6, natural uranium, and LEU, we expect to undertake specific transactions in the near future based on these determinations.

This concludes my prepared statement, Mr. Chairman. I would be pleased to answer any questions the committee may have.

REP. STUPAK: Thank you. It's my understanding, Mr. Robinson, you'll be given the opening statement. If you would start, please. Thank you.

MR. ROBINSON: Thank you, Mr. Chairman. Usually when we're here to testify, we're talking about some serious management problem of some program, but today, as members have all mentioned, we're here to talk about opportunities and taking advantage of opportunities. A couple weeks ago we were here talking about the IPP program as kind of an example of the former, and this is -- dramatically different situation than that.

Here we're talking about an opportunity to generate billions of dollars in return to taxpayers over time. Alternatively, the material that we're talking about could serve as a kind of strategic uranium reserve providing an alternative to and protection against disruptions in the worldwide supply of uranium on which the U.S. is heavily dependent.

In the year 2000, when uranium prices were about $21 a kilogram, the depleted uranium in DOE's inventory had essentially no commercial value and, in fact, cost the taxpayers about $4 million a year just to store and maintain safely. These annual costs are still being incurred. Now, however, we estimate that the tenfold increase in uranium prices gives the portion of this depleted uranium with the highest U-235 content a net value of about $7.6 billion at today's prices.

While it hard to keep the eye from lighting up at such a figure, it is important to note that this value is quite sensitive to uranium prices and is subject to change. As we said in 2000, it was worthless. About nine months ago it would've been worth about $20 billion according to this estimate. So that's a fairly significant variation. If it is decided that the best course of action is to sell the material, we found that there are potential buyers.

As always, however, there are complications.

Potentially the material could be sold as is or re-enriched and then sold. However, with respect to the first option, we have concluded that under terms of the USEC Privatization Act, DOE does not have the authority to sell the tails as is. Accordingly, to make this option possible and provide legal clarity for all stakeholders involved, we recommend that the Congress amend the USEC Privatization Act or other legislation to provide explicit direction about the conditions DOE must follow to sell or transfer the tails in their current form.

On the other hand, DOE does have current authority to enrich the tails and then sell the re-enriched product. However, here too there is an important complication, namely the limited spare-enrichment capacity in the U.S. As we sit here today, USEC is the only enrichment operation in the U.S., and it appears USEC has the capacity to only enrich perhaps 14 percent of the most valuable tails before its planned closure in 2012. While USEC and at least two other companies are planning to build new enrichment capacity using much more efficient enrichment technology, it would be years before this capacity is online.

Navigating the complexities and complications associated with obtaining value from the tails in DOE's stockpile, and taking advantage of the opportunities of today's high uranium process will require a well-thought-out strategy and a detailed plan. However, while DOE has been working on such a uranium disposition plan since 2005, it has not advanced past a statement of general principles enunciated in the secretary's March 2008 policy statement.

As we recommended in our report issued Monday, DOE should put together a comprehensive uranium assessment and disposition plan that at a minimum lays out the policy priorities for the uranium in its inventory, preferred sales, re-enrichment and storage options for each type of uranium in the inventory, the Department's legal authority to implement the options, an analysis of the impact of the options on the domestic uranium industry, and details on how implementation of these options should change in the event uranium market conditions change.

Such a detailed plan is needed to maximize the chances that taxpayer and national interests in the suddenly valuable depleted uranium stockpile are maximized. Because uranium prices are volatile, this plan should be prepared as soon as possible. Based on our most recent conversations with DOE staff, DOE may have a slightly different take on both its authority and the need for the specific strategy we are calling for, so we look forward to discussing these issues further today. Thank you very much.

REP. STUPAK: Thank you. That concludes all the opening statements. Without objection, we'll go a ten minute round of questions to move this along a little quicker. I'll begin. Mr. Spurgeon, if you will, do you agree that in the short term DOE has two main choices to derive the value from DOE's high assay tails are contracting with USEC to re-enrich the tails in reselling the uranium or auctioning the tails outright? Would you agree with that?

MR. SPURGEON: I would agree that contracting to enrich and/or selling the tails for the purchaser to then subsequently enrich them and use them are the two major options.

REP. STUPAK: Okay. In your statement you say that DOE initiated a process to do cost-benefit analysis on whether to re-enrich or sell tails rather than store or dispose of the tails. But DOE's current plans still calls for processing and disposal. Given that uranium prices have been high for over two years, can you tell us today whether DOE intends to convert some of the DOE high assay tails into cash during this administration, or will it wait until the next administration to deal with it?

MR. SPURGEON: We're proceeding forward with the actions that would be needed in order to be able to implement enrichment. For example, our general counsel has told us that we do need to do environmental assessment of our enriching tails prior to our being -- to actually do it.

REP. STUPAK: So --

MR. SPURGEON: So we're starting the process.

REP. STUPAK: So it sounds like you'll be the next administration before we get a chance.

MR. SPURGEON: I hope not, sir, not if I can be able to --

REP. STUPAK: Well, won't it take about nine months to do an environmental assessment?

MR. SPURGEON: We have it underway already, sir.

REP. STUPAK: Okay. So how far into it are you?

MR. SPURGEON: I signed the authorization to start it I think in February. We have a contractor as of March, and we're trying to get a --

REP. STUPAK: When's the anticipated end date?

MR. SPURGEON: It's between six and eight months, so it's tight.

REP. STUPAK: That's about the end of this Administration.

MR. SPURGEON: It's tight.

REP. STUPAK: Okay. Well -- and Mr. Whitfield raised it and -- these timeframes. So let me ask you a little bit more. How many months do you need to do the National Environmental Policy Act analysis?

MR. SPURGEON: Well, that's what I indicated, sir. That's --

REP. STUPAK: So that's about the eight months? Okay.

MR. SPURGEON: Yeah, that's -- yes, sir.

REP. STUPAK: And then you have to finalize a soul source contract with USEC to re-enrich DOE's tails consistent with federal procurement policy, do you not?

MR. SPURGEON: I'm sorry, I --

REP. STUPAK: Okay. You also then have to then finalize a sole source contract with USEC to re-enrich DOE's tails consistent with the federal procurement requirements, right?

MR. SPURGEON: If one were to do a sole source contract, yes, sir.

REP. STUPAK: Well, it's the only who can do it in this country. If you go overseas, Russia or France, it's going to be even longer, right?

MR. SPURGEON: Without getting into, you know, specifics of anyone's, you know, indication to the Department of Energy, we do have the potential of other U.S. enrichers or U.S.-based enrichers that would be interested in that, because you're talking about something over the long-term.

REP. STUPAK: But that's next four to five years, aren't you?

MR. SPURGEON: You're talking about -- the amount of tails that we have is going to have to take a long time.

REP. STUPAK: Okay, but let's back up. There's only one place that can re-enrich right now, right?

MR. SPURGEON: Yes, sir.

REP. STUPAK: That's USEC.

MR. SPURGEON: Yes, sir.

REP. STUPAK: So any other one in the United States is going to be four or five years before it comes online.

MR. SPURGEON: It's going to be some time before it comes online, yes, sir.

REP. STUPAK: Yeah, so now we're talking two administrations maybe.

MR. SPURGEON: But you're not talking two administrations to be able to go and get the process and the contracting operation underway, sir.

REP. STUPAK: Sure. Being a Democrat, I hope the next administration is in there for eight years, but realistically we only have one processor right now?

MR. SPURGEON: Yes, sir, and they have a limited amount today of excess capacity.

REP. STUPAK: Right, 14 percent is what they could do.

MR. SPURGEON: But we are looking at a timeframe when perhaps they could have much more capacity available.

REP. STUPAK: Well, let me ask you this then about an auction. How many months would it take to set up and complete an auction of an initial -- for DOE's depleted uraniums assuming DOE has the legal authority? And I know there's some question there. So how long would it take you just to set up an auction?

MR. SPURGEON: The competitive process -- one way for me to lose credibility with anyone is to tell you how long it takes for us to complete a procurement process, but it's on the order of six months when we talk about going out to do a competitive procurement, and auction is basically a competitive procurement.

REP. STUPAK: Six months to set up the auction, and then you're going to give them at least 30 days, 60 days to submit their bid?

MR. SPURGEON: Pardon? Oh, no, no, I'm talking --

REP. STUPAK: Completed in 60 days or six months you said.

MR. SPURGEON: I thought you meant how long it takes to do a competitive procurement, and my response was that it takes at least six months to do a total competitive procurement.

REP. STUPAK: Okay. The reason -- our asking the question -- I think you heard from all the members, but -- and as you indicated, the secretary -- and I find it curious just before this hearing -- March 12th, puts out a policy. But as I reviewed that policy, which is part of the record -- we're glad to do it. First of all, I'm glad he did it. That means when we hold these hearings the agency is acting a little bit.

But when I looked at the policy, I don't see a schedule in the policy, I don't see a time table in the policy, and I don't see any milestones to be reached, which would give that policy some weight. So that's the reason why we're asking some of these questions.

So does DOE have specific milestones for securing value from its depleted uranium tails? If so, what are these?

MR. SPURGEON: I have nothing that has gone through any kind of internal review for specific milestones. We've just issued the policy statement, and as I mentioned, we are proceeding today. The policy statement, by the way, applies to all of our uranium inventory --

REP. STUPAK: Sure.

MR. SPURGEON: -- and it should be viewed as an integrated effort because -- and as stated in there, we are proceeding forward with some pieces of that today, such as the blend down of high enriched uranium and moving forward with the environmental assessment needed to do the sale -- the enrichment of natural and depleted.

REP. STUPAK: Okay. So the answer is there are no specific schedules and there are no specific time milestones?

REP. SPURGEON: Not at this time, sir.

REP. STUPAK: Okay. On February 4th, Chairman Dingell and I urged DOE to request a -- to issue a request for information to test utilities' interest in bidding on depleted uranium tails. Your March 12th reply did not respond to this suggestion. So therefore, I have to ask you, is DOE going to issue a request for information to gauge market interest regarding the depleted uranium tails?

MR. SPURGEON: The staff is preparing -- is working on that, and --

REP. STUPAK: So that's a yes?

MR. SPURGEON: -- that's something that will be decided. I can't tell you. That is a Department decision, but I can tell you there is staff work directed toward that objective.

REP. STUPAK: So that's a maybe?

MR. SPURGEON: I can only tell you what's final, what I have authority to say is happening versus what we're working on.

REP. STUPAK: Well, as GAO says, sounds like you have no specific policy to deal with this issue.

MR. SPURGEON: I'm sorry?

REP. STUPAK: As GO8 -- GAO -- (laughs) -- I'm having a rough time today -- sounds like you don't have a specific policy on how to handle this.

MR. SPURGEON: We issue requests for expressions of interest when we need that to be able to inform a particular procurement action. The one that probably I would say in the lead right now is some of our off spec material because of the urgency associated with the containers that that off spec material happens to be held in. So we're proceeding forward on dual tracks here, not just a single track relative to --

REP. STUPAK: All right, well, let me help you out a little bit here. The Nuclear Energy Institute, which is going to testify later -- and their testimony indicates that the utilities which own 53 actors or more than half of the 103 actors in the U.S. have indicated an interest --

MR. SPURGEON: Yes, sir.

REP. STUPAK: -- in your high assay tails. Isn't this sufficient information for DOE to make a decision to directly test market interest?

MR. SPURGEON: We are aware of that interest. We're aware of the interest in a number of people, so we are very confident that we will have sufficient interest in the tails in order to have a process that will allow us to get fair value to the government.

REP. STUPAK: All right. Well, the GAO says that DOE's legal interest or legal -- let me quote now -- "authority to sell or transfer tails in their current form is doubtful," end of quote, because no part of USEC Privatization Act, quote, "specifies conditions under which depleted uranium may be sold," end of quote. Do you agree with GAO's legal opinion?

MR. SPURGEON: Sir, as the secretary's statement said, the Department does have broad authority under the Atomic Energy Act to sell, transfer, and otherwise utilize its inventories of depleted, natural, and enriched uranium.

REP. STUPAK: Okay, but GAO says they don't have the authority, so do you believe they do other than this broad discretion?

MR. SPURGEON: Sir, I'm not aware of anything that has happened that would repeal the authority, that broad authority that we have. However, the Department has not yet received and we do not yet have an analysis of the GAO's opinion. That's something -- I would be glad to take that issue for the record and have our --

REP. STUPAK: Well, when would you be in a position to tell us -- and be able to advise the committee whether or not you needed legal authority or have the legal authority?

MR. SPURGEON: I'll be glad to take that back and provide you a response for the record.

REP. STUPAK: Can you give me some time in which that will happen?

MR. SPURGEON: Anything that I would tell you would be a guess, sir, and I'd rather give you that -- (inaudible).

REP. STUPAK: All right. Well, you announced in the conference call with congressional staff that DOE issued a contract for the environmental assessment, as you indicated here this morning. Does the DOE need an environmental assessment before it can auction the tails?

MR. SPURGEON: That also is under review by our general counsel's office, sir.

REP. STUPAK: Do you have any specific information you can share with the committee today?

MR. SPURGEON: On the legal authority --

REP. STUPAK: Or environmental assessment or requests for information?

MR. SPURGEON: Well, the environmental assessment -- we are moving forward with that, so that is happening.

REP. STUPAK: Let me hold there. Let me go to GAO if I can. Let me ask Ms. Sawtelle, if I may. I want to ask you a little bit on the legal issues here. DOE's policy statement says DOE has broad authority or broad discretion, as you heard Mr. Spurgeon say, to sell, transfer, or barter uranium under the Atomic Energy Act. Please explain why DOE lacks the authority to auction depleted uranium tails, but has the authority to sell natural uranium? So what's wrong with DOE's view on this?

MS. SAWTELLE: Sure. Thank you, Mr. Chairman. As we -- and we're at a little bit of a disadvantage in the sense that we don't have DOE's legal views, but in essence, we agree that DOE does have general authority under the Atomic Energy Act to sell uranium. That would include depleted uranium. However, in 1996 Congress enacted the USEC Privatization Act. That was the more specific and more recent legislation where Congress focused on how the Department should be authorized to sell or transfer valuable uranium assets.

There is a provision, Section 3112 of that statute, which specifically says that the secretary may not, shall not sell or transfer any uranium -- it's a very comprehensive term and it gives some examples, but they're not exclusive examples -- any uranium except as consistent with the section, Section 3112. So depleted uranium, we believe, would qualify as uranium. I don't think that the Department disagrees with that.

The question is then what does consistent with this section mean? In our view and under rules of statutory construction, what that means is there has to be essentially another section in 3112 that spells out the conditions. There isn't such a provision. There are provisions spelling out the conditions for natural uranium, low-enriched uranium, Russian-origin uranium, other categories of uranium.

Congress did not include -- and we think there's, you know, not a very surprising reason because in 1996 depleted uranium, as we're saying, wasn't valuable, so Congress didn't explicitly consider that. But nevertheless, this prohibition applies. It says you can't sell any uranium except as provided here. There's no provision for that. So while that's something that we would recommend Congress take another look at -- it has this opportunity now. As the statute's currently written, we think that the prohibition applies and the Department does not have authority to sell the tails at this time.

REP. STUPAK: Just one more and then I'll go to Mr. Shimkus. If we looked at the '96 law, if we added three words, "depleted uranium and tails," that would probably resolve this issue if we just amended it, would it not?

MS. SAWTELLE: It depends, of course, on what the Congress's policy objectives are, but if Congress wanted to authorize DOE to be able to sell the tails, yes, that would be in the nature of that simple amendment.

REP. STUPAK: So we need three words?

MS. SAWTELLE: Yes, sir.

REP. STUPAK: Thanks. Mr. Shimkus for questions, or Mr. Whitfield, whoever's going.

REP. SHIMK`US: I told him I -- (laughs.) My graciousness only goes so far. (Laughter.)

But I want to follow up on this timeline, and bureaucratic timelines are very frustrating. So I really agree with the chairman's, you know, kind of analysis, and I just want to go into it a little bit further because there may be a very short window of opportunity to take advantage of current high prices for uranium by re-enriching some of the depleted tails at the Paducah site.

However, as you stated -- and there is a lot of work that must be completed before this is possible, and the Department must identify the categories of depleted uranium that have the highest market value, conduct a cost-benefit analysis on whether enrichment is a viable option, complete any environmental assessments, and we talked a little bit about that, and conduct contract negotiations with USEC.

Based on my staff's discussions, especially with the Department, we have been told by senior procurement staff that DOE needs at least 270 days just to negotiate a contract with USEC -- and when they mentioned this to me yesterday, I go, God, that's a whole year, in essence, to enrich the depleted uranium. However, DOE can't begin this contracting process until it completes the cost-benefit analysis and the environmental assessments. So we estimate that DOE will at least need two years to complete all this work. Thus, it will not be able to begin enrichment until the summer, 2010, just two years before the Paducah plant is scheduled to close.

And here are the questions. Is it possible that during the two years it may take for DOE to begin enrichment the price of uranium may come down in price to the point there is no longer any benefit to re- enriching the depleted tails?

MR. SPURGEON: Sir, anything can happen, but I think you have to -- and I believe that GAO in their report alluded to that, that anyone that's going to be buying the tails is going to be looking at the future's market for uranium because that uranium would not be usable as product for use in a reactor until some future date after it has been enriched.

Consequently, when you talk about even selling today, people are going to be looking at what they believe is a fair value for that product based on their perception of the market at the time that product would actually be able to be used. And if we're talking about selling substantial quantities, in order for us not to perturb the uranium mining industry, you're looking at perhaps limiting that to being used for new cores. And those new cores would then be needed in the 2013, 2014 timeframe.

And so my answer to you is I can't predict the future market for uranium, but I believe that the issue of selling it now or selling it at nearer the time when the material would actually be used in a reactor is not going to make a gain difference in the value received by the government.

BREAK IN TRANSCRIPT

REP. STUPAK: Do you want to follow up?

MR. FERTEL: I just -- I don't think I want to -- (inaudible).

(Laughter.)

REP. STUPAK: Do you want to follow up with that?

Thank you, Mr. Chairman. One of the problems we have in this matter is it appears, Mr. Spurgeon, you're the person who will make the recommendations on whether we do auction or whether we do a sole source contract with USEC in your prior employment with USEC and the -- it almost appears like a conflict of interest.

If you look at exhibit number 12 -- it's in the exhibit book. It should be right there in front of you. In there the recusal form is really limited to dealing only with your family members, and that is a concern with the generous payout you received when you left there, and then now if you're the person who's going to make the decision and the recommendation to the secretary to make a sole source contract to the company you used to work for, it raises a lot of red flags.

So if you do have an opinion, a written legal opinion on your recusal, or an opinion saying you can in your role as undersecretary deal with USEC even though you're their former employee, I think it'd be very helpful for the committee, because when we asked earlier for your RFI on this matter, we never received one. When we look at your policy -- we asked -- Mr. Dingell and I wrote February 14th. We received no answer.

When you talk about the risks and questions from Mr. Whitfield, when you talk about those risks, that would be in an RFI. But you've failed to produce one. When you talk about the policy, as I indicated in my earlier statements, there are no schedules. There are no time limits. There are no mile posts. It seems like this whole thing is being dragged out way too long, and if so, it's probably to the benefit of USEC, which raises again the issue of maybe a conflict.

So if you have a legal opinion in writing from your counsel, please put that forth. In fact, because this issue came up, we even sent your office an email asking that you have legal counsel here so we could get to the bottom of these questions. So I'm sure that the full committee chairman -- that was some of his questions. That was some of the questions where I was going to move on also.

So let me ask you this. Would DOE then -- because we had this sole source or this one company here in the U.S. that can reprocess USEC. Would DOE consider contracting -- and I sort of asked -- alluded to this question earlier -- either companies in France or Russia for re-enrichment as a way to spur the competition that Mr. Robinson spoke to. Would you consider doing that?

MR. SPURGEON: I think anything would be and could be considered by the Department of Energy. I think as the policy did lay out, we are focused on supporting the growth of the U.S. industry, both from a reactor standpoint and from a viable fuel cycle standpoint. That includes all of the front end from uranium mining through conversion through enrichment to actually the construction of the reactors themselves.

REP. STUPAK: Well, let me ask you this then. Go to tab eight in the binder, because this is in the email. You're going to spur competition. I'm a little concerned about this because it says -- this is a September 16th, 2006 email from you to your general council, David Hill, which discusses whether DOE should take on a major review of a $9.5 billion sole source decommissioning proposal by Energy Solutions and USEC. The deal would lead to USEC's takeover by Energy Solutions. And that's slide number six. You wrote, "We're about to have a USEC train wreck that could have serious effect for nuclear energy in the U.S. Like it or not, DOE is involved. Whether or not we can prevent the train wreck is questionable, but I believe we must try our best."

So what do you mean by a, quote, "USEC train wreck," and, quote, "I believe we must try our best." Does your e-mail push DOE issues or DOE officials to try to address legal obstacles related to the sole source proposal in order to craft the deal? Wouldn't this deal ultimately benefit your former colleagues at USEC? So I see just the opposite from this email on what you just said about trying to spur competition if you want to prevent the USEC train wreck. And it looks like you're trying to craft the deal to help out USEC based on this email.

MR. SPURGEON: Sir, my objectives in coming to this job were to do whatever I could to support the resurgence of nuclear energy in this country. A piece of that is the front end of the fuel cycle. In terms of -- I was asked the schedule -- percentage of my time a little bit ago. I probably over estimated some of the -- you know, some of the time that I might spend on this particular aspect. But I would say that any time that we look -- and if you look at the timeframe involved there, November 16, 2006, there was some real concern, and it was made known to members on the Hill and also made known to the Department of what would happen to our domestic enrichment capability over the next several months.

We had something that was presented to the Department that in my view deserved -- look, as I believe it is our job to look at any potential alternative that might be a benefit to the U.S. taxpayer. The end result of that look, which the general counsel did do together with our Environmental Management Organization -- they really had the lead in this -- was to determine that it was not something that we felt we could pursue. But I believe that we have an obligation to look at those things, and that's really what the intent of that e-mail -- albeit perhaps I wrote it in a little more dramatic fashion than I might have had I thought about it a little longer, but I wanted the general counsel's office to give some priority to the issue of looking at the ramifications of this sort of a contractual vehicle.

REP. STUPAK: Well, but will your views about preventing a USEC train wreck also have a bearing on the overall amount USEC receives from DOE for processing depleted uranium?

MR. SPURGEON: No, this wasn't really in that context at all.

REP. STUPAK: Well, let's go back to DOE's -- Mr. -- the secretary's policy. Implicitly allows DOE to use a contract for re- enriching DOE tails as a vehicle to subsidize USEC if USEC's success was deemed a departmental objective, right?

MR. SPURGEON: I believe that the policy statement says -- is that in any event the Department would receive fair value for any materials that it does contract for. That's certainly the objective. I -- without --

REP. STUPAK: Well, then let me ask you this.

MR. SPURGEON: Sure.

REP. STUPAK: Then is there a way to make this contracting process that you're about to go through transparent to Congress? For example, would DOE be willing to share a draft of the sole source contract with GAO and this committee before it's finalized?

MR. SPURGEON: The Department of Energy has made no decision to go down any sole source contracting route whatsoever. Obviously --

REP. STUPAK: Okay, but whenever you make that decision --

MR. SPURGEON: Pardon?

REP. STUPAK: Whenever you make that decision if there is a contract -- we have provided to GAO and to this committee so we can make sure there is transparency to make sure things are above board and we're not looking to prevent a train wreck or to cause a train wreck.

MR. SPURGEON: Sir, I'll do whatever -- you know, I'm not going to make a commitment that I can't follow.

REP. STUPAK: Well, then how can we ensure transparency then? So the questions that I'm sure are a little uncomfortable for you and a little uncomfortable for us to ask you -- that we have that transparency so those questions are cleared up and there is no question about what's going on. Because if you look at tab 12, again, the one in front of you, your recusal -- it only says you're going to recuse yourself from family interests. You're not recused from any other matter, including your former employer.

So I would think that -- boy, that's almost a conflict when you go from the COO of USEC right into the decision making process and whether we auction or do a sole source contract to USEC. You will make the decision, right, to make the recommendation to the secretary on which way we go? You will make that decision to make the recommendation after you gather all the information?

MR. SPURGEON: Well, I'm -- I want to make clear. The prime contracting responsibility for disposition of our tails is our Environmental Management Organization within --

REP. STUPAK: Who's going to make the recommendation to you --

MR. SPURGEON: Well, no, he's going to make the recommendation to the secretary, as well. I don't -- he does not report to me in any sense of the word.

REP. STUPAK: Well, I thought you were head of all nuclear policies at --

MR. SPURGEON: From a policy standpoint to integrate our Department-wide policy on disposition of all of our assets --

REP. STUPAK: Sure.

MR. SPURGEON: -- so that we're coordinating.

REP. STUPAK: So you'd be involved --

MR. SPURGEON: It's a coordinating function.

REP. STUPAK: And you'd be involved in that decision making. You'd coordinate with this management group?

MR. SPURGEON: We try to coordinate our actions within the Department, yes, sir, but I do not control the contracts from the Environmental Management Organization in any way, shape or form.

REP. STUPAK: So then there shouldn't be an objection then if there is a contract to share it with GAO to make sure that we're getting the best bid for the taxpayer and that we're doing it in everyone's best interest to share it with GAO and this committee then. There shouldn't be an objection then.

MR. SPURGEON: That's one that I will take back. I don't want to make a commitment relative to what is shared prior to a contract being issued that might conflict with departmental policy.

REP. STUPAK: We're not asking prior to. When you get it done, draft it, please share it with GAO and share it with us. That's what I'm asking for. I'm not asking for prior information.

MR. SPURGEON: I'll take that back and provide you an answer to that question for the record, sir.

BREAK IN TRANSCRIPT

REP. STUPAK: Well, let me just -- since it was raised by Chairman Dingell and myself, let me just clarify a few things here. February 14, 2007, we asked for a request for information to test the utility interests in bidding for depleted uranium tails. We get that -- we're looking into it, and we basically get no answer. We go to NEI; they can tell us 53 of 103 are interested in doing something.

We've asked for other information as far back as 2006, received no answer. The longer this drags out -- longer this drags out, once again, we could find ourselves as you indicated earlier, in a worldwide recession in which it's worth nothing.

So the quickest way, if we're really interested in benefiting the American taxpayer, is to go to the auction. And in my opening, I said there's a hybrid way to do this, auction part of it. USEC can only do 14 percent a year. So why not auction part of it while we've got a high price for uranium?

We've been after DOE and apparently Mr. Spurgeon's office to tell us what authority do they need. They can't tell us. GAO can tell us. Has there been any request to do it? No.

It seems like the more this is dragged out, the uncertainty for three years in which it's taken to get us even to this point that we continue to lose money. And we're looking at the taxpayers' interests here. And it certainly looks like the more you drag this out, it looks like the contract, the sole source contract goes to -- goes to USEC, which benefits USEC, which is a former employer with a generous golden parachute pail at $5.9 million -- 5.4 (million dollars) I think it was, whatever it was. That's -- I mean, that's something.

So that's the reason for the questions. We ask for transparency. We can't get commitments on transparency. No. We're staying on this. We're staying on this, and we want to do what's in the best interest of the taxpayer. And, you know, it's like when DOE sold the stuff to Bonneville. We backed for the Treasury $7 million. It was worth $220 million. That's one their former questions I could go into. So what happened there? Was that an indirect appropriation to the Bonneville folks?

There's a lot of questions on the way this has been handled in the last few years that we're more than happy to go into if you'd like to. But I just thought I better respond to your comments. So yes, it's been a tough hearing. It's uncomfortable for all of us, but I think we need to answer these questions. Mr. Whitfield for questions or comments.

BREAK IN TRANSCRIPT

REP. STUPAK: Very good. Since I brought it up, let me ask you this then Mr. Spurgeon, since this is part of our concerns up here; 2005, DOE transferred about 18,500 metric tons of high assay tails to the Bonneville Power Administration, which it had to be re-enriched by USEC. This uranium will be used to make fuel for the Columbia Generating Stations run by Energy Northwest.

The U.S. Treasury received only $7 million for the high assay tails where Bonneville Power Administration estimates that it saved $220 million on fuel costs under the deal. What would be the basis for only receiving $7 million back when the benefit is $220 million?

MR. SPURGEON: I'll have to take that question for the record, sir. That happened to be during a period in time when I was not at USEC, and I was not in the Department of Energy. I was happily playing golf in Florida.

REP. STUPAK: Well, we appreciate the fact that the rate payers up in the Northwest may receive a break and a benefit. But would you consider $7 million equitable compensation to the U.S. Treasury for the value of this uranium that when BPA got about $220 million?

MR. SPURGEON: Sir, you have to look at the circumstances at the time, and I can't comment on that just sitting here today.

REP. STUPAK: Well, do you think it's fair, $220 (million) in exchange --

MR. SPURGEON: It depends on the circumstances at the time, sir. Obviously, over these past couple of years since 2005, the price of uranium has gone up. I can't speak to what the projections were at that particular point in time.

REP. STUPAK: Well, do you agree with the GAO recommendation that the Secretary of Energy should complete a comprehensive uranium management agreement assessment as soon as possible to take advantage of the recent increases in uranium prices?

MR. SPURGEON: Yes, sir, but I would also say that that's not the completing of that entire assessment, which brings together all of our uranium assets is not a prerequisite for us being able to move forward.

And we're not --

REP. STUPAK: Well --

MR. SPURGEON: -- this isn't something that --

REP. STUPAK: Would you recommend to Congress that we change the '96 law and put the three words in, "tails" and "depleted uranium," so you could auction part of it off so we could immediately take advantage for the high price for uranium? Would you recommend that to the Congress?

MR. SPURGEON: Sir, I will not speak to what our official legal recommendation will be. I would tell you, as a program manager, I would like to have unambiguous authority to have that flexibility available to me.

REP. STUPAK: Okay. Let me ask Ms. Sawtelle this question. The GAO legal memorandum indicates that the government must receive, quote, "reasonable compensation from depleted uranium sales if DOE relies on its authority under the Atomic Energy Act" -- that's the one of 1996 we are speaking of.

MS. SAWTELLE: Yes, sir.

REP. STUPAK: However, if DOE sold this material under authority of the USEC Privatization Act, sales must, quote, "not be less than fair market value." So once there's reasonable compensation, their one says "not less than fair market value." Are these two terms interchangeable, or does the term "reasonable compensation" allow DOE to accept less than fair market value?

MS. SAWTELLE: Mr. Chairman, we haven't looked specifically at that. I do know that the statute, the Atomic Energy Act and the USEC Act, neither of them defines those terms, but -- and we haven't, again, looked at it.

I would make the observation in looking at the department's policy statement as well, as you pointed out, the requirement under the Atomic Energy Act is for reasonable compensation. The term that the department uses in the policy statement is "reasonable value." I'm not sure if they intend a difference there.

But their description of that in their policy statement says, "Reasonable value takes into account market value as well as other factors such as the relationship of a particular transaction to overall departmental objectives and the extent to which costs of the department have been or will be incurred or avoided."

So again, this isn't something we've looked at legally, but that, on it's face, sounds like it's essentially market value minus perhaps, if you will, market -- that is they will consider market value, but given other factors, perhaps market value would not be required.

There's -- and again, we would be happy to look at the legal issues here and the legal interpretations. I would point you to also page four of the same document, the policy statement, which talks -- uses another term, "best economic value." There's not too much description of that. "Best economic value for the department in light of the department's identified objectives and needs." Again, not clear what that means.

What is clear, I think, is in if the Congress were to make that technical amendment and for example, put depleted uranium sales authority under 3112(d), which covers the department's other inventories, that statute requires a couple of things.

First, as you say, not less than fair market value, which is a relatively objective term without these qualifiers, and then of course the other factors that the department has to balance in terms of no adverse material impact and no endangering of the national security. So there are different regulatory schemes, and as we said earlier, Congress gave more specific scrutiny in the '96 act.

REP. STUPAK: So Congress should clarify which one we're looking at when we're talking about the depleted uranium then?

MS. SAWTELLE: We would certainly recommend that, that you consider that, yes.

REP. STUPAK: I have no further questions for this panel. Does anyone else? I'll dismiss this panel. Thank you very much.

I would now like to call up our second panel of witnesses. Come forward. On our second panel, we have Mr. Rob Ervin, President United Steel Workers, Local 550 in Paducah, Kentucky, and Mr. Marvin Fertel -- how do I say it, sir?

MR. FERTEL: Fertel.

REP. STUPAK: Fertel -- Fertel, Executive Vice President at the Nuclear Energy Institute. It's the policy of this subcommittee to take all testimony under oath. Please be advised that witnesses have the right, under the Rules of the House, to be advised by counsel during their testimony.

Do either of you wish to be represented by counsel?

Both have indicated not. Then, we'll take the oath. Do you swear or affirm the testimony you're about to give to be the truth, the whole truth, and nothing but the truth in this matter?

Both gentlemen have reflected in the affirmative that they have taken the oath. Therefore, you are now under oath. We'll begin with an opening statement from you. You may submit a longer statement for inclusion. Mr. Ervin, we'll have you go first, please, and then we'll go to Mr. Fertel after you.

MR. ERVIN: (Off mike.)

REP. STUPAK: You might want to pull that mike just a little closer. We're having a little trouble hearing you. Is that on, the green light on there? Okay.

MR. ERVIN: (Off mike.)

REP. STUPAK: No, it's not.

MR. ERVIN: Good morning. At the onset, I would like to take this opportunity to thank the chairman and the ranking member for conducting this hearing and for inviting me to testify. Mr. Chairman, distinguished committee members, my name is Rob Ervin, and I am President of the United Steel Workers, USW, Local 550 at the Paducah Gaseous Diffusion Plant in Paducah, Kentucky.

There are nearly 900,000 active members in the USW International Union, and I represent almost 800 of these members at the site of our nation's last operating uranium enrichment facility.

Briefly stated, there are approximately 40,000 depleted uranium or tail cylinders stored at the Paducah plant and over 20,000 at the closed facility in Portsmouth, Ohio. Until recently, these tails were considered to be a waste product and an environmental liability. However, due to historic increases in the price of uranium, the circumstances have now changed.

For well over a year now, I have been working with plant management, community leaders, and our congressional delegation to develop a responsible strategy for re-enrichment of tails at the Paducah plant. My efforts are not exclusive to my responsibilities as a union official. They occur in a broader context as a member of the plant workforce and of the local community. Whatever happens to the Paducah plant affects both hourly and salaried employees alike and thus affects the community as a whole.

When we examine the tails issue in its simplest terms, there are certain elements that are undeniable. First, there are tails inventories at Paducah and Portsmouth that now have considerable worth. Their total value is dependent on market conditions and other variables, but they do have significant value at today's market prices.

Secondly, re-enrichment of tails requires an enrichment plant. Until such time as another facility becomes operational, the Paducah plant is the only domestic facility where this re-enrichment activity can occur.

Last but not least, failure to extract the value from these tails because of indecisiveness within DOE or concerns over past issues related to the United States' Enrichment Corporation, USEC, defies all logic and reason.

Simply put, we now have a unique opportunity at our disposal, one that we need to take advantage of. I firmly believe that a contract can be devised that meets DOE policy goals, that is fair to USEC, and serves the best interest of the taxpayer.

The Department of Energy, DOE, recently released their much anticipated policy statement on management of their excess uranium inventory. This statement acknowledges what we have known for quite some time, and that is in light of significant increases in uranium prices, tails have now become a valuable commodity.

However, their policy statement is written in generalities and provides no clear determination as to how or if DOE plans to proceed with tails re-enrichment or any time frame in which this action would begin.

Absent DOE direction, this much is known. Paducah has the only near-term domestic capability for re-enrichment of tails. Waiting for another domestic facility to come into existence incorporates an unnecessary risk of value reduction and loss of potential revenue.

As the only remaining domestic enrichment facility, Paducah plays a key role in maintaining critical national and energy security objectives. Continued operation of the Paducah plant is essential to an orderly transition to a more competitive and viable enrichment industry in the United States, and the re-enrichment of tails could help secure that future.

While the final determination of the policy direction resides with the DOE and Congress, the two most logical options are two that Paducah can perform without question. Tails can be re-enriched back to the level of natural uranium and introduced into the market at a rate that does not adversely impact the domestic uranium industry.

Tails can also be re-enriched to low-enriched uranium, LEU. This LEU could then be used to meet various DOE programmatic needs and could also be used to create a Strategic Uranium Reserve. Considering our current levels of dependence on the Russians and other foreign suppliers, creating a Strategic Uranium Reserve does make sense from an energy and national security standpoint.

The Paducah plant has the excess capacity to re-enrich tails at a controlled rate and the workforce necessary to perform this work safely and efficiently. The only thing missing is a clear path forward.

House Resolution 4189, introduced by Representatives Whitfield and Schmidt, represents what I believe to be a sound strategy for a responsible and timely re-enrichment program. The USW strongly supports this legislation and is appreciate of their leadership efforts.

The USW strongly opposes an auction system that results in the work being performed by foreign enrichers. Not only would this undermine the aforementioned policy objectives, it would also result in the outsourcing of highly-skilled, good-paying, U.S. jobs. Mr. Chairman, this concludes my testimony, and I am happy to answer any questions that you may have.

REP. STUPAK: Thanks, Mr. Ervin. And Mr. Fertel, your opening statement please, sir.

MR. FERTEL: Thank you, Mr. Chairman, Ranking Member Shimkus, Mr. Whitfield, Mr. Barton. I appreciate the opportunity to appear today and to provide this testimony regarding selling the Department of Energy's depleted uranium stockpiles.

As you've already heard, the increased focus on nuclear plant deployment in the U.S. and worldwide has also resulted in a significant increase in the price of uranium. In just the last two years since March 2006, the long-term price of uranium has gone from $41 to $95 a pound.

The increase in uranium prices has stimulated planning for expansion of existing mines and major planning for and development of new uranium mines worldwide, including in the U.S. It also provides a meaningful opportunity for the sale of depleted uranium tails from the DOE enrichment program.

In this regard, we understand that the current DOE stockpile of depleted tails is about 40 million pounds of U-308 equivalent, a greater than .3 percent U-235. At projected long-term uranium prices of between 70 and 90 pounds, these tails have a potential value of $2.8 to $3.6 billion in the commercial market.

Still, more lower-assay material may prove economical for re- enriching as well, increasing the potential return to the government. While recognizing that not all of the tails may be readily re-enriched for sale in a commercial market, it seems clear that the market could use additional supply and that the government could gain significant value by the sale of tails for re-enrichment, a situation that was not commercially viable as recently as three years ago.

NEI's survey of its utility members regarding potential interest in purchasing tails for re-enrichment -- and this is a little update on the numbers that we submitted in my testimony, because we got one more in. Of the 15 companies that responded, seven companies representing 61 generating units indicated they would or could be possibly interested in such purchases. Eight companies were not.

With regard to the definition of a program for re-enrichment of DOE tails and their sale into the commercial marketplace, we suggest the following characteristics. While it is likely market conditions will support the re-enrichment of tails and the sale of uranium into the market over a long period of time, the program should begin as soon as practicable to provide experience with and greater certainty for the commercial market, as well as revenue to the government.

The sale for re-enrichment by a buyer desiring uranium supply or the sale by DOE of uranium resulting from contracting for re- enrichment services should be done in a way that does not undermine the deployment of new uranium mines and conversion facilities in the U.S. In this regard, the aggregate disposition of U.S. government surplus nuclear fuel should not exceed about 10 percent of the annual demand in the U.S.

Given the limited domestic enrichment capacity between now and the post-2013 time period, government contracting for re-enrichment of tails should avoid adversely affecting enrichment supply to the commercial market.

Four, the government should consider auctions for a portion of the tails being re-enriched, until approximately 2020, should also contract for enrichment services from USEC for the re-enrichment of tails that will ultimately be sold into the market by DOE.

Five, if the U.S. government determines that a domestic enrichment facility is necessary for national defense purposes and that the existing Paducah facility is required for those purposes, the exclusive use of the facility over the longer term for the re- enrichment of tails would likely entail a national security premium that should not be allowed to artificially impact prices in the commercial market.

And six, the revenue received by the government associated with the sale of tails for re-enrichment or uranium derived from re- enriched tails sold by DOE should be dedicated to the GDP D&D Fund if required to make up the deficits in the fund. I thank you for the opportunity to participate in the hearing and look forward to your questions.

REP. STUPAK: Thank you, Mr. Fertel. We will begin questions. Mr. Ervin, let me ask you, your testimony endorsed 4189, Mr. Whitfield's bill, which would direct DOE to contract with USEC as a sole source basis to re-enrich tails and to conclude the deal within 120 days.

Given that there's no ceiling on the fees that USEC could demand from DOE, and DOE has given no alternative but to conclude a deal with USEC, do you believe the taxpayers would be able to derive full and fair value from the tails under this agreement?

MR. ERVIN: Yes, I do. The legislation represents what we thought was a sound strategy at the time that the legislation was crafted.

Now, that doesn't mean to say that the legislation could not be tweaked, that we could not modify those time parameters. But --

REP. STUPAK: So you just like the idea that we are going to moving this and doing something quickly?

MR. ERVIN: If we do not put some type of time limitations on this matter, we'll be having this same discussion next year.

REP. STUPAK: And I know that you've been -- you sat through the first part of this hearing, too. What about the idea of auctioning some, at the same time taking a little closer look at USEC doing part of it, because it can be 14 percent a year is the most that you can do at Paducah, right?

MR. ERVIN: Those numbers, I believe, would be subject to interpretation and debate. Without knowing the particulars of an auction type contract, I would not want to --

REP. STUPAK: Okay.

MR. ERVIN: -- basically comment. I will say that the Russians, I believe we do not have a 123 Agreement that is required by the Atomic --

REP. STUPAK: That's true.

MR. ERVIN: -- Energy Act of 1954.

REP. STUPAK: That's true, but there would be nothing that would prevent DOE in asking about taking bids to see if Russia or France was interested. As long as the uranium was enriched here in the United States, they could still be a bidder. They would be another opportunity to get competition in to get the fair market value for the taxpayer, right?

MR. ERVIN: That is correct, but if -- in an auction scenario that we enrich the tails at Paducah, then the utilities would essentially become a middleman, and that obviously would eradicate some of the benefit to the government.

REP. STUPAK: Okay, 4189 also calls for depositing the proceeds of the tails enrichment into your D&D Fund. That's for decontainment and decommission, right?

MR. ERVIN: Decontamination and decommissioning.

REP. STUPAK: So why wouldn't this money then just go -- be available for other -- go back to the Treasury and other important government functions?

MR. ERVIN: We have to have source of revenue for decontamination and decommissioning at both the uranium enrichment facilities. The money has to come from somewhere. This looks like a good opportunity to provide that source of revenue.

REP. STUPAK: Sure, but your D&D Fund, the authorization for it ran out in October of last year, right?

MR. ERVIN: That is correct.

REP. STUPAK: So technically, the government couldn't really transfer money into it if it's not authorized to do so.

MR. ERVIN: I believe it could be reinstated --

REP. STUPAK: Sure.

MR. ERVIN: -- and the money therefore transferred into it.

REP. STUPAK: Okay. As part of reauthorization, should the tax on utilities, which covers about one-third of the annual contributions, also be extended?

MR. ERVIN: I do not have the necessary background and am not --

REP. STUPAK: Okay.

MR. ERVIN: I'm not privy to that type of information where I could answer that type of question.

REP. STUPAK: Okay, Paducah plant is 50-years-old, thereabouts, and it's currently in good operating order, and I know -- (audio break) -- is it able to continue operations for the -- (audio break) -- what actions do you believe the government should take in the event USEC is unable to virtualize its advanced centrifuge technology?

MR. ERVIN: My primary responsibility is to the membership of the -- (audio break) -- plant. What happens with respect to USEC's ability to deploy their ACP project is out of my ability to influence and really out of my area of concern. If it happens, it happens. If it doesn't, it doesn't.

My primary objective is to continue to look at ways to keep the gaseous diffusion plant that we currently have in operation without becoming overly preoccupied about what if we're going to do with one that might be built at some point later.

REP. STUPAK: Okay. Mr. Fertel, does NEI support H.R. 4189?

MR. FERTEL: We do not at this time.

REP. STUPAK: Do you believe DOE should offer some of its tails for auction in the near term?

MR. FERTEL: Actually, in my testimony, Mr. Chairman, I offered up that I thought we needed to deal with Paducah as a primary source and also go up for auction. Most of the auction discussion that you just had talked about foreign auctions. We are deploying new enrichment facilities in this country.

REP. STUPAK: Sure.

MR. FERTEL: And at least my understanding is all three of the companies that are looking to deploy them, one that's already under construction, would be interested in hearing about auctions, which would be in out years.

REP. STUPAK: Right.

MR. FERTEL: And as I've already found out, utilities are interested. And I appreciate Rob's comment on them being a middleman, but they may also have a lot more leverage in dealing with actually the only enricher in town for doing a deal because they continue to do business with them.

REP. STUPAK: So the utilities would really have more leverage than maybe DOE then, right?

MR. FERTEL: They might.

REP. STUPAK: Okay. And then I believe I alluded to some testimony earlier. You have 53 of your 103 members who had --

MR. FERTEL: I actually --

REP. STUPAK: -- indicated an interest.

MR. FERTEL: -- updated it to 61, 61 plants right now either say yes, or they would like to at least to be considered for it.

REP. STUPAK: Okay, so about 60 percent then. What was the response from your members? Were they interested in this? I mean, if you have 103 members, have they all sort of respond? I know we got 63 are affirmative in some. Did the others respond?

MR. FERTEL: We got about 70 percent of the industry to respond. It was pretty quick turnaround.

REP. STUPAK: How much time did you have?

MR. FERTEL: I think it was about 48 hours. (Laughing.)

REP. STUPAK: Okay, and you got 70 percent response in 48 hours. We wrote a letter on February 14, 2007. We're still waiting for even a request for information from DOE. That's amazing.

That's amazing, okay.

If DOE were to auction tails, would the industry support a DOE restriction on exporting these tails overseas for re-enrichment, or do you want that as a competitive option or --

MR. FERTEL: I think our members would want it as a competitive option is what I would think. But to the question on Paducah, we need Paducah to keep operating.

REP. STUPAK: Sure.

MR. FERTEL: Let's be very clear about that, I don't understand even the 2012 date, because even if the American Centrifuge is deployed, I expect whatever utilities sign contracts for it will want to be certain that there's a backup source until it operates commercially for awhile. And Paducah is the most obvious backup source for a USEC deployment of even a new technology.

REP. STUPAK: Sure, and as Mr. Ervin pointed out, even if we did allow Russia or France to compete, we'd still want those things reprocessed here in the United States also from a security point of view. But if they competed for price, it could also help leverage, could it not, a higher price?

MR. FERTEL: Potentially. It would give DOE information. I mean, it would at least help you get some better information --

REP. STUPAK: As to a base or a floor or --

MR. FERTEL: Yes, sir.

REP. STUPAK: What's the basis for the joint industry position that sales of DOE excess uranium inventories not exceed -- and he's mentioned this in your opening -- 10 percent of the U.S. market? What -- won't the floor price be a more economically rational way to ensure that DOE does not flood the market and destroy business investment in the mining conversion?

MR. FERTEL: It's very hard, at NEI, to deal with fuels issues with our membership, because as you can imagine, we have both the sellers and the buyers. And putting aside making sure we don't get into any sort of anti-trust or anti-competitiveness issues --

REP. STUPAK: Right.

MR. FERTEL: -- we never talk price. So we always talk in terms of policies that the government could be looking at. And the compromise that we ended up with -- in every discussion, Mr. Chairman, you hear the same thing. The utilities would say the numbers should be much bigger. And the suppliers, wherever they are in the supply chain, will always say the numbers should be much smaller.

MR. STUPAK: Right.

MR. FERTEL: And after a lot of good discussion, we ended up with something that everybody could compromise. So it's not analytical. (Laughing.)

MR. STUPAK: Well, let me ask this, and my time is just about up -- is up. I want to ask one more question if I may. Kyle, would you put that slide up. Turn to tab four. They should be right there in your exhibit. Tab four -- I'm sorry, tab one, slide four. Tab one, slide four, which shows the domestic mining production is about 10 percent of the total amount of uranium consumed by U.S. utilities. So and there it is right there.

Given the large amount of imports and a weak dollar that we see right now, isn't it likely that DOE sales of depleted uranium would tend to displace imports rather than displace domestic operations?

MR. FERTEL: The thing from my experience, Mr. Chairman, is that what the market needs is certainty. And if they get certainty, they can plan their projects. Right now, if -- I'm going to our fuel conference next week, and I'll hear what people are projecting.

Last October when I went, the uranium miners were talking about growing to about 10 million pounds in this country. And what they need to be able to do that and make the investments in the business decisions is know what's happening, not only in the other competitive markets, but what the government might do.

So I think if you do what you do with certainty, they may not like the number, but they can plan around it and make good decisions. So I'm not answering your question directly because I'm not sure I know what it would displace. But I can tell you the behavior you'd see on the commercial side is that the more certain the DOE could make what they're doing, the better off everybody is for knowing how they can make their decisions.

REP. STUPAK: Okay. I have no further questions of this witness. Mr. Shimkus, please.

REP. SHIMKUS: Thank you, Mr. Chairman. I don't want to get back into our previous debate, but I do like the e-mail that I read, if we --

REP. STUPAK: Sure.

REP. SHIMKUS: -- find it in the --

REP. STUPAK: Oh, in the -- sure.

REP. SHIMKUS: -- record. Yeah, I'd appreciate that.

REP. STUPAK: The e-mail of August 6, 2007 will be made part of the record.

REP. SHIMKUS: Thank you.

REP. STUPAK: You had referenced it earlier for the record.

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REP. STUPAK: If we did the legislation, which GAO says we need, and I know you may think that -- and DOE says they thought they had the authority. But if we just did those three letters and defined what value we were going to use, reasonable value or whatever that is, that we'd have to put in there the exception to the Miscellaneous Receipts Act. And then therefore, the committee would have jurisdiction over the proceeds generated from that.

REP. BARTON: Okay.

REP. STUPAK: So the key words would be the exception to the Miscellaneous Receipts Act.

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REP. STUPAK: Page six of our committee briefing memo indicates the financial situation on page six, and it indicates USEC has a CCC, triple C, credit rating, as it's facing large cost increases and schedule slippage in that new centrifuge plant that you mentioned, and it's seeking government loan guarantees for the project. So it's on page six there of our briefing memo.

REP. BARTON: It just seems funny that we privatized the facility or corporation, and it's the sole domestic corporation, and it's already in financial trouble. You would think if you give them almost a natural monopoly and protect them -- and I'm not throwing stones at Mr. Whitfield's workers, because I know how solid they are. But it would seem that it ought to be thriving as the nuclear industry revives, as it is appearing to do so. I don't -- it just doesn't seem to make sense.

REP. STUPAK: I'm sure Mr. Whitfield wants to jump in on this one.

(Laughter.)

REP. BARTON: No, I'm --

REP. STUPAK: And -- go ahead, Mr. Whitfield. Your time for questions --

REP. WHITFIELD: No, I --

REP. STUPAK: -- unless, Mr. Barton, you've still got a few more minutes. But go ahead, back and forth if you want, go ahead.

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REP. STUPAK: Let me just jump in there, if I may. Go to slide number eight, Kyle, you got the one? This is one of the slides we had again in the briefing. You look at -- this is USEC and then U.S. mine production. That's one of the things we're concerned about and the certainty we need, because USEC dumped some uranium they received from the government. And see what it did to the mine.

So it infused a lot of cash into USEC during that period of time, which was 2000 to 2005. But then after that, the rating went -- it's a hit and miss type situation. That's one of the concerns we have. But it's one of the briefing memos -- it's in the brief memos and our tabs. It was tab number eight, if you care to look at it. So -- I'm sorry, Mr. Whitfield, questions. We'll give you --

REP. WHITFIELD: I don't know, Mr. Barton, if you've ever --

REP. STUPAK: -- get you a new clock going there. Go ahead.

REP. WHITFIELD: -- seen that picture there at the bottom. That's --

REP. STUPAK: That's Paducah.

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REP. STUPAK: I thank the gentleman. We do have votes on the floor. We have about eight minutes left. I have no further questions. Any further questions, Mr. Shimkus? Then I'll dismiss this panel and thank them for their testimony today, and this matter, I'm sure you'll see legislative action and other on this matter.

That concludes our questioning. I want to thank all of our witnesses for coming today and for your testimony. I ask unanimous consent that the hearing record will remain open for 30 days for additional questions for the record. And I know Mr. Dingell had asked for time to put this one response from Mr. Spurgeon, and so we'll hold it open for that.

And so without objection, the record will remain open. I ask unanimous consent that the contents of our document binder be entered into record. Without objection, documents will be entered into record, and the documents you suggested, Mr. Shimkus.

That concludes our hearing. Without objection, the meeting of the subcommittee is adjourned.

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