Excess Uranium Management: Effects of DOE Transfers of Excess Uranium on Domestic Uranium Mining, Conversion, and Enrichment Industries; Notice of Issues for Public Comment, 14107-14125 [2015-06189]

Download as PDF Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices DEPARTMENT OF ENERGY Excess Uranium Management: Effects of DOE Transfers of Excess Uranium on Domestic Uranium Mining, Conversion, and Enrichment Industries; Notice of Issues for Public Comment Office of Nuclear Energy, Department of Energy. ACTION: Request for public comment. AGENCY: The U.S. Department of Energy (DOE) plans to issue a new Secretarial Determination covering continued transfers of uranium for cleanup services at the Portsmouth Gaseous Diffusion Plant and for downblending of highly-enriched uranium (HEU) to low-enriched uranium (LEU). In support of this process, DOE issued a Request for Information that solicited information about the effects of continued uranium transfers on the domestic uranium industries and recommendations about factors to be considered in assessing the possible impacts of DOE transfers. DOE also commissioned an economic analysis of the effects of its proposed uranium transfers. DOE now provides for public review the responses received from the public, the economic analysis prepared for DOE, and a list of factors DOE has identified for analysis of the impacts of DOE transfers on the uranium mining, conversion, and enrichment industries. DOE requests comment on this list of factors, the information and documents made available through this notice, and the included summary of information considered. DATES: DOE will accept comments, data, and information responding to this proposal submitted on or before April 6, 2015. ADDRESSES: Interested persons may submit comments by any of the following methods. 1. Email: RFI-UraniumTransfers@ hq.doe.gov. Submit electronic comments in WordPerfect, Microsoft Word, PDF, or ASCII file format, and avoid the use of special characters or any form of encryption. 2. Postal Mail: Mr. David Henderson, U.S. Department of Energy, Office of Nuclear Energy, Mailstop NE–52, 19901 Germantown Rd., Germantown, MD 20874–1290. If possible, please submit all items on a compact disk (CD), in which case it is not necessary to include printed copies. 3. Hand Delivery/Courier: Mr. David Henderson, U.S. Department of Energy, Office of Nuclear Energy, Mailstop NE–52, 19901 Germantown Rd., Germantown, MD 20874–1290. Phone: mstockstill on DSK4VPTVN1PROD with NOTICES SUMMARY: VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 (301) 903–2590. If possible, please submit all items on a CD, in which case it is not necessary to include printed copies. No facsimiles (faxes) will be accepted. Supporting documents are available on the Internet at https://www.energy.gov/ ne/downloads/excess-uraniummanagement. FOR FURTHER INFORMATION CONTACT: Mr. David Henderson, U.S. Department of Energy, Office of Nuclear Energy, Mailstop NE–52, 19901 Germantown Rd., Germantown, MD 20874–1290. Phone: (301) 903–2590. Email: David.Henderson@Nuclear.Energy.Gov. SUPPLEMENTARY INFORMATION: Table of Contents I. Introduction A. Excess Uranium Inventory B. Statutory Authority C. Procedural History D. Request for Information E. Market Analyses II. Analytical Approach A. Overview B. Factors for Consideration III. Summary of Information Under Consideration A. Uranium Mining Industry 1. Market Prices 2. Realized Prices of Current Operators 3. Production at Existing Facilities 4. Employment Levels in the Industry 5. Changes in Capital Improvement Plans and Development of Future Facilities 6. Long-Term Viability and Health of the Industry B. Uranium Conversion Industry 1. Market Prices 2. Realized Prices of Current Operators 3. Production at Existing Facilities 4. Employment Levels in the Industry 5. Changes in Capital Improvement Plans and Development of Future Facilities 6. Long-Term Viability and Health of the Industry C. Enrichment Industry 1. Market Prices 2. Realized Prices of Current Operators 3. Production at Existing Facilities 4. Employment Levels in the Industry 5. Changes in Capital Improvement Plans and Development of Future Facilities 6. Long-Term Viability and Health of the Industry IV. Request for Comments V. Confidential Business Information 14107 Administration (NNSA) coordinate the management of these excess uranium inventories. DOE explained its approach to managing this inventory in a July 2013 Report to Congress, Excess Uranium Inventory Management Plan (2013 Plan). Much of this excess uranium has substantial economic value on the open market. One tool that DOE has used to manage its excess uranium inventory has been to enter into transactions in which DOE exchanges excess uranium for services. This notice involves uranium transfers of this type under two separate programs. Specifically, DOE transfers uranium in exchange for cleanup services at the Portsmouth Gaseous Diffusion Plant and for downblending of highly-enriched uranium (HEU) to LEU. DOE currently transfers uranium for these two programs at an aggregate rate of approximately 2,705 metric tons of natural uranium equivalent (MTU) per year.1 I. Introduction B. Statutory Authority DOE manages its excess uranium inventory in accordance with the Atomic Energy Act of 1954 (42 U.S.C. 2011 et seq., ‘‘AEA’’) and other applicable law. Specifically, Title I, Chapters 6–7, 14, of the AEA authorize DOE to transfer special nuclear material and source material. LEU and natural uranium are types of special nuclear material and source material, respectively. The USEC Privatization Act (Pub. L. 104–134, 42 U.S.C. 2297h et seq.) places certain limitations on DOE’s authority to transfer uranium from its excess uranium inventory. Specifically, under section 3112(d)(2)(B) of the USEC Privatization Act (42 U.S.C. 2297h–10(d)(2)(B)), the Secretary must determine that the transfers ‘‘will not have an adverse material impact on the domestic uranium mining, conversion or enrichment industry, taking into account the sales of uranium under the Russian Highly Enriched Uranium Agreement and the Suspension Agreement’’ before DOE makes certain transfers of natural or low-enriched uranium under the AEA. Section 306(a) of Division D, Title III of the Consolidated and Further Continuing A. Excess Uranium Inventory The Department of Energy (DOE) holds inventories of uranium in various forms and quantities—including lowenriched uranium (LEU) and natural uranium—that have been declared as excess and are not dedicated to U.S. national security missions. Within DOE, the Office of Nuclear Energy (NE), the Office of Environmental Management (EM), and the National Nuclear Security 1 With respect to a given amount of LEU, the ‘‘natural uranium equivalent’’ is the amount of natural uranium feed that would be required to produce that amount of LEU. The ratio of feed to product is a function of the assay of the feed and the desired assays of the enriched product and the depleted tails (‘‘assay’’ refers to the ratio of the fissile isotope U–235 to other isotopes of uranium such as U–234 and U–238). The industry generally refers to the enriched product as ‘‘Enriched Uranium Product’’ or EUP and to the tails as ‘‘depleted uranium,’’ DU, ‘‘depleted uranium hexafluoride’’ or DUF6. PO 00000 Frm 00038 Fmt 4703 Sfmt 4703 E:\FR\FM\18MRN1.SGM 18MRN1 14108 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices Appropriations Act, 2015 (Pub. L. 113– 235), limits the validity of any determination by the Secretary under Section 3112(d)(2)(B) of the USEC Privatization Act to no more than two calendar years subsequent to the determination. C. Procedural History mstockstill on DSK4VPTVN1PROD with NOTICES In accordance with the above statutes and other laws, the Secretary has periodically determined whether certain transfers of natural and low-enriched uranium will have an adverse material impact on the domestic uranium industries. DOE issued the most recent Secretarial Determination in May 2014. That determination covered transfers of up to a total of 2,705 MTU per year natural uranium equivalent, broken down as follows: Up to 650 MTU per year of natural uranium equivalent in the form of LEU transferred for downblending, with the balance, but not less than 2,055 MTU per year of natural uranium equivalent for cleanup services at the Paducah or Portsmouth Gaseous Diffusion Plant.2 At this time, DOE is conducting uranium transfers consistent with the May 2014 Secretarial Determination. To inform the May 2014 Secretarial Determination—as it had for a number of previous determinations—DOE tasked Energy Resources International, Inc. (ERI) with assessing the potential effects on the domestic uranium mining, conversion, and enrichment industries from DOE’s proposed volume of uranium transfers. In addition to its review and consideration of the report prepared by ERI (2014 ERI Report), DOE held in-person meetings and accepted written communications regarding the transfers from several entities that expressed an interest in DOE’s proposed uranium transactions. DOE staff then prepared a separate analysis based on these and other inputs and recommended a course of action to the Secretary. DOE plans to issue a new Secretarial Determination pursuant to section 3112(d). As a preparatory step, DOE sought information from the public through a Request for Information published in the Federal Register on December 8, 2014 (79 FR 72661). DOE is now soliciting additional public input. D. Request for Information In the December 8, 2014, Request for Information (79 FR 72661), DOE solicited information from interested stakeholders and specifically requested 2 See May 15, 2014, Secretarial Determination. VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 comment on the following seven questions. (1) What factors should DOE consider in assessing whether transfers will have adverse material impacts? (2) With respect to transfers from DOE’s excess uranium inventory in calendar years 2012, 2013, and 2014, what have been the effects of transfers in uranium markets and the consequences for the domestic uranium mining, conversion, and enrichment industries relative to other market factors? (3) What market effects and industry consequences could DOE expect from continued transfers at annual rates comparable to the transfers described in the 2014 Secretarial Determination? (4) Would transfers at a lower annual rate significantly change these effects, and if so, how? (5) Are there actions DOE could take other than altering the annual rate of transfers that would mitigate any negative effects on these industries? (6) Are there actions DOE could take with respect to transfers that would have positive effects on these industries? (7) Are there any anticipated changes in these markets that may significantly change how DOE transfers affect the domestic uranium industries? In response to this request, DOE received comments from a diverse group of parties representing interests across the nuclear industry. DOE received comments from members of the uranium mining, conversion, and enrichment industries. DOE also received comments from trade associations, nuclear utilities, local governmental bodies, and members of the public. All comments are available at https://www.energy.gov/ne/ downloads/excess-uraniummanagement.3 E. Market Analyses In preparation for the May 2014 Secretarial Determination, DOE tasked ERI to assess the potential effects on the domestic uranium mining, conversion, and enrichment industries of the introduction of DOE excess uranium inventory in various forms and quantities through sale or transfer during calendar years 2014 through 2033. DOE may consider this report in its deliberations regarding a new Determination (‘‘2014 ERI Report’’). In preparation for the planned Secretarial Determination that is the subject of today’s notice, DOE tasked 3 Some comments were marked as containing confidential information. Those comments are provided with confidential information removed. PO 00000 Frm 00039 Fmt 4703 Sfmt 4703 ERI with preparing an additional analysis of DOE transfers (‘‘2015 ERI Report’’). For this additional analysis, DOE tasked ERI to consider the effect of hypothetical DOE transfers on the domestic uranium industries under three different scenarios. Under Scenario 1, DOE would continue transfers at the current annual rate of 2,705 MTU per year, consisting of 2,055 MTU for cleanup work and 650 MTU as low-enriched uranium for downblending. Under Scenario 2, DOE would decrease transfers to a rate corresponding with 1,855 MTU per year, consisting of 1,410 MTU for cleanup work and 445 MTU as lowenriched uranium for downblending. Under Scenario 3, DOE would cease transfers for cleanup work and downblending. DOE also asked ERI to provide specific categories of information in its analysis, including a discussion of price volatility and regional differences in the markets. DOE tasked ERI to discuss the implications of changing certain assumptions underlying its analysis, specifically regarding what proportion of DOE material would enter the global as compared to the domestic market and regarding the share of DOE material delivered under long-term contracts. ERI’s report also includes updated information regarding changes in the market between April 2014 and February 2015. Both the 2014 ERI Report and the 2015 ERI Report can be found at https://www.energy.gov/ne/ downloads/excess-uraniummanagement. II. Analytical Approach DOE issues Secretarial Determinations pursuant to Section 3112(d) of the USEC Privatization Act. Section 3112(d) states that DOE may transfer ‘‘natural and lowenriched uranium’’ if, among other things, ‘‘the Secretary determines that the sale of the material will not have an adverse material impact on the domestic uranium mining, conversion, or enrichment industry, taking into account the sales of uranium under the Russian HEU Agreement and the Suspension Agreement.’’ After considering this statutory language, DOE has developed a set of factors that it proposes to consider in determining whether its uranium transfers will have an ‘‘adverse material impact’’ on the domestic uranium industries. A. Overview The USEC Privatization Act does not clearly indicate what kind or degree of effect or influence on an industry would constitute an ‘‘adverse material impact.’’ As discussed below, these words are E:\FR\FM\18MRN1.SGM 18MRN1 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES susceptible of many meanings. Contextual clues provide some guidance in understanding the phrase, but DOE has not identified context (such as a statutory definition) that would unambiguously settle what an ‘‘adverse material impact’’ is. Moreover, the meaning of the phrase is likely to depend in part on the factual context in which it is to be applied. Uranium transactions can take myriad forms, and the effect of any given transaction on any one or all of these industries will depend heavily on the facts and circumstances at the time of the transaction. DOE’s inventory of uranium is changing over time, and Congress could not have anticipated the specific characteristics of every potential transaction. Thus, it would be unsurprising for the statute to describe DOE’s mandate in open-ended terms, leaving DOE to elaborate details as and when DOE applied the statute over time. Thus, the Secretary will need to exercise judgment to develop an understanding of ‘‘adverse material impact,’’ in its statutory context, as applicable to a given potential transfer or sale of uranium. Part of that task involves establishing an analytical framework to form the basis of and reach a determination about the impacts of DOE’s transfers. The Secretary is responsible for reviewing relevant information and exercising judgment to decide whether a particular sale or transfer will have an adverse material impact. DOE’s first step in developing an analytical framework is to elaborate what it means for transfers to ‘‘have’’ an ‘‘impact.’’ DOE believes that it can appropriately fulfill the purpose of the statute by reading this phrase to refer to ‘‘impacts’’ that have a causal relationship to DOE transfers. The overall thrust of Section 3112 is to permit transfers and sales of uranium to the degree consistent with various policy considerations set forth in various paragraphs.4 Section 3112(d) calls for the Secretary’s predictive judgment, before DOE engages in a transaction, whether the transaction will have an adverse material impact on the domestic uranium industries. The notion of causation is implicit in this structure. If domestic industries would experience a given negative condition 4 In passing the USEC Privatization Act, Congress recognized that DOE would have a substantial uranium inventory after privatization. Congress included Section 3112(d) to ensure that DOE could continue to use sales or transfers from its uranium inventory as a management tool. See S. Rep. 104– 173, at 16–17; see also 141 Cong. Rec. S6106–07 (daily ed. May 3, 1995) (statement of Sen. Domenici).4 VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 regardless whether DOE made a particular transfer, it would ill serve the purposes of the USEC Privatization Act for 3112(d) to block the transfer. Thus, in assessing a given transfer, DOE will essentially evaluate two forecasts: One reflecting the state of the domestic uranium industries if DOE goes forward with the transfer, and one reflecting the state of the domestic uranium industries if DOE does not go forward with the transfer. DOE will then compare these two forecasts to determine the relevant impacts on the domestic uranium industries. It bears mention that not every difference in predicted outcomes will necessarily count as an impact of the transfer. For example, if DOE transfers would be the final contribution after independent causes have pushed an industry to a given adverse state, DOE might not regard the full scope of the adversity as attributable to the transfers. With respect to assessing whether the adverse impacts of a transfer would be ‘‘material,’’ DOE observes that the word ‘‘material’’ is used to denote situations ‘‘of real importance or great consequence.’’ See Webster’s Third New International Dictionary 31, 1392 (1961). How large consequences must be to qualify as ‘‘material’’ varies in different legal contexts. In light of the overall goals and structure of the USEC Privatization Act, DOE believes it is reasonable to view material adverse impacts as referring to impacts that go beyond normal market fluctuations, such as those that threaten the viability of an industry. As noted above, one purpose of the USEC Privatization Act was that DOE should manage and eventually dispose of the large legacy inventory that the privatization of USEC would leave it. In privatizing the United States Enrichment Corporation, Congress recognized that DOE would have uranium inventory left over and that this inventory would have substantial economic value. By including 3112(d), Congress preserved the Secretary’s discretion to utilize uranium transfers as a tool in managing the uranium inventory, and the substantial value embodied therein. If Congress had not wanted DOE to make productive use of its inventory, it could have prohibited all sales by the Department with or without a determination. Indeed, the USEC Privatization Act explicitly directed DOE to transfer various quantities of uranium to market participants. 42 U.S.C. 2297h–10(b)(2) & (c). Section 3112 also provides helpful context that indicates the magnitude of industry impact that Congress PO 00000 Frm 00040 Fmt 4703 Sfmt 4703 14109 considered acceptable. The statute specifically authorized material delivered under the Russian HEU Agreement to enter the U.S. market notwithstanding a preexisting suspension agreement limiting the entry of this material. 42 U.S.C. 2297h– 10(b)(3), (5)–(7). The act contained annual limits on deliveries of the natural uranium component of the Russian material. The limits started at 2 million pounds U3O8 equivalent in 1998, and increased by 2 million pounds each year reaching a maximum of 20 million pounds U3O8 equivalent in 2009 and each year thereafter. 42 U.S.C. 2297h–10(b)(5).5 For comparison purposes, this last figure represented over four times the volume of U3O8 produced at U.S. mines in 1996, the year the statute was passed. EIA, Domestic Uranium Production Report (2005). The size of this explicit authorization informs DOE’s understanding of what impacts Congress would have regarded as ‘‘material.’’ It seems unlikely that Congress would have authorized in 3112(b) transfers that would have been inconsistent with the policy goals of 3112(d). Indeed, the structure and legislative history of 3112(b) confirm that the schedule for Russian material’s entering domestic markets reflects Congress’s balancing of concerns similar to those that motivated 3112(d)(2). Congress could have simply allowed all Russian material into the U.S. without limitation. Instead, Congress provided a schedule that ramped up over a period of 20 years. Thus, Congress was attempting to balance the competing concerns of providing a market for the consumption of downblended Russian HEU and protecting the domestic uranium industries from large-scale disruption. The schedule outlined in Section 3112(b) reveals the level of market interference that Congress believed struck that balance. This notion is further confirmed by the legislative history of this provision, which specifically states that Congress was trying to balance the interests in maintaining the Russian HEU Agreement with the interests of the domestic uranium industries. See S. Rep. 104–173, at 14. Further, the legislative history explains that the schedule of maximum deliveries was designed to protect against disruptions to the uranium markets by providing a ‘‘reasonable, predictable, and measured introduction of this Russian material into the domestic uranium market.’’ Id. at 28. 5 Sales under the Russian HEU Agreement ceased at the end of 2013. E:\FR\FM\18MRN1.SGM 18MRN1 14110 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES Section 3112(d)(2) confirms that DOE’s consideration of 3112(b) in interpreting 3112(d)(2) is reasonable. Section 3112(d)(2) explicitly directs the Secretary to ‘‘take into account’’ the sales of uranium under the Russian HEU Agreement and the Suspension Agreement. DOE believes that in addition to requiring the Secretary to consider any transfers under these programs that are ongoing at the time of DOE’s transfers, this language asks the Secretary to consider and take into account the history and context of these transfers and the statutory text authorizing them. In addition, it bears mention that in a 3112(d)(2) deliberation DOE may take account of the fact that the cessation of the Russian HEU Agreement removed a substantial amount of secondary supply from uranium markets. The preceding discussion is not intended automatically to support transfers of up to 20 million pounds under Section 3112(d). The Secretary must exercise his own judgment as to whether transfers would cause an adverse material impact, in light of market and industry conditions today. However, DOE believes that this provision provides some insight into what scale of market interference Congress considered acceptable, and hence would not constitute an ‘‘adverse material impact.’’ For these reasons, DOE believes that whether the effects of a given transfer constitute an ‘‘adverse material impact’’ should not depend on a quantitative bright-line test, but rather should be based on an evaluation of potential impacts by examining a number of factors. Accordingly, DOE proposes to consider the effects of DOE transfers using a set of factors. DOE proposes to analyze its transfers in light of the best available information, data and expert judgment to form the basis for the Secretary’s determination. B. Factors for Consideration In the December 2014 RFI, DOE sought comment from the public on what factors it should consider in assessing whether a given set of transfers would have an adverse material impact on the domestic uranium industries. After considering the comments received, DOE believes the following factors may be relevant to this question: 1. Market prices 2. Realized prices of current operators 3. Production at existing facilities 4. Employment levels in the industry 5. Changes in capital improvement plans and development of future facilities VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 6. Long-term viability and health of the industry These factors reflect many of those suggested by commenters, and DOE believes they reflect the types of impacts that a DOE transfer could in principle have on a domestic uranium industry. Not every factor will necessarily be relevant on a given occasion or to a particular industry; DOE intends this list of factors only as a guide to its analysis. DOE is open to additional comment on these factors. There are a few factors proposed by commenters that are not included in DOE’s list, for the reasons outlined below. One commenter suggested that DOE should consider the effects of its transfers on the profitability of the industries. Comment of ConverDyn, Encl. at 2. Another commenter suggested that DOE should consider the effect of its transfers on gross profit margin. TradeTech Report, 12–13. DOE notes that profit and profitability can vary depending on company-specific circumstances and accounting treatments, and therefore may not be reliable indicators of how a given market phenomenon like DOE transfers is affecting an industry. Moreover, for assessing the impact on an industry, the profit of participants is, in a sense, an indirect measure, as it is principally a link between market dynamics—prices and sales—and the ultimate reaction of industry in terms of increasing or decreasing activity. For these reasons, DOE proposes to look instead at factors which are either more directly related to industry impact or are more reliable predictors of industry impact. Several commenters suggested that DOE should consider current market conditions as a factor. Comment of UPA, at 3; comment of Uranerz, at 3. DOE agrees that current market conditions are relevant, and DOE plans to consider the potential effects of DOE transfers in light of the relevant context, which includes current market conditions as well as past and projected future conditions. DOE believes that considering broader market conditions in this manner will yield insight into how the domestic uranium industries can be expected to respond to DOE transfers. Some commenters suggested that DOE consider uncommitted utility demand or uncovered utility requirements compared to the level of DOE transfers. UPA and others, for example, stated that transfers at the rate described in the May 2014 Secretarial Determination would constitute more than 100 percent of global uncommitted utility demand in calendar year 2015 and almost 60 PO 00000 Frm 00041 Fmt 4703 Sfmt 4703 percent in 2016. These commenters cite to a report by the Ux Consulting Company, LLC (UxC): UxC Uranium Market Outlook—Q4 2014 (2014).6 Comment of UPA, at 2–3; see also comment of Uranerz Energy Corp., at 2– 3; comment of Signal Equities, at 2.7 Similarly, URENCO USA Inc. (URENCO)—citing UxC’s Q4 Enrichment Market Outlook—stated that DOE transfers of LEU will constitute 72% of uncovered enrichment requirements in 2015. Comment of URENCO, at 4.8 While the volume of uncovered requirements may be information relevant to the overall assessment, DOE is not convinced a particular comparison between that volume and the magnitude of a proposed transfer is reliable as an indication of the impacts of its transfers on the uranium industries. It is far from clear that uranium from proposed DOE transfers in 2015 and 2016 would be sold only to utilities with uncovered requirements in the year of transfer. The market involves many participants other than utilities seeking to fill uncovered requirements. For example, intermediaries that hold mid- or longterm contracts may need to purchase material on the spot market to fulfill contracted deliveries. As discussed below, some market participants—such as China—purchase material in excess of their requirements. Traders and investment funds may also make purchases independent of reactor requirements.9 Thus, spot demand in 6 UPA refers to ‘‘uncommitted utility demand.’’ It appears that they are referring to UxC’s estimate of uncovered reactor requirements, found at UxC Uranium Market Outlook—Q4 2014, 61–62 (2014). 7 Commenters cite to UxC’s Q3 Uranium Market Outlook. In addition to UxC’s most recent estimate of uncovered utility uranium requirements, UxC Uranium Market Outlook—Q4 2014, 61–62 (2014), DOE has reviewed information from EIA and the Euratom Supply Agency. EIA, 2013 Uranium Marketing Report, 34 (2014); ESA, Natural Uranium Coverage 2014–2022, available at https:// ec.europa.eu/euratom/docs/F9-CoverageRate.xls. 8 DOE has reviewed UxC’s most recent estimate of uncovered enrichment requirements found at: UxC Enrichment Market Outlook—Q4 2014, 39–40 (2014). DOE also notes that UxC’s most recent report on the conversion market does not include updated numbers on uncovered utility requirements for conversion services. UxC Conversion Market Outlook—December 2014, 37 (2014). 9 Comparing the financial statements of Uranium Production Corporation—a uranium investment fund—reveals that between November 30, 2013, and November 30, 2014, UPC increased its stock by approximately 1.5 million pounds U3O8 equivalent—1,311,286 pounds U3O8 and 261,285 pounds U3O8 equivalent contained within 100,000 kgU of UF6. UPC, 2015 Third Quarter Report, 2 (2015), available at https://www.uranium participation.com/i/pdf/financials/2015-Q3-Reportfor-the-Three-Months-Ended-November-30.pdf; UPC, 2014 Third Quarter Report, 2 (2014), available at https://www.uraniumparticipation.com/i/pdf/ E:\FR\FM\18MRN1.SGM 18MRN1 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES any given year may substantially exceed uncovered requirements. At least for the uranium industry, this is confirmed by the very report that commenters cite to in their comments. UxC projects that spot demand in 2015 and 2016 will be significantly higher than uncovered requirements in both years. Compare Table 14 with Table 15 of UxC Uranium Market Outlook—Q4 2014, 62–63 (2014). In addition, the company that currently distributes on the broader market most of the uranium that DOE is transferring under the 2014 Secretarial Determination represents that it has already sold almost all of this material to utilities under forward delivery contracts. Comment of Traxys, at 1.10 Therefore, the global uncommitted utility figures cited by UPA and others presumably already take account of DOE transfers as an element of covered requirements.11 Commenters also proposed share price and market capitalization as factors for consideration. E.g., Comment of ConverDyn, Enclosure, at 2. DOE is not convinced that either of these provides an appropriate indicator for whether DOE transfers will cause an adverse material impact, because both market capitalization and share price are too attenuated from the effects of DOE transfers. While share price certainly does influence a company’s decisions about investment and allocation of capital, it is only one factor. At the same time, a company’s share price tends to reflect myriad inputs besides the effects of a market phenomenon like DOE transfers. Other contributions to share price can include the nature of company management, gearing ratio (debt vs. equity), inflation, and the particular risks associated with the uranium market (such as the influence of political changes, like the shift in energy policy in Germany or public responses to nuclear accidents). Furthermore, many of the largest U.S. financials/2014-Q3.pdf. UPC’s stated investment strategy is to buy and hold uranium rather than actively trading in response to short-term shifts in prices. UPC, Investor Update Presentation, 17 (Aug. 2014), available at https://www.uranium participation.com/i/pdf/ppt/UPC-Investor-UpdateAugust-2014.pdf. 10 Traxys North America LLP has a contractual arrangement with DOE’s contractor at Portsmouth, Fluor-B&W Portsmouth, to purchase all uranium hexafluoride FBP receives from DOE. The existence of FBP’s contract with Traxys does not obligate DOE to transfer to FBP the amounts of uranium under consideration. 11 Traxys represented that it had already sold to utilities ‘‘almost 100%’’ of the material from DOE as early as July 7, 2014. Declaration of Kevin P. Smith, ConverDyn v. Moniz, Case no. 1:14-cv01012–RBW, Document 17–7 at ¶6 (July 7, 2014). The figures for global uncommitted utility demand cited by UPA were released after this date. See Comment of UPA, at 3 n.2. VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 producers are part of multi-line companies whose share prices depend in part on product markets other than uranium. For these reasons, DOE believes that share price and market capitalization are too highly attenuated to serve as useful proxies for industry impact. Some commenters suggested that DOE should consider the ‘‘spill-over effects’’ across the different nuclear fuel industries that might cause indirect harm. E.g., Comment of URENCO, at 5. Although the commenter did not explain what ‘‘spill-over effects’’ it was referring to, DOE recognizes that as a general matter the interaction between the different uranium markets can be relevant, particularly the relationship between enrichment prices and uranium concentrate/conversion prices. As enrichment can be used to provide additional uranium concentrate as uranium hexafluoride—either through underfeeding or re-enrichment of tails— there is a potential for changes in one market to affect the others. However, DOE does not believe this should be considered as a separate factor. Instead, DOE believes these effects are better understood and assessed when considered as part of the analysis for each of the six market factors listed above. III. Summary of Information Under Consideration In this section, DOE summarizes for each industry the information that DOE believes to be relevant with respect to the above-listed factors. In addition to the 2014 ERI Report, the 2015 ERI Report, and the comments received in response to the RFI, in some instances DOE refers to additional information from other sources. Where available, DOE provides a link to where these documents are available on the Internet. A. Uranium Mining Industry 1. Market Prices In preparation for the proposed Secretarial Determination, DOE tasked ERI with estimating the effect of DOE transfers on the market prices for uranium concentrates. In the 2015 ERI Report, as in previous reports, ERI estimated this effect by employing two different types of model that rely on somewhat different assumptions: A market clearing price model and an econometric model. For its market clearing price model, ERI constructs individual supply and demand curves and compares the clearing price with and without DOE transfers.12 To 12 The market clearing price is the price at which quantity supplied is equal to quantity demanded. PO 00000 Frm 00042 Fmt 4703 Sfmt 4703 14111 develop its supply curves, ERI gathers available information on the costs facing each individual supply source. ERI then uses that information to estimate the marginal cost of supply for each source using a discounted cash flow model. 2015 ERI Report, 41 n.22. To develop its demand curve, ERI assumes a perfectly inelastic demand curve based on its Reference Nuclear Power Growth forecast.13 ERI develops this forecast by combining estimates of the needs and reload schedules for operating plants with projections about future reactor retirements and new development. 2015 ERI Report, 17–18. Applying this approach to the three scenarios listed in Section I.E above— 2,705 MTU per year (scenario 1), 1,855 MTU per year (scenario 2), or zero transfers (scenario 3)—ERI estimates that DOE transfers will have the effects listed in Table 1. Transfers at the rate of 2,705 MTU per year would cause the price of uranium concentrates to be lower than it would be without DOE transfers by, on average, $2.80 between 2015 and 2024—with prices being $3.00 and $2.80 lower in 2015 and 2016 specifically. 2015 ERI Report, 45. For DOE transfers at a rate of 1,855 MTU per year, ERI estimates that prices would be, on average, $2.60 lower between 2015 and 2024—with prices being $2.10 and $1.90 lower in 2015 and 2016 specifically. If DOE ceased transfers under these two programs, ERI estimates that prices would be, on average, $1.30 lower between 2015 and 2024—with prices being $0.30 and $0.10 lower in 2015 and 2016 specifically.14 It is important to emphasize that this is not a prediction that prices will drop by the specified amount once DOE begins transfers following a new determination. A level of price suppression consistent with the estimate for Scenario 1 would, on ERI’s analysis, already be reflected in the current market price because DOE is currently transferring uranium at that rate. 2015 ERI Report, 44. This means that if DOE continued transferring at Scenario 1 levels, the market prices would not change; if DOE began transferring at Scenario 2 levels, the 13 In other words, ERI assumes that demand for uranium will stay the same regardless of variations in market price. 14 Note that the transfer rates in these scenarios refer only to the level of uranium transfers for cleanup at Portsmouth and downblending of LEU. They do not include transfers for three other programs, TVA BLEU, Energy Northwest depleted uranium, and a possible future sale of depleted uranium currently under negotiation. 2015 ERI Report, 21–32. The level of transfers across these three programs is the same in all three scenarios. ERI’s predictions about market price reflect these transfers as well as the Portsmouth and downblending transfers. E:\FR\FM\18MRN1.SGM 18MRN1 14112 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices market price would be expected to rise by approximately $0.90; if DOE ceased transfers under these programs, market prices would be expected to rise by $2.70. See Table 4.1 of 2015 ERI Report, 45. These prices represent ERI’s prediction of the average effect over the next decade, rather than for any given year. TABLE 1—ERI’S ESTIMATE OF EFFECT OF DOE TRANSFERS ON URANIUM CONCENTRATE SPOT AND TERM PRICES IN $ PER POUND U3O8 [Market clearing approach] 2015 ERI Report 2014 ERI Report Estimated price effect (2015–2024) Estimated price effect (2014–2023) Scenario 1 .................................................................................................................................................... Scenario 2 .................................................................................................................................................... Scenario 3 .................................................................................................................................................... ERI then compares these numbers to the current spot and term price indicators published by TradeTech on January 31, 2015—i.e. $37.25 per pound U3O8 on the spot market, and $50.00 per pound U3O8 on the term market. As a percentage of the current prices, the average price effect attributable to DOE’s transfers over the period 2015–2024 under Scenario 1 represents approximately 7.6% of the current spot price and 5.7% of the current term price. Under Scenario 2, the average price effect over the same period represents 7.1% of the spot price and 5.3% of the term price. Under Scenario 3, the average price effect represents 3.6% of the spot price and 2.7% of the term price. 2015 ERI Report, 47, 49. The second model that ERI used to predict the effects of DOE transfers specifically on the spot price for uranium using an econometric model. A summary of ERI’s estimates using this model appears in Table 2. ERI compared the monthly spot and term market prices published by TradeTech with published offers to sell uranium for delivery within one year of publication and published inquiries to purchase uranium for delivery within one year. Based on this information, ERI developed a multivariable correlation to estimate how the market prices would respond to the availability of new supply from DOE. 2015 ERI Report, 50. Applying this econometric model, ERI predicts that transfers under Scenario 1 would cause the spot price to be lower by about $2.40 per pound between 2015 and 2017 than it would be in the $2.80 2.60 1.30 $2.90 .............................. .............................. absence of transfers, and by about $5.10 between 2018 and 2024. For Scenario 2, ERI estimated that the spot price would be lower by about $1.70 per pound between 2015 and 2017 than it would be without transfers, and by about $4.80 between 2018 and 2024. For Scenario 3, ERI estimated that the spot price would be lower by about $0.30 per pound between 2015 and 2017, and by $2.00 between 2018 and 2024. 2015 ERI Report, 53. Again, as noted for the market clearing analysis, the market price currently takes account of the already ongoing transfers at the levels of Scenario 1. Thus, on ERI’s analysis prices already exhibit a level of price suppression similar to the level predicted in the near term under Scenario 1. 2015 ERI Report, 52–53. TABLE 2—ERI’S ESTIMATE OF EFFECT OF DOE TRANSFERS ON URANIUM CONCENTRATE SPOT PRICE IN $ PER POUND U3O8 [Econometric model] 15 2015 ERI Report Estimated price effect (2015–2017) Scenario 1 ........................................................................................................ Scenario 2 ........................................................................................................ Scenario 3 ........................................................................................................ mstockstill on DSK4VPTVN1PROD with NOTICES For the 2014 ERI Report, ERI had conducted a similar market clearing approach for a level of transfers that is 15 It is more appropriate to compare the estimated price effect to the forecasted market price at the time of the effect. ERI’s report does not provide specific quantifications of the forecasted market price in out-years. Thus, it is not possible to list the percentage of expected market price with specificity. However, DOE notes that, at least with respect to the later term projections, ERI predicts that market prices will be in the $52 to $57 range after 2017. 2015 ERI Report, 52; 2014 ERI Report, 44. VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 16 ERI also compared those numbers to then current term and spot price indicators as of March 31, 2014. At that time, the TradeTech price indicator was $34.00 per pound U3O8 on the spot PO 00000 Frm 00043 Fmt 4703 Sfmt 4703 Estimated price effect (2018–2024) $2.40 1.70 0.30 equal to Scenario 1 of the 2015 ERI Report. Although that report used slightly older data, the results are very similar. Notably, ERI estimated that the price effect attributable to DOE transfers at the current rates is $2.90 between 2014 and 2023—with prices being $3.00 lower in 2014 and 2015, and $2.80 lower in 2016.16 2014 ERI Report, 40. 2014 ERI Report $5.10 4.80 2.00 Estimated price effect (2014–2016) Estimated price effect (2017–2021) $2.80 ........................ ........................ $5.50 ........................ ........................ ERI also conducted a similar econometric analysis for a level of transfers that is equal to Scenario 1. 2014 ERI Report, 42–45. The econometric analysis in the 2014 ERI Report estimated a slightly higher price effect compared to the 2015 Report. Specifically, ERI estimated that DOE transfers would cause the spot price to be lower by about $2.80 per pound between 2014 and 2016, and by about market and $45.00 per pound U3O8 on the term market. 2014 ERI Report, 23. E:\FR\FM\18MRN1.SGM 18MRN1 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES $5.50 between 2017 and 2021. 2014 ERI Report, 44. The updated analysis in the 2015 ERI Report produces slightly different figures because it relies on updated estimates of the amount of DOE material expected to affect the markets. Compare Table 3.4 of 2014 ERI Report, 33, with Tables 3.6, 3.7, and 3.8 of 2015 ERI Report, 32–34. Three commenters provided their own estimates of the price effects of DOE transfers. UPA attached to its comment a market analysis it commissioned from TradeTech, LLC, a uranium market consultant. Comment of UPA, Attachment, TradeTech, ‘‘UPA DOE Material Transfer Study’’ (2015) (hereinafter ‘‘TradeTech Report’’). A summary of TradeTech’s estimates appears in Table 3. TradeTech explains that it estimated the price effect of DOE transfers using its proprietary Dynamic Pricing Model. This model is an econometric forecasting approach to estimate the equilibrium between two dimensions TradeTech calls ‘‘active supply’’ and ‘‘active demand.’’ In its estimates, TradeTech assumes that 50 percent of DOE transfers enters the spot market and 50 percent enters the term market. TradeTech Report, 14. Using its model, TradeTech estimates that DOE’s transfer reduced the spot price by an average of $3.55 per pound between January 2012 and December 2014. TradeTech Report, 15. TradeTech also estimates that continued DOE transfers at current rates would reduce the spot price by an average of $2.43 per pound between January 2015 and December 2016. TradeTech Report, 20. TradeTech also provides estimates for the effect of DOE transfers at several decreased transfer rates. If DOE transfers decreased to 75% of current levels, TradeTech estimates that the spot price would increase by an average of $0.53 per pound between January 2015 and December 2016. TradeTech Report, 26.17 Based on TradeTech’s estimate of the price suppression of DOE transfers at current levels, it appears that TradeTech is estimating that price suppression at 75% of current levels would be $1.90. If DOE transfers decreased to 50% of current levels, TradeTech estimates that the spot price would increase by an average of $1.10 per pound between January 2015 and 17 Figures 16–19 of the TradeTech Report show TradeTech’s estimates for the price impact at a range of different transfer rates. Although these charts and the related text refer to ‘‘Transfers at [25, 50, or 75] Percent of Established 2014 Volumes,’’ it appears that these charts actually reflect an estimate for a 25%, 50%, or 75% decrease relative to current levels, rather than transfers at the specified percentage of current levels. VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 December 2016. TradeTech Report, 25. This corresponds to a price suppression of $1.33. If DOE transfers decreased to 25% of current levels, TradeTech estimates that the spot price would increase by an average of $1.73 per pound between January and 2015 and December 2016. TradeTech Report, 24. This corresponds to a price suppression of $0.70. TABLE 3—TRADETECH’S ESTIMATE OF EFFECT OF DOE TRANSFERS ON CONCENTRATE SPOT URANIUM PRICE IN $ PER POUND U3O8 TradeTech report Transfer rate (compared to current) Estimated price effect (2015–2016) 100% ..................................... 75% ....................................... 50% ....................................... 25% ....................................... $2.43 1.90 1.33 0.70 Fluor-B&W Portsmouth attached to its comment an April 2014 market analysis from NAC International (NAC). Comment of Fluor-B&W Portsmouth, Attachment A, NAC International, ‘‘Impact of DOE Excess Uranium Sales on the U3O8 Market’’ (April 2014) (hereinafter ‘‘NAC Report’’).18 In its analysis, NAC based its production cost estimates on its Uranium Supply Analysis System (USAS). NAC updates this model each year based on a review of various published reports and presentations. NAC then applies cost models to derive specific cost estimates for individual properties. NAC Report, C–1. Specifically, NAC applies a discounted cash flow rate of return model based on both full cost (including sunk costs) and forward costs for each property. NAC Report, C–2 to C–3. NAC also utilized an estimate of reactor requirements and uncommitted demand developed from its Fuel-Trac database. NAC Report, D–1. NAC developed a range of estimates of the impact of DOE transfers utilizing its production cost estimates at three different rates: 2,800 MTU per year, 2,400 MTU per year, and 10% of U.S. reactor requirements. NAC Report, 3–21 to 3–22. First, NAC applied a methodology it believes approximates ERI’s approach to its own cost estimates. Specifically, NAC identified the incremental cost of the last property 18 As this report was prepared in April 2014, it does not contain updated information on developments in the markets since that time. The level of uranium transfers that it analyzes is based on the levels specified in the May 2012 Secretarial Determination, which is roughly similar to the current rate of transfers. NAC Report, A–1 to A–3. PO 00000 Frm 00044 Fmt 4703 Sfmt 4703 14113 needed to meet demand in a given year based on total supply and demand. NAC Report, 3–22. NAC then explains that because long-term contracts with fixed pricing mechanisms have allowed some high-cost producers to produce ahead of lower cost supply, it believes a better approach is to base the model on uncommitted supply and demand. NAC then applies a multiplier to these estimates to account for additional incremental costs not included in its site forward production costs estimate. These additional costs include increased site forward costs due to operation at less than nominal capacity, taxes, corporate overhead, and variations in the required rate of return. NAC Report, 3–23. NAC also applies a time shift to the cost trend to account for the fact that producers need a price signal before investing in a new production center—i.e. producers need to have prices that justify an investment before actually making the investment. NAC Report, 3–24. The specific quantitative impact projected by NAC is withheld from the public version of the NAC Report to protect confidential information. Cameco attached to its comment a market analysis it commissioned from Ux Consulting Company, LLC (UxC), another uranium market consultant. Comment of Cameco Corp., Attachment, UxC Special Report, ‘‘Impact of DOE Inventory Sales on the Nuclear Fuel Markets’’ (January 2015) (hereinafter ‘‘UxC Report’’). A summary of UxC’s estimates of the effect of DOE transfers on future prices appears in Table 4. UxC explains that it estimated the price effect of DOE transfers using two proprietary econometric models: The U– PRICE model and the SWU–PRICE model. UxC explains that these models were developed using historical data on the nuclear fuel markets collected and compiled by UxC. These two models take into account and quantify the impact of ‘‘key factors influencing the markets.’’ UxC also explains that the two models can be linked to simulate the interrelationship between uranium concentrates and enrichment. UxC Report, 3.19 Using these two models, UxC estimates the effects of DOE transfers using two slightly different methodologies. For the first approach, what UxC calls the ‘‘incremental approach,’’ UxC does not include the cumulative impact of previous years’ transfers. The second approach, which UxC calls the ‘‘total impact approach,’’ 19 Additional information about the U–PRICE model can be found in Chapter 1 of UxC Uranium Market Outlook—Q4 2014, 7–21 (2014). E:\FR\FM\18MRN1.SGM 18MRN1 14114 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices includes sales from previous years. UxC argues that previous years’ sales should be included because ‘‘such sales have a longer-term effect on market perceptions among both buyers and sellers. In particular, the increased supplies from DOE’s sales and transfers removed market opportunities available to other uranium suppliers.’’ UxC Report, 5. Using its incremental approach, UxC estimates that between 2012 and 2014 DOE’s transfer reduced the spot price by an average of $4.50 per pound and the term price by an average of $2.88 per pound. Using its total impact approach, between 2018 and 2030 by an average of $4.47 per pound. UxC also notes that the former number is larger relative to the expected price of uranium than the latter number (14.1% versus 7.1%). UxC Report, 10. UxC estimates that DOE transfers in the near and medium terms would reduce the term price by an average of $4.86 per pound. Between 2018 and 2030, DOE transfers are estimated to reduce the term price by an average of $5.30 per pound. Again, the near and medium term impact is larger in relation to the expected price (9.0% versus 7.1%). UxC Report, 11. UxC estimates that between 2008 and 2014 DOE’s transfers reduced the spot price by an average of $7.11 per pound and the term price by an average of $5.10 per pound. UxC Report, 6–7. UxC also estimates the effect of DOE continued transfers at current rates for the period 2015 to 2030. UxC estimates that DOE transfers in the near and medium terms would reduce the spot price by an average of $5.78 per pound. UxC projects that this effect will change slightly in the medium term as market prices start to recover. Specifically, DOE transfers will reduce the spot price TABLE 4—UXC’S ESTIMATE OF EFFECT OF DOE TRANSFERS ON URANIUM CONCENTRATE SPOT AND TERM PRICES IN $ PER POUND U3O8 UxC Report Near- & midterm price effect Spot Price ........................................................................................................ Term Price ....................................................................................................... mstockstill on DSK4VPTVN1PROD with NOTICES UxC puts particular focus on the interrelationship between the uranium and enrichment markets. UxC states that uranium and SWU are ‘‘substitutes.’’ Thus, UxC uses enrichment prices as an input into its uranium concentrate price forecast, and vice versa. UxC Report, 5, 8, 17. DOE understands that this interplay can take several forms. First, to the extent that enrichers have unsold enrichment capacity, they may apply that excess capacity to underfeeding 20 and/or re-enriching DUF6 tails.21 This essentially allows enrichers to produce additional natural uranium hexafluoride, which could then be sold on the open market. Second, if the price of enrichment decreases relative to the price of uranium concentrates, the optimum tails assay decreases, requiring customers to deliver less natural uranium feed to get the same amount of enriched uranium output. The other market analyses do not appear to take these interplays into account.22 But DOE believes the price 20 Enrichers can change the amount of natural uranium needed as input (‘‘feed’’) by applying a greater or lesser amount of enrichment work to a given amount of feed. ‘‘Underfeeding’’ refers to when enrichers ply a greater amount of enrichment work to an amount of feed, thus requiring less feed to achieve the same amount of enriched product. 21 In addition to ‘‘underfeeding,’’ enrichers can apply additional enrichment work to existing depleted uranium from past enrichment processes by feeding them back into the enrichment process. This process is often called ‘‘re-enrichment’’ of tails. 22 ERI’s market clearing price analysis, for example, includes material from underfeeding as ‘‘Secondary Supply.’’ However, ERI does not consider how a change in uranium concentrate and/ VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 Percent of expected price $5.78 4.86 interplay would be small, and the two effects may potentially offset. Since only some of DOE inventories contain an enrichment component, DOE materials can be expected to have a larger proportional effect on the uranium concentrates and conversion markets as compared to the enrichment market. At current rates, ERI estimates that DOE transfers in 2015 under Scenario 1 would represent 4%, 5%, and 2% of that year’s global requirements for uranium, conversion, and enrichment, respectively. Since DOE inventories are a greater proportion of uranium and conversion requirements, it seems likely that the effect of DOE transfers would be to slightly increase the ratio of SWU price to UF6 price. This would increase the optimum tails assay, which may actually increase demand for uranium concentrates slightly. In addition, practices in the industry suggest that the enrichment component of DOE material does not displace primary production at existing facilities. Enrichers typically do not increase centrifuge capacity without long-term contracts in place to purchase the output. Comment of URENCO, Inc., at 2. Also, some in the market have chosen to allow older centrifuges to retire without being replaced instead of retaining excess capacity. 2015 ERI Report, 16; UxC Enrichment Market Outlook—Q4 2014, 11 (2014). Thus, it is far from clear that for every SWU contained within DOE material, a or conversion prices would affect the price of SWU or the level of underfeeding present in secondary supply. PO 00000 Frm 00045 Fmt 4703 Sfmt 4703 14.1 9.0 Long-term price effect $4.47 5.30 Percent of expected price 7.1 7.1 corresponding amount of primary production becomes excess capacity available for tails re-enrichment or underfeeding. Considering this information as a whole, it does not appear that the interrelationship between the enrichment and uranium markets will significantly affect how DOE’s material affects uranium market prices. 2. Realized Prices of Current Operators ERI states that realized price varies from one company to another. To estimate the realized prices for U.S. producers, ERI gathered information from public filings representing approximately 95% of U.S. production. 2015 ERI Report, 60–61. ERI does not list the specific dollar figures, but it provides a graph of how realized uranium prices have changed over time for several U.S. producers. This graph shows that realized prices declined for most primary producers in 2014. Even with this decline, ERI estimates that several producers achieved realized prices in 2014 well above the average spot price over the course of the year. At least one producer achieved a realized price well above the average term price for 2014. 2015 ERI Report, 61. ERI reports that some mining companies have negotiated contracts that base the price paid at least partially on a fixed or base-escalated pricing mechanism. As an example, ERI reports that Cameco has reported that the price sensitivity of its current contract E:\FR\FM\18MRN1.SGM 18MRN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices portfolio is about 50% of any change in spot market price. ERI estimates that less than 30% of U.S. production currently comes from companies that are effectively unhedged against changes in spot price. 2015 ERI Report, 60–61. TradeTech also provides its estimates of the decline in realized price for several producers—both U.S. and foreign. Although TradeTech does not provide specific figures, it provides information on several firms in chart form. It appears from the chart that among the firms for which TradeTech provides estimates, realized prices in 2013 varied from as low as about $38 to as high as about $57. For most producers, there was a decline in realized price between 2011 and 2013. The magnitude of that decline ranges from approximately $12 to as low as $2 or $3. TradeTech Report, 13. TradeTech notes that one reason for declining realized prices is the expiration of longterm contracts signed when prices were substantially higher. TradeTech Report, 12. NAC similarly notes that some higher cost suppliers have locked in higher prices through fixed price contracts that allow them to realize prices greater than current market prices. NAC Report, 3– 22. NAC also provides its estimated supply capability broken down by production cost. The specific figures are withheld from the public version of the NAC Report to protect confidential information. NAC Report, 3–9 to 3–11. Although NAC estimates the effect of DOE transfers on market price, as described above, NAC does not provide specific estimates of the effect on the price realized by individual producers. EIA reports several figures that are relevant to the prices realized by current production facility operators. EIA reports that the weighted average price in sales directly from U.S. producers in 2013 was $44.65. EIA, 2013 Uranium Production Report, 7 (2014). Similarly, EIA reports that the weighted average price paid by U.S. reactor operators in 2013 was $51.99 per pound U3O8 equivalent (per lb U3O8). EIA, 2013 Uranium Marketing Report, 4 (2014). EIA provides comparatively more information on the price paid by U.S. reactor operators. Although EIA does not provide a complete range of prices, it does report that the bottom 7.1 million pounds U3O8 equivalent (approximately 1⁄8th of uranium delivered in 2013) purchased by U.S. operators had a weighted average price of $34.34. The top 7.1 million pounds had a weighted average price of VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 $72.62.23 EIA, 2013 Uranium Marketing Report, 26. EIA also provides average prices broken down by origin—foreign vs. U.S.—and by seller—U.S. producer, U.S. brokers and traders, other U.S. suppliers (i.e. other reactor operators, converters, enrichers, or fabricators), and foreign suppliers. The weighted average price in 2013 for U.S. origin uranium was $56.37 per lb U3O8. The weighted average price in 2013 from U.S. brokers and traders was $50.44. For 2013, EIA does not report the weighted average price of uranium purchased by U.S. reactor operators directly from U.S. producers to avoid disclosure of individual company data. However, in recent years when that value is reported, it has been above the average price paid for U.S. origin uranium. EIA, 2013 Uranium Marketing Report, 4 (2014). For comparison, DOE notes that the 2013 average spot price was around $39.00 and the average term price was around $54.00.24 EIA provides data about sales using different pricing mechanisms. EIA reports that of the approximately 23.3 million pounds U3O8 equivalent purchased by U.S. reactor operators from domestic sources 25 and delivered in 2013, 14.5 million pounds were purchased based on fixed or baseescalated pricing—approximately 62.3%—with a weighted-average price of $54.95. Approximately 3.6 million pounds were purchased based purely on spot-market pricing—approximately 15.6%—with a weighted-average price of $42.55. The remaining 5.1 million pounds—approximately 22%—was sold based on some other pricing mechanism with a weighted average price of $52.68. EIA, Uranium Marketing Report, 24 (2014). 3. Production at Existing Facilities ERI reports that U.S. production has risen since the DOE uranium inventory transfers in December 2009. In 2014, production was 5% higher compared to the previous year. However, ERI reports that production in 2015 is expected to decline to 2013 levels. 2015 ERI Report, 58. Since 2009, four new operations 23 These two figures do not differentiate between U.S.-origin versus foreign material. However, EIA reports that the weighted average price of U.S. origin material is higher than the average for all foreign material. EIA, 2013 Uranium Marketing Report, 20 (2014). 24 As calculated according to monthly price indicator data from UxC. 25 Note that EIA’s figure includes purchases of U.S.-origin uranium as well as purchases from a firm located in the United States. Therefore, this number includes uranium from sources other than the domestic uranium industry. EIA reports that approximately 9.5 million pounds of U.S. origin uranium was delivered to U.S. reactor operators in 2013. EIA, Uranium Marketing Report, 20 (2014). PO 00000 Frm 00046 Fmt 4703 Sfmt 4703 14115 have begun production: Willow Creek in 2010, Hobson/Palangana in late 2010/ early 2011, Lost Creek in 2013, and Nichols Ranch in 2014. ERI also reports that one additional production center is expected to begin operations in 2015. Despite these new operations, ERI notes that several conventional and in-situ leach operations have scaled back operations. 2015 ERI Report, 57. After reporting this information, ERI presents a chart showing the price levels at the time cutbacks were announced at various U.S. suppliers. ERI reports price points for four operations: $45 per pound in the spot market for conventional mines in Utah; $40 per pound in the spot market for two insitu-leach operations; and $35 per pound in the spot market for additional conventional mines and a uranium mill. 2015 ERI Report, 62. ERI then estimates average production costs for existing mines by referring to EIA’s published data on production expenditures across the uranium industry. Using a three year average to smooth out year-to-year differences, ERI notes that average production costs have remained fairly constant since 2009 at about $40 per pound. 2015 ERI Report, 63. ERI further reports that it estimates production costs at U.S. in-situ-leach facilities to range from the low $30s to the mid $40s per pound. ERI concludes that the pattern of cutbacks and estimated production costs ‘‘do not seem to indicate that adding back the $3 per pound price effect attributed to all DOE inventory material for Scenario 1 would move current prices enough to cause U.S. producers to ramp well field development and production activities back up.’’ 2015 ERI Report, 64. ERI further notes that the spot price would remain near $40 per pound and ‘‘may still not be sufficient for higher cost ISL producers to restart well field development or higher cost conventional mines to resume mining activities, and likely would not have prevented the decisions to cut back when prices declined to $35/lb in mid 2013 and then below $30/lb in mid 2014.’’ 2015 ERI Report, 64. The 2014 ERI Report came to similar conclusions using similar methodology. That report noted that despite the overall increase in uranium production in recent years, there have been production cuts at several operations. 2014 ERI Report, 49. ERI also provided a chart of production cut announcements and the then-current spot and term prices. 2014 ERI Report, 58. ERI noted that some uranium producers report costs in public filings, but these costs are not reported consistently across firms and generally E:\FR\FM\18MRN1.SGM 18MRN1 mstockstill on DSK4VPTVN1PROD with NOTICES 14116 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices do not include royalties and severance taxes or the cost of ongoing wellfield development at in-situ-leach operations. ERI’s estimate of average industry-wide production costs is the same as in the 2015 ERI Report—i.e. approximately $40 per pound. 2014 ERI Report, 59. TradeTech predicts a ‘‘potential reduction in the number of market participants.’’ TradeTech Report, 21. It then applies the price effect it estimates for DOE transfers to a hypothetical uranium producer with a production cost of $47.41 per pound. See Figure 15 of TradeTech Report, 22. TradeTech does not apply its estimate to any particular producer. TradeTech does, however, provide estimates for the production costs of several firms in both 2011 and 2013.26 Although TradeTech does not provide specific cost data, it does provide information on several firms in chart form. It appears from the chart that among the firms TradeTech provides estimates for, production costs in 2013 varied from as low as $30 to as high as $50. TradeTech also notes that many producers have been able to reduce or stabilize costs in recent years. This is also reflected in the difference between the producers’ costs in 2011 and in 2013. TradeTech Report, 13. As noted above, NAC provides estimated production cost ranges for segments of current supply, but it does not directly estimate the effect of DOE transfers on production levels. NAC Report, 3–9 to 3–11. UxC does not provide any specific estimates of production levels or costs at currently operating facilities. However, in other reports, UxC outlines detailed estimates for individual mines. UxC Uranium Market Outlook—Q4 2014, 76– 78 (2014); UxC Uranium Production Cost Study, 80–84 (Aug. 2013). In addition to the information described above, DOE has considered information from EIA reports. EIA reports on production in the domestic uranium industry on a quarterly and annual basis. EIA’s most recent quarterly report provides preliminary data for 2014. U.S. primary production in 2014 stood at 4.9 million pounds U3O8. This is about 5% higher than in 2013 and 15% higher than in 2012. In fact, this represents the highest production total in any calendar year since 1997. EIA, Domestic Uranium Production Report Q4 2014, 2 (January 2015). The same number of uranium concentrate processing facilities— seven—operated in 2014 as in 2013. EIA 26 This figure includes information on some projects that are not part of the domestic uranium mining industry, such as Uranium One’s Kazakh projects. VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 reports that the White Mesa conventional mill halted production in the fourth quarter of 2014 and that the Nichols Ranch in-situ-leach plant began operation in the second quarter of 2014. EIA Domestic Uranium Production Report Q4 2014, 3–6 (January 2015). Uranerz, at 2. Although several stated that DOE transfers were causing a portion of these losses, no commenter estimated the proportion of recent employment decreases attributable to DOE transfers. TradeTech Report, 21– 22; UxC Report, 5. 4. Employment Levels in the Industry DOE has considered information contained from EIA reports relating to employment in the domestic uranium production industry. EIA’s most recent Uranium Production Report states that employment stood at 1,156 person-years in 2013, 1,196 person-years in 2012, and 1,191 person-years in 2011. EIA, 2013 Uranium Production Report, 10 (May 2014). In its analysis, ERI compared EIA’s employment figures with changes in uranium spot and term prices. Based on a statistical correlation, ERI infers that employment responds to changes in price. 2015 ERI Report, 73. ERI then uses this correlation to estimate that the decrease in uranium prices over the course of 2014 resulted in a loss of 114 person-years from the 2013 value of 1,156. 2015 ERI Report, 55. ERI then estimates that the price effect it attributes to DOE transfers lowered employment by 41 person years in 2013, and 44 person years in 2014. 2015 ERI Report, 56. ERI further estimates that price effects due to DOE transfers at the levels described in Scenario 1 would result in an average employment loss of 42 person years over the next 10 years. For Scenario 2 and 3, ERI estimated that the average employment loss would be 39 and 21 person years, respectively. Again, it is important to note that this estimate is not a prediction that the uranium production industry under Scenario 1 would shed 42 jobs in 2015 and each subsequent year. Instead, this figure reflects ERI’s estimate that total employment in the industry would be higher by an average of 42 person-years without DOE transfers compared to with DOE transfers. For the 2014 ERI Report, ERI conducted a similar analysis and came to broadly similar conclusions. It estimated an employment loss of 50 person-years for 2013, and an average loss of 44 person years over the course of 2014–2023. 2014 ERI Report, 48. Though no commenter provided specific numbers, several referred to decreases in employment in recent years caused by decreases in uranium prices. E.g., Comment of Mark S. Pelizza, at 1. Some commenters stated that the uranium production industry has lost half its workforce since May 2012 without providing supporting data. Comment of UPA, at 2; comment of 5. Changes in Capital Improvement Plans and Development of Future Facilities As stated above, ERI reports that four new production centers began operation since 2009: one in 2010, one in late 2010/early 2011, one in 2013, and one in 2014. In addition, one new production center—Peninsula’s Lance— is expected to begin operations in 2015. 2015 ERI Report, 57. ERI explains that the new production centers may have been able to begin operations only because they were supported by fixed price term contracts that were signed when prices were substantially higher than they are currently—i.e. $55 to $70 per pound term price. At least one of these companies has directly stated that its project would not have been able to proceed at current price levels—$45 to $50 per pound term price. ERI also reports that some owners of proposed conventional mines outside the U.S. have stated that prices in the range of $60 to $70 per pound would be necessary for further development. 2015 ERI Report, 61. Based on the above, ERI concludes, ‘‘[i]t does not appear that removing the DOE inventory from the market and adding back the $2 to $3 per pound price effect attributed to the DOE inventory material . . . would necessarily increase current prices enough to change the situation regarding the viability of new production centers in the U.S.’’ 2015 ERI Report, 62. However, ERI reports that some lower cost ISL projects in the U.S. may be able to move forward at current prices. 2015 ERI Report, 62. The 2014 ERI Report came to similar conclusions. 2014 ERI Report, 57. It noted that despite the overall increase in uranium production in recent years, there have been production cuts at several operations. 2014 ERI Report, 49. ERI also reported the same prices that it believed would be required to motivate further development as it reports the 2015 report. 2014 ERI Report, 57. NAC provides estimates of the site forward cost including rate of return for ten properties it considers to be under development.27 The specific figures are PO 00000 Frm 00047 Fmt 4703 Sfmt 4703 27 NAC defines ‘‘under development’’ as a property for which ground breaking has begun. Note that NAC considers ten properties worldwide to be ‘‘under development’’; they are not limited to U.S. properties. NAC Report, 3–11. E:\FR\FM\18MRN1.SGM 18MRN1 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES withheld from the public version of the NAC Report to protect confidential information. NAC Report, 3–11 to 3–12. NAC does not directly apply its estimate of the price effect of DOE transfers to the production costs for these specific properties. EIA reports that production expenditures were $168.8 million in 2011, $187 million in 2012 and $168 million in 2013—when spread across annual production, these numbers represent approximately $41 per pound in 2011, $43 per pound in 2012 and $36 per pound in 2013. EIA, 2013 Domestic Uranium Production Report, 7, 11 (2014). Including costs related to drilling between 2009 and 2013 raises this figure by about $10–15 per pound, and including land, exploration, and reclamation costs in those years increases these figures by a further $19– 24 per pound. EIA, 2013 Domestic Uranium Production Report, 7, 11 (2014). EIA also provides a table of different facilities and their operating statuses. EIA reports one uranium mill in development as of the 4th quarter 2014—in the ‘‘permitted and licensed’’ stage. EIA, Domestic Uranium Production Report Q4 2014, 4 (January 2015). EIA reports eight in-situ-leach plants under development—two in the ‘‘developing’’ stage, three that are ‘‘partially permitted and licensed,’’ two that are ‘‘permitted and licensed,’’ and one that is ‘‘under construction.’’ EIA, Domestic Uranium Production Report Q4 2014, 5–6 (January 2015). 6. Long-Term Viability and Health of the Industry As described above, ERI notes that US industry production has risen since the start of DOE uranium inventory barters in December 2009. ERI also notes that four new operations began production since 2009, and one additional production center is expected to begin operations in 2015. 2015 ERI Report, 57. ERI also presents its future expectations regarding demand for uranium. ERI’s most recent Reference Nuclear Power Growth forecasts project global requirements to grow to approximately 182 million pounds annually between 2018 and 2020, approximately 15% higher than current requirements. Global requirements are expected to continue to rise to a level of 203 million pounds in 2025, approximately 28% higher than current requirements. 2015 ERI Report, 6–7. ERI presents a graph comparing global requirements, demand, and supply from 2013—2035. That graph shows that global secondary supply and supply from current mines will continue to VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 14117 exceed global reactor demand until approximately 2018. However, if China’s practice of purchasing amounts of uranium well in excess of its current reactor demand is included—what ERI terms ‘‘Discretionary Strategic’’ demand—global demand approximately equals supply from secondary supply and currently operating mines. 2015 ERI Report, 9–10. If planned expansions and new mines under development are included, supply is expected to exceed demand until approximately 2024, regardless of whether ‘‘Discretionary Strategic’’ demand is included.28 In the time period following 2025, ERI’s graph shows demand significantly outstripping supply. 2015 ERI Report, 9. In order to meet this demand, ERI anticipates that mines it terms ‘‘planned’’ and ‘‘prospective’’ will need to begin operations. 2015 ERI Report, 11. A variety of other sources predict substantial increases in reactor requirements and/or demand.29 TradeTech reports reactor-only growth at 3.52% per year through 2024. Total uranium requirements growth is much slower during this period due to stock building purchases which taper downward.30 TradeTech Report, 34. The OECD and IAEA report that reactor requirements are expected to grow by at least 35.4 million pounds 31 by 2025— representing approximately 21% of 2015 requirements.32 OECD–IAEA, Uranium 2014: Resource, Production, and Demand, 105 (2014). In its Uranium Market Outlook for the 4th quarter of 2014, UxC similarly predicts significant increases in both requirements and demand in the long-term. UxC Uranium Market Outlook—Q4 2014, 56–60 (2014). In addition to a predicted increase in demand, several sources predict a recovery in either spot or term uranium prices—or both. ERI notes that term prices are expected to increase in the future, but does not provide a specific forecast. 2015 ERI Report, 46. ERI’s econometric model, however, does show an increase in the spot price. Specifically, ERI’s chart forecasts that spot prices will recover over the course of 2015–2018 eventually settling in the $52–57 range after 2019. 2015 ERI Report, 52. TradeTech’s forecasted Exchange Value predicts an increase in spot price to approximately $50 as early as June 2016, even with DOE transfers. TradeTech Report, 20. UxC’s estimates of the effect of DOE transfers assume that market conditions will improve in the medium term. Specific price levels are withheld from Figures 5 and 6 of the public version to protect confidential information. UxC Report, 10–11. In its annual Uranium Market Outlook, UxC provides a more detailed explanation of its price forecast, which generally predicts an increase in price over the next 10 years. UxC Uranium Market Outlook—Q4 2014, 111–19 (2014). Finally, DOE recognizes that the predictability of transfers from its excess uranium inventory over time is important to the long-term viability and health of the uranium industries. ERI has noted the importance of predictability ‘‘for long-term planning and investment decisions by the domestic industry.’’ 2015 ERI Report, 100; 2014 ERI Report, 60–61. Some commenters also stated that DOE transfers should be predictable. Comment of UPA, at 2; comment of Cameco, at 2. DOE notes that the upper scenario considered by ERI would represent continued transfers at rates consistent with the May 2014 determination and roughly similar to the May 2012 determination. Compare 2015 ERI Report, 25, with 2014 ERI Report, 28. 28 ERI assumes that China’s discretionary strategic inventory building will taper off by 2023. 2015 ERI Report, 10. 29 DOE notes that uranium ‘‘demand’’ and reactor ‘‘requirements’’ are different. Requirements refers to an estimate of the amount of uranium needed to support operating reactors in a particular year. Demand includes additional purchased quantities for strategic or discretionary purposes. For example, in recent years China has purchased quantities of uranium far in excess of its reactor requirements. 2015 ERI Report, 10–11; TradeTech Report, 41–42; NAC Report, 3–2 to 3–5. 30 TradeTech’s charts appear to assume China’s stock building purchases will cease to outpace Chinese requirements around 2023. TradeTech Report, 41–42. 31 Converted from metric tons uranium in U O 3 8 (MTU) using a conversion rate of 2,599.79 pounds U3O8 per MTU. 32 This represents OECD–IAEA’s low growth scenario. The high growth scenario anticipates growth of almost 90 million pounds, approximately 50% above the high-growth scenario for 2015. Id. B. Uranium Conversion Industry PO 00000 Frm 00048 Fmt 4703 Sfmt 4703 1. Market Prices In its analysis, ERI estimates the effect of DOE transfers on the market prices for conversion services. To estimate this effect, ERI employed a market clearing price model very similar to what is described above for the uranium market. As with uranium concentrates, ERI constructed individual supply and demand curves for conversion services and estimated the clearing price with and without DOE transfers. 2015 ERI Report, 44. A summary of ERI’s estimates of the effect of DOE transfers on the conversion price appears in Table 5. Applying this approach to the three scenarios listed above, ERI estimates E:\FR\FM\18MRN1.SGM 18MRN1 14118 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices that DOE transfers at the rate of 2,705 MTU per year would cause the price of conversion services to be, on average, $0.90 lower between 2015 and 2024— with prices being $0.90 lower in 2015 and 2016 specifically. 2015 ERI Report, 45. For DOE transfers at a rate of 1,855 MTU per year, ERI estimates that prices would be, on average, $0.80 lower between 2015 and 2024—with prices being $0.70 and $0.60 lower in 2015 and 2016, respectively. If DOE ceased transfers under these two programs, ERI estimates that prices would be, on average, $0.40 lower between 2015 and 2024—with prices being $0.10 and $0.00 lower in 2015 and 2016, respectively.33 As with uranium concentrates, this is not a prediction that prices will drop by the specified amount once DOE begins transfers. According to ERI’s analysis, a level of price suppression consistent with the estimate for Scenario 1 is already reflected in the current market price for conversion services. 2015 ERI Report, 44. If DOE continues transferring at Scenario 1 levels, the market prices would not change; if DOE began transferring at Scenario 2 levels, the market price would be expected to rise by approximately $0.20; if DOE ceased transfers under these programs, market prices would be expected to rise by $0.80. See Table 4.2 of 2015 ERI Report, 45. ERI compares these numbers to the current spot and term price indicators published by TradeTech on January 31, 2015—i.e. $8.50 per kgU as UF6 on the spot market, and $16.00 per kgU as UF6 on the term market. As a percentage of the current prices, the average price effect attributable to DOE’s transfers over the period 2015–2024 under Scenario 1 represents approximately 10.6% of the current spot price and 5.6% of the current term price. Under Scenario 2, the average price effect over the same period represents 9.9% of the spot price and 5.2% of the term price. Under Scenario 3, the average price effect represents 5.0% of the spot price and 2.7% of the term price. 2015 ERI Report, 47, 49. For the 2014 ERI Report, ERI conducted a similar market clearing approach for a level of transfers that is equal to Scenario 1 of the 2015 ERI Report. Although that report used slightly older data, the results are very similar. Notably, ERI estimated that the price effect attributable to DOE transfers at the current rates is $0.90 between 2014 and 2023—with prices being $0.90 lower in 2014, 2015, and 2016.34 2014 ERI Report, 40. TABLE 5—ERI’S ESTIMATE OF EFFECT OF DOE TRANSFERS ON CONVERSION SPOT AND TERM PRICES IN $ PER kgU AS UF6 2015 ERI Report 2014 ERI Report Estimated price effect (2015–2024) Estimated price effect (2014–2023) mstockstill on DSK4VPTVN1PROD with NOTICES Scenario 1 .................................................................................................................................................... Scenario 2 .................................................................................................................................................... Scenario 3 .................................................................................................................................................... In addition to its estimate of the price effect of DOE transfers on the uranium concentrate market, TradeTech estimates the effect on the price of conversion services. A summary of TradeTech’s estimates appears in Table 6. It appears that TradeTech developed this estimate using its econometric Dynamic Pricing Model. TradeTech Report, 14. Using its model, TradeTech estimates that DOE’s transfer reduced the spot price by an average of $2.13 per kgU as UF6 between January 2012 and December 2014. TradeTech Report, 17. TradeTech also estimates that continued DOE transfers at current rates would reduce the spot price by an average of $0.91 per kgU as UF6 between January 2015 and December 2016. TradeTech Report, 21. TradeTech also provides estimates for the effect of DOE transfers of several decreased transfer rates. If DOE transfers decreased to 75% of current levels, TradeTech estimates that the spot price would increase by an average of $0.21 per kgU as UF6 between January and 2015 and December 2016. TradeTech, 31.35 Based on TradeTech’s estimate of the price suppression of DOE transfers at current levels, it appears that TradeTech is estimating that price suppression at 75% of current levels would be $0.70. If DOE transfers decreased to 50% of current levels, TradeTech estimates that the spot price would increase by an average of $0.43 per kgU as UF6 between January and 2015 and December 2016. TradeTech, 30. This corresponds to a price suppression of $0.48. If DOE transfers decreased to 25% of current levels, TradeTech estimates that the spot price would increase by an average of $0.66 per kgU as UF6 between January and 2015 and December 2016. TradeTech, 29. This corresponds to a price suppression of $0.25. 33 As noted above, the transfer rates for these scenarios refer only to the level of uranium transfers for cleanup at Portsmouth and downblending of LEU. The level of transfers for other DOE programs is the same in all three scenarios. 34 ERI also compared those numbers to then current term and spot price indicators as of March 31, 2014. At that time, the TradeTech price indicator was $7.50 per kgU as UF6 on the spot market and $16.00 per kgU as UF6 on the term market. 2014 ERI Report, 23. 35 Figures 21–24 of the TradeTech Report show TradeTech’s estimates for the price impact at a range of different transfer rates. Although these VerDate Sep<11>2014 20:25 Mar 17, 2015 Jkt 235001 PO 00000 Frm 00049 Fmt 4703 Sfmt 4703 $0.90 0.80 0.40 $0.90 .............................. .............................. TABLE 6—TRADETECH’S ESTIMATE OF EFFECT OF DOE TRANSFERS ON CONVERSION SPOT PRICE IN $ PER kgU AS UF6 TradeTech report Transfer rate (compared to current) 100% ..................................... 75% ....................................... 50% ....................................... 25% ....................................... Estimated price effect (2015–2016) $0.91 0.70 0.48 0.25 UxC’s U–PRICE and SWU–PRICE econometric models predict the markets’ reaction to changes in supply for the uranium concentrate and enrichment industries. UxC does not directly model the conversion services market. Instead, UxC relies on other evidence to conclude that the price effect of DOE transfers on spot conversion prices have been ‘‘at least charts and the related text refer to ‘‘Transfers at [25, 50, or 75] Percent of Established 2014 Volumes,’’ it appears that these charts actually reflect an estimate for a 25%, 50%, or 75% decrease relative to current levels, rather than transfers at the specified percentage of current levels. E:\FR\FM\18MRN1.SGM 18MRN1 14119 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices equal to, if not greater than, the impact on spot uranium prices.’’ Specifically, UxC notes that much of the world’s spot conversion is sold in conjunction with uranium through contracts for UF6. UxC also notes that over the past few years the UF6 price has fallen as much as the U3O8 price has on a percentage basis. Finally, UxC notes that the Ux North American UF6 Price has been below the Ux NA UF6 value (i.e. the sum of spot uranium and spot conversion prices for a given quantity of UF6) over most of the period of DOE transfers. UxC Report, 15. With respect to the future effect of DOE transfers, UxC expects that DOE transfers will continue to have a similar effect on spot conversion prices and a somewhat less but still ‘‘noticeable’’ effect on term conversion prices. UxC Report, 16. 2. Realized Prices of Current Operators ERI does not provide in either report a specific estimate of the change in ConverDyn’s realized price due to DOE transfers. However, ERI does note that ConverDyn’s realized price is believed to have increased over the past decade, although ERI says unit costs have increased as well. ERI bases its sales revenue assumptions on a sale price of $14 per kgU. This estimate appears to be based predominately on claims by the company that it is operating at a loss. 2015 ERI Report, 70; 2014 ERI Report, 70.36 No commenter provides specific information about the current realized prices achieved in the conversion industry, and no commenter directly estimates the effect of DOE’s transfers on realized prices. However, some information relevant to ConverDyn’s realized price is publicly available. ConverDyn has stated in the past that the conversion market generally relies on long-term contracts. Declaration of Malcolm Critchley, Converdyn v. Moniz, Case no. 1:14-cv-01012–RBW, Document 7–3, at ¶ 37 (June 23, 2014); see also UxC Conversion Market Outlook—December 2014, 27–28, 32 (2014). Traxys has stated that ConverDyn specifically sells conversion services ‘‘almost exclusively’’ on long- term contracts. Declaration of Kevin P. Smith, ConverDyn v. Moniz, Case no. 1:14-cv-01012–RBW, Document 17–7, at ¶ 16 (July 7, 2014). Traxys has also stated that ConverDyn exercises significant pricing power in the market. Traxys refers to a 2011 letter from ConverDyn to its customers notifying them that it would not sell conversion services for less than $16.50 per kgU. Id. Since then, the term price indicator for conversion services has remained remarkably stable, even as spot prices for conversion have fluctuated. 2015 ERI Report, 12. DOE does not have complete information regarding the pricing structure of conversion services contracts. ConverDyn has stated in the past that the conversion market generally relies on long-term contracts that are ‘‘linked, at least in part, to market prices at the time of the contract.’’ Declaration of Malcolm Critchley, Converdyn v. Moniz, Case no. 1:14-cv-01012–RBW, Document 7–3, at ¶ 37 (June 23, 2014). Although it is common practice for long-term contracts for U3O8 to include a non-fixed element that depends on market prices at the time of delivery, it is unclear to what extent this practice is prevalent in the conversion industry. In addition to the above, ConverDyn’s comment also refers to a document it submitted to DOE in March 2014 that provides some additional information on ConverDyn’s contracting practices. Comment of ConverDyn, Enclosure, at 5 n.12. That document was submitted with a request that it be treated as containing proprietary information. Letter from Malcolm Critchley, ConverDyn, to Peter B. Lyons, DOE (March 10, 2014). DOE may consider this document in its deliberations. 3. Production at Existing Facilities There is only one existing conversion facility in the United States, the Metropolis Works facility (MTW) operated by Honeywell International. ConverDyn is the exclusive marketing agent for conversion services from this facility. Comment of ConverDyn, at 1; 2015 ERI Report, 64. The nominal capacity of the Metropolis Works facility is 15 million kgU as UF6. However, the facility generally operates below that level. 2015 ERI Report, 65. Based on statements from ConverDyn, ERI estimates that production at this facility was approximately 11 million kgU as UF6 per year prior to the loss of sales associated with Fukushima. Because ConverDyn has stated that this volume loss was approximately 25%, ERI estimates current sales volume at 8.25 million kgU as UF6. 2015 ERI Report, 65. In estimating the effect of DOE transfers on ConverDyn’s sales volume, ERI assumes that 50% of the material used for cleanup at Portsmouth and 100% of all other DOE material enters the U.S. market. 2015 ERI Report, 65– 66. Based on statements from ConverDyn, ERI assumes that ConverDyn’s share of the U.S. market for conversion services is 25% and that its share of the international market is 16%. 2015 ERI Report, 68. A summary of ERI’s estimates of the effect of DOE transfers on ConverDyn’s sales volume appears in Table 7. Using the assumptions described above, ERI estimates that under Scenario 1, DOE transfers decrease ConverDyn’s market volume by 0.67 million kgU, or 7.5%. Under Scenario 2, ERI estimates that DOE transfers decrease ConverDyn’s market volume by 0.46 million kgU, or 5.3%. Under Scenario 3, ERI estimates that DOE transfers decrease ConverDyn’s market volume by 0.08 million kgU, or 1%. 2015 ERI Report, 69–70. As with ERI’s price estimates discussed above, these estimates do not suggest that were DOE to transfer uranium in accordance with Scenario 1, ConverDyn would lose the predicted volume of sales. DOE has been transferring at or above the rate of Scenario 1 for nearly three years. On ERI’s analysis, the estimated effect has already occurred. Transfers in accordance with Scenario 1 would continue the effect, and transfers in accordance with Scenario 2 or 3 would lead to an increase in ConverDyn’s sales volume, of the amount ERI predicts. TABLE 7—ERI’S ESTIMATE OF DECREASE IN CONVERDYN’S SALES VOLUME mstockstill on DSK4VPTVN1PROD with NOTICES Volume (million kgU) Scenario 1 ................................................................................................................................................................ Scenario 2 ................................................................................................................................................................ Scenario 3 ................................................................................................................................................................ 36 It appears that ERI developed this assumption based on its estimate of ConverDyn’s production VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 costs of $15 per kgU. Since ConverDyn claims to PO 00000 Frm 00050 Fmt 4703 Sfmt 4703 0.67 0.46 0.08 Percent change 7.5 5.3 1 be operating at a loss, ERI assumes that its realized price must be lower. 2015 ERI Report, 70. E:\FR\FM\18MRN1.SGM 18MRN1 14120 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices Based on its estimate of the effect on ConverDyn’s sales volume, ERI also estimates the change in production costs at Metropolis Works due to DOE transfers. A summary of ERI’s estimates of the effect of DOE transfers on ConverDyn’s production costs appears in Table 8. ERI analyzes two scenarios based on slightly different assumptions about the amount of ConverDyn’s costs that are variable. Specifically, ERI calculates production costs based on 80% and 100% fixed costs. 2015 ERI Report, 70. ERI assumes that ConverDyn’s production cost would be $15 per kgU if DOE material was not being introduced into the market. Assuming 100% of Metropolis Works’ costs are fixed, DOE transfers would not affect total production costs, but they would increase per unit costs. Specifically, ERI estimates that DOE transfers at the level under Scenario 1 increase production costs to $16.2 per kgU, about 8% higher than without DOE transfers. Transfers at the level under Scenario 2 would cause Metropolis Works production costs to be $15.84, about 5.6% higher than without DOE transfers. Under Scenario 3, production costs would be $15.15, about 1% higher than without DOE transfers. 2015 ERI Report, 70. If 80% of Metropolis Works’ costs are fixed, total production costs would be lower with DOE transfers, but per unit production costs would also be lower. Under Scenario 1, production costs would be $15.97, about 6.5% higher than without DOE transfers. Under Scenario 2, production costs would be $15.68, about 4.5% higher than without DOE transfers. Under Scenario 3, production costs would be $15.12, about 1% higher than without DOE transfers. 2015 ERI Report, 71. TABLE 8—ERI’S ESTIMATE OF INCREASE IN CONVERDYN’S PRODUCTION COST 80% fixed Cost (per kgU) mstockstill on DSK4VPTVN1PROD with NOTICES Scenario 1 ........................................................................................................ Scenario 2 ........................................................................................................ Scenario 3 ........................................................................................................ The 2014 ERI Report conducted a similar analysis using slightly different assumptions regarding ConverDyn’s preFukushima production and current market share. Specifically, ERI calculated the effect of DOE transfers assuming two different pre-Fukushima production levels: 10 million kgU and 12 million kgU. With these assumptions, ERI estimated ConverDyn’s current sales volume at 7.50 million kgU and 9.00 million kgU respectively. 2014 ERI Report, 66, 68. ERI also calculated the effect of DOE transfers assuming two different assumptions about ConverDyn’s share of the U.S. Market: 25% and 30%. 2014 ERI Report, 65–66. Based on these assumptions ERI estimates that DOE transfers decrease ConverDyn’s market volume by between 0.60 and 0.72 million kgU. 2014 ERI Report, 66, 68. This represents between 6.9% and 8.1% of ConverDyn’s estimated sales volume. 2014 ERI Report, 67, 69. On production cost, ERI similarly estimates based on 80% and 100% fixed costs. As with sales volume, ERI conducts this calculation twice: once assuming a volume of 7.50 million kgU, and once assuming a volume of 9.00 million kgU. For the 7.50 million kgU scenario, ERI estimates that if production costs are 100% fixed, DOE transfers cause unit production costs to increase about 8% to $16.20 per kgU. If production costs are 80% fixed, DOE transfers cause unit production costs to increase about 6.4% to $15.96 per kgU. For the 9.00 million kgU scenario, ERI VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 PO 00000 Frm 00051 Fmt 4703 Sfmt 4703 Percent change $15.97 15.68 15.12 estimates that production costs would increase by 7.8% for 100% fixed costs and 6.2% for 80% fixed costs. 2014 ERI Report, 70–71. ConverDyn’s comment in response to the RFI does not provide a separate estimate of the effect of DOE transfers on its sales volume. ConverDyn refers to the relevant sections of the 2014 ERI report regarding its sales volume and production costs. Comment of ConverDyn, Enclosure, at 5. With respect to the 2014 ERI Report, ConverDyn does not refute or confirm the assumptions ERI used in its analysis regarding ConverDyn’s sales volume, market share, or production costs. ConverDyn’s comment also refers to a document it submitted to DOE in March 2014. Comment of ConverDyn, Enclosure, at 5 n.12. That document was submitted with a request that it be treated as containing proprietary information. Letter from Malcolm Critchley, ConverDyn, to Peter B. Lyons, DOE (March 10, 2014). That document provides estimates of the effect of DOE transfers on ConverDyn’s sales volume and profits, but it does not provide financial information demonstrating that those effects have occurred or supporting analysis explaining why a given change in ConverDyn’s sales or revenue should be attributed to DOE transfers. Id. DOE may consider this document in its deliberations. In addition to the above, ConverDyn notes in its comment that the Metropolis Works facility ceased production beginning in January 2015 for a period of approximately three months—two 100% fixed Cost (per kgU) 6.5 4.5 1 $16.20 15.84 15.15 Percent change 8 5.6 1 months longer than usual. ConverDyn states that this was necessitated by ‘‘the continued depressed state of the conversion market.’’ Although ConverDyn refers to the displacement of conversion sales by DOE’s transfers, it acknowledges that DOE’s transfers are not the sole cause of the lengthening of Metropolis Works facility’s annual shutdown. ConverDyn does not include supporting data or otherwise provide a proportionate breakdown of the impact of DOE material versus other factors in causing this shutdown. Comment of ConverDyn, Enclosure, at 4. The UxC Report does not provide estimates for production levels or production costs at individual facilities, but its report does note that the cost for primary producers is ‘‘known to be in the range of $10–$15/kgU.’’ UxC Report, 15. In a separate publication, UxC provides more detailed estimates of both current production levels and projected future production for individual facilities. Market share can be determined by comparing production levels to those of other primary producers and secondary sources. UxC Conversion Market Outlook—December 2014, 45–47 (2014). Traxys provides some information relevant to DOE’s analysis of the assumptions ERI uses in its calculations. Traxys explains that in selling material obtained from Fluor-B&W Portsmouth, it pursues a goal to sell at least 50% of the material to non-U.S. customers. Traxys states that it has consistently met this goal. Comment of Traxys, at 1. Traxys further explains that in 2014 no E:\FR\FM\18MRN1.SGM 18MRN1 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices more than 40% of DOE-derived material was sold in the U.S. market. Comment of Traxys, at 2. This is similar to the amount of conversion that Traxys has separately stated went to the U.S. market in prior years. Traxys stated in July 2014 that 42% of DOE-derived conversion entered the U.S. marketplace during calendar year 2013. Declaration of Kevin P. Smith, ConverDyn v. Moniz, Case no. 1:14-cv-01012–RBW, Document 17–7 at ¶11 (July 7, 2014). 4. Employment Levels in the Industry ERI notes that Metropolis Works restarted after an extended shutdown in summer 2013 with approximately 270 employees. Prior to the 2012–2013 shutdown, ERI estimates that the facility employed approximately 334 people. As this change coincided with a change in long-term production volume, ERI concludes that is unlikely that 100% of Metropolis Works’ production costs are fixed. 2015 ERI Report, 72–73; 2014 ERI Report, 71. Although it does not provide specific estimates, ERI states that ‘‘[a] portion of the reduction in work force at Metropolis Works may be associated with the introduction of DOE inventory into the market.’’ However, ERI also notes that several other factors likely played a part as well. 2015 ERI Report, 73; 2014 ERI Report, 72. ConverDyn does not provide a separate estimate of decreased employment levels due to DOE transfers; instead ConverDyn referred to the relevant sections of the 2014 ERI Report. Comment of ConverDyn, Enclosure, at 5. mstockstill on DSK4VPTVN1PROD with NOTICES 5. Changes in Capital Improvement Plans and Development of Future Facilities Neither ERI nor any of the commenters provide an estimate of the effect of DOE transfers on new facility development or capital improvement plans. However, DOE understands that several conversion services companies are undertaking these or related activities. Although there are several large-scale development projects currently planned or underway outside the United States— namely AREVA’s COMURHEX II modernization project and TVEL’s plan for a new facility at SCC—DOE is not aware of any such plans in the United States. See Eileen Supko & Thomas Meade, ‘‘New facilities are on the horizon,’’ Nuclear Engineering International (Oct. 6, 2014), available at https://www.neimagazine.com/features/ featurenew-facilities-are-on-the-horizon4394892; UxC Conversion Market Outlook—December 2014, 50, 56–57, 73 (2014). VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 Metropolis Works has, however, undertaken substantial capital expenditures at its existing facility in recent years. Honeywell has stated that it has invested ‘‘nearly $177 million over the past 10 years in capital improvements, including $50 million in safety projects.’’ ‘‘About Us,’’ Honeywell, https://www.honeywellmetropolisworks.com/about-us.37 Some of these upgrades came during an extended shutdown in 2012 and 2013, in which Metropolis Works made upgrades to ensure the facility could withstand extreme natural disasters. These changes were made under an agreement with NRC in response to an inspection NRC conducted in the wake of the Fukushima disaster in Japan. ‘‘Honeywell and U.S. Nuclear Regulatory Commission Reach Agreement on Necessary Upgrades to Metropolis Nuclear Conversion Facility,’’ News Release (Oct. 16, 2012), available at https://www.honeywellmetropolisworks.com/?document=oct16-2012-press-release-honeywell-and-us-nuclear-regulatory-commission-reachagreement-on-necessary-upgrades-tometropolis-nuclear-conversionfacility&download=1. In terms of future plans, Metropolis Works announced in November 2014 that it would be shutting down for approximately 90 days beginning in early January 2015. Honeywell noted that it would use the extended shutdown to make updates and capital improvements. Jim Pritchett, Honeywell Metropolis Works, Letter to Employees (Nov. 20, 2014), available at https:// www.honeywell-metropolisworks.com/ ?document=letter-to-employees23&download=1; see also Comment of ConverDyn, Enclosure, at 4. Honeywell has further stated that the company plans to spend $17.5 million in improvements during 2015. Jim Pritchett, Honeywell Metropolis Works, Letter to Employees (Jan. 30, 2014), available at https://www.honeywellmetropolisworks.com/?document=letterto-employees-24&download=1. 37 Letters from Honeywell management include similar numbers. A November 20, 2014, letter included identical figures. Jim Pritchett, Honeywell Metropolis Works, Letter to Employees (Nov. 20, 2014), available at https://www.honeywellmetropolisworks.com/?document=letter-toemployees-23&download=1. Older letters provided slightly different figures. Jim Pritchett, Honeywell Metropolis Works, Letter to Community (Dec. 19, 2013), available at https://www.honeywellmetropolisworks.com/?document=letter-to-thecommunity-from-new-metropolis-works-plantmanager&download=1. PO 00000 Frm 00052 Fmt 4703 Sfmt 4703 14121 6. Long-Term Viability and Health of the Industry ERI’s most recent Reference Nuclear Power Growth forecasts project global requirements to grow to approximately 67.2 million kgU by 2020, approximately 20% higher than current requirements. Global requirements are expected to continue to rise to a level of 91.4 million kgU by 2035, approximately 63% higher than current requirements. 2015 ERI Report, 13. ERI presents a graph comparing global requirements, demand, and supply from 2013—2035. That graph forecasts that global secondary supply and supply from primary converters will continue to exceed global demand until at least 2025. Beyond that point, supply generally keeps pace with growth in requirements. 2015 ERI Report, 14. Although not focused on conversion, the requirements forecasts noted above in section III.A.6 are also relevant to the conversion industry. In general, requirements and/or uranium concentrate demand forecasts should also apply to demand for conversion services. However, there may be some small differences due to strategic and discretionary inventory building. For example, China has been purchasing strategic supply well in excess of its requirements. Those purchases have come in the form of U3O8. 2015 ERI Report, 13. Thus, these purchases affect near-term uranium concentrate demand, but do not affect near-term conversion demand. No other commenter provided specific projections about future conversion requirements, demand, or prices. However, DOE has some additional information not submitted in response to the RFI. In its December 2014 Conversion Market Outlook, UxC predicts significant increases in both requirements and demand in the longterm. UxC Conversion Market Outlook— December 2014, 40, 44 (2014). UxC also provides a more detailed explanation of its price forecast, which generally predicts an increase in price over the next 10 years. UxC Conversion Market Outlook—December 2014, 82, 85 (2014). Finally, as with uranium concentrates, DOE recognizes that the predictability of transfers from its excess uranium inventory over time is important to the long-term viability and health of the uranium conversion industry. Again, DOE notes that the upper scenario considered by ERI would represent continued transfers at rates consistent with the May 2012 and May 2014 determinations. Compare 2015 ERI Report, 25, with 2014 ERI Report, 28. E:\FR\FM\18MRN1.SGM 18MRN1 14122 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices C. Enrichment Industry 1. Market Prices In its analysis, ERI also estimated the effect of DOE transfers on the market prices for enrichment services. To estimate this effect, ERI employed a market clearing price model similar to what is described above for the uranium market. As with uranium concentrates and conversion, ERI constructed individual supply and demand curves for enrichment services and estimated the clearing price with and without DOE transfers. 2015 ERI Report, 44. A summary of ERI’s estimates of the effect of DOE transfers on the market price for SWU appears in Table 9. Applying this approach to the three scenarios listed above, ERI estimates that DOE transfers at the rate of 2,705 MTU per year would cause the price of enrichment services to be, on average, $4.50 lower between 2015 and 2024— with prices being $5.90 and $3.80 lower in 2015 and 2016 specifically. 2015 ERI Report, 46. For DOE transfers at a rate of 1,855 MTU per year, ERI estimates that prices would be, on average, $3.60 lower between 2015 and 2024—with prices being $5.10 and $3.00 lower in 2015 and 2016 specifically. If DOE ceased transfers under these two programs, ERI estimates that prices would be, on average, $1.70 lower between 2015 and 2024—with prices being $3.20 and $1.70 lower in 2015 and 2016 specifically.38 As with uranium concentrates, this is not a prediction that prices will drop by the specified amount once DOE begins transfers pursuant to a new determination. According to ERI’s analysis, a level of price suppression consistent with the estimate for Scenario 1 is already reflected in the current market price for conversion services. If DOE continued transferring at Scenario 1 levels, the market prices would not change; if DOE began transferring at Scenario 2 levels, the market price would be expected to rise by approximately $0.80; if DOE ceased transfers under these programs, market prices would be expected to rise by $2.70. See Table 4.3 of 2015 ERI Report, 46. ERI compares these numbers to the current spot and term price indicators published by TradeTech on January 31, 2015—i.e. $88.00 per SWU on the spot market, and $90.00 per SWU on the term market. As a percentage of the current prices, the average price effect attributable to DOE’s transfers over the period 2015–2024 under Scenario 1 represents approximately 5.1% of the current spot price and 5.0% of the current term price. Under Scenario 2, the average price effect over the same period represents 4.1% of the spot price and 4.0% of the term price. Under Scenario 3, the average price effect represents 1.9% of the spot price and 1.9% of the term price. 2015 ERI Report, 48, 50. For the 2014 ERI Report, ERI conducted a similar market clearing approach for a level of transfers that is equal to Scenario 1 of the 2015 ERI Report. Although that report used slightly older data, the results are similar. Notably, ERI estimated that the price effect attributable to DOE transfers at the current rates is $4.00 between 2014 and 2023—with prices being $5.20, $5.70, and $3.60 lower in 2014, 2015, and 2016, respectively.39 2014 ERI Report, 40. TABLE 9—ERI’S ESTIMATE OF EFFECT OF DOE TRANSFERS ON ENRICHMENT SPOT AND TERM PRICES IN $ PER SWU 2015 ERI Report 2014 ERI Report Estimated price effect (2015–2024) Estimated price effect (2014–2023) Scenario 1 .................................................................................................................................................... Scenario 2 .................................................................................................................................................... Scenario 3 .................................................................................................................................................... $4.50 3.60 1.70 $4.00 .............................. .............................. mstockstill on DSK4VPTVN1PROD with NOTICES In addition to its estimate of the price effect of DOE transfers on the uranium concentrate market, UxC estimates the effect on the price of enrichment services using its proprietary U–PRICFE and SWU–PRICE models. UxC Report, 5. As with its uranium concentrate estimates, UxC estimates the impact using two different methodologies, an ‘‘incremental approach’’ and a ‘‘total impact approach.’’ Using its incremental approach, UxC estimates that between 2012 and 2014 DOE’s transfers reduced the spot price by an average of $7.49 per SWU and the term price by an average of $5.37 per SWU. Using its total impact approach, UxC estimates that between 2008 and 2014 DOE’s transfers reduced the spot price by an average of $9.19 per SWU and the term price by an average of $6.96 per SWU. UxC Report, 8–9. UxC also estimates the effect of DOE continued transfers at current rates for the period 2015 to 2030. A summary of UxC’s estimates of the effect of DOE transfers on future enrichment prices appears in Table 10. UxC estimates that DOE transfers in the near and medium terms would reduce the spot price by an average of $5.31 per SWU. UxC projects that this effect will change slightly in the medium term as market prices start to recover. Specifically, DOE transfers will reduce the spot price between 2018 and 2030 by an average of $4.86 per SWU. UxC also notes that the former number is larger relative to the expected price of enrichment than the latter number (5.9% versus 3.8%). UxC Report, 12. UxC estimates that DOE transfers in the near and medium terms would reduce the term price by an average of $5.50 per SWU. Between 2018 and 2030, DOE transfers are estimated to reduce the term price by an average of $5.00 per SWU. Again, the near and medium term impact is larger in relation to the expected price (5.6% versus 3.6%). UxC Report, 11. 38 As noted above, the transfer rates for these scenarios refer only to the level of uranium transfers for cleanup at Portsmouth and downblending of LEU. The level of transfers for other DOE programs is the same in all three scenarios. 39 ERI also compared those numbers to then current term and spot price indicators as of March 31, 2014. At that time, the TradeTech price indicator was $96.00 per SWU on the spot market and $99.00 per SWU on the term market. 2014 ERI Report, 23. VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 PO 00000 Frm 00053 Fmt 4703 Sfmt 4703 E:\FR\FM\18MRN1.SGM 18MRN1 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices 14123 TABLE 10—UXC’S ESTIMATE OF EFFECT OF DOE TRANSFERS ON ENRICHMENT SPOT AND TERM PRICES IN $ PER SWU UxC Report Near- & mid-term price effect Spot Price .................................................................................................................................................... Term Price ................................................................................................................................................... As mentioned above, a change in market prices for uranium concentrates and conversion services may also affect enrichers. URENCO has stated that at a small amount of its capacity is devoted to underfeeding. Comment of URENCO, at 3. ERI notes that URENCO estimates it is using 10–15% of its capacity for underfeeding. 2015 ERI Report, 75. Thus, to the extent that URENCO utilizes or resells the natural uranium hexafluoride that results from underfeeding, the market prices for uranium and conversion could be relevant to its business decisions. mstockstill on DSK4VPTVN1PROD with NOTICES 2. Realized Prices of Current Operators There is only one currently operating enrichment facility in the United States, the URENCO USA (UUSA) gas centrifuge facility in New Mexico. No commenter provides information about the realized price achieved by URENCO or the effect of DOE transfers on that price. However, other sources provide some relevant information. In recent years, the vast majority of SWU has been sold on the term market. UxC Enrichment Market Outlook—Q4 2014, 17, 20 (2014). ERI estimates that more than 95% of enrichment requirements are covered under longterm contracts. 2015 ERI Report, 74. Even in the term market, contracting volume is down compared to levels prior to 2010. UxC Enrichment Market Outlook—Q4 2014, 9, 21 (2014). Longterm contracts for SWU last for 10 or more years, in some cases and in some cases 15 or more years. UxC Enrichment Market Outlook—Q4 2014, 100 (2014). EIA reports that in 2013, the average price paid for SWU was $142.22. EIA, Uranium Marketing Report, 7 (2014). This is well above the average market prices for 2013, approximately $110 in the spot market and $120 in the term market according to UxC. URENCO’s most recent financial statements indicate that at least a portion of its contract portfolio ‘‘extend beyond 2025.’’ URENCO Limited, Interim Financial Statements for the 6 Months Ended 30 June 2014, at 6, available at https://www.urenco.com/_/ uploads/content-files/Urenco_Group_ Interim_Accounts_to_30_June_2014- VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 final-02092014.pdf.40 URENCO has also stated that its enrichment contracts are usually fixed base price with escalation leaving URENCO with ‘‘no direct exposure to uranium prices.’’ URENCO Investor Update, 4 (Sept. 9, 2014), available at https://www.urenco.com/_/ uploads/results-and-presentations/ URENCO_Bond_Investor_Presentation_ 2014.pdf. Given the above considerations, it seems likely that URENCO’s realized price based on its current contract portfolio is as much as 50% higher than the current spot and market prices. Since many of URENCO’s contracts appear to have been entered before DOE began transfers comparable to the current levels, it is unlikely that continued DOE transfers will have an impact on the realized price achieved for enrichment services from existing capacity at UUSA during the period contemplated for the planned determination. As noted above, URENCO has stated that a small amount of its capacity is devoted to underfeeding. Comment of URENCO, at 3.41 ERI notes that URENCO estimates it is using 10–15% of its capacity for underfeeding. 2015 ERI Report, 75. To the extent that URENCO sells the natural uranium hexafluoride yielded from underfeeding, DOE transfers could affect its revenues to the extent the transfers cause decreases in the prices for uranium concentrates and conversion services. 3. Production at Existing Facilities URENCO reports that the nameplate capacity for the UUSA facility is 3.7 million SWU. Comment of URENCO, at 1. URENCO has also stated that construction of additional centrifuges will continue until the facility reaches 40 DOE notes that URENCO’s financial statements have referred to its order book as ‘‘extending up to and beyond 2025’’ at least since 2010. See URENCO, Annual Report & Accounts 2010, at 3 (2010), available at https://media.urenco.com/corpwebsite/298/annualreportandaccounts2010_1.pdf. 41 On May 22, 2014, URENCO submitted an application to the U.S. NRC to amend its license for the facility to allow it to use high assay tails (approximately 0.4% U235) as feed material. See 79 FR 43099 (July 24, 2014); ‘‘Redacted—Supplement to License Amendment Request for Capacity Expansion of URENCO USA Facility (LAR–12–10),’’ Letter from URENCO to U.S. NRC, LES–14–00071– NRC (June 17, 2014). PO 00000 Frm 00054 Fmt 4703 Sfmt 4703 Long-term price effect $5.31 5.50 $4.86 5.00 5.7 million SWU. ‘‘About Us, URENCO USA,’’ URENCO, https:// www.urenco.com/about-us/companystructure/urenco-usa (accessed Feb. 21 2015). Due to the nature of gas centrifuges, it is highly unlikely that UUSA will decrease production of SWU. As URENCO states, due to the low level of electricity required to run the centrifuges, slowing production would have almost no effect on operating expenses. Furthermore, stopping and restarting a centrifuge may damage the equipment. Comment of URENCO, at 3. 4. Employment Levels in the Industry ERI does not provide an estimate of the change in employment due to DOE transfers in the enrichment industry. No commenter references changes in employment in the enrichment industry. URENCO states that its business is essentially fixed-cost and makes no reference to changes in employment. 5. Changes in Capital Improvement Plans and Development of Future Facilities URENCO recently completed ‘‘Phase II’’ of its expansion plans, bringing the capacity of its facility to 3.7 million SWU. ‘‘Phase II Completion,’’ URENCO (Apr. 9, 2014), https://www.urenco.com/ news/detail/phase-ii-completion (accessed Feb. 22, 2014). URENCO is continuing to move forward with ‘‘Phase III’’ expansion, which will bring plant capacity to approximately 5.7 million SWU. URENCO notes that it has slowed its plan for construction of additional capacity. Comment of URENCO, at 3. URENCO expects to reach 5.7 million SWU capacity by 2023. URENCO Investor Update, 31 (Sept. 9, 2014). Although the company has requested a license amendment that would allow it to expand capacity to 10 million SWU per year, URENCO states that this move is ‘‘to provide for future licensing flexibility should the market recover.’’ URENCO notes that it cancelled construction of ‘‘Phase IV’’ in 2013. Comment of URENCO, at 3. DOE is aware of several other planned or proposed enrichment facilities in the U.S., namely, AREVA’s Eagle Rock E:\FR\FM\18MRN1.SGM 18MRN1 mstockstill on DSK4VPTVN1PROD with NOTICES 14124 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices Enrichment Facility in Idaho, Centrus Energy’s—formerly USEC Inc.— American Centrifuge Plant in Piketon, OH, and Global Laser Enrichment’s facility in Wilmington, NC.42 Development of each of these facilities has been put on hold or slowed until market prices improve. The Eagle Rock Enrichment Facility would use gas centrifuge technology and would have a capacity of approximately 3.3 million SWU. ‘‘Eagle Rock Enrichment Facility,’’ AREVA, https://us.areva.com/EN/home-203/ eagle-rock-enrichment-facility.html (accessed Feb. 21, 2015). After announcing several delays in construction, AREVA stated in May 2013 that it was no longer projecting a start date for building the facility. ‘‘French company won’t set date for Idaho nuclear facility,’’ The Oregonian (May 23, 2013), https:// www.oregonlive.com/pacific-northwestnews/index.ssf/2013/05/french_ company_wont_set_date_f.html (accessed Feb. 21, 2015). At the time of this announcement, the term market price for SWU was approximately $130, according to UxC’s monthly price indicator. The proposed American Centrifuge Plant would use gas centrifuge technology and would have a capacity of approximately 3.8 million SWU. ‘‘USEC Inc. Gas Centrifuge,’’ U.S. NRC, https://www.nrc.gov/materials/fuelcycle-fac/usecfacility.html (accessed Feb. 22, 2015). Active construction of new centrifuges has ceased. In a November 2013 quarterly filing with the SEC, Centrus Energy, then known as USEC, stated, ‘‘[a]t current market prices USEC does not believe that its plans for American Centrifuge commercialization are economically viable without additional government support.’’ USEC Form 10–Q, Securities and Exchange Commission, at 10 (Nov. 5, 2013) https://www.sec.gov/Archives/edgar/ data/1065059/000106505913000049/ usu-2013930x10q.htm (accessed Feb. 22, 2015). When this form was submitted to the SEC, the term market price for SWU was approximately $115, according to UxC’s monthly price indicator. Global Laser Enrichment, a venture of GE-Hitachi and Cameco, has proposed an enrichment plant that would use laser enrichment technology developed by Silex Systems, an Australian 42 Although not the subject of this determination, DOE notes that ERI analyzed the possible future transfer to GLE of high-assay depleted uranium. 2015 ERI Report, 27–28. As this transaction would involve reenrichment of depleted tails, it would tend to support additional demand for enrichment services. VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 company. The proposed facility in Wilmington, NC would have a capacity of about 6 million SWU. GLE License Application, Rev. 7, U.S. NRC, Docket 70–7016, at 1–16 (August 20, 2012), available at https://pbadupws.nrc.gov/ docs/ML1224/ML12242A227.pdf. In July 2014, GLE announced that it would slow continued development of the facility ‘‘in line with current and future market realities.’’ ‘‘Global Laser Enrichment,’’ GE-Hitachi, https:// nuclear.gepower.com/fuel-a-plant/ products/gle.html (accessed Feb. 22, 2015). At the time of GLE’s announcement, the term market price for SWU was approximately $95, according to UxC’s monthly price indicator. 6. Long-Term Viability and Health of the Industry ERI’s most recent Reference Nuclear Power Growth forecasts project global requirements to grow to approximately 59 million SWU between 2021 and 2025, approximately 31% higher than current requirements. Global requirements are expected to continue to rise to a level of 74 million SWU between 2031 and 2035, approximately 64% higher than current requirements. 2015 ERI Report, 13. ERI presents a graph comparing global requirements, demand, and supply from 2013–2035. That graph shows that global supply will continue to significantly exceed global demand over the long term. 2015 ERI Report, 16. Although not focused on enrichment, the requirements forecasts noted above in section III.A.6 are also somewhat relevant to the enrichment industry. In general, requirements and/or uranium concentrate demand forecasts should also apply to demand for low enriched uranium. As with conversion, there may be some small differences due to strategic and discretionary inventory building. For example, China has been purchasing strategic supply well in excess of its requirements. Those purchases have come in the form of U3O8. 2015 ERI Report, 13. Thus, these purchases affect near-term uranium concentrate demand, but do not affect near-term demand for LEU. In addition to demand for LEU, higher demand for uranium concentrates can affect demand for enrichment because of the relationship described above between natural uranium and enrichment as inputs for producing enriched uranium product. In the medium to long term, supply from current mines will cease to exceed demand. Meanwhile, requirements for LEU will continue to significantly exceed enrichment supply. As prices for PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 uranium concentrates and conversion increase relative to SWU prices, it may become more economical to re-enrich high-assay tails. In this vein, ERI suggests that enrichers will continue to redirect capacity to underfeeding and that Rosatom will continue to re-enrich tails. 2015 ERI Report, 16.43 No other commenter provides specific projections about future enrichment requirements, demand, or prices. In its Uranium Enrichment Outlook for the 4th quarter of 2014, UxC predicts significant increases in both requirements and demand in the longterm. UxC Enrichment Market Outlook—Q4 2014, 36, 38 (2014). UxC also provides a more detailed explanation of its price forecast, which generally predicts an increase in price over the next 10 years. UxC Enrichment Market Outlook—Q4 2014, 91–94 (2014). Finally, as with uranium concentrates and conversion services, DOE recognizes that the predictability of transfers from its excess uranium inventory over time is important to the long-term viability and health of the uranium enrichment industries. Again, DOE notes that the upper scenario considered by ERI would represent continued transfers at rates consistent with the May 2012 and May 2014 determinations. Compare 2015 ERI Report, 25, with 2014 ERI Report, 28. IV. Request for Comments DOE believes it will be possible to identify a rate of transfers that will not have an adverse material impact on domestic uranium industries. DOE therefore proposes to issue a new Secretarial Determination, pursuant to 3112(d) of the USEC Privatization Act, that transfers of uranium for cleanup services at the Portsmouth Gaseous Diffusion Plant and for down-blending of HEU to LEU will not have an adverse material impact on the domestic production, conversion, or enrichment industry. In preparing this determination, DOE may use the six factors proposed above as an analytical framework for assessing the potential impacts of DOE transfers for each industry. DOE continues to deliberate over what rate of transfers would be appropriate for such a determination. Commenters suggested a range of options. Many commenters indicated that a rate of 5 million pounds total of 43 Again, DOE notes that although it is not included in ERI’s chart of enrichment supply, GLE’s proposed Paducah Laser Enrichment Facility would represent additional enrichment supply that is not intended to be devoted to producing LEU. Compare 2015 ERI Report, 16, with 2015 ERI Report, 27–28. E:\FR\FM\18MRN1.SGM 18MRN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices natural uranium equivalent per year would be acceptable. Some commenters favored a rate of 5 million pounds but suggested DOE should cease transfers for some period and then ramp up transfers to the 5 million pounds per year rate. One commenter focused on transfers of uranium hexafluoride, as opposed to uranium concentrates, and asked DOE to ensure that its transfers are market-neutral with respect to conversion. DOE is also considering whether to continue transfers at the rate covered by the 2014 determination, 2,705 metric tons per year of natural uranium equivalent. DOE is also considering whether to include additional features in a determination that might change how a given set of transfers affects domestic industries. Some commenters proposed a scheme of matched sales, in which DOE would transfer a given tranche of uranium only after ensuring that a buyer had bought an equivalent quantity, at a comparable price, from U.S. producers. Other commenters asked that DOE transfer uranium in such a way that the uranium appears on markets only in the long term. The commenters do not appear to be suggesting that DOE simply not transfer uranium until some future date; rather, they contemplate that DOE would transfer uranium in the near term but with some restriction on use or availability that prevents the uranium from displacing other supply sources for some number of years. Yet the transfers DOE is considering would be part of barter transactions in exchange for services obtained essentially contemporaneously. In considering commenters’ suggestions about longterm as compared to short-term availability of DOE-sourced uranium, DOE will need to assess whether the markets could support the provision of services in the near term to be compensated by uranium available only in the long term. In light of the forecast increases in the price of uranium concentrates, it is conceivable that transactions to bridge the gap from nearto long-term could be financially justifiable for some entities. DOE will continue to analyze this possibility. To enable the Secretary to make a determination as expeditiously as possible, DOE is setting a deadline of April 6, 2015, for all comments to be received. DOE invites all interested parties to submit, in writing, comments and information on the factors described above, the information and documents made available through this notice, and the summary of information considered. DOE intends to make all comments received publicly available. Any information that may be confidential VerDate Sep<11>2014 19:00 Mar 17, 2015 Jkt 235001 and exempt by law from public disclosure should be submitted as described below. V. Confidential Business Information Pursuant to 10 CFR 1004.11, any person submitting information he or she believes to be confidential and exempt by law from public disclosure should submit via email, postal mail, or hand delivery/courier two well-marked copies: One copy of the document marked ‘‘confidential’’ including all the information believed to be confidential, and one copy of the document marked ‘‘non-confidential’’ with the information believed to be confidential deleted. Submit these documents via email or on a CD, if feasible. DOE will make its own determination about the confidential status of the information and treat it according to its determination. Factors of interest to DOE when evaluating requests to treat submitted information as confidential include: (1) A description of the items; (2) whether and why such items are customarily treated as confidential within the industry; (3) whether the information is generally known by or available from other sources; (4) whether the information has previously been made available to others without obligation concerning its confidentiality; (5) an explanation of the competitive injury to the submitting person which would result from public disclosure; (6) when such information might lose its confidential character due to the passage of time; and (7) why disclosure of the information would be contrary to the public interest. Issued in Washington, DC, on March 13, 2015. John Kotek, Principal Deputy Assistant Secretary for Nuclear Energy, Office of Nuclear Energy. [FR Doc. 2015–06189 Filed 3–17–15; 8:45 am] BILLING CODE 6450–01–P DEPARTMENT OF ENERGY Federal Energy Regulatory Commission [Project No. 1888–030—Pennsylvania, Project No. 2355–018—Pennsylvania/ Maryland, Project No. 405–106—Maryland] York Haven Power Company, Exelon Generation Company; Notice of Availability of the Final Environmental Impact Statement for the Susquehanna River Hydroelectric Projects In accordance with the National Environmental Policy Act of 1969 and the Federal Energy Regulatory Commission (Commission or FERC) PO 00000 Frm 00056 Fmt 4703 Sfmt 9990 14125 regulations contained in the Code of Federal Regulations (CFR) (18 CFR part 380), the Office of Energy Projects has reviewed the applications for license for the York Haven Hydroelectric Project (FERC No. 1888), the Muddy Run Pumped Storage Project (FERC No. 2355), and the Conowingo Hydroelectric Project (FERC No. 405) and prepared a final multi-project environmental impact statement (EIS). The existing York Haven Project is located on the Susquehanna River at river mile (RM) 55 in the city of York, in York, Dauphin, and Lancaster Counties, Pennsylvania. The project does not occupy any federal lands. The Muddy Run and Conowingo Projects are located on the Susquehanna River at RM 22 and RM 10, respectively, in Lancaster and York Counties, Pennsylvania, and Cecil and Harford Counties, Maryland. Conowingo Pond, the reservoir for the Conowingo Project, acts as the lower reservoir for the Muddy Run Project. The Muddy Run Project also includes an upper reservoir for pumped storage operation. The projects do not occupy any federal lands. The final EIS contains staff’s analysis of the applicants’ proposals and the alternatives for relicensing the York Haven, Muddy Run, and Conowingo Projects. The final EIS documents the views of governmental agencies, nongovernmental organizations, affected Indian tribes, the public, the license applicants, and Commission staff. A copy of the final EIS is available for review at the Commission or may be viewed on the Commission’s Web site at https://www.ferc.gov, using the ‘‘eLibrary’’ link. Enter one of the docket numbers, excluding the last three digits, to access the document. For assistance, contact FERC Online Support at FERCOnlineSupport@ferc.gov or tollfree at (866) 208–3676, or for TTY, contact (202) 502–8659. You may also register online at https://www.ferc.gov/docs-filing/ esubscription.asp to be notified via email of new filings and issuances related to this or other pending projects. For assistance, contact FERC Online Support. For further information, please contact Emily Carter at (202) 502–6512 or at emily.carter@ferc.gov. Dated: March 11, 2015. Kimberly D. Bose, Secretary. [FR Doc. 2015–06077 Filed 3–17–15; 8:45 am] BILLING CODE 6717–01–P E:\FR\FM\18MRN1.SGM 18MRN1

Agencies

DEPARTMENT OF ENERGY

[Federal Register Volume 80, Number 52 (Wednesday, March 18, 2015)]
[Notices]
[Pages 14107-14125]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-06189]

[[Page 14107]]

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DEPARTMENT OF ENERGY

Excess Uranium Management: Effects of DOE Transfers of Excess
Uranium on Domestic Uranium Mining, Conversion, and Enrichment
Industries; Notice of Issues for Public Comment

AGENCY: Office of Nuclear Energy, Department of Energy.

ACTION: Request for public comment.

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SUMMARY: The U.S. Department of Energy (DOE) plans to issue a new
Secretarial Determination covering continued transfers of uranium for
cleanup services at the Portsmouth Gaseous Diffusion Plant and for
down-blending of highly-enriched uranium (HEU) to low-enriched uranium
(LEU). In support of this process, DOE issued a Request for Information
that solicited information about the effects of continued uranium
transfers on the domestic uranium industries and recommendations about
factors to be considered in assessing the possible impacts of DOE
transfers. DOE also commissioned an economic analysis of the effects of
its proposed uranium transfers. DOE now provides for public review the
responses received from the public, the economic analysis prepared for
DOE, and a list of factors DOE has identified for analysis of the
impacts of DOE transfers on the uranium mining, conversion, and
enrichment industries. DOE requests comment on this list of factors,
the information and documents made available through this notice, and
the included summary of information considered.

DATES: DOE will accept comments, data, and information responding to
this proposal submitted on or before April 6, 2015.

ADDRESSES: Interested persons may submit comments by any of the
following methods.
1. Email: RFI-UraniumTransfers@hq.doe.gov. Submit electronic
comments in WordPerfect, Microsoft Word, PDF, or ASCII file format, and
avoid the use of special characters or any form of encryption.
2. Postal Mail: Mr. David Henderson, U.S. Department of Energy,
Office of Nuclear Energy, Mailstop NE-52, 19901 Germantown Rd.,
Germantown, MD 20874-1290. If possible, please submit all items on a
compact disk (CD), in which case it is not necessary to include printed
copies.
3. Hand Delivery/Courier: Mr. David Henderson, U.S. Department of
Energy, Office of Nuclear Energy, Mailstop NE-52, 19901 Germantown Rd.,
Germantown, MD 20874-1290. Phone: (301) 903-2590. If possible, please
submit all items on a CD, in which case it is not necessary to include
printed copies.
No facsimiles (faxes) will be accepted. Supporting documents are
available on the Internet at https://www.energy.gov/ne/downloads/excess-uranium-management.

FOR FURTHER INFORMATION CONTACT: Mr. David Henderson, U.S. Department
of Energy, Office of Nuclear Energy, Mailstop NE-52, 19901 Germantown
Rd., Germantown, MD 20874-1290. Phone: (301) 903-2590. Email:
David.Henderson@Nuclear.Energy.Gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
A. Excess Uranium Inventory
B. Statutory Authority
C. Procedural History
D. Request for Information
E. Market Analyses
II. Analytical Approach
A. Overview
B. Factors for Consideration
III. Summary of Information Under Consideration
A. Uranium Mining Industry
1. Market Prices
2. Realized Prices of Current Operators
3. Production at Existing Facilities
4. Employment Levels in the Industry
5. Changes in Capital Improvement Plans and Development of
Future Facilities
6. Long-Term Viability and Health of the Industry
B. Uranium Conversion Industry
1. Market Prices
2. Realized Prices of Current Operators
3. Production at Existing Facilities
4. Employment Levels in the Industry
5. Changes in Capital Improvement Plans and Development of
Future Facilities
6. Long-Term Viability and Health of the Industry
C. Enrichment Industry
1. Market Prices
2. Realized Prices of Current Operators
3. Production at Existing Facilities
4. Employment Levels in the Industry
5. Changes in Capital Improvement Plans and Development of
Future Facilities
6. Long-Term Viability and Health of the Industry
IV. Request for Comments
V. Confidential Business Information

I. Introduction

A. Excess Uranium Inventory

The Department of Energy (DOE) holds inventories of uranium in
various forms and quantities--including low-enriched uranium (LEU) and
natural uranium--that have been declared as excess and are not
dedicated to U.S. national security missions. Within DOE, the Office of
Nuclear Energy (NE), the Office of Environmental Management (EM), and
the National Nuclear Security Administration (NNSA) coordinate the
management of these excess uranium inventories. DOE explained its
approach to managing this inventory in a July 2013 Report to Congress,
Excess Uranium Inventory Management Plan (2013 Plan).
Much of this excess uranium has substantial economic value on the
open market. One tool that DOE has used to manage its excess uranium
inventory has been to enter into transactions in which DOE exchanges
excess uranium for services. This notice involves uranium transfers of
this type under two separate programs. Specifically, DOE transfers
uranium in exchange for cleanup services at the Portsmouth Gaseous
Diffusion Plant and for down-blending of highly-enriched uranium (HEU)
to LEU. DOE currently transfers uranium for these two programs at an
aggregate rate of approximately 2,705 metric tons of natural uranium
equivalent (MTU) per year.\1\
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\1\ With respect to a given amount of LEU, the ``natural uranium
equivalent'' is the amount of natural uranium feed that would be
required to produce that amount of LEU. The ratio of feed to product
is a function of the assay of the feed and the desired assays of the
enriched product and the depleted tails (``assay'' refers to the
ratio of the fissile isotope U-235 to other isotopes of uranium such
as U-234 and U-238). The industry generally refers to the enriched
product as ``Enriched Uranium Product'' or EUP and to the tails as
``depleted uranium,'' DU, ``depleted uranium hexafluoride'' or
DUF6.
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B. Statutory Authority

DOE manages its excess uranium inventory in accordance with the
Atomic Energy Act of 1954 (42 U.S.C. 2011 et seq., ``AEA'') and other
applicable law. Specifically, Title I, Chapters 6-7, 14, of the AEA
authorize DOE to transfer special nuclear material and source material.
LEU and natural uranium are types of special nuclear material and
source material, respectively. The USEC Privatization Act (Pub. L. 104-
134, 42 U.S.C. 2297h et seq.) places certain limitations on DOE's
authority to transfer uranium from its excess uranium inventory.
Specifically, under section 3112(d)(2)(B) of the USEC Privatization Act
(42 U.S.C. 2297h-10(d)(2)(B)), the Secretary must determine that the
transfers ``will not have an adverse material impact on the domestic
uranium mining, conversion or enrichment industry, taking into account
the sales of uranium under the Russian Highly Enriched Uranium
Agreement and the Suspension Agreement'' before DOE makes certain
transfers of natural or low-enriched uranium under the AEA. Section
306(a) of Division D, Title III of the Consolidated and Further
Continuing

[[Page 14108]]

Appropriations Act, 2015 (Pub. L. 113-235), limits the validity of any
determination by the Secretary under Section 3112(d)(2)(B) of the USEC
Privatization Act to no more than two calendar years subsequent to the
determination.

C. Procedural History

In accordance with the above statutes and other laws, the Secretary
has periodically determined whether certain transfers of natural and
low-enriched uranium will have an adverse material impact on the
domestic uranium industries. DOE issued the most recent Secretarial
Determination in May 2014. That determination covered transfers of up
to a total of 2,705 MTU per year natural uranium equivalent, broken
down as follows: Up to 650 MTU per year of natural uranium equivalent
in the form of LEU transferred for downblending, with the balance, but
not less than 2,055 MTU per year of natural uranium equivalent for
cleanup services at the Paducah or Portsmouth Gaseous Diffusion
Plant.\2\ At this time, DOE is conducting uranium transfers consistent
with the May 2014 Secretarial Determination.
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\2\ See May 15, 2014, Secretarial Determination.
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To inform the May 2014 Secretarial Determination--as it had for a
number of previous determinations--DOE tasked Energy Resources
International, Inc. (ERI) with assessing the potential effects on the
domestic uranium mining, conversion, and enrichment industries from
DOE's proposed volume of uranium transfers. In addition to its review
and consideration of the report prepared by ERI (2014 ERI Report), DOE
held in-person meetings and accepted written communications regarding
the transfers from several entities that expressed an interest in DOE's
proposed uranium transactions. DOE staff then prepared a separate
analysis based on these and other inputs and recommended a course of
action to the Secretary.
DOE plans to issue a new Secretarial Determination pursuant to
section 3112(d). As a preparatory step, DOE sought information from the
public through a Request for Information published in the Federal
Register on December 8, 2014 (79 FR 72661). DOE is now soliciting
additional public input.

D. Request for Information

In the December 8, 2014, Request for Information (79 FR 72661), DOE
solicited information from interested stakeholders and specifically
requested comment on the following seven questions.
(1) What factors should DOE consider in assessing whether transfers
will have adverse material impacts?
(2) With respect to transfers from DOE's excess uranium inventory
in calendar years 2012, 2013, and 2014, what have been the effects of
transfers in uranium markets and the consequences for the domestic
uranium mining, conversion, and enrichment industries relative to other
market factors?
(3) What market effects and industry consequences could DOE expect
from continued transfers at annual rates comparable to the transfers
described in the 2014 Secretarial Determination?
(4) Would transfers at a lower annual rate significantly change
these effects, and if so, how?
(5) Are there actions DOE could take other than altering the annual
rate of transfers that would mitigate any negative effects on these
industries?
(6) Are there actions DOE could take with respect to transfers that
would have positive effects on these industries?
(7) Are there any anticipated changes in these markets that may
significantly change how DOE transfers affect the domestic uranium
industries?
In response to this request, DOE received comments from a diverse
group of parties representing interests across the nuclear industry.
DOE received comments from members of the uranium mining, conversion,
and enrichment industries. DOE also received comments from trade
associations, nuclear utilities, local governmental bodies, and members
of the public. All comments are available at https://www.energy.gov/ne/downloads/excess-uranium-management.\3\
---------------------------------------------------------------------------

\3\ Some comments were marked as containing confidential
information. Those comments are provided with confidential
information removed.
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E. Market Analyses

In preparation for the May 2014 Secretarial Determination, DOE
tasked ERI to assess the potential effects on the domestic uranium
mining, conversion, and enrichment industries of the introduction of
DOE excess uranium inventory in various forms and quantities through
sale or transfer during calendar years 2014 through 2033. DOE may
consider this report in its deliberations regarding a new Determination
(``2014 ERI Report'').
In preparation for the planned Secretarial Determination that is
the subject of today's notice, DOE tasked ERI with preparing an
additional analysis of DOE transfers (``2015 ERI Report''). For this
additional analysis, DOE tasked ERI to consider the effect of
hypothetical DOE transfers on the domestic uranium industries under
three different scenarios. Under Scenario 1, DOE would continue
transfers at the current annual rate of 2,705 MTU per year, consisting
of 2,055 MTU for cleanup work and 650 MTU as low-enriched uranium for
downblending. Under Scenario 2, DOE would decrease transfers to a rate
corresponding with 1,855 MTU per year, consisting of 1,410 MTU for
cleanup work and 445 MTU as low-enriched uranium for downblending.
Under Scenario 3, DOE would cease transfers for cleanup work and
downblending.
DOE also asked ERI to provide specific categories of information in
its analysis, including a discussion of price volatility and regional
differences in the markets. DOE tasked ERI to discuss the implications
of changing certain assumptions underlying its analysis, specifically
regarding what proportion of DOE material would enter the global as
compared to the domestic market and regarding the share of DOE material
delivered under long-term contracts. ERI's report also includes updated
information regarding changes in the market between April 2014 and
February 2015. Both the 2014 ERI Report and the 2015 ERI Report can be
found at https://www.energy.gov/ne/downloads/excess-uranium-management.

II. Analytical Approach

DOE issues Secretarial Determinations pursuant to Section 3112(d)
of the USEC Privatization Act. Section 3112(d) states that DOE may
transfer ``natural and low-enriched uranium'' if, among other things,
``the Secretary determines that the sale of the material will not have
an adverse material impact on the domestic uranium mining, conversion,
or enrichment industry, taking into account the sales of uranium under
the Russian HEU Agreement and the Suspension Agreement.'' After
considering this statutory language, DOE has developed a set of factors
that it proposes to consider in determining whether its uranium
transfers will have an ``adverse material impact'' on the domestic
uranium industries.

A. Overview

The USEC Privatization Act does not clearly indicate what kind or
degree of effect or influence on an industry would constitute an
``adverse material impact.'' As discussed below, these words are

[[Page 14109]]

susceptible of many meanings. Contextual clues provide some guidance in
understanding the phrase, but DOE has not identified context (such as a
statutory definition) that would unambiguously settle what an ``adverse
material impact'' is.
Moreover, the meaning of the phrase is likely to depend in part on
the factual context in which it is to be applied. Uranium transactions
can take myriad forms, and the effect of any given transaction on any
one or all of these industries will depend heavily on the facts and
circumstances at the time of the transaction. DOE's inventory of
uranium is changing over time, and Congress could not have anticipated
the specific characteristics of every potential transaction. Thus, it
would be unsurprising for the statute to describe DOE's mandate in
open-ended terms, leaving DOE to elaborate details as and when DOE
applied the statute over time.
Thus, the Secretary will need to exercise judgment to develop an
understanding of ``adverse material impact,'' in its statutory context,
as applicable to a given potential transfer or sale of uranium. Part of
that task involves establishing an analytical framework to form the
basis of and reach a determination about the impacts of DOE's
transfers. The Secretary is responsible for reviewing relevant
information and exercising judgment to decide whether a particular sale
or transfer will have an adverse material impact.
DOE's first step in developing an analytical framework is to
elaborate what it means for transfers to ``have'' an ``impact.'' DOE
believes that it can appropriately fulfill the purpose of the statute
by reading this phrase to refer to ``impacts'' that have a causal
relationship to DOE transfers. The overall thrust of Section 3112 is to
permit transfers and sales of uranium to the degree consistent with
various policy considerations set forth in various paragraphs.\4\
Section 3112(d) calls for the Secretary's predictive judgment, before
DOE engages in a transaction, whether the transaction will have an
adverse material impact on the domestic uranium industries. The notion
of causation is implicit in this structure. If domestic industries
would experience a given negative condition regardless whether DOE made
a particular transfer, it would ill serve the purposes of the USEC
Privatization Act for 3112(d) to block the transfer.
---------------------------------------------------------------------------

\4\ In passing the USEC Privatization Act, Congress recognized
that DOE would have a substantial uranium inventory after
privatization. Congress included Section 3112(d) to ensure that DOE
could continue to use sales or transfers from its uranium inventory
as a management tool. See S. Rep. 104-173, at 16-17; see also 141
Cong. Rec. S6106-07 (daily ed. May 3, 1995) (statement of Sen.
Domenici).\4\
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Thus, in assessing a given transfer, DOE will essentially evaluate
two forecasts: One reflecting the state of the domestic uranium
industries if DOE goes forward with the transfer, and one reflecting
the state of the domestic uranium industries if DOE does not go forward
with the transfer. DOE will then compare these two forecasts to
determine the relevant impacts on the domestic uranium industries. It
bears mention that not every difference in predicted outcomes will
necessarily count as an impact of the transfer. For example, if DOE
transfers would be the final contribution after independent causes have
pushed an industry to a given adverse state, DOE might not regard the
full scope of the adversity as attributable to the transfers.
With respect to assessing whether the adverse impacts of a transfer
would be ``material,'' DOE observes that the word ``material'' is used
to denote situations ``of real importance or great consequence.'' See
Webster's Third New International Dictionary 31, 1392 (1961). How large
consequences must be to qualify as ``material'' varies in different
legal contexts. In light of the overall goals and structure of the USEC
Privatization Act, DOE believes it is reasonable to view material
adverse impacts as referring to impacts that go beyond normal market
fluctuations, such as those that threaten the viability of an industry.
As noted above, one purpose of the USEC Privatization Act was that
DOE should manage and eventually dispose of the large legacy inventory
that the privatization of USEC would leave it. In privatizing the
United States Enrichment Corporation, Congress recognized that DOE
would have uranium inventory left over and that this inventory would
have substantial economic value. By including 3112(d), Congress
preserved the Secretary's discretion to utilize uranium transfers as a
tool in managing the uranium inventory, and the substantial value
embodied therein. If Congress had not wanted DOE to make productive use
of its inventory, it could have prohibited all sales by the Department
with or without a determination. Indeed, the USEC Privatization Act
explicitly directed DOE to transfer various quantities of uranium to
market participants. 42 U.S.C. 2297h-10(b)(2) & (c).
Section 3112 also provides helpful context that indicates the
magnitude of industry impact that Congress considered acceptable. The
statute specifically authorized material delivered under the Russian
HEU Agreement to enter the U.S. market notwithstanding a preexisting
suspension agreement limiting the entry of this material. 42 U.S.C.
2297h-10(b)(3), (5)-(7). The act contained annual limits on deliveries
of the natural uranium component of the Russian material. The limits
started at 2 million pounds U3O8 equivalent in 1998, and increased by 2
million pounds each year reaching a maximum of 20 million pounds U3O8
equivalent in 2009 and each year thereafter. 42 U.S.C. 2297h-
10(b)(5).\5\ For comparison purposes, this last figure represented over
four times the volume of U3O8 produced at U.S. mines in 1996, the year
the statute was passed. EIA, Domestic Uranium Production Report (2005).
The size of this explicit authorization informs DOE's understanding of
what impacts Congress would have regarded as ``material.'' It seems
unlikely that Congress would have authorized in 3112(b) transfers that
would have been inconsistent with the policy goals of 3112(d).
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\5\ Sales under the Russian HEU Agreement ceased at the end of
2013.
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Indeed, the structure and legislative history of 3112(b) confirm
that the schedule for Russian material's entering domestic markets
reflects Congress's balancing of concerns similar to those that
motivated 3112(d)(2). Congress could have simply allowed all Russian
material into the U.S. without limitation. Instead, Congress provided a
schedule that ramped up over a period of 20 years. Thus, Congress was
attempting to balance the competing concerns of providing a market for
the consumption of downblended Russian HEU and protecting the domestic
uranium industries from large-scale disruption. The schedule outlined
in Section 3112(b) reveals the level of market interference that
Congress believed struck that balance. This notion is further confirmed
by the legislative history of this provision, which specifically states
that Congress was trying to balance the interests in maintaining the
Russian HEU Agreement with the interests of the domestic uranium
industries. See S. Rep. 104-173, at 14. Further, the legislative
history explains that the schedule of maximum deliveries was designed
to protect against disruptions to the uranium markets by providing a
``reasonable, predictable, and measured introduction of this Russian
material into the domestic uranium market.'' Id. at 28.

[[Page 14110]]

Section 3112(d)(2) confirms that DOE's consideration of 3112(b) in
interpreting 3112(d)(2) is reasonable. Section 3112(d)(2) explicitly
directs the Secretary to ``take into account'' the sales of uranium
under the Russian HEU Agreement and the Suspension Agreement. DOE
believes that in addition to requiring the Secretary to consider any
transfers under these programs that are ongoing at the time of DOE's
transfers, this language asks the Secretary to consider and take into
account the history and context of these transfers and the statutory
text authorizing them. In addition, it bears mention that in a
3112(d)(2) deliberation DOE may take account of the fact that the
cessation of the Russian HEU Agreement removed a substantial amount of
secondary supply from uranium markets.
The preceding discussion is not intended automatically to support
transfers of up to 20 million pounds under Section 3112(d). The
Secretary must exercise his own judgment as to whether transfers would
cause an adverse material impact, in light of market and industry
conditions today. However, DOE believes that this provision provides
some insight into what scale of market interference Congress considered
acceptable, and hence would not constitute an ``adverse material
impact.''
For these reasons, DOE believes that whether the effects of a given
transfer constitute an ``adverse material impact'' should not depend on
a quantitative bright-line test, but rather should be based on an
evaluation of potential impacts by examining a number of factors.
Accordingly, DOE proposes to consider the effects of DOE transfers
using a set of factors. DOE proposes to analyze its transfers in light
of the best available information, data and expert judgment to form the
basis for the Secretary's determination.

B. Factors for Consideration

In the December 2014 RFI, DOE sought comment from the public on
what factors it should consider in assessing whether a given set of
transfers would have an adverse material impact on the domestic uranium
industries. After considering the comments received, DOE believes the
following factors may be relevant to this question:

1. Market prices
2. Realized prices of current operators
3. Production at existing facilities
4. Employment levels in the industry
5. Changes in capital improvement plans and development of future
facilities
6. Long-term viability and health of the industry

These factors reflect many of those suggested by commenters, and
DOE believes they reflect the types of impacts that a DOE transfer
could in principle have on a domestic uranium industry. Not every
factor will necessarily be relevant on a given occasion or to a
particular industry; DOE intends this list of factors only as a guide
to its analysis. DOE is open to additional comment on these factors.
There are a few factors proposed by commenters that are not included in
DOE's list, for the reasons outlined below.
One commenter suggested that DOE should consider the effects of its
transfers on the profitability of the industries. Comment of ConverDyn,
Encl. at 2. Another commenter suggested that DOE should consider the
effect of its transfers on gross profit margin. TradeTech Report, 12-
13. DOE notes that profit and profitability can vary depending on
company-specific circumstances and accounting treatments, and therefore
may not be reliable indicators of how a given market phenomenon like
DOE transfers is affecting an industry. Moreover, for assessing the
impact on an industry, the profit of participants is, in a sense, an
indirect measure, as it is principally a link between market dynamics--
prices and sales--and the ultimate reaction of industry in terms of
increasing or decreasing activity. For these reasons, DOE proposes to
look instead at factors which are either more directly related to
industry impact or are more reliable predictors of industry impact.
Several commenters suggested that DOE should consider current
market conditions as a factor. Comment of UPA, at 3; comment of
Uranerz, at 3. DOE agrees that current market conditions are relevant,
and DOE plans to consider the potential effects of DOE transfers in
light of the relevant context, which includes current market conditions
as well as past and projected future conditions. DOE believes that
considering broader market conditions in this manner will yield insight
into how the domestic uranium industries can be expected to respond to
DOE transfers.
Some commenters suggested that DOE consider uncommitted utility
demand or uncovered utility requirements compared to the level of DOE
transfers. UPA and others, for example, stated that transfers at the
rate described in the May 2014 Secretarial Determination would
constitute more than 100 percent of global uncommitted utility demand
in calendar year 2015 and almost 60 percent in 2016. These commenters
cite to a report by the Ux Consulting Company, LLC (UxC): UxC Uranium
Market Outlook--Q4 2014 (2014).\6\ Comment of UPA, at 2-3; see also
comment of Uranerz Energy Corp., at 2-3; comment of Signal Equities, at
2.\7\ Similarly, URENCO USA Inc. (URENCO)--citing UxC's Q4 Enrichment
Market Outlook--stated that DOE transfers of LEU will constitute 72% of
uncovered enrichment requirements in 2015. Comment of URENCO, at 4.\8\
While the volume of uncovered requirements may be information relevant
to the overall assessment, DOE is not convinced a particular comparison
between that volume and the magnitude of a proposed transfer is
reliable as an indication of the impacts of its transfers on the
uranium industries. It is far from clear that uranium from proposed DOE
transfers in 2015 and 2016 would be sold only to utilities with
uncovered requirements in the year of transfer. The market involves
many participants other than utilities seeking to fill uncovered
requirements. For example, intermediaries that hold mid- or long-term
contracts may need to purchase material on the spot market to fulfill
contracted deliveries. As discussed below, some market participants--
such as China--purchase material in excess of their requirements.
Traders and investment funds may also make purchases independent of
reactor requirements.\9\ Thus, spot demand in

[[Page 14111]]

any given year may substantially exceed uncovered requirements. At
least for the uranium industry, this is confirmed by the very report
that commenters cite to in their comments. UxC projects that spot
demand in 2015 and 2016 will be significantly higher than uncovered
requirements in both years. Compare Table 14 with Table 15 of UxC
Uranium Market Outlook--Q4 2014, 62-63 (2014). In addition, the company
that currently distributes on the broader market most of the uranium
that DOE is transferring under the 2014 Secretarial Determination
represents that it has already sold almost all of this material to
utilities under forward delivery contracts. Comment of Traxys, at
1.\10\ Therefore, the global uncommitted utility figures cited by UPA
and others presumably already take account of DOE transfers as an
element of covered requirements.\11\
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\6\ UPA refers to ``uncommitted utility demand.'' It appears
that they are referring to UxC's estimate of uncovered reactor
requirements, found at UxC Uranium Market Outlook--Q4 2014, 61-62
(2014).
\7\ Commenters cite to UxC's Q3 Uranium Market Outlook. In
addition to UxC's most recent estimate of uncovered utility uranium
requirements, UxC Uranium Market Outlook--Q4 2014, 61-62 (2014), DOE
has reviewed information from EIA and the Euratom Supply Agency.
EIA, 2013 Uranium Marketing Report, 34 (2014); ESA, Natural Uranium
Coverage 2014-2022, available at https://ec.europa.eu/euratom/docs/F9-CoverageRate.xls.
\8\ DOE has reviewed UxC's most recent estimate of uncovered
enrichment requirements found at: UxC Enrichment Market Outlook--Q4
2014, 39-40 (2014). DOE also notes that UxC's most recent report on
the conversion market does not include updated numbers on uncovered
utility requirements for conversion services. UxC Conversion Market
Outlook--December 2014, 37 (2014).
\9\ Comparing the financial statements of Uranium Production
Corporation--a uranium investment fund--reveals that between
November 30, 2013, and November 30, 2014, UPC increased its stock by
approximately 1.5 million pounds U3O8 equivalent--1,311,286 pounds
U3O8 and 261,285 pounds
U3O8 equivalent contained within 100,000 kgU
of UF6. UPC, 2015 Third Quarter Report, 2 (2015),
available at https://www.uraniumparticipation.com/i/pdf/financials/2015-Q3-Report-for-the-Three-Months-Ended-November-30.pdf; UPC, 2014
Third Quarter Report, 2 (2014), available at https://www.uraniumparticipation.com/i/pdf/financials/2014-Q3.pdf. UPC's
stated investment strategy is to buy and hold uranium rather than
actively trading in response to short-term shifts in prices. UPC,
Investor Update Presentation, 17 (Aug. 2014), available at https://www.uraniumparticipation.com/i/pdf/ppt/UPC-Investor-Update-August-2014.pdf.
\10\ Traxys North America LLP has a contractual arrangement with
DOE's contractor at Portsmouth, Fluor-B&W Portsmouth, to purchase
all uranium hexafluoride FBP receives from DOE. The existence of
FBP's contract with Traxys does not obligate DOE to transfer to FBP
the amounts of uranium under consideration.
\11\ Traxys represented that it had already sold to utilities
``almost 100%'' of the material from DOE as early as July 7, 2014.
Declaration of Kevin P. Smith, ConverDyn v. Moniz, Case no. 1:14-cv-
01012-RBW, Document 17-7 at ]6 (July 7, 2014). The figures for
global uncommitted utility demand cited by UPA were released after
this date. See Comment of UPA, at 3 n.2.
---------------------------------------------------------------------------

Commenters also proposed share price and market capitalization as
factors for consideration. E.g., Comment of ConverDyn, Enclosure, at 2.
DOE is not convinced that either of these provides an appropriate
indicator for whether DOE transfers will cause an adverse material
impact, because both market capitalization and share price are too
attenuated from the effects of DOE transfers. While share price
certainly does influence a company's decisions about investment and
allocation of capital, it is only one factor. At the same time, a
company's share price tends to reflect myriad inputs besides the
effects of a market phenomenon like DOE transfers. Other contributions
to share price can include the nature of company management, gearing
ratio (debt vs. equity), inflation, and the particular risks associated
with the uranium market (such as the influence of political changes,
like the shift in energy policy in Germany or public responses to
nuclear accidents). Furthermore, many of the largest U.S. producers are
part of multi-line companies whose share prices depend in part on
product markets other than uranium. For these reasons, DOE believes
that share price and market capitalization are too highly attenuated to
serve as useful proxies for industry impact.
Some commenters suggested that DOE should consider the ``spill-over
effects'' across the different nuclear fuel industries that might cause
indirect harm. E.g., Comment of URENCO, at 5. Although the commenter
did not explain what ``spill-over effects'' it was referring to, DOE
recognizes that as a general matter the interaction between the
different uranium markets can be relevant, particularly the
relationship between enrichment prices and uranium concentrate/
conversion prices. As enrichment can be used to provide additional
uranium concentrate as uranium hexafluoride--either through
underfeeding or re-enrichment of tails--there is a potential for
changes in one market to affect the others. However, DOE does not
believe this should be considered as a separate factor. Instead, DOE
believes these effects are better understood and assessed when
considered as part of the analysis for each of the six market factors
listed above.

III. Summary of Information Under Consideration

In this section, DOE summarizes for each industry the information
that DOE believes to be relevant with respect to the above-listed
factors. In addition to the 2014 ERI Report, the 2015 ERI Report, and
the comments received in response to the RFI, in some instances DOE
refers to additional information from other sources. Where available,
DOE provides a link to where these documents are available on the
Internet.

A. Uranium Mining Industry

1. Market Prices
In preparation for the proposed Secretarial Determination, DOE
tasked ERI with estimating the effect of DOE transfers on the market
prices for uranium concentrates. In the 2015 ERI Report, as in previous
reports, ERI estimated this effect by employing two different types of
model that rely on somewhat different assumptions: A market clearing
price model and an econometric model. For its market clearing price
model, ERI constructs individual supply and demand curves and compares
the clearing price with and without DOE transfers.\12\ To develop its
supply curves, ERI gathers available information on the costs facing
each individual supply source. ERI then uses that information to
estimate the marginal cost of supply for each source using a discounted
cash flow model. 2015 ERI Report, 41 n.22. To develop its demand curve,
ERI assumes a perfectly inelastic demand curve based on its Reference
Nuclear Power Growth forecast.\13\ ERI develops this forecast by
combining estimates of the needs and reload schedules for operating
plants with projections about future reactor retirements and new
development. 2015 ERI Report, 17-18.
---------------------------------------------------------------------------

\12\ The market clearing price is the price at which quantity
supplied is equal to quantity demanded.
\13\ In other words, ERI assumes that demand for uranium will
stay the same regardless of variations in market price.
---------------------------------------------------------------------------

Applying this approach to the three scenarios listed in Section I.E
above--2,705 MTU per year (scenario 1), 1,855 MTU per year (scenario
2), or zero transfers (scenario 3)--ERI estimates that DOE transfers
will have the effects listed in Table 1. Transfers at the rate of 2,705
MTU per year would cause the price of uranium concentrates to be lower
than it would be without DOE transfers by, on average, $2.80 between
2015 and 2024--with prices being $3.00 and $2.80 lower in 2015 and 2016
specifically. 2015 ERI Report, 45. For DOE transfers at a rate of 1,855
MTU per year, ERI estimates that prices would be, on average, $2.60
lower between 2015 and 2024--with prices being $2.10 and $1.90 lower in
2015 and 2016 specifically. If DOE ceased transfers under these two
programs, ERI estimates that prices would be, on average, $1.30 lower
between 2015 and 2024--with prices being $0.30 and $0.10 lower in 2015
and 2016 specifically.\14\ It is important to emphasize that this is
not a prediction that prices will drop by the specified amount once DOE
begins transfers following a new determination. A level of price
suppression consistent with the estimate for Scenario 1 would, on ERI's
analysis, already be reflected in the current market price because DOE
is currently transferring uranium at that rate. 2015 ERI Report, 44.
This means that if DOE continued transferring at Scenario 1 levels, the
market prices would not change; if DOE began transferring at Scenario 2
levels, the

[[Page 14112]]

market price would be expected to rise by approximately $0.90; if DOE
ceased transfers under these programs, market prices would be expected
to rise by $2.70. See Table 4.1 of 2015 ERI Report, 45. These prices
represent ERI's prediction of the average effect over the next decade,
rather than for any given year.
---------------------------------------------------------------------------

\14\ Note that the transfer rates in these scenarios refer only
to the level of uranium transfers for cleanup at Portsmouth and
downblending of LEU. They do not include transfers for three other
programs, TVA BLEU, Energy Northwest depleted uranium, and a
possible future sale of depleted uranium currently under
negotiation. 2015 ERI Report, 21-32. The level of transfers across
these three programs is the same in all three scenarios. ERI's
predictions about market price reflect these transfers as well as
the Portsmouth and downblending transfers.

Table 1--ERI's Estimate of Effect of DOE Transfers on Uranium
Concentrate Spot and Term Prices in $ per Pound U3O8
[Market clearing approach]
------------------------------------------------------------------------
2015 ERI Report 2014 ERI Report
-------------------------------------
Estimated price Estimated price
effect (2015- effect (2014-
------------------------------------------2024)--------------2023)------
Scenario 1........................ $2.80 $2.90
Scenario 2........................ 2.60 .................
Scenario 3........................ 1.30 .................
------------------------------------------------------------------------

ERI then compares these numbers to the current spot and term price
indicators published by TradeTech on January 31, 2015--i.e. $37.25 per
pound U3O8 on the spot market, and $50.00 per
pound U3O8 on the term market. As a percentage of
the current prices, the average price effect attributable to DOE's
transfers over the period 2015-2024 under Scenario 1 represents
approximately 7.6% of the current spot price and 5.7% of the current
term price. Under Scenario 2, the average price effect over the same
period represents 7.1% of the spot price and 5.3% of the term price.
Under Scenario 3, the average price effect represents 3.6% of the spot
price and 2.7% of the term price. 2015 ERI Report, 47, 49.
The second model that ERI used to predict the effects of DOE
transfers specifically on the spot price for uranium using an
econometric model. A summary of ERI's estimates using this model
appears in Table 2. ERI compared the monthly spot and term market
prices published by TradeTech with published offers to sell uranium for
delivery within one year of publication and published inquiries to
purchase uranium for delivery within one year. Based on this
information, ERI developed a multivariable correlation to estimate how
the market prices would respond to the availability of new supply from
DOE. 2015 ERI Report, 50. Applying this econometric model, ERI predicts
that transfers under Scenario 1 would cause the spot price to be lower
by about $2.40 per pound between 2015 and 2017 than it would be in the
absence of transfers, and by about $5.10 between 2018 and 2024. For
Scenario 2, ERI estimated that the spot price would be lower by about
$1.70 per pound between 2015 and 2017 than it would be without
transfers, and by about $4.80 between 2018 and 2024. For Scenario 3,
ERI estimated that the spot price would be lower by about $0.30 per
pound between 2015 and 2017, and by $2.00 between 2018 and 2024. 2015
ERI Report, 53. Again, as noted for the market clearing analysis, the
market price currently takes account of the already ongoing transfers
at the levels of Scenario 1. Thus, on ERI's analysis prices already
exhibit a level of price suppression similar to the level predicted in
the near term under Scenario 1. 2015 ERI Report, 52-53.

Table 2--ERI's Estimate of Effect of DOE Transfers on Uranium Concentrate Spot Price in $ per Pound U3O8
[Econometric model] \15\
----------------------------------------------------------------------------------------------------------------
2015 ERI Report 2014 ERI Report
---------------------------------------------------------------
Estimated Estimated Estimated Estimated
price effect price effect price effect price effect
(2015-2017) (2018-2024) (2014-2016) (2017-2021)
----------------------------------------------------------------------------------------------------------------
Scenario 1...................................... $2.40 $5.10 $2.80 $5.50
Scenario 2...................................... 1.70 4.80 .............. ..............
Scenario 3...................................... 0.30 2.00 .............. ..............
----------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------

\15\ It is more appropriate to compare the estimated price
effect to the forecasted market price at the time of the effect.
ERI's report does not provide specific quantifications of the
forecasted market price in out-years. Thus, it is not possible to
list the percentage of expected market price with specificity.
However, DOE notes that, at least with respect to the later term
projections, ERI predicts that market prices will be in the $52 to
$57 range after 2017. 2015 ERI Report, 52; 2014 ERI Report, 44.
---------------------------------------------------------------------------

For the 2014 ERI Report, ERI had conducted a similar market
clearing approach for a level of transfers that is equal to Scenario 1
of the 2015 ERI Report. Although that report used slightly older data,
the results are very similar. Notably, ERI estimated that the price
effect attributable to DOE transfers at the current rates is $2.90
between 2014 and 2023--with prices being $3.00 lower in 2014 and 2015,
and $2.80 lower in 2016.\16\ 2014 ERI Report, 40. ERI also conducted a
similar econometric analysis for a level of transfers that is equal to
Scenario 1. 2014 ERI Report, 42-45. The econometric analysis in the
2014 ERI Report estimated a slightly higher price effect compared to
the 2015 Report. Specifically, ERI estimated that DOE transfers would
cause the spot price to be lower by about $2.80 per pound between 2014
and 2016, and by about

[[Page 14113]]

$5.50 between 2017 and 2021. 2014 ERI Report, 44. The updated analysis
in the 2015 ERI Report produces slightly different figures because it
relies on updated estimates of the amount of DOE material expected to
affect the markets. Compare Table 3.4 of 2014 ERI Report, 33, with
Tables 3.6, 3.7, and 3.8 of 2015 ERI Report, 32-34.
---------------------------------------------------------------------------

\16\ ERI also compared those numbers to then current term and
spot price indicators as of March 31, 2014. At that time, the
TradeTech price indicator was $34.00 per pound
U3O8 on the spot market and $45.00 per pound
U3O8 on the term market. 2014 ERI Report, 23.
---------------------------------------------------------------------------

Three commenters provided their own estimates of the price effects
of DOE transfers.
UPA attached to its comment a market analysis it commissioned from
TradeTech, LLC, a uranium market consultant. Comment of UPA,
Attachment, TradeTech, ``UPA DOE Material Transfer Study'' (2015)
(hereinafter ``TradeTech Report''). A summary of TradeTech's estimates
appears in Table 3. TradeTech explains that it estimated the price
effect of DOE transfers using its proprietary Dynamic Pricing Model.
This model is an econometric forecasting approach to estimate the
equilibrium between two dimensions TradeTech calls ``active supply''
and ``active demand.'' In its estimates, TradeTech assumes that 50
percent of DOE transfers enters the spot market and 50 percent enters
the term market. TradeTech Report, 14. Using its model, TradeTech
estimates that DOE's transfer reduced the spot price by an average of
$3.55 per pound between January 2012 and December 2014. TradeTech
Report, 15. TradeTech also estimates that continued DOE transfers at
current rates would reduce the spot price by an average of $2.43 per
pound between January 2015 and December 2016. TradeTech Report, 20.
TradeTech also provides estimates for the effect of DOE transfers
at several decreased transfer rates. If DOE transfers decreased to 75%
of current levels, TradeTech estimates that the spot price would
increase by an average of $0.53 per pound between January 2015 and
December 2016. TradeTech Report, 26.\17\ Based on TradeTech's estimate
of the price suppression of DOE transfers at current levels, it appears
that TradeTech is estimating that price suppression at 75% of current
levels would be $1.90. If DOE transfers decreased to 50% of current
levels, TradeTech estimates that the spot price would increase by an
average of $1.10 per pound between January 2015 and December 2016.
TradeTech Report, 25. This corresponds to a price suppression of $1.33.
If DOE transfers decreased to 25% of current levels, TradeTech
estimates that the spot price would increase by an average of $1.73 per
pound between January and 2015 and December 2016. TradeTech Report, 24.
This corresponds to a price suppression of $0.70.
---------------------------------------------------------------------------

\17\ Figures 16-19 of the TradeTech Report show TradeTech's
estimates for the price impact at a range of different transfer
rates. Although these charts and the related text refer to
``Transfers at [25, 50, or 75] Percent of Established 2014
Volumes,'' it appears that these charts actually reflect an estimate
for a 25%, 50%, or 75% decrease relative to current levels, rather
than transfers at the specified percentage of current levels.

Table 3--TradeTech's Estimate of Effect of DOE Transfers on Uranium
Concentrate Spot Price in $ per Pound U3O8
------------------------------------------------------------------------
TradeTech report
-------------------------------------------------------------------------
Estimated
Transfer rate (compared to current) price effect
(2015-2016)
------------------------------------------------------------------------
100%.................................................... $2.43
75%..................................................... 1.90
50%..................................................... 1.33
25%..................................................... 0.70
------------------------------------------------------------------------

Fluor-B&W Portsmouth attached to its comment an April 2014 market
analysis from NAC International (NAC). Comment of Fluor-B&W Portsmouth,
Attachment A, NAC International, ``Impact of DOE Excess Uranium Sales
on the U3O8 Market'' (April 2014) (hereinafter
``NAC Report'').\18\ In its analysis, NAC based its production cost
estimates on its Uranium Supply Analysis System (USAS). NAC updates
this model each year based on a review of various published reports and
presentations. NAC then applies cost models to derive specific cost
estimates for individual properties. NAC Report, C-1. Specifically, NAC
applies a discounted cash flow rate of return model based on both full
cost (including sunk costs) and forward costs for each property. NAC
Report, C-2 to C-3. NAC also utilized an estimate of reactor
requirements and uncommitted demand developed from its Fuel-Trac
database. NAC Report, D-1.
---------------------------------------------------------------------------

\18\ As this report was prepared in April 2014, it does not
contain updated information on developments in the markets since
that time. The level of uranium transfers that it analyzes is based
on the levels specified in the May 2012 Secretarial Determination,
which is roughly similar to the current rate of transfers. NAC
Report, A-1 to A-3.
---------------------------------------------------------------------------

NAC developed a range of estimates of the impact of DOE transfers
utilizing its production cost estimates at three different rates: 2,800
MTU per year, 2,400 MTU per year, and 10% of U.S. reactor requirements.
NAC Report, 3-21 to 3-22. First, NAC applied a methodology it believes
approximates ERI's approach to its own cost estimates. Specifically,
NAC identified the incremental cost of the last property needed to meet
demand in a given year based on total supply and demand. NAC Report, 3-
22. NAC then explains that because long-term contracts with fixed
pricing mechanisms have allowed some high-cost producers to produce
ahead of lower cost supply, it believes a better approach is to base
the model on uncommitted supply and demand. NAC then applies a
multiplier to these estimates to account for additional incremental
costs not included in its site forward production costs estimate. These
additional costs include increased site forward costs due to operation
at less than nominal capacity, taxes, corporate overhead, and
variations in the required rate of return. NAC Report, 3-23. NAC also
applies a time shift to the cost trend to account for the fact that
producers need a price signal before investing in a new production
center--i.e. producers need to have prices that justify an investment
before actually making the investment. NAC Report, 3-24. The specific
quantitative impact projected by NAC is withheld from the public
version of the NAC Report to protect confidential information.
Cameco attached to its comment a market analysis it commissioned
from Ux Consulting Company, LLC (UxC), another uranium market
consultant. Comment of Cameco Corp., Attachment, UxC Special Report,
``Impact of DOE Inventory Sales on the Nuclear Fuel Markets'' (January
2015) (hereinafter ``UxC Report''). A summary of UxC's estimates of the
effect of DOE transfers on future prices appears in Table 4. UxC
explains that it estimated the price effect of DOE transfers using two
proprietary econometric models: The U-PRICE model and the SWU-PRICE
model. UxC explains that these models were developed using historical
data on the nuclear fuel markets collected and compiled by UxC. These
two models take into account and quantify the impact of ``key factors
influencing the markets.'' UxC also explains that the two models can be
linked to simulate the interrelationship between uranium concentrates
and enrichment. UxC Report, 3.\19\
---------------------------------------------------------------------------

\19\ Additional information about the U-PRICE model can be found
in Chapter 1 of UxC Uranium Market Outlook--Q4 2014, 7-21 (2014).
---------------------------------------------------------------------------

Using these two models, UxC estimates the effects of DOE transfers
using two slightly different methodologies. For the first approach,
what UxC calls the ``incremental approach,'' UxC does not include the
cumulative impact of previous years' transfers. The second approach,
which UxC calls the ``total impact approach,''

[[Page 14114]]

includes sales from previous years. UxC argues that previous years'
sales should be included because ``such sales have a longer-term effect
on market perceptions among both buyers and sellers. In particular, the
increased supplies from DOE's sales and transfers removed market
opportunities available to other uranium suppliers.'' UxC Report, 5.
Using its incremental approach, UxC estimates that between 2012 and
2014 DOE's transfer reduced the spot price by an average of $4.50 per
pound and the term price by an average of $2.88 per pound. Using its
total impact approach, UxC estimates that between 2008 and 2014 DOE's
transfers reduced the spot price by an average of $7.11 per pound and
the term price by an average of $5.10 per pound. UxC Report, 6-7.
UxC also estimates the effect of DOE continued transfers at current
rates for the period 2015 to 2030. UxC estimates that DOE transfers in
the near and medium terms would reduce the spot price by an average of
$5.78 per pound. UxC projects that this effect will change slightly in
the medium term as market prices start to recover. Specifically, DOE
transfers will reduce the spot price between 2018 and 2030 by an
average of $4.47 per pound. UxC also notes that the former number is
larger relative to the expected price of uranium than the latter number
(14.1% versus 7.1%). UxC Report, 10. UxC estimates that DOE transfers
in the near and medium terms would reduce the term price by an average
of $4.86 per pound. Between 2018 and 2030, DOE transfers are estimated
to reduce the term price by an average of $5.30 per pound. Again, the
near and medium term impact is larger in relation to the expected price
(9.0% versus 7.1%). UxC Report, 11.

Table 4--UxC's Estimate of Effect of DOE Transfers on Uranium Concentrate Spot and Term Prices in $ per Pound
U3O8
----------------------------------------------------------------------------------------------------------------
UxC Report
---------------------------------------------------------------
Near- & mid-
term price Percent of Long-term Percent of
effect expected price price effect expected price
----------------------------------------------------------------------------------------------------------------
Spot Price...................................... $5.78 14.1 $4.47 7.1
Term Price...................................... 4.86 9.0 5.30 7.1
----------------------------------------------------------------------------------------------------------------

UxC puts particular focus on the interrelationship between the
uranium and enrichment markets. UxC states that uranium and SWU are
``substitutes.'' Thus, UxC uses enrichment prices as an input into its
uranium concentrate price forecast, and vice versa. UxC Report, 5, 8,
17. DOE understands that this interplay can take several forms. First,
to the extent that enrichers have unsold enrichment capacity, they may
apply that excess capacity to underfeeding \20\ and/or re-enriching
DUF6 tails.\21\ This essentially allows enrichers to produce
additional natural uranium hexafluoride, which could then be sold on
the open market. Second, if the price of enrichment decreases relative
to the price of uranium concentrates, the optimum tails assay
decreases, requiring customers to deliver less natural uranium feed to
get the same amount of enriched uranium output.
---------------------------------------------------------------------------

\20\ Enrichers can change the amount of natural uranium needed
as input (``feed'') by applying a greater or lesser amount of
enrichment work to a given amount of feed. ``Underfeeding'' refers
to when enrichers ply a greater amount of enrichment work to an
amount of feed, thus requiring less feed to achieve the same amount
of enriched product.
\21\ In addition to ``underfeeding,'' enrichers can apply
additional enrichment work to existing depleted uranium from past
enrichment processes by feeding them back into the enrichment
process. This process is often called ``re-enrichment'' of tails.
---------------------------------------------------------------------------

The other market analyses do not appear to take these interplays
into account.\22\ But DOE believes the price interplay would be small,
and the two effects may potentially offset. Since only some of DOE
inventories contain an enrichment component, DOE materials can be
expected to have a larger proportional effect on the uranium
concentrates and conversion markets as compared to the enrichment
market. At current rates, ERI estimates that DOE transfers in 2015
under Scenario 1 would represent 4%, 5%, and 2% of that year's global
requirements for uranium, conversion, and enrichment, respectively.
Since DOE inventories are a greater proportion of uranium and
conversion requirements, it seems likely that the effect of DOE
transfers would be to slightly increase the ratio of SWU price to
UF6 price. This would increase the optimum tails assay,
which may actually increase demand for uranium concentrates slightly.
In addition, practices in the industry suggest that the enrichment
component of DOE material does not displace primary production at
existing facilities. Enrichers typically do not increase centrifuge
capacity without long-term contracts in place to purchase the output.
Comment of URENCO, Inc., at 2. Also, some in the market have chosen to
allow older centrifuges to retire without being replaced instead of
retaining excess capacity. 2015 ERI Report, 16; UxC Enrichment Market
Outlook--Q4 2014, 11 (2014). Thus, it is far from clear that for every
SWU contained within DOE material, a corresponding amount of primary
production becomes excess capacity available for tails re-enrichment or
underfeeding. Considering this information as a whole, it does not
appear that the interrelationship between the enrichment and uranium
markets will significantly affect how DOE's material affects uranium
market prices.
---------------------------------------------------------------------------

\22\ ERI's market clearing price analysis, for example, includes
material from underfeeding as ``Secondary Supply.'' However, ERI
does not consider how a change in uranium concentrate and/or
conversion prices would affect the price of SWU or the level of
underfeeding present in secondary supply.
---------------------------------------------------------------------------

2. Realized Prices of Current Operators
ERI states that realized price varies from one company to another.
To estimate the realized prices for U.S. producers, ERI gathered
information from public filings representing approximately 95% of U.S.
production. 2015 ERI Report, 60-61. ERI does not list the specific
dollar figures, but it provides a graph of how realized uranium prices
have changed over time for several U.S. producers. This graph shows
that realized prices declined for most primary producers in 2014. Even
with this decline, ERI estimates that several producers achieved
realized prices in 2014 well above the average spot price over the
course of the year. At least one producer achieved a realized price
well above the average term price for 2014. 2015 ERI Report, 61.
ERI reports that some mining companies have negotiated contracts
that base the price paid at least partially on a fixed or base-
escalated pricing mechanism. As an example, ERI reports that Cameco has
reported that the price sensitivity of its current contract

[[Page 14115]]

portfolio is about 50% of any change in spot market price. ERI
estimates that less than 30% of U.S. production currently comes from
companies that are effectively unhedged against changes in spot price.
2015 ERI Report, 60-61.
TradeTech also provides its estimates of the decline in realized
price for several producers--both U.S. and foreign. Although TradeTech
does not provide specific figures, it provides information on several
firms in chart form. It appears from the chart that among the firms for
which TradeTech provides estimates, realized prices in 2013 varied from
as low as about $38 to as high as about $57. For most producers, there
was a decline in realized price between 2011 and 2013. The magnitude of
that decline ranges from approximately $12 to as low as $2 or $3.
TradeTech Report, 13. TradeTech notes that one reason for declining
realized prices is the expiration of long-term contracts signed when
prices were substantially higher. TradeTech Report, 12.
NAC similarly notes that some higher cost suppliers have locked in
higher prices through fixed price contracts that allow them to realize
prices greater than current market prices. NAC Report, 3-22. NAC also
provides its estimated supply capability broken down by production
cost. The specific figures are withheld from the public version of the
NAC Report to protect confidential information. NAC Report, 3-9 to 3-
11. Although NAC estimates the effect of DOE transfers on market price,
as described above, NAC does not provide specific estimates of the
effect on the price realized by individual producers.
EIA reports several figures that are relevant to the prices
realized by current production facility operators. EIA reports that the
weighted average price in sales directly from U.S. producers in 2013
was $44.65. EIA, 2013 Uranium Production Report, 7 (2014). Similarly,
EIA reports that the weighted average price paid by U.S. reactor
operators in 2013 was $51.99 per pound U3O8
equivalent (per lb U3O8). EIA, 2013 Uranium
Marketing Report, 4 (2014). EIA provides comparatively more information
on the price paid by U.S. reactor operators. Although EIA does not
provide a complete range of prices, it does report that the bottom 7.1
million pounds U3O8 equivalent (approximately \1/
8\th of uranium delivered in 2013) purchased by U.S. operators had a
weighted average price of $34.34. The top 7.1 million pounds had a
weighted average price of $72.62.\23\ EIA, 2013 Uranium Marketing
Report, 26. EIA also provides average prices broken down by origin--
foreign vs. U.S.--and by seller--U.S. producer, U.S. brokers and
traders, other U.S. suppliers (i.e. other reactor operators,
converters, enrichers, or fabricators), and foreign suppliers. The
weighted average price in 2013 for U.S. origin uranium was $56.37 per
lb U3O8. The weighted average price in 2013 from
U.S. brokers and traders was $50.44. For 2013, EIA does not report the
weighted average price of uranium purchased by U.S. reactor operators
directly from U.S. producers to avoid disclosure of individual company
data. However, in recent years when that value is reported, it has been
above the average price paid for U.S. origin uranium. EIA, 2013 Uranium
Marketing Report, 4 (2014). For comparison, DOE notes that the 2013
average spot price was around $39.00 and the average term price was
around $54.00.\24\
---------------------------------------------------------------------------

\23\ These two figures do not differentiate between U.S.-origin
versus foreign material. However, EIA reports that the weighted
average price of U.S. origin material is higher than the average for
all foreign material. EIA, 2013 Uranium Marketing Report, 20 (2014).
\24\ As calculated according to monthly price indicator data
from UxC.
---------------------------------------------------------------------------

EIA provides data about sales using different pricing mechanisms.
EIA reports that of the approximately 23.3 million pounds
U3O8 equivalent purchased by U.S. reactor
operators from domestic sources \25\ and delivered in 2013, 14.5
million pounds were purchased based on fixed or base-escalated
pricing--approximately 62.3%--with a weighted-average price of $54.95.
Approximately 3.6 million pounds were purchased based purely on spot-
market pricing--approximately 15.6%--with a weighted-average price of
$42.55. The remaining 5.1 million pounds--approximately 22%--was sold
based on some other pricing mechanism with a weighted average price of
$52.68. EIA, Uranium Marketing Report, 24 (2014).
---------------------------------------------------------------------------

\25\ Note that EIA's figure includes purchases of U.S.-origin
uranium as well as purchases from a firm located in the United
States. Therefore, this number includes uranium from sources other
than the domestic uranium industry. EIA reports that approximately
9.5 million pounds of U.S. origin uranium was delivered to U.S.
reactor operators in 2013. EIA, Uranium Marketing Report, 20 (2014).
---------------------------------------------------------------------------

3. Production at Existing Facilities
ERI reports that U.S. production has risen since the DOE uranium
inventory transfers in December 2009. In 2014, production was 5% higher
compared to the previous year. However, ERI reports that production in
2015 is expected to decline to 2013 levels. 2015 ERI Report, 58. Since
2009, four new operations have begun production: Willow Creek in 2010,
Hobson/Palangana in late 2010/early 2011, Lost Creek in 2013, and
Nichols Ranch in 2014. ERI also reports that one additional production
center is expected to begin operations in 2015. Despite these new
operations, ERI notes that several conventional and in-situ leach
operations have scaled back operations. 2015 ERI Report, 57.
After reporting this information, ERI presents a chart showing the
price levels at the time cutbacks were announced at various U.S.
suppliers. ERI reports price points for four operations: $45 per pound
in the spot market for conventional mines in Utah; $40 per pound in the
spot market for two in-situ-leach operations; and $35 per pound in the
spot market for additional conventional mines and a uranium mill. 2015
ERI Report, 62.
ERI then estimates average production costs for existing mines by
referring to EIA's published data on production expenditures across the
uranium industry. Using a three year average to smooth out year-to-year
differences, ERI notes that average production costs have remained
fairly constant since 2009 at about $40 per pound. 2015 ERI Report, 63.
ERI further reports that it estimates production costs at U.S. in-situ-
leach facilities to range from the low $30s to the mid $40s per pound.
ERI concludes that the pattern of cutbacks and estimated production
costs ``do not seem to indicate that adding back the $3 per pound price
effect attributed to all DOE inventory material for Scenario 1 would
move current prices enough to cause U.S. producers to ramp well field
development and production activities back up.'' 2015 ERI Report, 64.
ERI further notes that the spot price would remain near $40 per pound
and ``may still not be sufficient for higher cost ISL producers to
restart well field development or higher cost conventional mines to
resume mining activities, and likely would not have prevented the
decisions to cut back when prices declined to $35/lb in mid 2013 and
then below $30/lb in mid 2014.'' 2015 ERI Report, 64.
The 2014 ERI Report came to similar conclusions using similar
methodology. That report noted that despite the overall increase in
uranium production in recent years, there have been production cuts at
several operations. 2014 ERI Report, 49. ERI also provided a chart of
production cut announcements and the then-current spot and term prices.
2014 ERI Report, 58. ERI noted that some uranium producers report costs
in public filings, but these costs are not reported consistently across
firms and generally

[[Page 14116]]

do not include royalties and severance taxes or the cost of ongoing
wellfield development at in-situ-leach operations. ERI's estimate of
average industry-wide production costs is the same as in the 2015 ERI
Report--i.e. approximately $40 per pound. 2014 ERI Report, 59.
TradeTech predicts a ``potential reduction in the number of market
participants.'' TradeTech Report, 21. It then applies the price effect
it estimates for DOE transfers to a hypothetical uranium producer with
a production cost of $47.41 per pound. See Figure 15 of TradeTech
Report, 22. TradeTech does not apply its estimate to any particular
producer. TradeTech does, however, provide estimates for the production
costs of several firms in both 2011 and 2013.\26\ Although TradeTech
does not provide specific cost data, it does provide information on
several firms in chart form. It appears from the chart that among the
firms TradeTech provides estimates for, production costs in 2013 varied
from as low as $30 to as high as $50. TradeTech also notes that many
producers have been able to reduce or stabilize costs in recent years.
This is also reflected in the difference between the producers' costs
in 2011 and in 2013. TradeTech Report, 13.
---------------------------------------------------------------------------

\26\ This figure includes information on some projects that are
not part of the domestic uranium mining industry, such as Uranium
One's Kazakh projects.
---------------------------------------------------------------------------

As noted above, NAC provides estimated production cost ranges for
segments of current supply, but it does not directly estimate the
effect of DOE transfers on production levels. NAC Report, 3-9 to 3-11.
UxC does not provide any specific estimates of production levels or
costs at currently operating facilities. However, in other reports, UxC
outlines detailed estimates for individual mines. UxC Uranium Market
Outlook--Q4 2014, 76-78 (2014); UxC Uranium Production Cost Study, 80-
84 (Aug. 2013).
In addition to the information described above, DOE has considered
information from EIA reports. EIA reports on production in the domestic
uranium industry on a quarterly and annual basis. EIA's most recent
quarterly report provides preliminary data for 2014. U.S. primary
production in 2014 stood at 4.9 million pounds
U3O8. This is about 5% higher than in 2013 and
15% higher than in 2012. In fact, this represents the highest
production total in any calendar year since 1997. EIA, Domestic Uranium
Production Report Q4 2014, 2 (January 2015). The same number of uranium
concentrate processing facilities--seven--operated in 2014 as in 2013.
EIA reports that the White Mesa conventional mill halted production in
the fourth quarter of 2014 and that the Nichols Ranch in-situ-leach
plant began operation in the second quarter of 2014. EIA Domestic
Uranium Production Report Q4 2014, 3-6 (January 2015).
4. Employment Levels in the Industry
DOE has considered information contained from EIA reports relating
to employment in the domestic uranium production industry. EIA's most
recent Uranium Production Report states that employment stood at 1,156
person-years in 2013, 1,196 person-years in 2012, and 1,191 person-
years in 2011. EIA, 2013 Uranium Production Report, 10 (May 2014).
In its analysis, ERI compared EIA's employment figures with changes
in uranium spot and term prices. Based on a statistical correlation,
ERI infers that employment responds to changes in price. 2015 ERI
Report, 73. ERI then uses this correlation to estimate that the
decrease in uranium prices over the course of 2014 resulted in a loss
of 114 person-years from the 2013 value of 1,156. 2015 ERI Report, 55.
ERI then estimates that the price effect it attributes to DOE transfers
lowered employment by 41 person years in 2013, and 44 person years in
2014. 2015 ERI Report, 56. ERI further estimates that price effects due
to DOE transfers at the levels described in Scenario 1 would result in
an average employment loss of 42 person years over the next 10 years.
For Scenario 2 and 3, ERI estimated that the average employment loss
would be 39 and 21 person years, respectively. Again, it is important
to note that this estimate is not a prediction that the uranium
production industry under Scenario 1 would shed 42 jobs in 2015 and
each subsequent year. Instead, this figure reflects ERI's estimate that
total employment in the industry would be higher by an average of 42
person-years without DOE transfers compared to with DOE transfers.
For the 2014 ERI Report, ERI conducted a similar analysis and came
to broadly similar conclusions. It estimated an employment loss of 50
person-years for 2013, and an average loss of 44 person years over the
course of 2014-2023. 2014 ERI Report, 48.
Though no commenter provided specific numbers, several referred to
decreases in employment in recent years caused by decreases in uranium
prices. E.g., Comment of Mark S. Pelizza, at 1. Some commenters stated
that the uranium production industry has lost half its workforce since
May 2012 without providing supporting data. Comment of UPA, at 2;
comment of Uranerz, at 2. Although several stated that DOE transfers
were causing a portion of these losses, no commenter estimated the
proportion of recent employment decreases attributable to DOE
transfers. TradeTech Report, 21-22; UxC Report, 5.
5. Changes in Capital Improvement Plans and Development of Future
Facilities
As stated above, ERI reports that four new production centers began
operation since 2009: one in 2010, one in late 2010/early 2011, one in
2013, and one in 2014. In addition, one new production center--
Peninsula's Lance--is expected to begin operations in 2015. 2015 ERI
Report, 57. ERI explains that the new production centers may have been
able to begin operations only because they were supported by fixed
price term contracts that were signed when prices were substantially
higher than they are currently--i.e. $55 to $70 per pound term price.
At least one of these companies has directly stated that its project
would not have been able to proceed at current price levels--$45 to $50
per pound term price. ERI also reports that some owners of proposed
conventional mines outside the U.S. have stated that prices in the
range of $60 to $70 per pound would be necessary for further
development. 2015 ERI Report, 61.
Based on the above, ERI concludes, ``[i]t does not appear that
removing the DOE inventory from the market and adding back the $2 to $3
per pound price effect attributed to the DOE inventory material . . .
would necessarily increase current prices enough to change the
situation regarding the viability of new production centers in the
U.S.'' 2015 ERI Report, 62. However, ERI reports that some lower cost
ISL projects in the U.S. may be able to move forward at current prices.
2015 ERI Report, 62.
The 2014 ERI Report came to similar conclusions. 2014 ERI Report,
57. It noted that despite the overall increase in uranium production in
recent years, there have been production cuts at several operations.
2014 ERI Report, 49. ERI also reported the same prices that it believed
would be required to motivate further development as it reports the
2015 report. 2014 ERI Report, 57.
NAC provides estimates of the site forward cost including rate of
return for ten properties it considers to be under development.\27\ The
specific figures are

[[Page 14117]]

withheld from the public version of the NAC Report to protect
confidential information. NAC Report, 3-11 to 3-12. NAC does not
directly apply its estimate of the price effect of DOE transfers to the
production costs for these specific properties.
---------------------------------------------------------------------------

\27\ NAC defines ``under development'' as a property for which
ground breaking has begun. Note that NAC considers ten properties
worldwide to be ``under development''; they are not limited to U.S.
properties. NAC Report, 3-11.
---------------------------------------------------------------------------

EIA reports that production expenditures were $168.8 million in
2011, $187 million in 2012 and $168 million in 2013--when spread across
annual production, these numbers represent approximately $41 per pound
in 2011, $43 per pound in 2012 and $36 per pound in 2013. EIA, 2013
Domestic Uranium Production Report, 7, 11 (2014). Including costs
related to drilling between 2009 and 2013 raises this figure by about
$10-15 per pound, and including land, exploration, and reclamation
costs in those years increases these figures by a further $19-24 per
pound. EIA, 2013 Domestic Uranium Production Report, 7, 11 (2014).
EIA also provides a table of different facilities and their
operating statuses. EIA reports one uranium mill in development as of
the 4th quarter 2014--in the ``permitted and licensed'' stage. EIA,
Domestic Uranium Production Report Q4 2014, 4 (January 2015). EIA
reports eight in-situ-leach plants under development--two in the
``developing'' stage, three that are ``partially permitted and
licensed,'' two that are ``permitted and licensed,'' and one that is
``under construction.'' EIA, Domestic Uranium Production Report Q4
2014, 5-6 (January 2015).
6. Long-Term Viability and Health of the Industry
As described above, ERI notes that US industry production has risen
since the start of DOE uranium inventory barters in December 2009. ERI
also notes that four new operations began production since 2009, and
one additional production center is expected to begin operations in
2015. 2015 ERI Report, 57.
ERI also presents its future expectations regarding demand for
uranium. ERI's most recent Reference Nuclear Power Growth forecasts
project global requirements to grow to approximately 182 million pounds
annually between 2018 and 2020, approximately 15% higher than current
requirements. Global requirements are expected to continue to rise to a
level of 203 million pounds in 2025, approximately 28% higher than
current requirements. 2015 ERI Report, 6-7. ERI presents a graph
comparing global requirements, demand, and supply from 2013--2035. That
graph shows that global secondary supply and supply from current mines
will continue to exceed global reactor demand until approximately 2018.
However, if China's practice of purchasing amounts of uranium well in
excess of its current reactor demand is included--what ERI terms
``Discretionary Strategic'' demand--global demand approximately equals
supply from secondary supply and currently operating mines. 2015 ERI
Report, 9-10. If planned expansions and new mines under development are
included, supply is expected to exceed demand until approximately 2024,
regardless of whether ``Discretionary Strategic'' demand is
included.\28\ In the time period following 2025, ERI's graph shows
demand significantly outstripping supply. 2015 ERI Report, 9. In order
to meet this demand, ERI anticipates that mines it terms ``planned''
and ``prospective'' will need to begin operations. 2015 ERI Report, 11.
---------------------------------------------------------------------------

\28\ ERI assumes that China's discretionary strategic inventory
building will taper off by 2023. 2015 ERI Report, 10.
---------------------------------------------------------------------------

A variety of other sources predict substantial increases in reactor
requirements and/or demand.\29\ TradeTech reports reactor-only growth
at 3.52% per year through 2024. Total uranium requirements growth is
much slower during this period due to stock building purchases which
taper downward.\30\ TradeTech Report, 34. The OECD and IAEA report that
reactor requirements are expected to grow by at least 35.4 million
pounds \31\ by 2025--representing approximately 21% of 2015
requirements.\32\ OECD-IAEA, Uranium 2014: Resource, Production, and
Demand, 105 (2014). In its Uranium Market Outlook for the 4th quarter
of 2014, UxC similarly predicts significant increases in both
requirements and demand in the long-term. UxC Uranium Market Outlook--
Q4 2014, 56-60 (2014).
---------------------------------------------------------------------------

\29\ DOE notes that uranium ``demand'' and reactor
``requirements'' are different. Requirements refers to an estimate
of the amount of uranium needed to support operating reactors in a
particular year. Demand includes additional purchased quantities for
strategic or discretionary purposes. For example, in recent years
China has purchased quantities of uranium far in excess of its
reactor requirements. 2015 ERI Report, 10-11; TradeTech Report, 41-
42; NAC Report, 3-2 to 3-5.
\30\ TradeTech's charts appear to assume China's stock building
purchases will cease to outpace Chinese requirements around 2023.
TradeTech Report, 41-42.
\31\ Converted from metric tons uranium in
U3O8 (MTU) using a conversion rate of 2,599.79
pounds U3O8 per MTU.
\32\ This represents OECD-IAEA's low growth scenario. The high
growth scenario anticipates growth of almost 90 million pounds,
approximately 50% above the high-growth scenario for 2015. Id.
---------------------------------------------------------------------------

In addition to a predicted increase in demand, several sources
predict a recovery in either spot or term uranium prices--or both. ERI
notes that term prices are expected to increase in the future, but does
not provide a specific forecast. 2015 ERI Report, 46. ERI's econometric
model, however, does show an increase in the spot price. Specifically,
ERI's chart forecasts that spot prices will recover over the course of
2015-2018 eventually settling in the $52-57 range after 2019. 2015 ERI
Report, 52. TradeTech's forecasted Exchange Value predicts an increase
in spot price to approximately $50 as early as June 2016, even with DOE
transfers. TradeTech Report, 20. UxC's estimates of the effect of DOE
transfers assume that market conditions will improve in the medium
term. Specific price levels are withheld from Figures 5 and 6 of the
public version to protect confidential information. UxC Report, 10-11.
In its annual Uranium Market Outlook, UxC provides a more detailed
explanation of its price forecast, which generally predicts an increase
in price over the next 10 years. UxC Uranium Market Outlook--Q4 2014,
111-19 (2014).
Finally, DOE recognizes that the predictability of transfers from
its excess uranium inventory over time is important to the long-term
viability and health of the uranium industries. ERI has noted the
importance of predictability ``for long-term planning and investment
decisions by the domestic industry.'' 2015 ERI Report, 100; 2014 ERI
Report, 60-61. Some commenters also stated that DOE transfers should be
predictable. Comment of UPA, at 2; comment of Cameco, at 2. DOE notes
that the upper scenario considered by ERI would represent continued
transfers at rates consistent with the May 2014 determination and
roughly similar to the May 2012 determination. Compare 2015 ERI Report,
25, with 2014 ERI Report, 28.

B. Uranium Conversion Industry

1. Market Prices
In its analysis, ERI estimates the effect of DOE transfers on the
market prices for conversion services. To estimate this effect, ERI
employed a market clearing price model very similar to what is
described above for the uranium market. As with uranium concentrates,
ERI constructed individual supply and demand curves for conversion
services and estimated the clearing price with and without DOE
transfers. 2015 ERI Report, 44. A summary of ERI's estimates of the
effect of DOE transfers on the conversion price appears in Table 5.
Applying this approach to the three scenarios listed above, ERI
estimates

[[Page 14118]]

that DOE transfers at the rate of 2,705 MTU per year would cause the
price of conversion services to be, on average, $0.90 lower between
2015 and 2024--with prices being $0.90 lower in 2015 and 2016
specifically. 2015 ERI Report, 45. For DOE transfers at a rate of 1,855
MTU per year, ERI estimates that prices would be, on average, $0.80
lower between 2015 and 2024--with prices being $0.70 and $0.60 lower in
2015 and 2016, respectively. If DOE ceased transfers under these two
programs, ERI estimates that prices would be, on average, $0.40 lower
between 2015 and 2024--with prices being $0.10 and $0.00 lower in 2015
and 2016, respectively.\33\ As with uranium concentrates, this is not a
prediction that prices will drop by the specified amount once DOE
begins transfers. According to ERI's analysis, a level of price
suppression consistent with the estimate for Scenario 1 is already
reflected in the current market price for conversion services. 2015 ERI
Report, 44. If DOE continues transferring at Scenario 1 levels, the
market prices would not change; if DOE began transferring at Scenario 2
levels, the market price would be expected to rise by approximately
$0.20; if DOE ceased transfers under these programs, market prices
would be expected to rise by $0.80. See Table 4.2 of 2015 ERI Report,
45.
---------------------------------------------------------------------------

\33\ As noted above, the transfer rates for these scenarios
refer only to the level of uranium transfers for cleanup at
Portsmouth and downblending of LEU. The level of transfers for other
DOE programs is the same in all three scenarios.
---------------------------------------------------------------------------

ERI compares these numbers to the current spot and term price
indicators published by TradeTech on January 31, 2015--i.e. $8.50 per
kgU as UF6 on the spot market, and $16.00 per kgU as
UF6 on the term market. As a percentage of the current
prices, the average price effect attributable to DOE's transfers over
the period 2015-2024 under Scenario 1 represents approximately 10.6% of
the current spot price and 5.6% of the current term price. Under
Scenario 2, the average price effect over the same period represents
9.9% of the spot price and 5.2% of the term price. Under Scenario 3,
the average price effect represents 5.0% of the spot price and 2.7% of
the term price. 2015 ERI Report, 47, 49.
For the 2014 ERI Report, ERI conducted a similar market clearing
approach for a level of transfers that is equal to Scenario 1 of the
2015 ERI Report. Although that report used slightly older data, the
results are very similar. Notably, ERI estimated that the price effect
attributable to DOE transfers at the current rates is $0.90 between
2014 and 2023--with prices being $0.90 lower in 2014, 2015, and
2016.\34\ 2014 ERI Report, 40.
---------------------------------------------------------------------------

\34\ ERI also compared those numbers to then current term and
spot price indicators as of March 31, 2014. At that time, the
TradeTech price indicator was $7.50 per kgU as UF6 on the
spot market and $16.00 per kgU as UF6 on the term market.
2014 ERI Report, 23.

Table 5--ERI's Estimate of Effect of DOE Transfers on Conversion Spot
and Term Prices in $ per kgU as UF6
------------------------------------------------------------------------
2015 ERI Report 2014 ERI Report
-------------------------------------
Estimated price Estimated price
effect (2015- effect (2014-
2024) 2023)
------------------------------------------------------------------------
Scenario 1........................ $0.90 $0.90
Scenario 2........................ 0.80 .................
Scenario 3........................ 0.40 .................
------------------------------------------------------------------------

In addition to its estimate of the price effect of DOE transfers on
the uranium concentrate market, TradeTech estimates the effect on the
price of conversion services. A summary of TradeTech's estimates
appears in Table 6. It appears that TradeTech developed this estimate
using its econometric Dynamic Pricing Model. TradeTech Report, 14.
Using its model, TradeTech estimates that DOE's transfer reduced the
spot price by an average of $2.13 per kgU as UF6 between
January 2012 and December 2014. TradeTech Report, 17. TradeTech also
estimates that continued DOE transfers at current rates would reduce
the spot price by an average of $0.91 per kgU as UF6 between
January 2015 and December 2016. TradeTech Report, 21.
TradeTech also provides estimates for the effect of DOE transfers
of several decreased transfer rates. If DOE transfers decreased to 75%
of current levels, TradeTech estimates that the spot price would
increase by an average of $0.21 per kgU as UF6 between
January and 2015 and December 2016. TradeTech, 31.\35\ Based on
TradeTech's estimate of the price suppression of DOE transfers at
current levels, it appears that TradeTech is estimating that price
suppression at 75% of current levels would be $0.70. If DOE transfers
decreased to 50% of current levels, TradeTech estimates that the spot
price would increase by an average of $0.43 per kgU as UF6
between January and 2015 and December 2016. TradeTech, 30. This
corresponds to a price suppression of $0.48. If DOE transfers decreased
to 25% of current levels, TradeTech estimates that the spot price would
increase by an average of $0.66 per kgU as UF6 between
January and 2015 and December 2016. TradeTech, 29. This corresponds to
a price suppression of $0.25.
---------------------------------------------------------------------------

\35\ Figures 21-24 of the TradeTech Report show TradeTech's
estimates for the price impact at a range of different transfer
rates. Although these charts and the related text refer to
``Transfers at [25, 50, or 75] Percent of Established 2014
Volumes,'' it appears that these charts actually reflect an estimate
for a 25%, 50%, or 75% decrease relative to current levels, rather
than transfers at the specified percentage of current levels.

Table 6--TradeTech's Estimate of Effect of DOE Transfers on Conversion
Spot Price in $ per kgU as UF6
------------------------------------------------------------------------
TradeTech report
-------------------------------------------------------------------------
Estimated
Transfer rate (compared to current) price effect
(2015-2016)
------------------------------------------------------------------------
100%.................................................... $0.91
75%..................................................... 0.70
50%..................................................... 0.48
25%..................................................... 0.25
------------------------------------------------------------------------

UxC's U-PRICE and SWU-PRICE econometric models predict the markets'
reaction to changes in supply for the uranium concentrate and
enrichment industries. UxC does not directly model the conversion
services market. Instead, UxC relies on other evidence to conclude that
the price effect of DOE transfers on spot conversion prices have been
``at least

[[Page 14119]]

equal to, if not greater than, the impact on spot uranium prices.''
Specifically, UxC notes that much of the world's spot conversion is
sold in conjunction with uranium through contracts for UF6.
UxC also notes that over the past few years the UF6 price
has fallen as much as the U3O8 price has on a
percentage basis. Finally, UxC notes that the Ux North American
UF6 Price has been below the Ux NA UF6 value
(i.e. the sum of spot uranium and spot conversion prices for a given
quantity of UF6) over most of the period of DOE transfers.
UxC Report, 15. With respect to the future effect of DOE transfers, UxC
expects that DOE transfers will continue to have a similar effect on
spot conversion prices and a somewhat less but still ``noticeable''
effect on term conversion prices. UxC Report, 16.
2. Realized Prices of Current Operators
ERI does not provide in either report a specific estimate of the
change in ConverDyn's realized price due to DOE transfers. However, ERI
does note that ConverDyn's realized price is believed to have increased
over the past decade, although ERI says unit costs have increased as
well. ERI bases its sales revenue assumptions on a sale price of $14
per kgU. This estimate appears to be based predominately on claims by
the company that it is operating at a loss. 2015 ERI Report, 70; 2014
ERI Report, 70.\36\
---------------------------------------------------------------------------

\36\ It appears that ERI developed this assumption based on its
estimate of ConverDyn's production costs of $15 per kgU. Since
ConverDyn claims to be operating at a loss, ERI assumes that its
realized price must be lower. 2015 ERI Report, 70.
---------------------------------------------------------------------------

No commenter provides specific information about the current
realized prices achieved in the conversion industry, and no commenter
directly estimates the effect of DOE's transfers on realized prices.
However, some information relevant to ConverDyn's realized price is
publicly available.
ConverDyn has stated in the past that the conversion market
generally relies on long-term contracts. Declaration of Malcolm
Critchley, Converdyn v. Moniz, Case no. 1:14-cv-01012-RBW, Document 7-
3, at ] 37 (June 23, 2014); see also UxC Conversion Market Outlook--
December 2014, 27-28, 32 (2014). Traxys has stated that ConverDyn
specifically sells conversion services ``almost exclusively'' on long-
term contracts. Declaration of Kevin P. Smith, ConverDyn v. Moniz, Case
no. 1:14-cv-01012-RBW, Document 17-7, at ] 16 (July 7, 2014). Traxys
has also stated that ConverDyn exercises significant pricing power in
the market. Traxys refers to a 2011 letter from ConverDyn to its
customers notifying them that it would not sell conversion services for
less than $16.50 per kgU. Id. Since then, the term price indicator for
conversion services has remained remarkably stable, even as spot prices
for conversion have fluctuated. 2015 ERI Report, 12.
DOE does not have complete information regarding the pricing
structure of conversion services contracts. ConverDyn has stated in the
past that the conversion market generally relies on long-term contracts
that are ``linked, at least in part, to market prices at the time of
the contract.'' Declaration of Malcolm Critchley, Converdyn v. Moniz,
Case no. 1:14-cv-01012-RBW, Document 7-3, at ] 37 (June 23, 2014).
Although it is common practice for long-term contracts for
U3O8 to include a non-fixed element that depends
on market prices at the time of delivery, it is unclear to what extent
this practice is prevalent in the conversion industry.
In addition to the above, ConverDyn's comment also refers to a
document it submitted to DOE in March 2014 that provides some
additional information on ConverDyn's contracting practices. Comment of
ConverDyn, Enclosure, at 5 n.12. That document was submitted with a
request that it be treated as containing proprietary information.
Letter from Malcolm Critchley, ConverDyn, to Peter B. Lyons, DOE (March
10, 2014). DOE may consider this document in its deliberations.
3. Production at Existing Facilities
There is only one existing conversion facility in the United
States, the Metropolis Works facility (MTW) operated by Honeywell
International. ConverDyn is the exclusive marketing agent for
conversion services from this facility. Comment of ConverDyn, at 1;
2015 ERI Report, 64. The nominal capacity of the Metropolis Works
facility is 15 million kgU as UF6. However, the facility
generally operates below that level. 2015 ERI Report, 65. Based on
statements from ConverDyn, ERI estimates that production at this
facility was approximately 11 million kgU as UF6 per year
prior to the loss of sales associated with Fukushima. Because ConverDyn
has stated that this volume loss was approximately 25%, ERI estimates
current sales volume at 8.25 million kgU as UF6. 2015 ERI
Report, 65.
In estimating the effect of DOE transfers on ConverDyn's sales
volume, ERI assumes that 50% of the material used for cleanup at
Portsmouth and 100% of all other DOE material enters the U.S. market.
2015 ERI Report, 65-66. Based on statements from ConverDyn, ERI assumes
that ConverDyn's share of the U.S. market for conversion services is
25% and that its share of the international market is 16%. 2015 ERI
Report, 68. A summary of ERI's estimates of the effect of DOE transfers
on ConverDyn's sales volume appears in Table 7. Using the assumptions
described above, ERI estimates that under Scenario 1, DOE transfers
decrease ConverDyn's market volume by 0.67 million kgU, or 7.5%. Under
Scenario 2, ERI estimates that DOE transfers decrease ConverDyn's
market volume by 0.46 million kgU, or 5.3%. Under Scenario 3, ERI
estimates that DOE transfers decrease ConverDyn's market volume by 0.08
million kgU, or 1%. 2015 ERI Report, 69-70. As with ERI's price
estimates discussed above, these estimates do not suggest that were DOE
to transfer uranium in accordance with Scenario 1, ConverDyn would lose
the predicted volume of sales. DOE has been transferring at or above
the rate of Scenario 1 for nearly three years. On ERI's analysis, the
estimated effect has already occurred. Transfers in accordance with
Scenario 1 would continue the effect, and transfers in accordance with
Scenario 2 or 3 would lead to an increase in ConverDyn's sales volume,
of the amount ERI predicts.

Table 7--ERI's Estimate of Decrease in ConverDyn's Sales Volume
------------------------------------------------------------------------
Volume
(million kgU) Percent change
------------------------------------------------------------------------
Scenario 1.............................. 0.67 7.5
Scenario 2.............................. 0.46 5.3
Scenario 3.............................. 0.08 1
------------------------------------------------------------------------

[[Page 14120]]

Based on its estimate of the effect on ConverDyn's sales volume,
ERI also estimates the change in production costs at Metropolis Works
due to DOE transfers. A summary of ERI's estimates of the effect of DOE
transfers on ConverDyn's production costs appears in Table 8. ERI
analyzes two scenarios based on slightly different assumptions about
the amount of ConverDyn's costs that are variable. Specifically, ERI
calculates production costs based on 80% and 100% fixed costs. 2015 ERI
Report, 70.
ERI assumes that ConverDyn's production cost would be $15 per kgU
if DOE material was not being introduced into the market. Assuming 100%
of Metropolis Works' costs are fixed, DOE transfers would not affect
total production costs, but they would increase per unit costs.
Specifically, ERI estimates that DOE transfers at the level under
Scenario 1 increase production costs to $16.2 per kgU, about 8% higher
than without DOE transfers. Transfers at the level under Scenario 2
would cause Metropolis Works production costs to be $15.84, about 5.6%
higher than without DOE transfers. Under Scenario 3, production costs
would be $15.15, about 1% higher than without DOE transfers. 2015 ERI
Report, 70. If 80% of Metropolis Works' costs are fixed, total
production costs would be lower with DOE transfers, but per unit
production costs would also be lower. Under Scenario 1, production
costs would be $15.97, about 6.5% higher than without DOE transfers.
Under Scenario 2, production costs would be $15.68, about 4.5% higher
than without DOE transfers. Under Scenario 3, production costs would be
$15.12, about 1% higher than without DOE transfers. 2015 ERI Report,
71.

Table 8--ERI's Estimate of Increase in ConverDyn's Production Cost
----------------------------------------------------------------------------------------------------------------
80% fixed 100% fixed
---------------------------------------------------------------
Cost (per kgU) Percent change Cost (per kgU) Percent change
----------------------------------------------------------------------------------------------------------------
Scenario 1...................................... $15.97 6.5 $16.20 8
Scenario 2...................................... 15.68 4.5 15.84 5.6
Scenario 3...................................... 15.12 1 15.15 1
----------------------------------------------------------------------------------------------------------------

The 2014 ERI Report conducted a similar analysis using slightly
different assumptions regarding ConverDyn's pre-Fukushima production
and current market share. Specifically, ERI calculated the effect of
DOE transfers assuming two different pre-Fukushima production levels:
10 million kgU and 12 million kgU. With these assumptions, ERI
estimated ConverDyn's current sales volume at 7.50 million kgU and 9.00
million kgU respectively. 2014 ERI Report, 66, 68. ERI also calculated
the effect of DOE transfers assuming two different assumptions about
ConverDyn's share of the U.S. Market: 25% and 30%. 2014 ERI Report, 65-
66. Based on these assumptions ERI estimates that DOE transfers
decrease ConverDyn's market volume by between 0.60 and 0.72 million
kgU. 2014 ERI Report, 66, 68. This represents between 6.9% and 8.1% of
ConverDyn's estimated sales volume. 2014 ERI Report, 67, 69.
On production cost, ERI similarly estimates based on 80% and 100%
fixed costs. As with sales volume, ERI conducts this calculation twice:
once assuming a volume of 7.50 million kgU, and once assuming a volume
of 9.00 million kgU. For the 7.50 million kgU scenario, ERI estimates
that if production costs are 100% fixed, DOE transfers cause unit
production costs to increase about 8% to $16.20 per kgU. If production
costs are 80% fixed, DOE transfers cause unit production costs to
increase about 6.4% to $15.96 per kgU. For the 9.00 million kgU
scenario, ERI estimates that production costs would increase by 7.8%
for 100% fixed costs and 6.2% for 80% fixed costs. 2014 ERI Report, 70-
71.
ConverDyn's comment in response to the RFI does not provide a
separate estimate of the effect of DOE transfers on its sales volume.
ConverDyn refers to the relevant sections of the 2014 ERI report
regarding its sales volume and production costs. Comment of ConverDyn,
Enclosure, at 5. With respect to the 2014 ERI Report, ConverDyn does
not refute or confirm the assumptions ERI used in its analysis
regarding ConverDyn's sales volume, market share, or production costs.
ConverDyn's comment also refers to a document it submitted to DOE in
March 2014. Comment of ConverDyn, Enclosure, at 5 n.12. That document
was submitted with a request that it be treated as containing
proprietary information. Letter from Malcolm Critchley, ConverDyn, to
Peter B. Lyons, DOE (March 10, 2014). That document provides estimates
of the effect of DOE transfers on ConverDyn's sales volume and profits,
but it does not provide financial information demonstrating that those
effects have occurred or supporting analysis explaining why a given
change in ConverDyn's sales or revenue should be attributed to DOE
transfers. Id. DOE may consider this document in its deliberations.
In addition to the above, ConverDyn notes in its comment that the
Metropolis Works facility ceased production beginning in January 2015
for a period of approximately three months--two months longer than
usual. ConverDyn states that this was necessitated by ``the continued
depressed state of the conversion market.'' Although ConverDyn refers
to the displacement of conversion sales by DOE's transfers, it
acknowledges that DOE's transfers are not the sole cause of the
lengthening of Metropolis Works facility's annual shutdown. ConverDyn
does not include supporting data or otherwise provide a proportionate
breakdown of the impact of DOE material versus other factors in causing
this shutdown. Comment of ConverDyn, Enclosure, at 4.
The UxC Report does not provide estimates for production levels or
production costs at individual facilities, but its report does note
that the cost for primary producers is ``known to be in the range of
$10-$15/kgU.'' UxC Report, 15. In a separate publication, UxC provides
more detailed estimates of both current production levels and projected
future production for individual facilities. Market share can be
determined by comparing production levels to those of other primary
producers and secondary sources. UxC Conversion Market Outlook--
December 2014, 45-47 (2014).
Traxys provides some information relevant to DOE's analysis of the
assumptions ERI uses in its calculations. Traxys explains that in
selling material obtained from Fluor-B&W Portsmouth, it pursues a goal
to sell at least 50% of the material to non-U.S. customers. Traxys
states that it has consistently met this goal. Comment of Traxys, at 1.
Traxys further explains that in 2014 no

[[Page 14121]]

more than 40% of DOE-derived material was sold in the U.S. market.
Comment of Traxys, at 2. This is similar to the amount of conversion
that Traxys has separately stated went to the U.S. market in prior
years. Traxys stated in July 2014 that 42% of DOE-derived conversion
entered the U.S. marketplace during calendar year 2013. Declaration of
Kevin P. Smith, ConverDyn v. Moniz, Case no. 1:14-cv-01012-RBW,
Document 17-7 at ]11 (July 7, 2014).
4. Employment Levels in the Industry
ERI notes that Metropolis Works restarted after an extended
shutdown in summer 2013 with approximately 270 employees. Prior to the
2012-2013 shutdown, ERI estimates that the facility employed
approximately 334 people. As this change coincided with a change in
long-term production volume, ERI concludes that is unlikely that 100%
of Metropolis Works' production costs are fixed. 2015 ERI Report, 72-
73; 2014 ERI Report, 71. Although it does not provide specific
estimates, ERI states that ``[a] portion of the reduction in work force
at Metropolis Works may be associated with the introduction of DOE
inventory into the market.'' However, ERI also notes that several other
factors likely played a part as well. 2015 ERI Report, 73; 2014 ERI
Report, 72. ConverDyn does not provide a separate estimate of decreased
employment levels due to DOE transfers; instead ConverDyn referred to
the relevant sections of the 2014 ERI Report. Comment of ConverDyn,
Enclosure, at 5.
5. Changes in Capital Improvement Plans and Development of Future
Facilities
Neither ERI nor any of the commenters provide an estimate of the
effect of DOE transfers on new facility development or capital
improvement plans. However, DOE understands that several conversion
services companies are undertaking these or related activities.
Although there are several large-scale development projects
currently planned or underway outside the United States--namely AREVA's
COMURHEX II modernization project and TVEL's plan for a new facility at
SCC--DOE is not aware of any such plans in the United States. See
Eileen Supko & Thomas Meade, ``New facilities are on the horizon,''
Nuclear Engineering International (Oct. 6, 2014), available at https://www.neimagazine.com/features/featurenew-facilities-are-on-the-horizon-4394892; UxC Conversion Market Outlook--December 2014, 50, 56-57, 73
(2014).
Metropolis Works has, however, undertaken substantial capital
expenditures at its existing facility in recent years. Honeywell has
stated that it has invested ``nearly $177 million over the past 10
years in capital improvements, including $50 million in safety
projects.'' ``About Us,'' Honeywell, https://www.honeywell-metropolisworks.com/about-us.\37\ Some of these upgrades came during an
extended shutdown in 2012 and 2013, in which Metropolis Works made
upgrades to ensure the facility could withstand extreme natural
disasters. These changes were made under an agreement with NRC in
response to an inspection NRC conducted in the wake of the Fukushima
disaster in Japan. ``Honeywell and U.S. Nuclear Regulatory Commission
Reach Agreement on Necessary Upgrades to Metropolis Nuclear Conversion
Facility,'' News Release (Oct. 16, 2012), available at https://www.honeywell-metropolisworks.com/?document=oct-16-2012-press-release-honeywell-and-u-s-nuclear-regulatory-commission-reach-agreement-on-necessary-upgrades-to-metropolis-nuclear-conversion-facility&download=1.
---------------------------------------------------------------------------

\37\ Letters from Honeywell management include similar numbers.
A November 20, 2014, letter included identical figures. Jim
Pritchett, Honeywell Metropolis Works, Letter to Employees (Nov. 20,
2014), available at https://www.honeywell-metropolisworks.com/?document=letter-to-employees-23&download=1. Older letters provided
slightly different figures. Jim Pritchett, Honeywell Metropolis
Works, Letter to Community (Dec. 19, 2013), available at https://www.honeywell-metropolisworks.com/?document=letter-to-the-community-from-new-metropolis-works-plant-manager&download=1.
---------------------------------------------------------------------------

In terms of future plans, Metropolis Works announced in November
2014 that it would be shutting down for approximately 90 days beginning
in early January 2015. Honeywell noted that it would use the extended
shutdown to make updates and capital improvements. Jim Pritchett,
Honeywell Metropolis Works, Letter to Employees (Nov. 20, 2014),
available at https://www.honeywell-metropolisworks.com/?document=letter-to-employees-23&download=1; see also Comment of ConverDyn, Enclosure,
at 4. Honeywell has further stated that the company plans to spend
$17.5 million in improvements during 2015. Jim Pritchett, Honeywell
Metropolis Works, Letter to Employees (Jan. 30, 2014), available at
https://www.honeywell-metropolisworks.com/?document=letter-to-employees-24&download=1.
6. Long-Term Viability and Health of the Industry
ERI's most recent Reference Nuclear Power Growth forecasts project
global requirements to grow to approximately 67.2 million kgU by 2020,
approximately 20% higher than current requirements. Global requirements
are expected to continue to rise to a level of 91.4 million kgU by
2035, approximately 63% higher than current requirements. 2015 ERI
Report, 13. ERI presents a graph comparing global requirements, demand,
and supply from 2013--2035. That graph forecasts that global secondary
supply and supply from primary converters will continue to exceed
global demand until at least 2025. Beyond that point, supply generally
keeps pace with growth in requirements. 2015 ERI Report, 14.
Although not focused on conversion, the requirements forecasts
noted above in section III.A.6 are also relevant to the conversion
industry. In general, requirements and/or uranium concentrate demand
forecasts should also apply to demand for conversion services. However,
there may be some small differences due to strategic and discretionary
inventory building. For example, China has been purchasing strategic
supply well in excess of its requirements. Those purchases have come in
the form of U3O8. 2015 ERI Report, 13. Thus,
these purchases affect near-term uranium concentrate demand, but do not
affect near-term conversion demand.
No other commenter provided specific projections about future
conversion requirements, demand, or prices. However, DOE has some
additional information not submitted in response to the RFI. In its
December 2014 Conversion Market Outlook, UxC predicts significant
increases in both requirements and demand in the long-term. UxC
Conversion Market Outlook--December 2014, 40, 44 (2014). UxC also
provides a more detailed explanation of its price forecast, which
generally predicts an increase in price over the next 10 years. UxC
Conversion Market Outlook--December 2014, 82, 85 (2014).
Finally, as with uranium concentrates, DOE recognizes that the
predictability of transfers from its excess uranium inventory over time
is important to the long-term viability and health of the uranium
conversion industry. Again, DOE notes that the upper scenario
considered by ERI would represent continued transfers at rates
consistent with the May 2012 and May 2014 determinations. Compare 2015
ERI Report, 25, with 2014 ERI Report, 28.

[[Page 14122]]

C. Enrichment Industry

1. Market Prices
In its analysis, ERI also estimated the effect of DOE transfers on
the market prices for enrichment services. To estimate this effect, ERI
employed a market clearing price model similar to what is described
above for the uranium market. As with uranium concentrates and
conversion, ERI constructed individual supply and demand curves for
enrichment services and estimated the clearing price with and without
DOE transfers. 2015 ERI Report, 44. A summary of ERI's estimates of the
effect of DOE transfers on the market price for SWU appears in Table 9.
Applying this approach to the three scenarios listed above, ERI
estimates that DOE transfers at the rate of 2,705 MTU per year would
cause the price of enrichment services to be, on average, $4.50 lower
between 2015 and 2024--with prices being $5.90 and $3.80 lower in 2015
and 2016 specifically. 2015 ERI Report, 46. For DOE transfers at a rate
of 1,855 MTU per year, ERI estimates that prices would be, on average,
$3.60 lower between 2015 and 2024--with prices being $5.10 and $3.00
lower in 2015 and 2016 specifically. If DOE ceased transfers under
these two programs, ERI estimates that prices would be, on average,
$1.70 lower between 2015 and 2024--with prices being $3.20 and $1.70
lower in 2015 and 2016 specifically.\38\ As with uranium concentrates,
this is not a prediction that prices will drop by the specified amount
once DOE begins transfers pursuant to a new determination. According to
ERI's analysis, a level of price suppression consistent with the
estimate for Scenario 1 is already reflected in the current market
price for conversion services. If DOE continued transferring at
Scenario 1 levels, the market prices would not change; if DOE began
transferring at Scenario 2 levels, the market price would be expected
to rise by approximately $0.80; if DOE ceased transfers under these
programs, market prices would be expected to rise by $2.70. See Table
4.3 of 2015 ERI Report, 46.
---------------------------------------------------------------------------

\38\ As noted above, the transfer rates for these scenarios
refer only to the level of uranium transfers for cleanup at
Portsmouth and downblending of LEU. The level of transfers for other
DOE programs is the same in all three scenarios.
---------------------------------------------------------------------------

ERI compares these numbers to the current spot and term price
indicators published by TradeTech on January 31, 2015--i.e. $88.00 per
SWU on the spot market, and $90.00 per SWU on the term market. As a
percentage of the current prices, the average price effect attributable
to DOE's transfers over the period 2015-2024 under Scenario 1
represents approximately 5.1% of the current spot price and 5.0% of the
current term price. Under Scenario 2, the average price effect over the
same period represents 4.1% of the spot price and 4.0% of the term
price. Under Scenario 3, the average price effect represents 1.9% of
the spot price and 1.9% of the term price. 2015 ERI Report, 48, 50.
For the 2014 ERI Report, ERI conducted a similar market clearing
approach for a level of transfers that is equal to Scenario 1 of the
2015 ERI Report. Although that report used slightly older data, the
results are similar. Notably, ERI estimated that the price effect
attributable to DOE transfers at the current rates is $4.00 between
2014 and 2023--with prices being $5.20, $5.70, and $3.60 lower in 2014,
2015, and 2016, respectively.\39\ 2014 ERI Report, 40.
---------------------------------------------------------------------------

\39\ ERI also compared those numbers to then current term and
spot price indicators as of March 31, 2014. At that time, the
TradeTech price indicator was $96.00 per SWU on the spot market and
$99.00 per SWU on the term market. 2014 ERI Report, 23.

Table 9--ERI's Estimate of Effect of DOE Transfers on Enrichment Spot
and Term Prices in $ per SWU
------------------------------------------------------------------------
2015 ERI Report 2014 ERI Report
-------------------------------------
Estimated price Estimated price
effect (2015- effect (2014-
2024) 2023)
------------------------------------------------------------------------
Scenario 1........................ $4.50 $4.00
Scenario 2........................ 3.60 .................
Scenario 3........................ 1.70 .................
------------------------------------------------------------------------

In addition to its estimate of the price effect of DOE transfers on
the uranium concentrate market, UxC estimates the effect on the price
of enrichment services using its proprietary U-PRICFE and SWU-PRICE
models. UxC Report, 5. As with its uranium concentrate estimates, UxC
estimates the impact using two different methodologies, an
``incremental approach'' and a ``total impact approach.''
Using its incremental approach, UxC estimates that between 2012 and
2014 DOE's transfers reduced the spot price by an average of $7.49 per
SWU and the term price by an average of $5.37 per SWU. Using its total
impact approach, UxC estimates that between 2008 and 2014 DOE's
transfers reduced the spot price by an average of $9.19 per SWU and the
term price by an average of $6.96 per SWU. UxC Report, 8-9.
UxC also estimates the effect of DOE continued transfers at current
rates for the period 2015 to 2030. A summary of UxC's estimates of the
effect of DOE transfers on future enrichment prices appears in Table
10. UxC estimates that DOE transfers in the near and medium terms would
reduce the spot price by an average of $5.31 per SWU. UxC projects that
this effect will change slightly in the medium term as market prices
start to recover. Specifically, DOE transfers will reduce the spot
price between 2018 and 2030 by an average of $4.86 per SWU. UxC also
notes that the former number is larger relative to the expected price
of enrichment than the latter number (5.9% versus 3.8%). UxC Report,
12. UxC estimates that DOE transfers in the near and medium terms would
reduce the term price by an average of $5.50 per SWU. Between 2018 and
2030, DOE transfers are estimated to reduce the term price by an
average of $5.00 per SWU. Again, the near and medium term impact is
larger in relation to the expected price (5.6% versus 3.6%). UxC
Report, 11.

[[Page 14123]]

Table 10--UxC's Estimate of Effect of DOE Transfers on Enrichment Spot
and Term Prices in $ per SWU
------------------------------------------------------------------------
UxC Report
-------------------------------------------------------------------------
Near- & mid-term Long-term price
price effect effect
------------------------------------------------------------------------
Spot Price........................ $5.31 $4.86
Term Price........................ 5.50 5.00
------------------------------------------------------------------------

As mentioned above, a change in market prices for uranium
concentrates and conversion services may also affect enrichers. URENCO
has stated that at a small amount of its capacity is devoted to
underfeeding. Comment of URENCO, at 3. ERI notes that URENCO estimates
it is using 10-15% of its capacity for underfeeding. 2015 ERI Report,
75. Thus, to the extent that URENCO utilizes or resells the natural
uranium hexafluoride that results from underfeeding, the market prices
for uranium and conversion could be relevant to its business decisions.
2. Realized Prices of Current Operators
There is only one currently operating enrichment facility in the
United States, the URENCO USA (UUSA) gas centrifuge facility in New
Mexico. No commenter provides information about the realized price
achieved by URENCO or the effect of DOE transfers on that price.
However, other sources provide some relevant information.
In recent years, the vast majority of SWU has been sold on the term
market. UxC Enrichment Market Outlook--Q4 2014, 17, 20 (2014). ERI
estimates that more than 95% of enrichment requirements are covered
under long-term contracts. 2015 ERI Report, 74. Even in the term
market, contracting volume is down compared to levels prior to 2010.
UxC Enrichment Market Outlook--Q4 2014, 9, 21 (2014). Long-term
contracts for SWU last for 10 or more years, in some cases and in some
cases 15 or more years. UxC Enrichment Market Outlook--Q4 2014, 100
(2014).
EIA reports that in 2013, the average price paid for SWU was
$142.22. EIA, Uranium Marketing Report, 7 (2014). This is well above
the average market prices for 2013, approximately $110 in the spot
market and $120 in the term market according to UxC.
URENCO's most recent financial statements indicate that at least a
portion of its contract portfolio ``extend beyond 2025.'' URENCO
Limited, Interim Financial Statements for the 6 Months Ended 30 June
2014, at 6, available at https://www.urenco.com/_/uploads/content-files/Urenco_Group_Interim_Accounts_to_30_June_2014-final-02092014.pdf.\40\
URENCO has also stated that its enrichment contracts are usually fixed
base price with escalation leaving URENCO with ``no direct exposure to
uranium prices.'' URENCO Investor Update, 4 (Sept. 9, 2014), available
at https://www.urenco.com/_/uploads/results-and-presentations/URENCO_Bond_Investor_Presentation_2014.pdf. Given the above
considerations, it seems likely that URENCO's realized price based on
its current contract portfolio is as much as 50% higher than the
current spot and market prices. Since many of URENCO's contracts appear
to have been entered before DOE began transfers comparable to the
current levels, it is unlikely that continued DOE transfers will have
an impact on the realized price achieved for enrichment services from
existing capacity at UUSA during the period contemplated for the
planned determination.
---------------------------------------------------------------------------

\40\ DOE notes that URENCO's financial statements have referred
to its order book as ``extending up to and beyond 2025'' at least
since 2010. See URENCO, Annual Report & Accounts 2010, at 3 (2010),
available at https://media.urenco.com/corp-website/298/annualreportandaccounts2010_1.pdf.
---------------------------------------------------------------------------

As noted above, URENCO has stated that a small amount of its
capacity is devoted to underfeeding. Comment of URENCO, at 3.\41\ ERI
notes that URENCO estimates it is using 10-15% of its capacity for
underfeeding. 2015 ERI Report, 75. To the extent that URENCO sells the
natural uranium hexafluoride yielded from underfeeding, DOE transfers
could affect its revenues to the extent the transfers cause decreases
in the prices for uranium concentrates and conversion services.
---------------------------------------------------------------------------

\41\ On May 22, 2014, URENCO submitted an application to the
U.S. NRC to amend its license for the facility to allow it to use
high assay tails (approximately 0.4% U\235\) as feed material. See
79 FR 43099 (July 24, 2014); ``Redacted--Supplement to License
Amendment Request for Capacity Expansion of URENCO USA Facility
(LAR-12-10),'' Letter from URENCO to U.S. NRC, LES-14-00071-NRC
(June 17, 2014).
---------------------------------------------------------------------------

3. Production at Existing Facilities
URENCO reports that the nameplate capacity for the UUSA facility is
3.7 million SWU. Comment of URENCO, at 1. URENCO has also stated that
construction of additional centrifuges will continue until the facility
reaches 5.7 million SWU. ``About Us, URENCO USA,'' URENCO, https://www.urenco.com/about-us/company-structure/urenco-usa (accessed Feb. 21
2015).
Due to the nature of gas centrifuges, it is highly unlikely that
UUSA will decrease production of SWU. As URENCO states, due to the low
level of electricity required to run the centrifuges, slowing
production would have almost no effect on operating expenses.
Furthermore, stopping and restarting a centrifuge may damage the
equipment. Comment of URENCO, at 3.
4. Employment Levels in the Industry
ERI does not provide an estimate of the change in employment due to
DOE transfers in the enrichment industry. No commenter references
changes in employment in the enrichment industry. URENCO states that
its business is essentially fixed-cost and makes no reference to
changes in employment.
5. Changes in Capital Improvement Plans and Development of Future
Facilities
URENCO recently completed ``Phase II'' of its expansion plans,
bringing the capacity of its facility to 3.7 million SWU. ``Phase II
Completion,'' URENCO (Apr. 9, 2014), https://www.urenco.com/news/detail/phase-ii-completion (accessed Feb. 22, 2014). URENCO is continuing to
move forward with ``Phase III'' expansion, which will bring plant
capacity to approximately 5.7 million SWU. URENCO notes that it has
slowed its plan for construction of additional capacity. Comment of
URENCO, at 3. URENCO expects to reach 5.7 million SWU capacity by 2023.
URENCO Investor Update, 31 (Sept. 9, 2014). Although the company has
requested a license amendment that would allow it to expand capacity to
10 million SWU per year, URENCO states that this move is ``to provide
for future licensing flexibility should the market recover.'' URENCO
notes that it cancelled construction of ``Phase IV'' in 2013. Comment
of URENCO, at 3.
DOE is aware of several other planned or proposed enrichment
facilities in the U.S., namely, AREVA's Eagle Rock

[[Page 14124]]

Enrichment Facility in Idaho, Centrus Energy's--formerly USEC Inc.--
American Centrifuge Plant in Piketon, OH, and Global Laser Enrichment's
facility in Wilmington, NC.\42\ Development of each of these facilities
has been put on hold or slowed until market prices improve.
---------------------------------------------------------------------------

\42\ Although not the subject of this determination, DOE notes
that ERI analyzed the possible future transfer to GLE of high-assay
depleted uranium. 2015 ERI Report, 27-28. As this transaction would
involve reenrichment of depleted tails, it would tend to support
additional demand for enrichment services.
---------------------------------------------------------------------------

The Eagle Rock Enrichment Facility would use gas centrifuge
technology and would have a capacity of approximately 3.3 million SWU.
``Eagle Rock Enrichment Facility,'' AREVA, https://us.areva.com/EN/home-203/eagle-rock-enrichment-facility.html (accessed Feb. 21, 2015). After
announcing several delays in construction, AREVA stated in May 2013
that it was no longer projecting a start date for building the
facility. ``French company won't set date for Idaho nuclear facility,''
The Oregonian (May 23, 2013), https://www.oregonlive.com/pacific-northwest-news/index.ssf/2013/05/french_company_wont_set_date_f.html
(accessed Feb. 21, 2015). At the time of this announcement, the term
market price for SWU was approximately $130, according to UxC's monthly
price indicator.
The proposed American Centrifuge Plant would use gas centrifuge
technology and would have a capacity of approximately 3.8 million SWU.
``USEC Inc. Gas Centrifuge,'' U.S. NRC, https://www.nrc.gov/materials/fuel-cycle-fac/usecfacility.html (accessed Feb. 22, 2015). Active
construction of new centrifuges has ceased. In a November 2013
quarterly filing with the SEC, Centrus Energy, then known as USEC,
stated, ``[a]t current market prices USEC does not believe that its
plans for American Centrifuge commercialization are economically viable
without additional government support.'' USEC Form 10-Q, Securities and
Exchange Commission, at 10 (Nov. 5, 2013) https://www.sec.gov/Archives/edgar/data/1065059/000106505913000049/usu-2013930x10q.htm (accessed
Feb. 22, 2015). When this form was submitted to the SEC, the term
market price for SWU was approximately $115, according to UxC's monthly
price indicator.
Global Laser Enrichment, a venture of GE-Hitachi and Cameco, has
proposed an enrichment plant that would use laser enrichment technology
developed by Silex Systems, an Australian company. The proposed
facility in Wilmington, NC would have a capacity of about 6 million
SWU. GLE License Application, Rev. 7, U.S. NRC, Docket 70-7016, at 1-16
(August 20, 2012), available at https://pbadupws.nrc.gov/docs/ML1224/ML12242A227.pdf. In July 2014, GLE announced that it would slow
continued development of the facility ``in line with current and future
market realities.'' ``Global Laser Enrichment,'' GE-Hitachi, https://nuclear.gepower.com/fuel-a-plant/products/gle.html (accessed Feb. 22,
2015). At the time of GLE's announcement, the term market price for SWU
was approximately $95, according to UxC's monthly price indicator.
6. Long-Term Viability and Health of the Industry
ERI's most recent Reference Nuclear Power Growth forecasts project
global requirements to grow to approximately 59 million SWU between
2021 and 2025, approximately 31% higher than current requirements.
Global requirements are expected to continue to rise to a level of 74
million SWU between 2031 and 2035, approximately 64% higher than
current requirements. 2015 ERI Report, 13. ERI presents a graph
comparing global requirements, demand, and supply from 2013-2035. That
graph shows that global supply will continue to significantly exceed
global demand over the long term. 2015 ERI Report, 16.
Although not focused on enrichment, the requirements forecasts
noted above in section III.A.6 are also somewhat relevant to the
enrichment industry. In general, requirements and/or uranium
concentrate demand forecasts should also apply to demand for low
enriched uranium. As with conversion, there may be some small
differences due to strategic and discretionary inventory building. For
example, China has been purchasing strategic supply well in excess of
its requirements. Those purchases have come in the form of
U3O8. 2015 ERI Report, 13. Thus, these purchases
affect near-term uranium concentrate demand, but do not affect near-
term demand for LEU.
In addition to demand for LEU, higher demand for uranium
concentrates can affect demand for enrichment because of the
relationship described above between natural uranium and enrichment as
inputs for producing enriched uranium product. In the medium to long
term, supply from current mines will cease to exceed demand. Meanwhile,
requirements for LEU will continue to significantly exceed enrichment
supply. As prices for uranium concentrates and conversion increase
relative to SWU prices, it may become more economical to re-enrich
high-assay tails. In this vein, ERI suggests that enrichers will
continue to redirect capacity to underfeeding and that Rosatom will
continue to re-enrich tails. 2015 ERI Report, 16.\43\
---------------------------------------------------------------------------

\43\ Again, DOE notes that although it is not included in ERI's
chart of enrichment supply, GLE's proposed Paducah Laser Enrichment
Facility would represent additional enrichment supply that is not
intended to be devoted to producing LEU. Compare 2015 ERI Report,
16, with 2015 ERI Report, 27-28.
---------------------------------------------------------------------------

No other commenter provides specific projections about future
enrichment requirements, demand, or prices. In its Uranium Enrichment
Outlook for the 4th quarter of 2014, UxC predicts significant increases
in both requirements and demand in the long-term. UxC Enrichment Market
Outlook--Q4 2014, 36, 38 (2014). UxC also provides a more detailed
explanation of its price forecast, which generally predicts an increase
in price over the next 10 years. UxC Enrichment Market Outlook--Q4
2014, 91-94 (2014).
Finally, as with uranium concentrates and conversion services, DOE
recognizes that the predictability of transfers from its excess uranium
inventory over time is important to the long-term viability and health
of the uranium enrichment industries. Again, DOE notes that the upper
scenario considered by ERI would represent continued transfers at rates
consistent with the May 2012 and May 2014 determinations. Compare 2015
ERI Report, 25, with 2014 ERI Report, 28.

IV. Request for Comments

DOE believes it will be possible to identify a rate of transfers
that will not have an adverse material impact on domestic uranium
industries. DOE therefore proposes to issue a new Secretarial
Determination, pursuant to 3112(d) of the USEC Privatization Act, that
transfers of uranium for cleanup services at the Portsmouth Gaseous
Diffusion Plant and for down-blending of HEU to LEU will not have an
adverse material impact on the domestic production, conversion, or
enrichment industry. In preparing this determination, DOE may use the
six factors proposed above as an analytical framework for assessing the
potential impacts of DOE transfers for each industry.
DOE continues to deliberate over what rate of transfers would be
appropriate for such a determination. Commenters suggested a range of
options. Many commenters indicated that a rate of 5 million pounds
total of

[[Page 14125]]

natural uranium equivalent per year would be acceptable. Some
commenters favored a rate of 5 million pounds but suggested DOE should
cease transfers for some period and then ramp up transfers to the 5
million pounds per year rate. One commenter focused on transfers of
uranium hexafluoride, as opposed to uranium concentrates, and asked DOE
to ensure that its transfers are market-neutral with respect to
conversion. DOE is also considering whether to continue transfers at
the rate covered by the 2014 determination, 2,705 metric tons per year
of natural uranium equivalent.
DOE is also considering whether to include additional features in a
determination that might change how a given set of transfers affects
domestic industries. Some commenters proposed a scheme of matched
sales, in which DOE would transfer a given tranche of uranium only
after ensuring that a buyer had bought an equivalent quantity, at a
comparable price, from U.S. producers. Other commenters asked that DOE
transfer uranium in such a way that the uranium appears on markets only
in the long term. The commenters do not appear to be suggesting that
DOE simply not transfer uranium until some future date; rather, they
contemplate that DOE would transfer uranium in the near term but with
some restriction on use or availability that prevents the uranium from
displacing other supply sources for some number of years. Yet the
transfers DOE is considering would be part of barter transactions in
exchange for services obtained essentially contemporaneously. In
considering commenters' suggestions about long-term as compared to
short-term availability of DOE-sourced uranium, DOE will need to assess
whether the markets could support the provision of services in the near
term to be compensated by uranium available only in the long term. In
light of the forecast increases in the price of uranium concentrates,
it is conceivable that transactions to bridge the gap from near- to
long-term could be financially justifiable for some entities. DOE will
continue to analyze this possibility.
To enable the Secretary to make a determination as expeditiously as
possible, DOE is setting a deadline of April 6, 2015, for all comments
to be received. DOE invites all interested parties to submit, in
writing, comments and information on the factors described above, the
information and documents made available through this notice, and the
summary of information considered. DOE intends to make all comments
received publicly available. Any information that may be confidential
and exempt by law from public disclosure should be submitted as
described below.

V. Confidential Business Information

Pursuant to 10 CFR 1004.11, any person submitting information he or
she believes to be confidential and exempt by law from public
disclosure should submit via email, postal mail, or hand delivery/
courier two well-marked copies: One copy of the document marked
``confidential'' including all the information believed to be
confidential, and one copy of the document marked ``non-confidential''
with the information believed to be confidential deleted. Submit these
documents via email or on a CD, if feasible. DOE will make its own
determination about the confidential status of the information and
treat it according to its determination. Factors of interest to DOE
when evaluating requests to treat submitted information as confidential
include: (1) A description of the items; (2) whether and why such items
are customarily treated as confidential within the industry; (3)
whether the information is generally known by or available from other
sources; (4) whether the information has previously been made available
to others without obligation concerning its confidentiality; (5) an
explanation of the competitive injury to the submitting person which
would result from public disclosure; (6) when such information might
lose its confidential character due to the passage of time; and (7) why
disclosure of the information would be contrary to the public interest.

Issued in Washington, DC, on March 13, 2015.
John Kotek,
Principal Deputy Assistant Secretary for Nuclear Energy, Office of
Nuclear Energy.
[FR Doc. 2015-06189 Filed 3-17-15; 8:45 am]
BILLING CODE 6450-01-P

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