Excess Uranium Management: Effects of Potential DOE Transfers of Excess Uranium on Domestic Uranium Mining, Conversion, and Enrichment Industries; Notice of Issues for Public Comment, 13106-13116 [2017-04668]

Agencies

• DEPARTMENT OF ENERGY

[Federal Register Volume 82, Number 45 (Thursday, March 9, 2017)]
[Notices]
[Pages 13106-13116]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-04668]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF ENERGY


Excess Uranium Management: Effects of Potential 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: Notice of issues for public comment.

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

SUMMARY: The U.S. Department of Energy (DOE) is beginning the process 
to consider a new Secretarial Determination covering potential 
continued transfers of uranium for cleanup services at the Portsmouth 
Gaseous Diffusion Plant. In support of this process, DOE issued a 
Request for Information (RFI) on July 19, 2016 that solicited 
information about uranium markets and domestic uranium, conversion, and 
enrichment industries and the potential effects of DOE uranium 
transfers on the domestic industries. DOE also commissioned an 
independent analysis of the potential effects of various levels of 
uranium transfers. DOE now provides for public review a summary of 
information that DOE will use in the decision-making process for a 
potential Secretarial Determination. That information includes 
responses received from the RFI and the analysis prepared for DOE. DOE 
requests comments for consideration in the Secretarial Determination.

DATES: DOE will accept comments, data, and information responding to 
this proposal submitted on or before April 10, 2017.

ADDRESSES: Interested persons may submit comments, data, and 
information responding to this proposal by any of the following 
methods.
    1. Email: RFI-UraniumTransfers@hq.doe.gov. Submit electronic 
comments in Microsoft Word or PDF file format, and avoid the use of 
special characters or any form of encryption.
    2. Postal Mail: Ms. Cheryl Moss Herman, U.S. Department of Energy, 
Office of Nuclear Energy, Mailstop NE-32, 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. Due to potential delays in the delivery of postal mail, we 
encourage respondents to submit comments electronically to ensure 
timely receipt.
    3. Hand Delivery/Courier: Ms. Cheryl Moss Herman, U.S. Department 
of Energy, Office of Nuclear Energy, Mailstop NE-32, 19901 Germantown 
Rd., Germantown, MD 20874-1290. Phone: (301) 903-1788. 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: Ms. Cheryl Moss Herman, U.S. 
Department of Energy, Office of Nuclear Energy, Mailstop NE-32, 19901 
Germantown Rd., Germantown, MD 20874-1290. Phone: (301) 903-1788. 
Email: Cheryl.Moss_Herman@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 Under Consideration
III. Summary of Information Under Consideration
    A. Uranium Mining Industry
    1. Prices
    2. Production at Existing Facilities
    3. Employment Levels in the Industry
    4. Changes in Capital Improvement Plans and Development of 
Future Facilities
    5. Long-Term Viability and Health of the Industry
    B. Uranium Conversion Industry
    1. Prices
    2. Production at Existing Facilities
    3. Employment Levels in the Industry
    4. Changes in Capital Improvement Plans and Development of 
Future Facilities
    5. Long-Term Viability and Health of the Industry
    C. Enrichment Industry
    1. Prices
    2. Production at Existing Facilities
    3. Employment Levels in the Industry
    4. Changes in Capital Improvement Plans and Development of 
Future Facilities
    5. 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), 
highly-enriched uranium (HEU), depleted uranium (DU) and natural 
uranium (NU)--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).
    In recent years, DOE has managed its excess uranium inventory in 
part by entering into transactions in which DOE transfers certain forms 
of excess uranium in exchange for services. 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 2,100 metric tons of natural uranium 
equivalent (MTU) per year.\1\
---------------------------------------------------------------------------

    \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 with a given quantity of 
enrichment services.
---------------------------------------------------------------------------

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 
authorizes 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

[[Page 13107]]

Act (42 U.S.C. 2297h-10(d)(2)(B)), the Secretary must determine that 
certain transfers of natural or low-enriched uranium ``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 these transfers under its AEA authority 
(hereinafter referred to as ``Secretarial Determination'' or 
``Determination''). Section 306(a) of Division D, Title III of the 
Consolidated and Further Continuing 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.
    Section 3112(e) of the USEC Privatization Act (42 U.S.C. 2297h-
10(e)), however, provides for certain transfers of uranium without the 
limitations of Subsection 3112(d)(2). For example, under Subsection 
3112(e)(2), the Secretary may transfer or sell enriched uranium to any 
person for national security purposes. Nevertheless, the Department 
will consider the impact of transfers made pursuant to Section 3112(e) 
along with other DOE transfers in any determination made to assess the 
adverse impacts of the Department's transfers under Section 3112(d).

C. Procedural History

    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 under Section 3112(d) covering transfers for 
cleanup at the Portsmouth Gaseous Diffusion Plant and down-blending of 
HEU to LEU on May 1, 2015. To inform the May 1, 2015, Secretarial 
Determination and Analysis (2015 Secretarial Determination), DOE held 
two rounds of public comment and review prior to the determination.\2\ 
DOE solicited input from the public on issues ranging from the 
potential effect and consequences of DOE uranium transfers on the 
uranium market, past and future, to the factors that should be 
considered by DOE in assessing whether its transfers would have an 
adverse material impact. In addition, DOE tasked Energy Resources 
International, Inc. (ERI) with assessing the potential effects on the 
domestic uranium mining, conversion, and enrichment industries from 
potential DOE transfers based on scenarios involving different volumes 
of DOE transfers. Based on input from the public and the ERI report, 
DOE then prepared a separate analysis and recommended a course of 
action to the Secretary. The resulting 2015 Determination covered 
transfers of up to a total of 2,500 MTU natural uranium equivalent in 
calendar year 2015, broken down as follows: Up to 500 MTU per year of 
natural uranium equivalent in the form of LEU transferred for down-
blending services, up to 2,000 MTU of natural uranium equivalent for 
cleanup services at the Portsmouth Gaseous Diffusion Plant, except 
where transfers of LEU are less than 500 MTU equivalent. Total 
transfers may not exceed 2,500 MTU equivalent in 2015 and 2,100 MTU 
equivalent in subsequent years.\3\ For calendar year 2016 and 
thereafter, the Determination covered up to 2,100 MTU per calendar year 
natural uranium equivalent, broken down as follows: Up to 500 MTU per 
year of natural uranium equivalent in the form of LEU transferred for 
down-blending services, with the balance transferred for cleanup 
services at the Portsmouth Gaseous Diffusion Plant.
---------------------------------------------------------------------------

    \2\ DOE sought information from the public through a Request for 
Information published in the Federal Register on December 8, 2014 
(79 FR 72661) and an additional Request for Public Comment on March 
18, 2015 (80 FR 14107).
    \3\ See Excess Uranium Management: Secretarial Determination of 
No Adverse Impact on the Domestic Uranium Mining, Conversion, and 
Enrichment Industries, 80 FR 26366 (May 7, 2015) (hereinafter 2015 
Secretarial Determination).
---------------------------------------------------------------------------

    DOE began planning for a potential new Secretarial Determination 
pursuant to Section 3112(d) to cover uranium transfers in exchange for 
cleanup services at the Portsmouth Gaseous Diffusion Plant and for 
down-blending of highly-enriched uranium (HEU) to LEU in 2016. As a 
preparatory step, DOE sought information from the public through a 
Request for Information (RFI) published in the Federal Register on July 
19, 2016 (July 2016 RFI) (81 FR 46917) (a detailed discussion of the 
RFI is provided in section D).
    Also in late 2016, following the close of the comment period on the 
RFI, the Secretary determined that the exchange of LEU for HEU down-
blending services serves a national security purpose and these 
transfers would be covered by Section 3112(e)(2). The Secretary 
determined that down-blending HEU to LEU supports the Department's 
nonproliferation goals and promotes national security by ensuring the 
HEU can never again be used in a nuclear weapon. Pursuant to Section 
3112(e), these transfers for down-blending purposes no longer require a 
Secretarial Determination under Section 3112(d). However, the proposed 
enriched uranium transfers under this program will still be considered 
for purposes of assessing the impact of DOE's uranium transfers in a 
potential Secretarial Determination under Section 3112(d). At this 
time, the amount of natural and LEU that DOE is transferring is 
consistent with the 2015 Secretarial Determination.
    DOE is now soliciting additional public input on its proposed 
transfers of natural uranium for cleanup services at the Portsmouth 
Gaseous Diffusion Plant under Section 3112(d). Again, DOE has 
commissioned a report by ERI (2017 ERI Report), which analyzes four 
scenarios involving different volumes of DOE transfers.

D. Request for Information

    In the July 19, 2016 Request for Information, DOE solicited 
information from interested stakeholders and specifically invited 
comment on the following questions.
    (1) What are current and projected conditions in the domestic 
uranium mining, conversion, and enrichment markets?
    (2) What market effects and industry consequences could DOE expect 
from continued transfers at annual rates comparable to the transfers 
described in the 2015 Secretarial Determination?
    (3) Would transfers at a lower annual rate or a higher annual rate 
significantly change these effects, and if so, how?
    (4) 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 individuals 
and organizations representing diverse 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.\4\ Citations to 
RFI comments are denoted by the commenter and page number of comments 
submitted; e.g., ``Uranium Producer, at 3'', is found on page 3 of 
``Uranium Producer's'' comments submitted in response to the July 2016 
RFI.
---------------------------------------------------------------------------

    \4\ Some comments were marked as containing confidential 
information. Those comments are provided with confidential 
information removed.
---------------------------------------------------------------------------

    A number of commenters expressed views on matters that were not

[[Page 13108]]

specifically within the scope of the RFI. For example, many commenters 
requested that DOE reserve a certain amount of its HEU for down-
blending to 19.75% U-235 for use in the development and demonstration 
of advanced reactor concepts. See, e.g., Comment of Peterson, at 1; 
Comment of URENCO, at 3; Comment of The Breakthrough Institute, at 1. 
Several commenters also asked the Department to make additional 
information publicly available about the excess uranium inventory, 
including the amount and type of material that remains in the inventory 
and any plans to declare additional material to be excess to national 
security needs. A number of commenters also asked DOE to work with 
industry and to update its uranium management plans or to release a 
strategy outlining the specific annual quantities of uranium to be 
transferred in the future. See, e.g., Comment of Duke Energy, at 1, 
Comment of Cameco, at 3; Comment of NEI, at 2.
    While these comments are outside the scope of the potential 
Secretarial Determination under consideration, DOE understands the 
advantage of providing as available updated information regarding its 
remaining excess uranium inventories and plans for future uranium 
management. Information on DOE's planned uranium transfers in the 
future, to the extent currently available, have been incorporated into 
the ERI analysis as appropriate. For additional clarity, DOE provides 
here updated information on the excess uranium inventory, as of the end 
of 2015.

                   Table 1--Overview of DOE Excess Uranium Inventories as of December 31, 2015
----------------------------------------------------------------------------------------------------------------
                                                                              NU equivalent
            Inventory                Enrichment level           MTU            million lbs.    NU equivalent MTU
                                                                                 U\3\O\8\
----------------------------------------------------------------------------------------------------------------
Unallocated Uranium Derived from   HEU/LEU.............                4.5                2.0       [dagger] 774
 U.S. HEU Inventory.
Allocated Uranium Derived from     HEU/LEU.............               12.4                6.0     [dagger] 2,327
 U.S. HEU Inventory.
LEU..............................  LEU.................               47.6                1.1                409
U.S.-Origin NU as UF\6\..........  NU..................              3,959               10.3              3,959
Russian-Origin NU as UF\6\.......  NU..................              2,968                7.7              2,968
Off-spec LEU as UF\6\............  LEU.................              1,106                4.9              1,876
Off-spec Non-UF\6\...............  NU/LEU..............                221                1.6                600
DUF\6\*..........................  DU..................            114,000              65-90      25,000-35,000
----------------------------------------------------------------------------------------------------------------
[dagger] The NU equivalent shown for HEU is the equivalent NU within the LEU derived from this HEU, most of
  which will be retained by DOE in the timeframe under consideration herein. This table includes LEU down-
  blended from HEU and HEU that is to be down-blended or that is in the process of being down-blended.
* DUF\6\ quantity is based on uranium inventories with assays greater than 0.34% \235\U but less than 0.711%
  \235\U. The amount of NU equivalent is subject to many variables, and a large range has been shown to reflect
  this uncertainty. DOE has additional DUF\6\ inventory that is equal to or less than 0.34% \235\U that is not
  reported in this Table.
[caret] Reflects inventories in the 2013 DOE Excess Uranium Inventory Management Plan.

E. Market Analyses

    In preparation for the potential Secretarial Determination that is 
the subject of this notice, DOE has tasked ERI with preparing an 
analysis of the potential effects on the domestic uranium mining, 
conversion, and enrichment industries of the introduction of DOE excess 
uranium inventories in various forms and quantities during calendar 
years 2017 through 2026.\5\ It is important to note that the various 
levels of sales or transfers were developed for analytical purposes, 
and do not bind the Secretary in making his determination. For this 
analysis, DOE tasked ERI to consider the effect of options for planned 
DOE transfers on the domestic uranium industries under four different 
scenarios.
---------------------------------------------------------------------------

    \5\ ``Analysis of the Potential Effects on the Domestic Uranium 
Mining, Conversion, and Enrichment Industries of the Introduction of 
DOE Excess Uranium Inventory During CY 2017 Through 2026'', Energy 
Resources International, January 12, 2017 (ERI-2142.20-1701).
---------------------------------------------------------------------------

    Under the Base Scenario, DOE would continue transfers at the 
current annual rate of 2,100 MTU per year until 2020, at which point 
NNSA barters would end. Aggregate transfers for each year in 2017 and 
in 2018 would be 2,100 MTU of natural uranium equivalent; 2021 MTU in 
2019; and 495 MTU in 2020 when EM natural UF6 supplies are 
exhausted. As previously mentioned, NNSA barters in years 2017-2019 are 
not covered by the potential Secretarial Determination which is the 
subject of this notice, but are still considered in ERI's market 
analyses. NNSA barters are assumed to end in 2019, after which (2019 to 
2025) NNSA would continue to down-blend HEU but the resulting down-
blended LEU would be held for later use and not bartered. Required 
purchases of blend stock for down-blending from commercial suppliers in 
2019 to 2025 result in a negative net amount of material transferred in 
years 2020 and after because it actually creates new demand.
    Under Scenario 1, DOE would cease transfers for EM's cleanup work 
after 2016, but NNSA barters would be at the same levels as in the Base 
Scenario based on the determination that NNSA uranium barters serve a 
national security purpose.
    Under Scenario 2, DOE would transfer an aggregate total of 1700 MTU 
through 2018, 1,652 in 2019, 1,136 MTU in 2020, 464 MTU in 2021, and 
there would be negative net amounts of transfers in years 2022-2026 due 
to commercial purchases of uranium by the Government.
    Under Scenario 3, DOE would transfer an aggregate of 2,500 MTU in 
2017 and 2018, 1,780 MTU in 2019 and again there would be a negative 
net amount of material transferred in 2020 through 2025 due to 
commercial purchases of uranium by the Government.
    DOE also asked ERI to provide specific categories of information in 
its analysis, including a discussion of price volatility and regional 
differences in the global 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 market 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 February 2015 and November 2016. Both the 2015 ERI Report and 
the 2017 ERI Report can be found at https://www.energy.gov/ne/downloads/excess-uranium-management.

[[Page 13109]]

II. Analytical Approach

A. Overview

    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, in its 2015 Secretarial 
Determination and Analysis, DOE explained in detail its analytical 
approach to determine adverse material impact within the meaning of the 
statute and under the factual conditions existing at the time of a 
Secretarial Determination.\6\ Of note, DOE described transfers as 
having an ``adverse material impact'' when a reasonable forecast 
predicts that an industry will experience ``material'' harm that is 
reasonably attributable to the transfers. As further explained, in 
DOE's view the proper inquiry is to what degree the effects of DOE's 
transfers would make an industry weaker based on an analysis reflecting 
existing conditions. As a general proposition, ``adverse material 
impact'' would be a harm of real import and great consequence, beyond 
the scale of normal market fluctuations. DOE also identified the six 
factors it would use in the analysis to arrive at a determination of 
adverse material impact.
---------------------------------------------------------------------------

    \6\ 2015 Secretarial Determination, 80 FR at 26367; 26379-26383.
---------------------------------------------------------------------------

    DOE plans to utilize the same analytical approach and factors in 
determining adverse material impact in this potential new Secretarial 
Determination.

B. Factors Under Consideration

    As explained, in preparation for a potential Determination in 2017, 
DOE proposes to evaluate the following factors set forth in the 2015 
Secretarial Determination and Analysis:
    1. Changes to prices;
    2. Changes in production levels at existing facilities;
    3. Changes to employment in the industry;
    4. Changes in capital improvement plans and development of future 
facilities;
    5. The long-term viability and health of the industry; and,
    6. As required by statute, sales under certain agreements 
permitting the import of Russian-origin uranium.

DOE believes that an analysis of these factors, which are the same as 
those utilized in the analysis supporting the 2015 Secretarial 
Determination, represent sufficiently the types of impacts that a DOE 
transfer could in principle have on the domestic uranium, conversion, 
or enrichment industry. Not every factor will necessarily be relevant 
on a given occasion or to a particular industry; DOE intends this list 
of factors as a guide to its analysis. Note that while sales made under 
the Russian-U.S. Highly Enriched Uranium (HEU) Agreement and the 
Suspension Agreement are considered in the market analysis, they are 
not described in the industry-specific sections that follow.
    In response to the RFI, DOE received comments from several entities 
suggesting DOE should change its method and approach to determining 
adverse material impact. As an initial point, several commenters have 
cited the ConverDyn litigation (a lawsuit in which ConverDyn 
challenged, among other things, the 2014 Secretarial Determination) as 
requiring DOE to change its definition and methodology for reaching a 
determination on adverse material impact because the court held DOE's 
method to be in violation of law. See, e.g., Comment of Energy Fuels 
Resources, at 1; Comment of UPA, at 1. This interpretation of the 
court's rulings in the ConverDyn litigation is incorrect. In 2016, the 
United States District Court for the District of Columbia dismissed as 
moot the entirety of ConverDyn's challenge to the 2014 Secretarial 
Determination and its allegation with respect to DOE's 2013 Excess 
Uranium Management Plan. Without ruling on the merits, the court left 
intact two of ConverDyn's claims regarding the Department's authority 
to transfer uranium under the USEC Privatization Act. Although the 
court indicated that ConverDyn could seek to amend its complaint to 
challenge the 2013 Plan in the context of its application in the 2015 
Secretarial Determination, the court did not address or rule on DOE's 
methodology in the 2015 Secretarial Determination. ConverDyn and DOE 
subsequently reached a settlement and the case was dismissed. While DOE 
is mindful of the results of the ConverDyn litigation, the ConverDyn 
litigation does not mandate a change in DOE's method of determining 
adverse material impact.
    In addition, several commenters have stated that DOE failed to 
define ``adverse material impact,'' in its 2015 Secretarial 
Determination. Further, commenters noted that to the extent DOE has 
defined ``adverse material impact,'' the definition should be a more 
quantitative and less relative standard subject to the factual context 
in which it is applied. See, e.g., Comment of ConverDyn, at 1-2; 
Comment of Energy Fuels, at 1-2. As noted in the 2015 Secretarial 
Determination and Analysis, Congress did not define the term ``adverse 
material impact,'' leaving it to the Department 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.'' \7\ As previously noted, DOE's interpretation of the term 
is explained in depth in the 2015 Secretarial Determination. DOE 
continues to believe that this approach is appropriate and declines to 
adopt a specific quantitative standard for the reasons stated in the 
2015 Determination.
---------------------------------------------------------------------------

    \7\ 2015 Secretarial Determination, 80 FR at 26380.
---------------------------------------------------------------------------

    Several commenters suggested alternative definitions and standards 
to assess adverse material impact. For example, commenters suggested 
that DOE reconsider its definition of ``adverse material impact'' to 
encompass scenarios where DOE transfers are not the primary cause of 
total losses in one of the domestic uranium industries. See, e.g., 
Comment of ConverDyn, at 1; Comment of Energy Fuels, at 1-2; Comment of 
UPA, at 1. Energy Fuels and ConverDyn have also suggested that DOE's 
standard for ``adverse material impact'' be directly linked to 
production costs for the uranium mining, conversion, and enrichment 
markets. Comment of ConverDyn, at 2; Comment of Energy Fuels, at 1-2. 
While DOE does not believe that production costs alone should be used 
to determine adverse material impact, and that its comprehensive 
approach to analyzing market impacts is appropriate, DOE will account 
for production costs in the factors considered in its analysis. In this 
way, information on production costs continues to be relevant to DOE's 
analysis of the market impacts of transfers.
    Several commenters, in response to the July 2016 RFI, have 
suggested that DOE consider other methodology factors in its market 
analysis. Where appropriate, we have addressed these other factors in 
our analysis of existing factors.
    Finally, comments on specific policy recommendations related to 
uranium transfers, such as arranging for transfers to be placed in the 
long-term market as opposed to the spot market or using other budgetary 
mechanisms to pay for services, have been taken into consideration, but 
are not addressed in this notice, which describes only the

[[Page 13110]]

information used in analyzing the market impact of current and 
potential future transfers. Comment of Cameco, at 2; Comments of Duke 
Energy, at 1.

III. Summary of Information Under Consideration

    In the following 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 2017 ERI Report and the comments 
received in response to the July 2016 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. Prices
    DOE recognizes that both market prices and realized prices of 
current uranium producers contribute to the market effect of DOE 
uranium transfers. The realized prices are a factor of both the change 
in market prices and the contours of various contracts through which 
the industry members sell their uranium. As in the 2015 Secretarial 
Determination and Analysis, DOE will consider these two aspects of 
price together, using available data for each industry.
    In preparation for the proposed Secretarial Determination, DOE 
tasked ERI with estimating the effect of DOE transfers on the market 
prices for uranium concentrates during the period 2017 through 2026. 
The potential effect is evaluated using market clearing price analyses, 
using annual and cumulative methodology,\8\ as well as an econometric 
model to establish a correlation between the spot market price for 
uranium concentrates and active supply and demand. For its market 
clearing price model, ERI constructs individual supply and demand 
curves and compares the clearing price with and without DOE 
transfers.\9\ 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 analysis, when possible. 2017 ERI 
Report, 44 n.33. ERI's market clearing price methodology assumes a 
perfectly inelastic demand curve based on its Reference Nuclear Power 
Growth forecast.\10\ ERI assumes that secondary supply is utilized 
first, followed by primary production. ERI states, ``In over-supplied 
markets . . . the amount of primary production required to meet 
requirements, including normal strategic inventory building, is well 
below actual production.'' 2017 ERI Report, 45. Several commenters 
have, in the past and in response to the July 2016 RFI, suggested that 
any DOE analysis provide a more comprehensive understanding of the 
total impacts of all past DOE transfers. Comment of Cameco, at 1. ERI's 
cumulative analysis methodology includes information on these 
cumulative impacts, in addition to annual impacts. ERI notes that the 
annual method shows lower price effects through 2023 for uranium, 
through 2021 for conversion and through 2026 for enrichment. The larger 
price effects found when using the cumulative methodology is consistent 
with the importance of excess inventory buildup in the current 
market.'' 2017 ERI Report, 56. ERI's econometric analysis is also used 
to simulate the spot market price effect for uranium concentrates with 
and without DOE inventory transfers.
---------------------------------------------------------------------------

    \8\ In any particular year, the market clearing price (or 
equilibrium price) for uranium concentrates, for example, is based 
on the cost of production of the last increment of uranium that must 
be supplied by the market in order to provide the total quantity of 
uranium concentrates that is demanded by the market during that 
year.
    \9\ The market clearing price is the price at which quantity 
supplied is equal to quantity demanded.
    \10\ In other words, ERI assumes that demand for uranium will 
stay the same regardless of variations in market price.
---------------------------------------------------------------------------

    Applying the cumulative approach to the four scenarios listed in 
Section I.E, ERI estimates that DOE transfers will have the effects 
listed in Table 2.\11\ 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. These price effects 
represent ERI's predictions using the cumulative approach for2017 
through 2019. See Table 4.4 of 2017 ERI Report, 53.
---------------------------------------------------------------------------

    \11\ Note that the transfer rates in these scenarios refer only 
to the level of uranium transfers for cleanup at Portsmouth and 
down-blending of LEU. They do not include transfers for three other 
programs, TVA BLEU, Energy Northwest depleted uranium, and proposed 
transfers of depleted uranium to GLE. 2017 ERI Report, 22-29. The 
level of transfers across these three programs is the same in all 
three scenarios. ERI's predictions about changes in market price 
reflect these transfers as well as the Portsmouth and down-blending 
transfers.

     Table 2--ERI's Estimate of Uranium Clearing Price Changes Due to DOE Inventory in $ per Pound U\3\O\8\
                                      [Cumulative market clearing approach]
----------------------------------------------------------------------------------------------------------------
                     2017 ERI Report estimated clearing price effect ($ per pound U\3\O\8\)
-----------------------------------------------------------------------------------------------------------------
                                                                       2017            2018            2019
----------------------------------------------------------------------------------------------------------------
Base Scenario...................................................            $5.5            $4.7            $5.0
  Scenario 1....................................................             4.4             3.2             2.8
  Scenario 2....................................................             5.3             4.5             4.3
  Scenario 3....................................................             5.5             5.3             5.3
----------------------------------------------------------------------------------------------------------------

    ERI's cumulative market clearing model shows a change in average 
clearing price attributed to the DOE inventory of $5.1/pound for the 
uranium market for the period 2014 through 2016. Using a multivariable 
econometric model, ERI developed a correlation between the monthly spot 
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. ERI's multivariable 
correlation estimates how the spot market prices would respond to the 
availability of new supply from DOE. 2017 ERI Report, 61-62. Applying 
this econometric model results in an estimated spot market price effect 
of $5.3 per pound U3O8 over the last three years 
(2014-2016). Looking forward, ERI estimated that spot market prices 
would be $3.5 per pound U3O8 or 8% lower if Base 
Scenario DOE inventory releases take place over the next ten years 
(2017-2026) compared to no release of DOE inventory. The effect is 
higher in the near-term at $4.4 per pound and 12% lower prices. As 
noted earlier, the price effects attributed to

[[Page 13111]]

past and current DOE inventory releases are already built into current 
spot market prices. 2017 ERI Report, 63.
    UPA attached to its comment a market analysis it commissioned from 
TradeTech, LLC, a uranium market consultant. Comment of UPA, 
Attachment, TradeTech, DOE Request for Information Response (2016) 
(hereinafter ``TradeTech Report''). Using its proprietary model that 
correlates active spot supply to active spot demand, TradeTech 
estimates that DOE's transfer reduced the spot price by an average of 
$2.79 in 2012, $3.81 in 2013, $4.18 in 2014, and $6.17 in 2015. 
TradeTech Report, 7. TradeTech's Analysis did not include a prediction 
of the future effect of DOE's transfers at current rates or other 
levels.
    The 2017 ERI Report considers realized prices, production costs and 
profit margins across the uranium industry, noting that these vary 
between companies. Across the industry, ERI reports that the average 
delivered price for U.S. end-users was $44/pound-
U3O8 in 2015 or 21% below the 2011 peak. 2017 ERI 
Report, 71. ERI expected additional decline by the end of 2016, 
although floor prices in many market-related contracts are preventing 
end-users from reaping the full benefit of the 2016 spot market price 
decline and providing suppliers with a higher minimum price than they 
might otherwise receive.
    To estimate the realized prices for U.S. producers, which varies 
from company to company, ERI gathered information from public filings 
representing approximately 90% of U.S. production. 2017 ERI Report, 72. 
ERI provides Figure 4.23 (2017 ERI Report, 73) showing the change in 
realized uranium prices over time for several U.S. producers. It is 
apparent that some mining companies have chosen to sell on a spot 
market price basis, while others have hedged their exposure to spot 
market prices by locking in prices using a base price escalated 
approach for a portion of their portfolio. ERI estimates that the share 
of U.S. production that comes from companies that are effectively 
``unhedged'' (with no long-term contracts at higher prices), has 
declined from 25% in 2012 to just 3% in 2015 and 2017. 2017 ERI Report, 
73.
    EIA reports several figures that are relevant to the prices 
realized by current production facility operators. For 2015, EIA 
reported the weighted average price of uranium purchased by U.S. 
reactor operators from all sources was $44.13 per pound 
U3O8. EIA, 2015 Uranium Marketing Annual, 5.\12\ 
Uranium purchased directly from U.S. producers were purchased at $52.35 
per pound U3O8, however, these purchases were 
only 1.5 million pounds U3O8 equivalent of a 
total of 56.5 million pounds U3O8 equivalent 
purchased in 2015. EIA, 2015 Uranium Marketing Annual, 3.
---------------------------------------------------------------------------

    \12\ Available at https://www.eia.gov/uranium/marketing/pdf/2015umar.pdf.
---------------------------------------------------------------------------

    During 2015, 21% of the uranium was purchased under spot contracts 
at a weighted-average price of $36.80 per pound. The remaining 79% was 
purchased under long-term contracts at a weighted-average price of 
$46.04 per pound. Spot contracts are contracts with a one-time uranium 
delivery (usually) for the entire contract and the delivery is to occur 
within one year of contract execution (signed date). Long-term 
contracts are contracts with one or more uranium deliveries to occur 
after a year following the contract execution. EIA reports that 54 new 
purchase contracts (long-term and spot) were signed in 2015 at a 
weighted average price of $37.97. EIA, 2015 Uranium Marketing Annual, 
1.
2. Production at Existing Facilities
    ERI reports that in 2015, U.S. production declined 34% to 3.3 
million pounds and that U.S. Production in 2016 was expected to decline 
an additional 10% to below 3.0 million pounds. 2017 ERI Report, 68. 
Production peaked in 2014, with a number of new starts that had been 
spurred by the price run-up in 2006 and 2007. A number of these 
facilities have limited production in response to the decline in 
prices.
    In addition to the information described above, DOE is considering 
information from EIA reports. EIA reports on production in the domestic 
uranium industry on a quarterly and annual basis. According to EIA, 
U.S. primary production in 2015 stood at 3.34 million pounds 
U3O8. EIA's preliminary figures for 2016 
indicates that U.S. production of uranium concentrates declined 13% 
from 2015 production to 2.92 million pounds 
U3O8.\13\ This is consistent with ERI's forecast. 
U.S. uranium was produced at seven U.S. uranium facilities in Nebraska, 
Wyoming and Utah.
---------------------------------------------------------------------------

    \13\ Available at https://www.eia.gov/uranium/production/quarterly/pdf/qupd.pdf.
---------------------------------------------------------------------------

    Using a three-year average to smooth out year-to-year differences, 
EIA data shows that average production costs remained fairly constant 
from 2009-2012 at about $40 per pound. The EIA average production costs 
have steadily declined since 2012, however, as U.S. producers cut costs 
in response to lower market prices including curtailed operations at 
higher cost mines, resulting in a three-year average production cost of 
$31/pound in 2015. 2017 ERI Report, 76. By comparison, the spot price 
of uranium averaged less than $26 per pound U3O8 
in 2015. Total expenditures for U.S. uranium production was an average 
of $35.44 per pound when spread across uranium production of 3.34 
million pounds U3O8. EIA, 2015 Uranium Production 
Report, 3, 10 (2016).
3. Employment Levels in the Industry
    DOE has also considered information contained from EIA reports 
relating to employment in the domestic uranium production industry. 
EIA's 2015 Uranium Production Report states that employment stood at 
625 person-years in 2015, a decrease of 21% from the 2014 total, and 
the lowest level since 2004. EIA, 2015 Uranium Production Report, 2 
(2016). While employment in mining grew slightly, from 246 to 251 
person-years, employment in exploration fell 32.6% from 86 person-years 
in 2014 to 58 person-years in 2015. EIA, 2015 Uranium Production 
Report, 9 (2016).
    In its analysis, ERI found that EIA's employment figures correlated 
to changes in spot and term prices. 2017 ERI Report, 65. Having 
estimated that the total price effect of DOE inventory releases 
averaged $2.1/pound in 2012-2015, ERI's correlations indicate the DOE 
price effect lowered employment by an average of 30 person-years in 
2012-2015 using the cumulative methodology.\14\ 2017 ERI Report, 66. 
ERI estimates that employment would be lowered by 40 person-years in 
2017 through 2026 using the cumulative methodology for the Base 
Scenario in 2017 through 2026. ERI notes that the cumulative effect of 
past DOE releases is already in place. 2017 ERI Report, 66. If DOE were 
to halt future EM releases (as in Scenario 1), then employment would be 
lowered by an average of 31 person-years or 4.7% over the ten-year 
period 2017 to 2026.
---------------------------------------------------------------------------

    \14\ The correlation is based on average price in the current 
and preceding year.
---------------------------------------------------------------------------

    Though no commenter provided company-specific numbers, several 
referred to decreases in employment in recent years caused by decreases 
in uranium prices. E.g., Comment of Kingsville Area Industrial 
Development Foundation, at 1.

[[Page 13112]]

4. Changes in Capital Improvement Plans and Development of Future 
Facilities
    ERI reports that five new production centers began operation since 
2009. ERI explains that U.S. producers that have recently begun 
production have done so using fixed price long-term contracts, signed 
when long term prices were in the $55-70/pound 
U3O8, to support the start-up of their 
operations. 2017 ERI Report, 67. However, ERI explains that two of the 
new operations (Willow Creek and Palangana) have ceased development of 
new wellfields and two companies, Ur-Energy and Uranerz, have announced 
they would limit production expansion at new ISL facilities. 2017 ERI 
Report, 68. As a result of falling prices, in April 2016, Cameco 
announced that it was deferring well-field development at the company's 
Wyoming and Nebraska operations and cutting 85 jobs at these sites. 
Comment of Cameco, at 1, 9-16. Fluor BWXT Portsmouth (FBP) opines that 
U.S. production has fallen not ``due to DOE transfers, but due to the 
decisions made by producers to expand their lower-cost assets in Canada 
and Kazakhstan.'' Comment of FBP, at 13.
    EIA reports that U.S. uranium production expenditures were $119 
million in 2015, down by 14% from the 2014 level. EIA reports that 
uranium exploration expenditures were $5 million and decreased 56% from 
the 2014 level. EIA, 2015 Domestic Uranium Production Report, 2 (2016). 
ERI looked at the average production cost plus development drilling 
costs, to show that ongoing costs have declined from $49/pound in 2012 
to $37/pound in 2015. Production plus development costs for U.S. 
facilities are expected by ERI to average about $35/pound in 2016. 2017 
ERI Report, 76. ERI noted that exploration employment was correlated to 
spot price. 2017 ERI Report, 65. The lower expenditures for exploration 
in 2015 are consistent with the lower spot prices observed in that 
year.
    Market capitalization is representative of a company's ability to 
raise funds needed to move a project through licensing, which can take 
many years, as well as through initial project development. ERI 
observed that the market capitalization of the smaller mining companies 
is more sensitive to changes in the spot market price compared to the 
larger companies. 2017 ERI Report, 70.
5. Long-Term Viability and Health of the Industry
    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 190 million pounds 
annually by 2025. ERI attributes this increase in global requirements 
to an expansion of nuclear generation in China, India and South Korea, 
as well as new nuclear power entrants. While global demand for uranium 
is expected to increase, projected U.S. requirements will remain 
generally steady. 2017 ERI report, 18-19.
    There are a number of important market factors that have influenced 
the relationship between supply and demand (hence price) since DOE 
inventory transfers began. These other factors include: demand losses 
due to the Japanese reactor shutdowns following the Fukushima Daiichi 
accident, demand losses due to changes in German energy policy, 
increased uranium production in Kazakhstan, increased secondary supply 
created using excess enrichment capacity (both underfeeding and upgrade 
of Russian enrichment tails), the planned ramp-up of Russian uranium 
under the Suspension Agreement, and the end of the U.S. Russian HEU 
Agreement in 2013. Not all of these factors affects each market. The 
effect of DOE inventory can be considered in the broader context of 
other market factors. ERI notes that DOE inventory was equivalent to 
about 6% of all the uranium market factors (including DOE) in 2012, 
rising to 9% in 2013-2014 before declining back to 7% in 2016. ERI 
predicts that the total of all the non-DOE uranium market factors is 
expected to remain fairly constant over the next decade as the slow 
increase in Japanese reactor restarts is offset by additional 
retirements in Germany. The Base Scenario DOE share remains in the 7%-
8% range with the exception of 2020 and 2021 when it drops to 5% and 
1%, respectively. If Scenario 1 DOE inventory is assumed, the DOE share 
declines to just 1% over the next decade. Scenario 2 averages 6% while 
Scenario 3 averages 8% in 2017-2026. 2017 ERI Report 100-101.
    The TradeTech Report in the UPA comments cites many of the same 
market factors which ERI has accounted for, including persistent 
oversupply in the uranium market and reduced demand as a result of 
premature plant closures, as well as the DOE supplied uranium.
    Several commenters in response to the July 2016 RFI predict a 
recovery in either spot or term uranium prices. Cameco, in its comment, 
states that while ``the long-term future of the uranium industry is 
strong, the market remains oversupplied due in part to the slow pace at 
which Japanese reactors have come back on line since the Fukushima 
accident and the closure of a number of U.S. reactors.'' Comment of 
Cameco, at 1. ConverDyn stated that uncertainty related to DOE uranium 
transfers adds to the difficult conditions currently facing the 
industry. Comment of ConverDyn, Enclosure 1, at 2. Energy Fuels 
Resources (Energy Fuels), in its comment, hypothesizes that the value 
of domestic uranium mines and projects has diminished due to declining 
uranium prices since 2011 and an oversupplied market. Comment of Energy 
Fuels, at 2. Energy Fuels notes that ``persistent oversupply from price 
insensitive sources and limited uncommitted demand.'' Comment of Energy 
Fuels, at 3. This view is reiterated in comments by the New Mexico 
Mining Association, noting that ``DOE's material effectively consumes 
any available uncommitted demand available to (potential New Mexico) 
producers.'' Comment of New Mexico Mining Association, at 1.
    Energy Fuels also remarks, ``[a]s more reactors go offline and 
higher priced long-term pre-Fukushima legacy contracts expire, along 
with DOE material continuing to enter the market, conditions will 
continue to deteriorate for the production industry.'' Comment of 
Energy Fuels, at 5. Additional commenters shared this view. FBP 
commented that U.S. producers are ``far less competitive than available 
non-U.S. supply'' and that non-U.S. producers are better poised to meet 
any increase in demand because they can provide material at production 
costs that are below those of U.S. producers. Comment of FBP, at 5.
    The Wyoming Mining Association suggests that the Department 
consider drilling as a ``harbinger metric for the uranium recover 
industry's maintenance and growth.'' Comment of Wyoming Mining 
Association, at 2. EIA reports that the number of holes drilled for 
exploration and development in the U.S. in 2015 was 1,218, down from 
11,082 in 2012 and 5,244 in 2013, declines of 86% and 71%, 
respectively. Similarly, EIA reports 878 thousand feet drilled in 2015, 
down from 7,156 thousand feet in 2012 and 3, 845 thousand feet drilled 
in 2013, declines of 88% and 77%, respectively. EIA, 2015 Domestic 
Uranium Production Report (2016), at 3.
    A number of commenters have pointed out that excess inventory needs 
to be absorbed before a market recovery can occur. Commenters point to 
EIA data showing an increase in U.S. utility inventory. Energy Fuels 
and the

[[Page 13113]]

Uranium Producers of America state that, ``the excess supply is 
absorbed primarily by the trading community that then finances the 
material for forward sales. As a result, this delays the prospects for 
a price recovery by ``stealing'' future uncommitted demand that would 
otherwise be available in upcoming years.'' Comment of Energy Fuels, at 
5; Comment of UPA, at 7.
    Regarding supply, FBP notes the increase in global production since 
2007, despite falling prices and reduced reactor demand. Comment of 
FBP, at 5. ``The failure of primary supply to reduce production to 
match needs is encouraged by long-term contracts at higher than current 
spot market prices and the significant supply controlled by Sovereign 
governments.'' Citing the NAC International Fuel-Trac data base, FBP 
notes that ``it is estimated that around 60% of the 2016 production was 
controlled by Governments,'' and suggests that, ``[d]ue to the large 
excess worldwide production increases, neither spot market prices, nor 
U.S. production competitiveness are expected to improve appreciably in 
the near term.'' Comment of FBP, at 8. FBP also suggests that exchange 
rates have affected competitiveness resulting in lower effective 
production costs for non-U.S. suppliers. Comment of FBP, at 10.
    In the TradeTech report submitted by the Uranium Producers of 
America, TradeTech opines, ``[i]f DOE were to completely cease material 
transfers, then producers would see improvement in the market,'' but 
does not provide additional analysis to support this assertion. Comment 
of UPA, TradeTech Report, at 8. As they concluded in the 2015 report, 
ERI states in the 2017 ERI Report, ``[i]t does not appear that removing 
the DOE inventory from the market and adding back the $5 per pound 
cumulative 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.'' 2017 ERI Report, 77.
    Finally, DOE recognizes that predictability of transfers over time 
is important for long-term planning by the domestic uranium industry. 
Commenters have noted the uncertainty in the market regarding the 
quantity and price at which DOE will transfer uranium, which they 
believe is attributed to the Secretarial Determination process. (e.g., 
Comment of UPA, at 1).

B. Uranium Conversion Industry

    ERI projects that U.S. requirements for conversion services will 
remain essentially unchanged from 2016 through 2035, averaging 17 
million kgU per year. 2017 ERI Report, 13. ERI notes that globally, its 
forecasted requirements for 2017 and 2018 have declined by 21% since 
ERI's 2011 forecast. 2017 ERI Report, 78.
1. 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. A summary of ERI's estimates of the effect of DOE transfers 
on the conversion price appears in Table 3. As with uranium 
concentrates, this is not a prediction that prices will drop by the 
specified amount once DOE begins transfers.

   Table 3--ERI's Estimate of Conversion Clearing Price Changes Due to DOE Inventory in in $ per kgU as UF\6\
                                      [Cumulative market clearing approach]
----------------------------------------------------------------------------------------------------------------
                      2017 ERI Report estimated clearing price effect ($ per kgU as UF\6\)
-----------------------------------------------------------------------------------------------------------------
                                                                       2017            2018            2019
----------------------------------------------------------------------------------------------------------------
Base Scenario...................................................            $1.1            $1.1            $2.3
    Scenario 1..................................................            0.90             1.1             1.6
    Scenario 2..................................................             1.1             1.1             2.1
    Scenario 3..................................................             1.1             1.2             2.3
----------------------------------------------------------------------------------------------------------------

    ERI does not provide a specific estimate of the change in 
ConverDyn's realized price due to DOE transfers (ConverDyn being the 
only domestic uranium conversion facility). 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 due to 
reductions in production volume. 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. 2017 ERI Report, 88; 2015 ERI Report, 70.\15\
---------------------------------------------------------------------------

    \15\ ERI developed this assumption based on its estimate of 
ConverDyn's production costs of $15 per kgU to produce 10.6 million 
kgU. Since ConverDyn claims to be operating at a loss, ERI assumes 
that its realized price must be lower. 2017 ERI Report, 90.
---------------------------------------------------------------------------

    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. 
DOE understands that the conversion market generally relies on mid- and 
long-term contracts. UxC Conversion Market Outlook--December 2016, 30-
31.
2. Production at Existing Facilities
    There is only one existing conversion facility in the United 
States, the Metropolis Works facility (MTW) in Metropolis, Illinois, 
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. Based on 
information presented by ConverDyn in support of litigation against DOE 
and in ERI's proprietary analysis, ERI is able to estimate that 
ConverDyn's production volume in 2015 was approximately 10 million kgU. 
2017 ERI Report, 81.
    In estimating the effect of DOE transfers on ConverDyn's sales 
volume, ERI assumes that 50% of the material

[[Page 13114]]

EM transfers in exchange for cleanup services and 100% of all other DOE 
material enters the U.S. market. 2017 ERI Report, 84. Based on 
statements from ConverDyn, ERI assumes that ConverDyn's current share 
of the U.S. market for conversion services is 25% and that its share of 
the international market is 24%. 2017 ERI Report, 86. ERI calculates 
estimates of volumes lost to DOE using estimates of production (10 kgU) 
and market share. ERI also assumes that 80% of ConverDyn's production 
costs are fixed, while 20% are variable.
    A summary of ERI's estimates of the effect of DOE transfers on 
ConverDyn's sales volume appears in Table 4. Applying ConverDyn's U.S. 
market share of 25% and the remaining world market share of 24% to the 
volume of DOE inventory expected to be introduced into the market in 
2018, results in a volume effect of 0.4 million kgU in the U.S. market 
and 0.2 million kgU effect in the remaining world market for a total of 
0.6 million kgU, under the Base Scenario, for an increase in production 
costs of 5%.
    In Scenario 1, in which UF6 associated with prior 
releases of DUF6 to ENW enter the market, the introduction 
of DOE inventory results in a decreased volume of 0.6 million kgU and 
increased production costs of 1%. The introduction of DOE inventory 
into the conversion market results in a decreased volume of 0.5 million 
kgU and increased production costs of 4% in Scenario 2 and a decreased 
volume of 0.7 million kgU and increased production costs of 5% in 
Scenario 3. 2017 ERI Report, 85-89. As with ERI's price estimates 
discussed above, these estimates do not suggest that were DOE to 
transfer uranium in accordance with the Base Scenario, ConverDyn would 
lose the predicted volume of sales. DOE has been transferring at or 
above the rate of Scenario 1 for nearly three years.

 Table 4--ERI's Estimate of Impact of DOE Transfers on ConverDyn's Sales
              Volume and Estimated Production Cost Increase
------------------------------------------------------------------------
                                                  Estimated
                                                  change in   Production
                                                  ConverDyn      cost
                                                   volume      increase
                                                  (million     (percent
                                                    kgU)       change)
------------------------------------------------------------------------
Base Scenario..................................         0.6          5.0
  Scenario 1...................................         0.2          1.0
  Scenario 2...................................         0.5            4
  Scenario 3...................................         0.7            5
------------------------------------------------------------------------

    ERI assumes that ConverDyn's production cost would be $15 per kgU 
if DOE material was not being introduced into the market. As noted 
earlier, ERI assumes that if 80% of Metropolis Works' costs are fixed, 
DOE transfers would affect 20% of total production costs. Specifically, 
ERI estimates that DOE transfers under consideration at the level under 
the Base Scenario reduce sales volume by 0.6 kgU and increase 
production costs by $0.7 per kgU as UF6, about 5% higher 
than without DOE transfers. Transfers at the level under Scenario 2 
would result in increased production costs of $0.6/kgU or a 4% 
increase. Under Scenario 3, a reduction in sales volume would result in 
increased production costs of $0.8/kgU or a 5% increase. 2017 ERI 
Report, 89.
    ConverDyn's comment in response to the RFI includes an enclosure 
disclosing the domestic cost of production for conversion services. 
This document was submitted with a request that it be treated as 
containing proprietary information. DOE may consider this document in 
its deliberations.
    In addition to the above, ConverDyn's comment states that it does 
not foresee any changes to the domestic conversion market that would 
significantly lessen the effects of DOE's transfers on the domestic 
conversion industry. Comment of ConverDyn, at 5.
3. Employment Levels in the Industry
    ERI assumes, as it did in 2015, that Metropolis Works staffing 
remains at 270 employees, with an annual production rate of 10 million 
kgU. In the 2015 Report, ERI noted that Metropolis Works restarted 
after an extended shutdown in summer 2013 with approximately 270 
employees, which was a decrease from the previous employment of 334 
people. 2015 ERI Report, 72-73; 2014 ERI Report, 71. Information on the 
Honeywell/Metropolis Works Web site \16\ indicates that the plant 
employs 250 full-time employees. In January 2017, Honeywell announced a 
workforce reduction: ``Due to the significant challenges of the nuclear 
industry globally and the oversupply of uranium hexafluoride 
(UF6), Honeywell plans to reduce the production capacity of 
the Metropolis plant to better align with the demands of nuclear fuel 
customers. Because of this, the company intends to reduce its full-time 
workforce by 22 positions, as well as a portion of the plant's 
contractor team. We are taking this action to better position the plant 
moving forward.'' \17\ ERI makes estimates regarding the impact of DOE 
uranium transfers on employment using the assumption that staffing is 
proportional to production value but noting the limitations of such 
estimates. It is clear that other factors, in addition to production 
volumes will affect employment levels.
---------------------------------------------------------------------------

    \16\ https://www.honeywell-metropolisworks.com/ (accessed 
February 7, 2017).
    \17\ https://www.honeywell-metropolisworks.com/ (accessed 
February 7, 2017).
---------------------------------------------------------------------------

4. 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, there are limited development projects 
currently planned or underway outside the United States. ERI notes that 
while AREVA's Comurhex II can be expanded further, AREVA does not plan 
any additional expansion unless warranted by market conditions. ERI 
also notes that expansion of Chinese conversion capacity is expected to 
meet indigenous requirements. Finally ERI notes that Rosatom's Siberian 
Chemical Combine center is expected to add new capacity to come on line 
in 2019. 2017 ERI Report, 13. DOE is not aware of any such plans in the 
United States.
    ConverDyn has not stated in its Comment in response to the RFI 
whether they have any intentions to make updates and capital 
improvements to the Metropolis facility. The Honeywell/Metropolis Web 
site notes that Honeywell has spent over $177 million in capital 
improvements over the last 10 years, including $50 million for safety 
upgrades required by the U.S. Nuclear Regulatory Commission. In a 
message from the Metropolis Works Plant manager,\18\ the company notes 
that it intends to invest $10 million per year on projects that 
directly support health, safety and the environment.
---------------------------------------------------------------------------

    \18\ https://www.honeywell-metropolisworks.com/message-from-the-plant-manager/ (accessed February 22, 2017).
---------------------------------------------------------------------------

5. Long-Term Viability and Health of the Industry
    ERI's most recent Reference Nuclear Power Growth forecasts project 
global requirements lower than those used in the 2015 ERI Report. ERI 
forecasts that global secondary supply and supply from primary 
converters will continue to exceed global demand until at least 2035. 
2017 ERI Report, 13. ERI observes that the high levels of secondary 
supply have resulted in lower spot prices, which is reflected in lower 
contracted volumes under flexibilities in higher-

[[Page 13115]]

priced contracts. Further, ERI notes that in 2009 through 2012, 
contracting represented 85% of the world's requirements, while 
contracting in 2012 through 2016 represented only 35% of the world's 
requirements in that period. Thus, convertors have been unable to 
maintain contract backlog with new contracts less than annual 
deliveries. 2017 ERI Report, 79-80.
    No other commenter provided specific projections about future 
conversion requirements, demand, or prices.
    Finally, as with uranium concentrates, and acknowledging 
commenters' suggestions, 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.

C. Enrichment Industry

    The uranium enrichment market is also characterized by an 
oversupply situation. ERI notes that ``total expected world enrichment 
supply significantly exceeds projected requirements for enrichment by a 
significant margin over the long-term.'' 2017 ERI Report, 17. Global 
enrichment requirements are expected to grow from the current level of 
45.4 million separative work units (SWU--a measure of enrichment 
services) per year to 64 million SWU per year by 2026, but U.S. 
requirements are expected to remain essentially flat at 15 million SWU 
per year. 2017 ERI Report, 14.
1. 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. 2017 ERI Report, 44.
    With NNSA's transfers of LEU assumed to be constant across the four 
scenarios, the average estimated price effect is the same in each 
scenario. Using the cumulative market clearing methodology, the average 
estimated price effect of DOE transfers is $8.2 per SWU over the period 
2017 through 2026 but is higher in the near-term as noted below. The 
price effects attributed to DOE inventory are already built into the 
current market prices. 2017 ERI Report, 54.

         Table 5--ERI's Estimate of Enrichment Clearing Price Changes Due to DOE Inventory in $ per SWU
                                      [Cumulative market clearing approach]
----------------------------------------------------------------------------------------------------------------
                         2017 ERI Report estimated clearing price effect (in $ per SWU)
-----------------------------------------------------------------------------------------------------------------
                                                                       2017            2018            2019
----------------------------------------------------------------------------------------------------------------
Base Scenario...................................................            $9.7            $9.7            $9.7
    Scenario 1..................................................             8.8             8.8             8.8
    Scenario 2..................................................             7.3             7.3             7.3
    Scenario 3..................................................             8.8             8.8             8.8
----------------------------------------------------------------------------------------------------------------

    There is an important relationship between the excess enrichment 
capacity and the uranium and conversion markets. Due to technological 
limitations, it is currently difficult to match changes in production 
volumes to changes in requirements. Excess enrichment capacity is 
utilized to re-enrich tails or is operated in a manner that uses 
additional separative work capacity in lieu of uranium feed to produce 
enriched uranium of a given enrichment level or assay. This type of 
operation is called ``underfeeding.'' Additional UF6, which 
can be sold on the market, results from both tails re-enrichment and 
underfeeding. ERI estimates that over 50% of the secondary supply in 
the uranium market is the result of excess enrichment capacity (re-
enrichment of tails by Russia (26%); Russian underfeeding (13%); and 
Western enrichment underfeeding (18%)), 2017 ERI Report, 10. 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.
    No commenter provides information about the realized price achieved 
by URENCO or the effect of DOE transfers on that price. ERI estimates 
that more than 95% of enrichment requirements are covered under long-
term contracts. 2015 ERI Report, 74.
2. Production at Existing Facilities
    There is only one currently operating enrichment facility in the 
United States, the URENCO USA (UUSA) gas centrifuge facility in New 
Mexico. ERI reports that URENCO USA capacity increased to 4.6 million 
SWU by the end of 2015, with plans to slowly increase to 5.7 million 
SWU by 2022. ERI also reports that, in 2016, URENCO reduced its 
production capacity at the Capenhurst site when it mothballed two 
production halls (out of 15). URENCO has also made small capacity 
reductions by not replacing aging centrifuges at its European sites 
when centrifuges go out of service. 2017 ERI Report, 16.
3. 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.
4. Changes in Capital Improvement Plans and Development of Future 
Facilities
    ERI states that major supply expansion at several sites has now 
been completed. AREVA increased Georges Besse II (GB II) capacity to 
7.4 million SWU. As noted above, ERI reports that URENCO USA capacity 
increased to 4.6 million SWU by the end of 2015, with plans to slowly 
increase to 5.7 million SWU by 2022. 2017 ERI Report, 16.
    Another planned enrichment facility was announced by Global Laser 
Enrichment, a venture of GE-Hitachi and Cameco. The proposed facility 
will use laser enrichment technology developed by Silex Systems to 
enrich depleted uranium tails to the level of natural uranium, at a 
proposed location near Paducah, KY.\19\
---------------------------------------------------------------------------

    \19\ https://energy.gov/pppo/articles/energy-department-announces-agreement-sell-depleted-uranium-be-enriched-civil-nuclear 
(Nov. 11, 2016) (accessed February 22, 2017).
---------------------------------------------------------------------------

    The U.S. Nuclear Regulatory Commission granted two additional 
licenses for centrifuge enrichment plants that are not currently being 
developed. Centrus holds a license for the American Centrifuge Plant in

[[Page 13116]]

Piketon, Ohio, while AREVA Enrichment Services holds a license for the 
Eagle Rock Enrichment Facility, planned for Bonneville County, Idaho. 
NRC also issued a license to GE-Hitachi for a laser enrichment facility 
in Wilmington, North Carolina. Development of that facility is also on-
hold and GE-Hitachi has announced its plans to sell its shares and exit 
that venture.
5. Long-Term Viability and Health of the Industry
    ERI's most recent Reference Nuclear Power Growth forecasts project 
global requirements to grow to approximately 52 million SWU per year 
between 2018 and 2020, 58 million SWU per year between 2021 and 2025, 
64 million SWU per year between 2026 and 2030, and 71 million SWU per 
year between 2031 and 2035. U.S. requirements are projected to be 
essentially flat, averaging almost 15 million SWU per year between 2016 
and 2035. 2017 ERI Report, 16. ERI presents a graph comparing global 
requirements, demand, and supply from 2015-2035. That graph shows that 
global supply will continue to significantly exceed global demand over 
the long term. 2017 ERI Report, 17. URENCO's internal estimates suggest 
that global SWU inventories represent nearly two-year's worth of 2016 
global SWU requirements. Comment of URENCO, at 3. URENCO also notes 
very limited uncommitted demand in the next few years and notes that 
DOE inventories compete for these very limited pools of demand. 
Further, URENCO opines that the combination of low demand and excess 
supply is placing downward pressure on prices for uranium enrichment 
services, pointing out that prices have fallen considerably from the 
$79/90 spot/term prices at the time of the May 2015 Secretarial 
Determination. URENCO's 2015 Annual Results state that ``Urenco 
anticipates continued short to medium term pricing pressures until 
worldwide fuel inventories are reduced which may impact future profit 
margins.'' The 2015 Annual Results also note that the company is 
confident that global nuclear industry will continue to grow.\20\ 
Finally, these financial results note that URENCO is benefitting by the 
strength of the U.S. dollar in that two-thirds of its revenue is in 
U.S. dollars.
---------------------------------------------------------------------------

    \20\ https://www.urenco.com/_/uploads/results-and-presentations/160301_URENCO_end_of_year_results_presentation_FINALpdf (Accessed 
February 7, 2017).
---------------------------------------------------------------------------

    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.

IV. Request for Comments

    Using the information discussed here, DOE is beginning the 
decision-making process regarding a potential new Secretarial 
Determination, pursuant to Section 3112(d) of the USEC Privatization 
Act, for potential transfers of uranium for cleanup services at the 
Portsmouth Gaseous Diffusion Plant. DOE requests comments for 
consideration in the Secretarial Determination.
    To enable the Secretary to make a determination as expeditiously as 
possible, DOE is setting a deadline of April 10, 2017, for all comments 
to be received. DOE invites all interested parties to submit, in 
writing, comments and information for consideration. 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 6, 2017.
Raymond Furstenau,
Acting Assistant Secretary for Nuclear Energy, Office of Nuclear 
Energy.
[FR Doc. 2017-04668 Filed 3-8-17; 8:45 am]
 BILLING CODE 6450-01-P