# Excess Uranium Management: Secretarial Determination of No Adverse Impact on the Domestic Uranium Mining, Conversion, and Enrichment Industries

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A2015-11035

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** May 7, 2015
- **Citation:** 80 FR 26366

## Text

DEPARTMENT OF ENERGY
Excess Uranium Management: Secretarial Determination of No Adverse Impact on the Domestic Uranium Mining, Conversion, and Enrichment Industries

AGENCY:

Office of Nuclear Energy, Department of Energy.

ACTION:

Notice.

SUMMARY:

On May 1, 2015, the Secretary of Energy issued a determination (“Secretarial Determination”) covering continued transfers of uranium for cleanup services at the Portsmouth Gaseous Diffusion Plant and for down-blending of highly-enriched uranium to low-enriched uranium. The Secretarial Determination covers transfers of up to the equivalent of 2,500 metric tons of natural uranium (“MTU”) per year in 2015 and up to the equivalent of 2,100 MTU in each year thereafter. For the reasons set forth in the Department's “Analysis of Potential Impacts of Uranium Transfers on the Domestic Uranium Mining, Conversion, and Enrichment Industries,” which is incorporated into the determination, the Secretary determined that these transfers will not have an adverse material impact on the domestic uranium mining, conversion, or enrichment industry.

DATES:

Effective May 1, 2015.

ADDRESSES:

The 2015 Secretarial Determination and supporting documents are available on the Department's Web site at
http://www.energy.gov/ne/downloads/2015-secretarial-determination.

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:

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. 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 to LEU.

These transfers are conducted 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) of the USEC Privatization Act (42 U.S.C. 2297h-10(d)(2)), 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.

On May 1, 2015, the Secretary of Energy determined that continued uranium transfers for cleanup services at Portsmouth and down-blending services will not have an adverse material impact on the domestic uranium mining, conversion, or enrichment industry (“2015 Secretarial Determination”). This determination covers transfers of up to the equivalent of 2,500 metric tons of natural uranium (“MTU”) per year in 2015 and up to the equivalent of 2,100 MTU in each year thereafter. The Secretary based his conclusion on the Department's “Analysis of Potential Impacts of Uranium Transfers on the Domestic Uranium Mining, Conversion, and Enrichment Industries,” which is incorporated into the determination. The Secretary considered,
inter alia,
the requirements of the USEC Privatization Act of 1996 (42 U.S.C. 2297h
et seq.
), the nature of uranium markets, and the current status of the domestic uranium industries, as well as sales of uranium under the Russian HEU Agreement and the Suspension Agreement. This Determination replaces the previous determination issued in May 2014, which covered transfers for these two programs of up to the equivalent of 2,705 MTU per year.

The full text of the 2015 Secretarial Determination is set forth below.

Issued in Washington, DC, on May 1, 2015.
Peter B. Lyons,
Assistant Secretary for Nuclear Energy, Office of Nuclear Energy.

Set forth below is the full text of the Secretarial Determination.

Secretarial Determination for the Sale or Transfer of Uranium

Since May 15, 2014, the Department of Energy (“Department,” “DOE”) has transferred natural uranium and low-enriched uranium in specified amounts and transactions, subject to a determination I made on that date pursuant to § 3112(d)(2) of the USEC Privatization Act, 42 U.S.C. 2297h-10(d) (“2014 Determination”). For the reasons provided herein, the 2014 Determination is replaced by the determination described below, and no further transfers pursuant to the 2014 Determination will take place.

The 2014 Determination covered transfers of up to the equivalent of 2,705 metric tons of natural uranium (“MTU”) per year, in natural uranium hexafluoride provided to contractors for cleanup services at the Paducah or Portsmouth Gaseous Diffusion Plant and in low-enriched uranium transferred to contractors for down-blending highly enriched uranium. The 2014 Determination concluded that the transfers it described would not have adverse material impacts on the domestic uranium industries. In issuing this determination to supersede the 2014 Determination, I do not repudiate that conclusion or invalidate transfers made pursuant to the 2014 Determination.

However, after balancing the Department's goals regarding the projects being partly supported by uranium transactions with the Department's goal to help maintain healthy domestic nuclear industries, and reviewing responses to the Department's solicitations for public input, I have concluded that the lower rates of uranium transfers described herein are appropriate in the near term. I have therefore determined to permit transfers only at the lower rates described below. To avoid disruption to the projects involved, the Department will continue transferring at the pre-existing rates for approximately two months, as described below.

Accordingly, I determine that the following transfers will not have an adverse material impact on the domestic

mining, conversion, or enrichment industry:

(1) In calendar year 2015, up to 2,000 MTU contained in natural uranium hexafluoride, transferred to contractors for cleanup services at the Portsmouth Gaseous Diffusion Plant, in transfers of up to 600 MTU per quarter until June 30, 2015 and up to 400 MTU per quarter for the remainder of 2015; and

(2) in calendar year 2016 and thereafter, up to 1,600 MTU per calendar year contained in natural uranium hexafluoride, transferred to contractors for cleanup services at the Portsmouth Gaseous Diffusion Plant, in transfers of up to 400 MTU per quarter; and

(3) in calendar year 2015 and thereafter, an amount of low-enriched uranium equivalent to up to 500 MTU of natural uranium per calendar year, transferred to contractors for down-blending highly-enriched uranium to low-enriched uranium;

PROVIDED THAT

(4) in the event transfers of low-enriched uranium do not reach the equivalent of 500 MTU of natural uranium in any calendar year, transfers of natural uranium may exceed 400 MTU in the fourth quarter of that calendar year so long as the total amount transferred by the Department does not exceed the equivalent of 2,500 MTU of natural uranium in calendar year 2015 or the equivalent of 2,100 MTU of natural uranium in a subsequent year.

I base my conclusions on the Department's “Analysis of Potential Impacts of Uranium Transfers on the Domestic Uranium Mining, Conversion, and Enrichment Industries,” which is incorporated herein. As explained in that document, I have considered,
inter alia,
the requirements of the USEC Privatization Act of 1996 (42 U.S.C. 2297h
et seq.
), the nature of uranium markets, and the current status of the domestic uranium industries. I have also taken into account the sales of uranium under the Russian HEU Agreement and the Suspension Agreement.

Date: May 1, 2015.

Ernest J. Moniz,

Secretary of Energy.

Analysis of Potential Impacts of Uranium Transfers on the Domestic Uranium Mining, Conversion, and Enrichment Industries

May 1, 2015

Executive Summary

The Department of Energy (“Department” or “DOE”) plans to transfer the equivalent of up to 2,100 metric tons (“MTU”) of natural uranium per year (with a higher total for calendar year 2015, mainly because of transfers already executed or under way before today's determination). These transfers would include 1,600 MTU in natural uranium hexafluoride transferred in exchange for cleanup services at the Portsmouth Gaseous Diffusion Plant; and low-enriched uranium, at an assay of 4.95 wt-% U-235, equivalent to 500 MTU of natural uranium, transferred for services to down-blend highly enriched uranium. In support of a determination whether these transfers will have an adverse material impact on the domestic mining, conversion, or enrichment industry, the analysis below assesses the potential impacts of DOE's transfers. It takes account of the transfers just described as well as past DOE transfers still affecting the markets and certain transfers contemplated for later years.

For purposes of the Department's determination, transfers will have an “adverse material impact” when a reasonable forecast predicts that an industry will experience “material” harm that is reasonably attributable to the transfers. To test that attribution, the analysis compares the expected state of each industry in light of the planned transfers to what would happen in the absence of transfers. Such “but-for” analysis identifies what impacts DOE's transfers can be said to cause. As a corollary proposition, the analysis does not conclude that transfers would be impermissible solely because an industry is weak. Conversely, it also does not regard transfers as permissible so long as they are not the sole or primary cause of an industry's problem. The analysis must reflect existing conditions, whether prosperous or difficult; and the proper question is to what degree the effects of DOE's transfers would make an industry weaker.

Not every impact will be an “adverse material impact” for these purposes. In general, the Department regards an “adverse material impact” as a harm of real import and great consequence, beyond the scale of what normal market fluctuations would cause.

The analysis evaluates six factors for each industry: changes to prices; changes in production levels at existing facilities; changes to employment in the industry; changes in capital improvement plans; the long-term viability of the industry; and, as required by statute, sales under certain agreements permitting the import of Russian-origin uranium. The analysis relies on myriad inputs, including a study prepared for the Department by consultant Energy Resources International, Inc., market data and forecasts from several sources, reports by other market consultants, and additional submissions in response to the Department's requests for comment.

The uranium mining industry serves the market for uranium concentrates. DOE's transfers, including those described above, constitute less than 4% of global demand for uranium concentrates. The Department forecasts, on the basis of consonant results from multiple economic models that these transfers will tend to suppress prices (on average over a 10 year period) by about $2.70 per pound. While this price effect will decrease producers' revenues, the near-term impact will be smaller because most producers primarily sell on long-term contracts and therefore have limited exposure to price fluctuations. The impact on production and employment in the industry will also be limited. As prices increase over the coming decade, there appears to be little domestic production for which DOE's transfers would make the difference between expansion and contraction. In the long-term, the Department concludes that the effect of its transfers would delay decisions to expand or increase production capacity but would not change the eventual outcomes.

The uranium conversion industry processes uranium concentrates into uranium hexafluoride suitable for enrichment. Most conversion is sold on long-term contracts, and the sole domestic converter makes essentially all its sales that way. The distinctive feature of the conversion market is that the price for long-term contracts appears not to be the product of ordinary market forces. It has been stable for five years despite market changes that have caused the prices for uranium and enrichment to change by 50% or more, and despite the fact that none of the major converters in Western countries is producing at full capacity. These conditions arise in part because conversion is a key step in the nuclear fuel cycle, but one that makes up fairly little of the overall price of uranium fuel. At the same time, most of the costs of conversion are fixed costs. It appears that fuel customers are willing to pay the prices converters demand to secure long-term supplies. In light of these conditions, the Department concludes that the term price will remain stable despite DOE's transfers. Transfers will tend to cause a suppression of the global spot price by about $0.70 per kgU, but the domestic industry has no or almost no exposure to the spot price. DOE assumes the domestic industry will lose

some sales as a consequence of DOE-sourced material's appearing on the market. Those sales will reduce the industry's revenues. But if the decrease in production were to increase average costs above current term prices, the industry would be able to increase prices correspondingly. The Department also concludes that its transfers will have, at most, limited impact on employment and plans for capital improvement and expansion. As it did with respect to the uranium mining industry, the Department concludes that the effect of its transfers would, at worst, slightly delay decisions to undertake major capital improvements or capacity expansions.

The enrichment industry applies enrichment capacity to produce low-enriched uranium. It can also, by appropriate use of enrichment capacity, conserve natural uranium (through a mechanism called “underfeeding”) and effectively generate additional uranium supply. On the basis of several different models, DOE forecasts that its transfers will cause a price suppression of about $5.25 per SWU (separative work units, the unit for measuring enrichment services) in the near term and $5.40 per SWU over the longer term. The vast majority of enrichment is sold on long-term contracts, and indeed an enrichment provider typically will not invest in capacity without having such contracts in hand. The sole domestic enricher began operations in 2008, and contracts typically last 10 years or more. The domestic industry therefore has little exposure to current prices for enrichment. Because enrichers can also sell conserved natural uranium, a suppression of uranium concentrate and conversion prices can also affect their revenues. But that impact should be relatively small because natural-uranium sales consume only 10-15% of enrichment capacity. The Department also concludes that because enrichment facilities cannot easily decrease capacity, DOE transfers will not cause changes in production levels or employment at existing facilities. In the longer term, DOE's transfers will not significantly affect investment decisions because substantially higher prices would be needed to justify investment than could be obtained without market growth, even absent DOE's transfers. As it did with respect to the mining and conversion industries, the Department concludes that the effect of its transfers would, at most, slightly delay decisions to construct additional capacity.

The Department recognizes that market conditions have been difficult in recent years for all three industries. But its analytical task under section 3112(d)(2) is to forecast what additional harm industry would suffer that can reasonably be attributed to its transfers of uranium. The Department concludes that the potential impacts to the domestic uranium mining, conversion, and enrichment industries from transfers at the rates described above are not so great as to constitute adverse material impacts.

Table of Contents

I. Introduction

A. Review of Procedural History

B. Legal Authority

C. Brief History of DOE Transfers

D. Transfers Considered in This Determination

II. Overview of Uranium Markets

A. The Nuclear Fuel Cycle

B. The Uranium Markets

C. The Nature of Demand for Uranium

D. The Nature of Uranium Supply

E. Uranium Prices

III. Analytical Approach

A. Overview

B. Comments on DOE's Interpretation of Section 3112(d)(2)

C. Factors Under Consideration

IV. Assessment of Potential Impacts

A. Uranium Mining Industry

B. Uranium Conversion Industry

C. Uranium Enrichment Industry

V. Other Comments

VI. Conclusion

I. Introduction

A. Review of Procedural History

In preparation for this Secretarial Determination, DOE sought information from the public through a Request for Information (RFI) published in the
Federal Register
on December 8, 2014 (79 FR 72661). DOE specifically requested comment on 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. In response to the RFI, DOE received comments from a diverse group of parties representing interests across the nuclear industry. DOE also received comments from trade associations, nuclear utilities, local governmental bodies, and members of the public.

In addition, DOE tasked Energy Resources International, Inc., (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 2015 through 2024 (“2015 ERI Report”). This study also updated an earlier analysis that ERI prepared prior to the May 2014 Secretarial Determination
1

(“2014 ERI Report”).

1
The May 2014 Secretarial Determination is available on DOE's Web site at:
http://www.energy.gov/articles/energy-department-announces-secretarial-determination-no-adverse-material-impact-uranium.

On March 18, 2015, DOE published a Notice of Issues for Public Comment (NIPC) in the
Federal Register
(80 FR 14107). That notice announced the public availability of comments received in response to the December 2014 Request for Information, 2015 ERI Report, and a list of factors for analysis of the impacts of DOE transfers on the uranium mining, conversion, and enrichment industries. DOE received comments from members of the uranium mining, conversion, and enrichment industries, trade associations, and DOE contractors.
2

2
The 2014 ERI Report, the 2015 ERI Report, and the comments received in response to the RFI and the NIPC are available at
http://www.energy.gov/ne/downloads/excess-uranium-management.
Some comments were marked as containing confidential information. Those comments are provided with confidential information removed.

B. Legal 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. Low-enriched uranium (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) of the USEC Privatization Act (42 U.S.C. 2297h-10(d)), DOE may make certain transfers of natural or low-enriched uranium if the Secretary determines 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.” 42 U.S.C. 2297h-10(d)(2)(B). The validity of any determination under this section is limited to no more than two calendar years subsequent to the determination.
See
Section 306(a) of Division D, Title III of the Consolidated and Further Continuing Appropriations Act, 2015 (Pub. L. 113-235).

Section 3112 of the USEC Privatization Act also contains

provisions covering transfers of enriched uranium to other federal agencies, § 2297h-10(e)(1), to any person for national security purposes, § 2297h-10(e)(2), and to State or local agencies or nonprofit, charitable, or educational institutions, § 2297h-10(e)(3). For transfers to these entities, the Act does not require that the Secretary determine that there will not be an adverse material act on the domestic uranium industries. Other subsections of section 3112 cover transfers related to the down-blending of Russian highly enriched uranium. § 2297h-10(b).

C. Brief History of DOE Transfers

1. 2008 Plan

In March 2008, then-Secretary of Energy Bodman released a Policy Statement outlining a framework within which DOE intended to make decisions concerning use and disposition of its excess uranium inventory (“2008 Policy Statement”).
3

The Policy Statement observed that uranium DOE possesses “is a valuable commodity both in terms of monetary value and the role it could play in achieving vital Departmental missions and maintaining a healthy domestic nuclear infrastructure,” and it laid out certain principles for managing the inventory prudently to achieve those values. The 2008 Policy Statement established that the Department would engage, when appropriate, in transactions in which it would exchange uranium for services or for other uranium. All transactions involving transfers or sales outside the Government, the Statement noted, must provide “reasonable value” for the Department. “Reasonable value takes into account market value, as well as other factors such as the relationship of a particular transaction to overall Departmental objectives and the extent to which costs to the Department have been or will be incurred or avoided.” The Policy Statement declared that DOE would maintain sufficient uranium inventories to meet its own needs and would sell or transfer only uranium excess to those needs. In addition, the Policy Statement asserted that DOE would manage its uranium “in a manner that is consistent with and supportive of the maintenance of a strong domestic nuclear industry.” In that vein, the Statement noted that “as a general matter, the introduction into the domestic market of uranium from Departmental inventories in amounts that do not exceed ten percent of the total annual fuel requirements of all licensed nuclear power plants should not have an adverse material impact on the domestic uranium industry.” 2008 Policy Statement, at 2.

3
The 2008 Policy Statement and the 2008 Excess Uranium Inventory Management Plan are available at
http://www.energy.gov/ne/downloads/excess-uranium-inventory-management-plan-2008.

Based on this policy statement, in December 2008 DOE released its Excess Uranium Inventory Management Plan providing a comprehensive inventory of its excess uranium and details about DOE's preliminary plans for future management of its excess uranium inventory (“2008 Plan”). DOE's excess uranium inventory in 2008 consisted of highly enriched uranium (HEU), natural uranium hexafluoride (UF
6
) of various origins, uranium of various enrichments in forms other than UF
6
that does not meet commercial specifications (“off-spec non-UF
6
”), and depleted uranium in the form of UF
6
. The volumes of these inventories at the time of the issuance of the 2008 Plan are listed in Table 1. The 2008 Plan identified several transactions that were ongoing, planned, or under consideration for disposition of DOE's excess uranium.

Table 1—Excess Uranium Inventory From Table 1 of 2008 Plan

Inventory

Amount
(in MTU)

Natural
uranium
equivalent
(in MTU)

Unallocated HEU
4

67.6
12,440

U.S.-origin natural UF
6

5,156
N/A

Russian-origin natural UF
6

12,440
N/A

Off-spec non-UF
6

5

4,461
2,900

Depleted UF
6

6

75,300
25,950

2. Recent Uranium Transfers

Since 2008,

DOE has managed its inventory in accordance with the 2008 Policy Statement and Plan. The survey below includes the transfers involving the largest volumes, which are the ones most relevant for assessing how DOE's transfers have affected uranium markets.

4
The 2008 Plan explained that “unallocated” means HEU that “is not presently obligated or approved for a specific purpose or DOE program.” 2008 Plan, at 1 n.1.

5
1,680 MTU of this material is either natural or low-enriched. The remaining amount is depleted. The figure for the natural uranium equivalent of this material includes only the natural and low-enriched uranium.

6
The quantity of depleted uranium includes only the UF
6
with an assay above 0.35 wt-% U-235.

DOE's National Nuclear Security Administration (NNSA) has transferred LEU down-blended from HEU (“blended LEU,” or “BLEU”) to the Tennessee Valley Authority for use in its Brown's Ferry Nuclear Plant. This program is discussed below in Section I.D.2.a. DOE and NNSA have also been transferring a small amount of high-assay LEU (
i.e.
above 5 wt-% U-235) to foreign and domestic research reactors. This program is discussed below in Section I.D.2.e.

In 2008, NNSA began an additional program of down-blending approximately 12.1 metric tons of HEU. In the course of this program, NNSA has transferred a portion of the resulting LEU to the contractor in exchange for the down-blending services. Prior to the start of this program the Secretary determined in October 2008 that the transfer of LEU in exchange for the down-blending of up to 12.1 metric tons of HEU would not have an adverse material impact on the domestic uranium mining, conversion, or enrichment industries. The amount of derived LEU was expected to be equivalent to approximately 336 MTU of natural uranium. 2008 Plan, at 11. NNSA is currently engaged in a successor program to down-blend another 3 metric tons of HEU, and the transfers considered in this analysis include further LEU in exchange for the down-blending services.

In July 2009, DOE announced that it would accelerate cleanup efforts at the Portsmouth Gaseous Diffusion Plant through increased funding and through transferring uranium in exchange for cleanup services. Beginning in

November 2009, DOE's Office of Environmental Management (EM) transferred up to 300 MTU per quarter of natural uranium hexafluoride to the contractor at Portsmouth. Transfers during the period of November 2009 to December 2010 were limited to no more than 1,125 MTU, in accordance with the Secretary's determination in November 2009 that these transfers up to those rates would not have an adverse material impact on the domestic uranium mining, conversion, or enrichment industries.

Beginning in March 2011, EM transferred uranium for cleanup services at Portsmouth at an increased rate of 450 MTU per quarter. These transfers were conducted in accordance with the Secretary's Determination in March 2011 that such transfers between the first quarter of 2011 and the end of calendar year 2013 would not have an adverse material impact on the domestic uranium mining, conversion, or enrichment industry. Transfers during this period were limited to no more than 1,605 MTU per calendar year.

Beginning in 2012, EM transferred uranium for cleanup services at Portsmouth at an increased rate of 600 MTU per quarter and no more than 2,400 MTU per year. NNSA also extended its program of transferring LEU in exchange for down-blending services. The rate of transfers for down-blending after May 2012 was equivalent to 400 MTU of natural uranium. These transfers were conducted in accordance with the Secretary's determination in May 2012 that the sale or transfer of these amounts of uranium would not have an adverse material impact on the domestic uranium mining, conversion, or enrichment industries. In addition to these transfers, DOE also transferred in 2012 and 2013 approximately 9,156 MTU of depleted uranium to Energy Northwest. This transfer was included in the May 2012 Secretarial Determination and is discussed further in Section I.D.2.b.

In March 2013, DOE transferred approximately 48 MTU of LEU to USEC Inc. in exchange for an amount of natural uranium hexafluoride equivalent to the feed component of that LEU—409 MTU—and the value of approximately 299,000 SWU of enrichment services. The value of these services was retained by USEC to fund a portion of DOE's cost share under a 2012 Cooperative Agreement between DOE and USEC. This transfer was conducted in accordance with the Secretary's March 2013 determination that the sale or transfer of this uranium would not have an adverse material impact on the domestic uranium mining, conversion, or enrichment industries.

3. 2013 Plan

In July 2013, the Secretary issued a revised Excess Uranium Inventory Management Plan (“2013 Plan”), based on an updated inventory of the Department's uranium as of December 31, 2012.
7

This updated inventory is summarized in Table 2.

7
The 2013 Excess Uranium Inventory Management Plan is available at
http://www.energy.gov/ne/downloads/excess-uranium-inventory-management-plan.

Table 2—Excess Uranium Inventory From Table 1 of 2013 Plan

Inventory

Amount
(in MTU)

Natural
uranium
equivalent
(in MTU)

Unallocated HEU
18.0
3,394

Allocated HEU
11.4
2,077

LEU
47.6
409

U.S.-origin natural UF
6

5,234
N/A

Russian-origin natural UF
6

7,705
N/A

Off-spec LEU as UF
6

1,106
1,876

Off-spec non-UF
6

8

221
600

Depleted UF
6

9

114,000
25,000-35,000

The 2013 Plan

reaffirmed the Department's goals of maintaining sufficient inventories to meet DOE needs, transacting “in a transparent and competitive manner,” and managing inventories in a manner “consistent with and supportive of the maintenance of a strong domestic uranium industry.” The plan included the transfer of enriched uranium to pay for down-blending of HEU to LEU and the transfer of natural uranium in exchange for cleanup services at the Portsmouth Gaseous Diffusion Plant through 2021. 2013 Plan, 13-15. The 2013 Plan also announced that DOE would no longer use the ten percent guideline established in the 2008 Policy and Plan. The 2013 Plan explained that DOE's experience between 2008 and 2013, including a 2012 market impact analysis and a 2009 Finding of No Significant Impact and Mitigation Action Plan, led it to determine that DOE “can meet its statutory and policy objectives in regard to DOE uranium sales or transfers without an established guideline.” In addition, the plan noted that in light of the two-year limit on the validity of a determination under section 3112(d), an established guideline was no longer necessary.

8
This figure includes only natural and low-enriched uranium. As of the 2013 Plan, DOE had disposed of the depleted uranium in forms other than UF
6
either through disposal or sale.

9
The quantity of depleted uranium in this table includes only the UF
6
with an assay above 0.34 wt-% U-235. The corresponding figure from the 2008 plan included UF
6
with an assay above 0.35 wt-% U-235.

4. 2014 Determination

On May 15, 2014, the Secretary determined that sales or transfers of a total of 2,705 MTU per calendar year will not have an adverse material impact on the domestic uranium mining, conversion, or enrichment industries (“2014 Secretarial Determination”). The 2,705 MTU was broken down as follows:

• Up to 2,055 MTU per year to DOE contractors for cleanup services at the Paducah or Portsmouth Gaseous Diffusion Plant, in quarterly transfers of up to 600 MTU for the period 2014 through 2021;

• Up to 650 MTU per year to the National Nuclear Security Administration (NNSA)'s contractors for down-blending of HEU to LEU for the period 2014 through 2022;

• Provided that, in the event down-blending transfers do not reach 650 MTU in any year, transfers for cleanup

services may exceed 600 MTU in the fourth quarter of that same calendar year so long as the total amount does not exceed 2,705 MTU.

D. Transfers Considered in This Determination

This section provides an overview of the various uranium transactions considered in this analysis. The first category of transfers are those that DOE plans to undertake during the next two years pursuant to today's determination under section 3112(d). The second category includes other transfers that have been made or may be made that may be relevant to DOE's analysis of the possible impacts of transfers in the first category. The third category includes the Russian HEU Agreement and Suspension Agreement. This last category of transactions does not directly involve DOE, but section 3112(d) of the USEC Privatization Act instructs DOE to take account of them.

1. Planned Transfers That are Covered by Today's Determination Under Section 3112(d)

Today's determination concludes that certain transfers will not cause adverse material impacts on the domestic uranium industries. Those transfers, outlined below, include transfers of natural uranium for cleanup services at the Portsmouth Gaseous Diffusion Plant and of LEU for down-blending services.

a. Portsmouth Cleanup

Through its Office of Environmental Management (EM), DOE contracts with Fluor B&W Portsmouth for cleanup services at the Portsmouth Gaseous Diffusion Plant. This work involves decontamination and decommissioning of approximately 415 facilities (including buildings, utilities, systems, ponds, and infrastructure units) that make up the former uranium enrichment facility. In recent years, work under this contract has been funded through both appropriated dollars and uranium transfers. As the value of transferred uranium changes depending on market prices and on the Department's decisions regarding how much uranium to transfer, uranium can constitute a greater or lesser proportion of the total funding.

During the period covered by today's determination, DOE plans to transfer up to 1,600 MTU per calendar year of natural uranium hexafluoride in exchange for cleanup services at the Portsmouth Gaseous Diffusion Plant. Today's determination will be issued in the middle of calendar year 2015, after DOE has transferred material for part of the year at the higher rates permitted by the 2014 Determination. However, performing the analysis and determination on a calendar-year basis will just mean that DOE's analysis reflects a higher overall rate for 2015, in light of the material already transferred. Accordingly, for the sake of simplicity, DOE will analyze 2015 transfers for the cleanup program of up to 2,000 MTU.

b. Down-Blending of HEU

NNSA contracts with WesDyne International for down-blending of HEU to LEU. The HEU is transferred to WesDyne's contractor, Nuclear Fuel Services, Inc., in many forms—including metal, oxide, and compounds—and the resulting LEU is in the form of aqueous uranyl nitrate. This program is part of the United States' efforts to eliminate more than 200 metric tons of excess HEU, which is a material that is costly to store securely and represents a proliferation risk. To complete down-blending, the contractor buys natural uranium and uses it to dilute the U-235 contained in the HEU, producing LEU enriched to 4.95 wt-% U-235.

Work under these contracts continues to be funded through the transfer of some of the LEU that results from the down-blending. Under the terms of the contract with WesDyne, DOE can use a mix of money and uranium—ranging from entirely money to entirely uranium—to fund this contract, but in practice funding has been entirely through uranium transfers and is expected to continue to be entirely through uranium unless circumstances necessitate the use of appropriated money.

During the period covered by today's determination, DOE plans to transfer an amount of low-enriched uranium equivalent to up to 500 MTU of natural uranium. This amount is derived by transferring up to 60 MTU per calendar year of low-enriched uranium at 4.95 wt-% U-235 in the form of aqueous uranyl nitrate for down-blending services. Assuming a tails assay of 0.20 wt-% U-235, it would require approximately 555 MTU of natural uranium and approximately 520,000 separative work units (“SWU”) to produce that quantity of LEU. In order to down-blend the HEU to LEU, the down-blending contractor must purchase natural uranium hexafluoride for use as diluent in an amount equal to about 10% of the natural uranium equivalent contained in the LEU,
i.e.
55 MTU. Thus, DOE considers the natural uranium equivalent of this amount of LEU to be 500 MTU.

As with the transfers for cleanup services at the Portsmouth Gaseous Diffusion Plant, DOE has already transferred some amount of LEU during 2015 at rates permitted by the 2014 determination. For the sake of clarity and for simplicity, and for reasons like those discussed above, today's determination and this analysis cover an amount of low-enriched uranium equivalent to up to 500 MTU of natural uranium for 2015.

2. Other Uranium Transfers by DOE

In addition to transfers described above, this analysis considers several transfers that are not covered by today's determination, for various reasons. Although some of these transfers are not subject to section 3112(d), the Department has analyzed their potential impacts on domestic industries, for those transfers already concluded, and will analyze such impacts for those yet to be carried out, to provide a complete picture of the Department's uranium transfers. In addition, in 2009, DOE issued a Finding of No Significant Impact (“FONSI”) in connection with its National Environmental Policy Act review of its proposed action to sell or disposition excess depleted, natural, and low-enriched uranium. In the Mitigation Action Plan included as part of the 2009 FONSI, DOE undertook to “conduct an analysis prior to particular sales or transfers . . . to ensure there would be no potentially significant impacts to the domestic uranium industry.” As part of its Mitigation Action Plan, the Department committed to conducting a market impact analysis of depleted uranium sales or transfers to determine whether such sales or transfers would cause potentially significant impacts on the domestic uranium industries, and to adjust the proposed sales or transfers “as necessary to ensure that such potentially significant impacts are avoided or mitigated.” 74 FR 31420, at 31421-22 (July 1, 2009).

In addition, this analysis considers some transfers that may be subject to section 3112(d) but that are still only being planned. While today's determination does not cover those transfers because they are not yet close enough to fruition, DOE conducts this analysis with awareness that these other transfers may happen in years to come.

a. Blended Low-Enriched Uranium to Tennessee Valley Authority

DOE has a significant quantity of HEU inventory that contains various contaminants, so that the down-blended LEU product would not meet American Society for Testing and Materials commercial nuclear fuel specifications. Under a 2001 Interagency Agreement

between DOE and the Tennessee Valley Authority (TVA), DOE provides such “off-spec” blended low-enriched uranium (BLEU) to TVA, which uses it in its Brown's Ferry Nuclear Plant. Through 2012, NNSA had down-blended and transferred to TVA an amount of LEU derived from 46 MTU of HEU. In July 2013, NNSA and TVA modified the Interagency Agreement to add a small amount of additional down-blended material.

b. Depleted Uranium Hexafluoride to Energy Northwest

In 2012 and 2013, DOE transferred 9,075 MTU of high assay depleted uranium hexafluoride (DUF
6
) to Energy Northwest. Energy Northwest then contracted with USEC, Inc.—now known as Centrus Energy Corp.—to enrich the tails to LEU. Energy Northwest sold most of the resulting LEU to TVA, for use in its reactors between 2015 and 2022. Energy Northwest retained the remaining LEU for use in its own reactors. DOE accepted title to 8,582 MTU of secondary tails resulting from the enrichment of the high-assay tails.

c. Depleted Uranium Hexafluoride to Global Laser Enrichment

In July 2013, DOE issued a Request for Offers for the sale of depleted and off-specification uranium hexafluoride inventories. These inventories include large amounts of high-assay and low-assay depleted UF
6
(DUF
6
). In total, the material includes approximately 538 thousand MTU of DUF
6
contained in over 65,000 cylinders currently stored at DOE's Paducah and Portsmouth sites. Under the terms of the Request for Offers, transfers of DUF
6
would begin in calendar year 2019 and would not exceed 2,000 metric tons natural uranium equivalent each year.
10

In November 2013, DOE announced that it was entering into negotiations with GE-Hitachi Global Laser Enrichment, LLC (GLE) for the sale of this material. GLE proposed to license, construct, and operate a new laser enrichment facility in Paducah, KY, to re-enrich the depleted tails.

10
Note that the amount of “natural uranium equivalent” contained in a given amount of depleted uranium depends on the assay of the depleted uranium. These terms are discussed more fully below.

d. Off-Specification Uranium

The July 2013 Request for Offers also sought offers for the sale of certain amounts of uranium hexafluoride that, like the LEU provided to TVA mentioned above, do not meet American Society for Testing and Materials specifications. This “off-spec” material consists of approximately 1,106 MTU contained in 239 cylinders at the Paducah and Portsmouth Gaseous Diffusion Plants. In November 2013, DOE announced that it would enter into negotiations with AREVA for the sale of this inventory.

In 2008, a DOE contractor issued a Request for Proposals for the sale and disposition of off-specification, non-UF
6
uranium located at the Portsmouth Gaseous Diffusion Plant. This inventory consists of approximately 4,461 MTU of uranium in various forms, including metal, oxides, fluorides, and aqueous solutions.

e. Uranium Transfers for Research Applications

DOE also transfers LEU enriched to assays between 5 and 20 wt-% U-235 for domestic and foreign research applications. Most of these transfers are conducted in accordance with section 3112(e) of the USEC Privatization Act, such as transfers to domestic and foreign research reactors; however, some may fall within section 3112(d), such as transfers for use in commercial research and isotope production applications. In general, these transfers do not contribute to any impacts that DOE uranium transfers overall have on domestic uranium industries, because the transfers do not displace commercially supplied uranium, conversion, or enrichment from the market. No commercial supplier is currently capable of providing LEU at these assays, so a research reactor operator would not be able to replace DOE-sourced material by buying uranium hexafluoride and having it enriched to those levels. In general, it would also be technologically infeasible for research reactor operators to replace DOE-sourced high-assay LEU by converting the reactors to use commercial-assay LEU and retain the ability of the reactor to be used for research. Even if these reactors could use LEU (either at high or low assay) from commercial suppliers, the amounts are extremely small. Thus, DOE's supply of high-assay LEU for research applications has at most a
de minimis
effect on the commercial uranium markets, and this analysis therefore does not consider these transfers further.

3. Transactions Under Russian HEU Agreement and Suspension Agreement

As explained below, section 3112(d) of the USEC Privatization Act states that a Secretarial Determination must take into account the sales of uranium under two agreements relating to uranium from the Russian Federation: The Agreement Between the Government of the United States of America and the Government of the Russian Federation Concerning the Disposition of Highly Enriched Uranium Extracted from Nuclear Weapons, Feb. 18, 1993 (“Russian HEU Agreement”), and the Agreement Suspending the Antidumping Investigation on Uranium from the Russian Federation, 57 FR 49220, at 49235 (Oct. 30, 1992) (“Suspension Agreement”).

a. Russian HEU Agreement

The Russian HEU Agreement was originally signed on February 18, 1993, and provided for the purchase over a 20-year period of LEU derived from 500 MTU of weapons-origin HEU from Russia. In total, this material contained the equivalent of almost 400 million pounds U
3
O
8
, 150 million kilograms of uranium (kgU) of conversion services, and approximately 92 million SWU of enrichment services.

The sale of this uranium into the commercial market has not directly involved DOE. The material was actually transferred to the United States through a commercial agreement between the U.S. and Russian Executive Agents. The U.S. Executive Agent—initially the United States Enrichment Corporation, and later the private corporation USEC, Inc.—then sold the LEU into the U.S. nuclear fuel market to commercial utilities.

The USEC Privatization Act altered the implementation of the Russian HEU Agreement. The Act directed the Executive Agent to enter into an agreement to return to the Russian Executive Agent an amount of uranium equivalent to the natural uranium component of LEU received under the agreement after January 1, 1997, or, if the Russian Executive Agent did not enter such an agreement, to auction the uranium.
11

The Act also placed annual limits on the delivery to U.S. utilities of the uranium thus provided to the Russian Executive Agent. Specifically, the Act limited deliveries to no more than 2 million pounds U
3
O
8
equivalent in 1998. The limit increased annually, finally reaching 20 million pounds U
3
O
8
equivalent in 2009 and each year thereafter. 42 U.S.C. 2297h-10(b)(5). The USEC Privatization Act did not place any limit on the delivery of the conversion component of uranium

returned to the Russian Executive Agent or auctioned in the absence of a return agreement. 42 U.S.C. 2297h-10(b)(8). The last deliveries under the Russian HEU Agreement took place in 2013.

11
Under this arrangement, USEC received LEU from Russia, sold the enrichment component, and then returned the natural uranium component in the form of natural uranium hexafluoride to the Russian Executive Agent. The Russian Executive Agent entered into a separate agreement with a consortium of western uranium producers to sell the natural uranium and conversion.

b. Suspension Agreement

In 1991, the Department of Commerce initiated an antidumping duty investigation under the Tariff and Trade Act to determine whether imports of uranium from the U.S.S.R. were being sold into the United States at less than fair value. In 1992, the Department of Commerce entered into an agreement with the Russian Federation (“Suspension Agreement”) suspending the antidumping investigation and establishing export limits on uranium from those countries. 57 FR 49220 (Oct. 30, 1992).

The Suspension Agreement has been amended several times since it first came into force. At the time the USEC Privatization Act was passed in 1996, the Suspension Agreement allowed Russian natural uranium and SWU to be imported only if it was matched with an equal portion of newly-produced U.S.-origin natural uranium or SWU. These “matched sales” were subject to annual volume limits ranging from 1.9 million to 6.6 million pounds U
3
O
8
equivalent between 1994 and 2003. 59 FR 15373, at 15374 (Apr. 1, 1994). The USEC Privatization Act specifically stated that sales of the natural uranium component of HEU under the Russian HEU Agreement were excluded from the Suspension Agreement limits. 42 U.S.C. 2297h-10(b)(6).

The most recent iteration of the Suspension Agreement entered into force in 2008. 73 FR 7705 (Feb. 11, 2008). That agreement provides for the resumption of sales of natural uranium and SWU beginning in 2011. While the HEU Agreement remained active (
i.e.
2011-2013), the annual export limits were relatively small—between 0.4 and 1.1 million pounds U
3
O
8
equivalent. After the end of the Russian HEU Agreement, restrictions range between 11.9 and 13.4 million pounds U
3
O
8
equivalent per year between 2014 and 2020. 73 FR 7705, at 7706 (Feb. 11, 2008).

II. Overview of Uranium Markets

The nuclear fuel market consists of four separate industries: mining/milling, conversion, enrichment, and fabrication. These industries interact in complicated and sometimes counterintuitive ways. In order to analyze the effect on the various industries of introducing a given amount of uranium into the market, it is necessary to understand how uranium is processed into nuclear fuel, how the different aspects of this process interact, and how the consumers of uranium—nuclear reactor owners/operators—procure uranium. This section provides an overview of these industries and markets, beginning with the process for producing nuclear fuel from uranium ore.

A. The Nuclear Fuel Cycle

In order to be useful as fuel for a reactor, uranium must be in a specific chemical form, it must have the correct isotopic concentration, and it must be fabricated into the correct physical shape and orientation. The four nuclear fuel cycle industries—mining, conversion, enrichment, and fabrication—ensure that reactor operators have a steady supply of usable fissile material to fuel their reactors.

1. Mining

The first step in the nuclear fuel cycle is mining. Uranium is relatively common throughout the world and is found in most rocks and soils at varying concentrations. There are two primary methods of mining uranium: Conventional and in-situ recovery. Which method is used for a particular deposit depends on the specific characteristics of the deposit and surrounding rock.

Conventional mining can involve either open pit or underground removal of uranium ore. Once removed from the ground, the uranium ore must be transported to a mill for processing. Many mining operations are located close to mills; where mines are close together, one mill may process ore from several different mines. Once at the mill, the ore is crushed and chemically treated to remove the uranium from the other minerals, a process called “leaching.” The solids are then separated from the solution and dried. The final result is a powdered uranium oxide concentrate, often known as “yellowcake” and predominately made of triuranium octoxide, or U
3
O
8
. This powdered yellowcake can be packed in drums and shipped for the next stage of processing.

An alternative mining process is known as in-situ recovery (ISR). In ISR mining, the uranium ore is not removed from the ground as a solid. Instead, an aqueous solution—either acid or alkali—is pumped into the ground through injection wells, through a porous ore deposit, and back out through production wells. As the solution moves through the ore deposit, the uranium in the ore dissolves or leaches into the solution. Once the uranium-laden solution is pumped out, it is pumped to a treatment plant where uranium is recovered and dried into yellowcake. In order to maintain a stable rate of production, wellfields must be continually developed and placed into production.

There are several key differences between conventional and ISR mines. ISR mining typically has lower costs, both capital and operational. ISR mines also have a shorter lead-time for development. There are other advantages compared to conventional mining such as decreased radiation exposure for workers, reduced surface disturbance, and reduced solid waste. However, ISR mining can only extract uranium located in deposits that are permeable to the liquid solution used to recover the uranium, and the permeable deposit must have an impermeable layer above and below to prevent the solution from leaching into groundwater. To the extent that uranium is located in other types of deposit ISR mining may not be possible.

2. Conversion

The second step in the nuclear fuel cycle is conversion. When yellowcake arrives at conversion facilities it may contain various impurities. The conversion process refines the uranium compounds and prepares it for the next stage.

As discussed in the next section, most nuclear reactors require uranium that is enriched in the isotope U-235.
12

The enrichment process typically requires uranium to be in a gaseous form. To meet this need, U
3
O
8
is converted into uranium hexafluoride (UF
6
), which sublimes—
i.e.
converts directly from solid to gas—at a temperature (at normal atmospheric pressure) of approximately 134 °F (56.5 °C). The UF
6
is then loaded into large cylinders and shipped to an enrichment facility.

12
Some nuclear reactors, particularly pressurized heavy water reactors, use natural uranium.

There are several different processes for converting U
3
O
8
to UF
6
. The two most significant processes are known as the “wet process” and “dry process.” Both processes have three essential steps: Reduction, hydrofluorination, and fluorination. These steps do not differ substantially between the two processes. The main difference between the wet process and dry process is in how they remove impurities. In the wet process, used in facilities in France and Canada, yellowcake is treated with nitric acid, concentrated, and dried into UO
3
powder prior to reduction.
13

In the dry

process, used at the Metropolis Works facility in Illinois, purification takes place at the very end of the process through distillation of UF
6
.
14

13
Port Hope, Ontario, Canada, and COMURHEX Malvési/Pierrelatte, France, use the wet process.
See
AREVA, “Chemical Operations Around the World,”

http://www.areva.com/EN/operations-687/

chemistry-business-unit-sites-around-the-world.html

(accessed Mar. 31, 2015); Cameco, “Port Hope Conversion,”
http://www.cameco.com/fuel_services/port_hope_conversion/
(accessed Mar. 31, 2015).

14
Details on the dry process are described at: ConverDyn, “Honeywell Dry Fluoride Volatility Conversion Process,”
http://www.converdyn.com/product/conversion.html
(accessed Mar. 31, 2015). Although the three most significant western converters use either the wet or dry process, conversion plants in Russia use a slightly different process called the “direct fluorination” method. This method is described in UxC Conversion Market Outlook—December 2014, 8-9 (2014).

3. Enrichment

The third step in the nuclear fuel cycle is enrichment. As found in nature, uranium consists of a mixture of different uranium isotopes. The two most significant isotopes are U-235 and U-238. The relative concentration of the various isotopes of uranium in a given amount is referred to as the isotopic concentration or “assay.”
15

Uranium as found in nature consists of approximately 0.711% U-235, 99.283% U-238, and trace amounts of U-234. Uranium that exhibits the naturally occurring isotopic concentration is called “natural uranium.”

15
The measure of assay is sometimes referred to in terms of “weight-percent” or “wt-%.”

Nuclear reactors typically require uranium that is enriched in the isotope U-235, meaning that it has a higher concentration of U-235 compared to natural uranium. Commercial light water reactors, which are the most common type of nuclear reactor, typically require an assay of 3% to 5% U-235. Uranium enriched in the isotope U-235 is referred to as low-enriched uranium (LEU) if the assay is less than 20% but above 0.711%, and highly-enriched uranium (HEU) if the assay is greater than 20%.

There are many different enrichment processes, but only two have been used commercially: Gaseous diffusion and gas centrifugation. These technologies exploit the mass difference between U-238 and U-235 atoms. In a centrifuge, centripetal acceleration tends to concentrate lighter materials towards the center of the rotation and heavier materials towards the outside of the rotating vessel. The mass difference between a UF
6
molecule with U-238 and one with U-235 is slight, so even at high rotation speeds the concentration changes are small. To achieve a concentration increase from 0.711% to 5%, a facility passes material through many stages of centrifugation. Currently, all commercial enrichment services use gas centrifuge technology; the last commercial-scale gaseous diffusion facility ceased operating in 2013.

After UF
6
arrives from a conversion facility, it can be introduced into the enrichment centrifuges. Material introduced in this manner is referred to as “feed.” The centrifuges then separate the isotopes into varying levels of enrichment and produce two streams of material: Product and tails. The product is the enriched UF
6
output. This LEU is then pumped into a 2.5 ton cylinder and shipped to a fabrication facility. Just as the product stream has a higher proportion of U-235 to U-238 than the original feed, the other stream, the tails, has a lower proportion of U-235 to U-238. This material is referred to as “depleted.” It is pumped into large (typically 10 or 14 ton) cylinders and then stored on site at the enrichment facility for eventual disposal or other use. The assay of U-235 in the tails from an enrichment process depends on what concentration of U-235 was needed in the enriched product and how much natural uranium was used as feed. Typical tails assays range from 0.1% to 0.4%.

4. Fabrication

The final step in the process is fabrication. Almost all nuclear reactors require fuel to be in the form of uranium dioxide (UO
2
). At the fabrication facility, the enriched UF
6
is converted into UO
2
powder, and then formed into small ceramic pellets. These pellets are then loaded into metal tubes and attached together to form fuel assemblies. Fuel design is reactor specific, and thus each fuel assembly is manufactured to the unique specifications of the reactor operator. Although fabrication is an important step in the fuel cycle, this analysis does not cover effects in the fabrication market.

5. Secondary Supply

Uranium that undergoes the above-described four steps without any intermediate use is generally termed “primary supply.” However, there are other sources of uranium available in the market. Uranium from these other sources is collectively known as “secondary supply.” In addition to government inventories of uranium left over from other uses such as weapons production, the most significant secondary supplies come from excess enrichment capacity.

Due to technical constraints, enrichers generally cannot easily decrease capacity that is already constructed and operating. If an enricher were to shut down a centrifuge that is currently spinning, it may not be possible to restart the centrifuge. Due to this possibility, decreasing capacity risks damaging the machines and destroying the substantial capital investment in construction. As a result, enrichers that have unsold capacity will tend to apply the excess enrichment work in one of two ways.

First, enrichers can apply extra separative work to a given amount of feed material, thus extracting more of the U-235. This is known as “underfeeding” because it enables the production of a given amount of enriched product with a smaller amount of feed material. Normally, a purchaser of enrichment services seeking a specific amount of enriched product would need to determine (1) how much natural uranium feed to provide and (2) how much SWU to apply to it. Increasing the amount of enrichment services has a cost, but the additional work will extract more of the U-235 content of the feed material so that less is needed, at less cost. The relationship between the prices of uranium concentrates, conversion, and enrichment can be used to determine the amount of feed and SWU—and thus also the resulting tails assay—that will lead to the lowest cost per kilogram of enriched product. This is known as the “optimal tails assay.” If an enricher knows that it has excess capacity, it may choose to feed in a smaller amount of natural uranium and apply more SWU to that material than was purchased. Thus, the end result is the desired amount of enriched product, depleted tails, and the natural uranium that was delivered to the enricher but was not fed into the enrichment process. The enricher can then sell this natural uranium on the open market.

Second, enrichers can feed depleted tails back into the enrichment process and apply additional separative work to them. This is known as re-enrichment of tails. As described above, the optimum tails assay varies over time as the prices of uranium concentrates, conversion, and enrichment change relative to each other. Over time, depleted tails with relatively high assays may accumulate. An enricher may choose to select the highest-assay tails and feed them back into the enrichment process. These tails can be enriched up to the level of natural uranium (0.711%) or higher. The enricher may then sell the resulting natural uranium or LEU on the open market.

An additional source of secondary supply is from recycled uranium and plutonium either from reprocessing of commercial spent fuel or from weapons-

grade plutonium disposition. The product of these processes enters the fuel cycle and is fabricated into mixed oxide (MOX) fuel. MOX fuel is currently in use in Europe and Japan. Two commercial facilities currently produce MOX fuel in France and in the United Kingdom. Other facilities, such as the J-MOX project in Japan, are either planned or under construction.

6. Note on Units

As discussed above, the different uranium industries use slightly different units. Uranium concentrates are generally measured in pounds U
3
O
8
, conversion services are generally measured in kgU as UF
6
, and enrichment services are measured in SWU.

It is worth noting that the measures of uranium concentrates and conversion services are not identical for several reasons. In addition to the fact that one is denominated according to U.S. customary units and the other is denominated under the international system of units (SI), the measure of uranium concentrates refers to the mass of U
3
O
8
whereas the conversion metric refers only to the mass of the uranium atoms. Only about 85% of the mass of U
3
O
8
consists of uranium. Thus, one kilogram of U
3
O
8
contains approximately 0.848 kgU. Furthermore, converting between pounds U
3
O
8
and kgU as UF
6
must take into account an estimated 0.5% loss during the conversion process. Taking all this into account, one pound U
3
O
8
is equivalent to 0.383 kgU as UF
6
, and one kgU as UF
6
is equivalent to 2.61 pounds U
3
O
8
.

Converting between uranium concentrates or conversion services and enrichment is more difficult because the amount of SWU necessary to produce a given amount of product depends on the desired product assay, the feed assay, and the tails assay. An example will serve to illustrate the significance of different assumptions. Assuming a tails assay of 0.30%, enriching 1,000 kgU as UF
6
of natural uranium to an assay of 4.50% would require approximately 609.7 SWU and would yield 97.9 kgU of enriched uranium; if a tails assay of 0.20% is used instead, enrichment would require approximately 913.9 SWU and would yield 118.8 kgU of enriched uranium.

DOE typically describes its uranium inventory in terms of MTU for natural uranium and MTU “natural uranium equivalent” for depleted and enriched uranium. These terms have a slightly different meaning depending on the form. For natural UF
6
—
i.e.
with an assay of 0.711%—1 MTU would represent 2,610 pounds U
3
O
8,
1,000 kgU as UF
6
of conversion services, and 0 SWU. For enriched or depleted UF
6
, the amount of natural uranium equivalent depends on the assay. For depleted UF
6
, DOE calculates natural uranium equivalent as the amount of natural uranium product that could be produced by re-enriching the depleted material. For the purposes of this analysis, DOE assumes the enrichment process would use a tails assay of 0.20%. As an example, 1,000 MTU of DUF
6
with an average assay of 0.40% would yield approximately 350 MTU natural uranium equivalent. For LEU, DOE calculates natural uranium equivalent as the amount of natural uranium that would be needed as feed material to produce the LEU, given the assay of the LEU and assuming a tails assay of 0.20% and a feed assay of 0.711%. For LEU resulting from down-blending of HEU, DOE then subtracts out the amount of natural uranium feed—“diluent”—that is necessary to down-blend the HEU to the desired product assay. The amount of diluent required is typically equivalent to approximately 10% of the natural uranium that would be needed as feed for enrichment. This subtraction is appropriate for purposes of section 3112(d) analysis to indicate how much natural uranium a given amount of LEU would displace from the market. Because DOE's contractor procures diluent on the market (rather than from DOE inventory) in order to produce the transferred LEU, the transfer displaces that much less commercially supplied natural uranium.

B. The Uranium Markets

1. The Uranium Markets Are Separate

Uranium concentrates, conversion services, and enrichment services can be traded separately. Prices for uranium concentrates are typically quoted in terms of dollars per pound U
3
O
8
. Prices for conversion services are typically quoted in terms of dollars per kilogram uranium (kgU). Prices for enrichment services are typically quoted in terms of dollars per SWU.

A typical transaction may involve a single purchaser purchasing a given amount of uranium concentrate through a contract directly with the mining company. The uranium concentrate is typically delivered directly to a conversion facility rather than to the purchaser. The purchaser will also enter into a separate contract for conversion services. The terms of this contract will require the purchaser to deliver U
3
O
8
to the converter, and the converter will provide UF
6
in return. The UF
6
will then be shipped directly to an enricher. As with conversion, the purchaser will enter into a separate contract for SWU from an enricher. Contracts terms vary, but this contract will likely require the purchaser to deliver a specific amount of natural UF
6
feed and the enricher to deliver a specific amount of UF
6
enriched to the desired assay. This LEU will typically be delivered directly to the fabricator to be made into nuclear fuel.

Although there are separate markets for each step in the process, the different steps are sometimes combined. It is possible to buy natural UF
6
, which would reflect both the uranium concentrate and the conversion services. Similarly, it is possible to buy enriched UF
6
—usually known as enriched uranium product (EUP)—which would reflect all three steps. The price for these products is typically developed by adding the cost of the various steps together. Thus, the price of EUP would be based on the price of an equivalent amount of uranium concentrates, conversion, and enrichment. In practice, however, the price of a product material, like EUP or natural UF6, may occasionally differ somewhat from the sum of the input prices. Because most volume is transacted in long-term contracts, a small price gap may not be eliminated quickly by arbitrage. In addition, the price of a product material reflects transaction and shipping costs needed to move material through the various steps.

In addition, even though the three components are traded separately, there is some interrelationship between the prices. Since optimal tails assay is a function of the relative price of uranium concentrates, conversion, and SWU, changes in one price can lead to shifts in demand and supply in the other markets. Similarly, excess enrichment capacity used for underfeeding or re-enrichment of tails increases supply of uranium concentrates and conversion services. Thus, changes in enrichment supply may contribute to changes in uranium concentrate and conversion prices.

2. Uranium Is Fungible

Although the above represents a typical series of uranium transactions, there are many other potential types of transactions. These other forms are possible because uranium at each stage of the fuel cycle is fungible. As long as the basic characteristics like form and assay are the same, one kilogram of material is essentially the same as any

other.
16

Accounting mechanisms allow the ownership of each kilogram of material to be traceable, and they also allow ownership to be exchanged freely without physically manipulating the material.

16
Other important characteristics include the presence and concentration of contaminants, some of which can render material unusable as nuclear fuel. Industry standards specify the acceptable levels of contamination.

A simple example illustrates the types of transaction that this fungibility enables. After U
3
O
8
is converted into UF
6
, it will typically be shipped to a specific enrichment facility. If the uranium was mined and converted in North America, it will typically be sent to an enricher in North America. However, the purchaser is not necessarily required to purchase enrichment services from the company whose facility the material is shipped to. Instead, the purchaser may be able to exchange ownership of an amount of UF
6
located at a North American enrichment facility with an equivalent amount located at a facility in Europe. This is referred to as a “book transfer.”

An entity can also sell conversion services or enrichment services without actually physically converting or enriching any material. A person that owns enriched UF
6
may enter into a contract to sell SWU whereby it provides the desired amount of enriched UF
6
in exchange for the cost of the SWU and a specific amount of natural UF
6
“feed.” A person can also use natural UF
6
to sell conversion services by exchanging it for the cost of the conversion services plus the equivalent amount of U
3
O
8
.

3. The Uranium Markets Are Global

All three markets are global in nature. Purchasers are able to buy from suppliers worldwide and vice versa. Pricing for uranium concentrates and enrichment are essentially the same worldwide. Shipping costs are relatively low compared to other components of the prices, and the fungibility of the material allows suppliers and purchasers to minimize shipping costs through book transfers.

Although conversion services also trade on a worldwide market, in recent years there has been a persistent difference between prices in North America and those in Europe. DOE believes this stems from a geographical imbalance in conversion capacity relative to enrichment capacity. There is more conversion capacity in North America than enrichment capacity, and conversely in Europe there is more enrichment than conversion capacity. Consequently, there is a regular net flow of conversion services from North America to Europe. Meanwhile, it seems likely that the cost of shipping is larger relative to the conversion price than it is relative to the price of uranium or enrichment—mainly because conversion is the least costly input among the three, roughly $7.50 per kilogram at current spot prices compared to just over $100 per kilogram for uranium in concentrates. DOE believes the price difference between North American conversion and European conversion reflect simply the additional cost of shipping converted material from North America to Europe, together with the fact that net flow is from North America to Europe.

C. The Nature of Demand for Uranium

1. Utility Use of Uranium

The vast majority of uranium in commercial use is fuel for commercial power generation. According to the International Atomic Energy Agency (IAEA), there are 440 commercial reactors operating worldwide, 99 of which are in the United States.
See
IAEA, “Power Reactor Information System,” Mar. 2015,
http://www.iaea.org/pris/
(accessed March 24, 2015). The total installed electricity generation capacity of all reactors worldwide is 378,220 MW
e
(megawatt electrical), 98,638 MW
e
of which is from U.S. reactors.
Id.

Nuclear reactors typically provide what is known as “baseload” electricity supply. This means that nuclear reactors generally operate close to their full practical capacity continuously. Thus, the amount of uranium needed for each reactor in a given year does not generally fluctuate with electricity use patterns. It depends instead on the total capacity of the reactor and the fuel reload schedule. The average reactor capacity worldwide is approximately 860 MW
e
, and the average capacity of U.S. reactors is 996 MW
e
.
Id.
Reload schedules vary, but reactors typically must reload a portion of the total fuel in the core every 18 to 24 months.

According to the World Nuclear Association (WNA), a typical 1,000 MW
e
light water reactor operating today requires approximately 24 MTU of LEU at an assay of 4% each year.
17

At a tails assay of 0.25%, this corresponds to approximately 140,000 SWU of enrichment, 195,000 kgU of conversion services, and 510,000 pounds U
3
O
8
.
See
WNA, “The Nuclear Fuel Cycle,” Oct. 2014,
http://www.world-nuclear.org/info/Nuclear-Fuel-Cycle/Introduction/Nuclear-Fuel-Cycle-Overview/
(accessed March 24, 2015). Reload amounts and schedules differ depending on reactor size and type. Pressurized heavy water reactors, for example, do not require enrichment at all.

17
This is an annual average. Since reactors do not necessarily refuel every year, each reactor would actually require somewhat more than 24 MTU every 18-24 months.

It is also worth noting that nuclear fuel makes up a very small percentage of overall costs for nuclear reactors—typically less than 10%. According to DOE's Energy Information Administration (EIA), for new nuclear generation, variable operations and maintenance costs, which include fuel costs, account for only about 12% of total system levelized costs.
See
EIA, “Levelized Cost of New Generation Resources in the Annual Energy Outlook 2014,” Apr. 2014,
http://www.eia.gov/forecasts/aeo/electricity_generation.cfm
(accessed Mar. 24, 2015). Further, the Nuclear Energy Institute reports that nuclear fuel costs make up about 30% of total operating costs.
See
NEI, “Fuel as a Percentage of Electric Power Production Costs,”
http://www.nei.org/Knowledge-Center/Nuclear-Statistics/Costs-Fuel,-Operation,-Waste-Disposal-Life-Cycle/Fuel-as-a-Percent-of-Production-Costs
(accessed Mar. 30, 2015).

2. Uranium Requirements

The amount of fuel necessary to keep a reactor operating is relatively predictable. Although there is always the possibility of unplanned outages, reactor operators generally know how much enriched uranium they will need. The amount of uranium needed to fuel operating reactors is generally referred to as “requirements.” Small uncertainties in predictions about requirements are possible in the short run because an operator can vary its need for fuel to some degree by changing operating conditions.

For a given reactor operator, this predictability enables the operator to purchase uranium, conversion, and enrichment on long-term contracts. These contracts often have first delivery as much as five years in the future and can extend as long as ten or even fifteen years from the contract date. In addition, because shutting down a reactor for refueling is a complex and carefully orchestrated process that requires extensive planning, a reactor operator generally has strong incentives to ensure well in advance of each refueling that the reactor will be sufficiently supplied with fuel. Long-term contracts help meet that goal by providing a reactor operator guaranteed quantities of supply. Consequently, the vast majority of purchases of uranium concentrates, conversion, and

enrichment are through term contracts—above 80%. The specific proportions of short-term versus long-term contracts are discussed below in Section II.E.1.

Aggregate requirements are also relatively predictable. However, long-term projections of future requirements must take into account changes in requirements from short-term outages, permanent shutdowns, and new reactor construction. Various entities develop and publish projections of future uranium requirements based on different assumptions about the rates of these changes, as well as different assumptions about operating conditions like reload schedules and fuel utilization (“burnup”), and about the possibility of unplanned outages or other temporary fluctuations in nuclear fuel use. These forecasts typically are based only on the nuclear fuel expected to be used in operating reactors; they do not include purchases of strategic or discretionary inventory.

3. Requirements Versus Demand

Demand for uranium, conversion, or enrichment is generally not the same as reactor requirements in a given year. Some sources of demand are either in excess of or unconnected to reactor requirements. For example, many reactor operators hold strategic inventories of uranium beyond their requirements. This material provides flexibility in the event of a supply disruption. Different operators may have different strategic inventory policies, and those policies will shift over time. Changes in the level of strategic inventories held by individual reactors can produce additional demand or remove demand. Demand from reactor operators purchasing uranium for strategic inventory is commonly referred to as “discretionary demand.”

There are a number of market participants that are currently building inventory well above the strategic inventory that is typical of other operators. China, for example, has in recent years purchased as much as three times its current annual requirements. Japanese reactors have also been building inventory well in excess of requirements. Many Japanese reactors were shut down following the accident at the Fukushima Daiichi nuclear power plant in March 2011. Even though the reactors are not currently operating, many Japanese operators have continued to receive contracted deliveries of uranium.

In addition to reactor operators purchasing in excess of demand, there are a number of market participants that do not operate reactors at all. These include traders, brokers, and investment funds. These entities may purchase uranium when prices are low and resell it to reactor operators under future delivery contracts or hold uranium inventory until prices increase.

These activities mostly involve only uranium concentrates. However, some purchases in excess of requirements involve natural UF
6
or EUP. Thus, this behavior typically affects demand for uranium concentrates much more than it affects conversion and enrichment demand.

Finally, changes in optimal tails assay can affect demand in a given year. Estimates of future reactor requirements typically assume a specific tails assay for enrichment. However, if enrichment prices change relative to uranium concentrate and conversion prices, some purchasers may have flexibility to specify a different tails assay for enrichment. This changes the amount of uranium concentrates, conversion, and SWU that are necessary to produce a given amount of fuel.

4. Price Elasticity of Demand

Price elasticity of demand is an economic measure that shows how the quantity demanded of a good or service responds to a change in price. If purchasers are highly responsive to changes in price, demand is relatively elastic. If purchasers are weakly responsive to changes in price, demand is relatively inelastic. If purchasers demand the same amount regardless of the price, demand is perfectly inelastic.

In general, demand for uranium, conversion, and enrichment are relatively inelastic. Since requirements are largely fixed, changes in price have a weak effect on demand. However, uranium markets exhibit different degrees of elasticity on different time frames.

a. Short Term

In the short term, DOE expects that demand is more elastic than in the medium and long terms. Some of the behaviors discussed in the previous section are responsive to short term changes in price. Traders and investment funds are more likely to make speculative purchases when prices are low. Similarly, large-scale strategic buying, as China is doing, has corresponded with a period of very low prices. It seems likely that these purchases would decrease if short term uranium prices increased substantially.

These practices may be somewhat counteracted by the behavior of utilities. Although some utilities choose to build inventories when prices are low, others do the opposite. Somewhat counterintuitively, some reactor operators actually purchase less strategic inventory when prices are low. This appears to be related to perceptions about long-term security of supply. When prices are high, it may suggest scarcity in long term supplies. When prices are low, this may signal that long term supplies are relatively secure. Thus, reactor operators may paradoxically purchase more strategic inventory when prices are high.

As mentioned above, these behaviors are much more prevalent in the uranium concentrates markets. Demand in the conversion and enrichment markets may therefore exhibit less elasticity in the short term than the uranium market.

b. Medium and Long Term

DOE expects that demand in the medium and long term is less elastic than in the short term. Indeed, in the medium term, demand for long-term contracts may actually increase, relative to spot purchases, as prices rise. As discussed above, fuel costs represent a very small portion of the overall cost of nuclear power.

Conversely, the cost of not having fuel can be very high, because the economics of nuclear reactors—
i.e.
large up front capital costs and low marginal operating costs—incentivize operators to operate more or less continuously. Compared to the opportunity cost of an extended period where the reactor is not generating electricity, fuel costs are relatively small. Typically, fuel costs are about 1 cent per kilowatt hour generated, while the market value of the electricity is between 5 and 8 cents per kilowatt hour.

An increase in prices generally indicates a tightening of supply relative to demand. That signal can encourage reactor operators to increase, rather than decrease, long-term contracting to ensure future fuel supplies in the face of the anticipated tightening. The additional cost of a high-priced contract may be less important than the avoided risk of not having enough fuel. As a possible example of such behavior, long-term contracting for uranium concentrates increased significantly in 2005 and remained high in 2006 and 2007 as prices rose from approximately $20 per pounds in 2004 to over $90 in 2007; long-term contracting activity then fell in 2008 and 2009 as term prices fell from above $90 to closer to $60.

In the long term, elasticity of demand for nuclear fuel would reflect decisions about whether to construct new reactors or shut down existing reactors in response to long-run prices for fuel. This contribution to elasticity is likely to be small. Because fuel costs are such

a small portion of the overall cost of nuclear power, even a large increase in fuel price would be unlikely to significantly affect decisions about new reactor construction. Meanwhile, for existing reactors the capital costs are “sunk.” And ongoing variable fuel costs for nuclear power are, at current prices, lower than for most other types of generation.
18

Thus, among existing plants, it would take a very large increase in the cost of fuel to influence a decision about whether to shut down a reactor early.

18
Variable costs are higher for fossil fuel technologies by a factor of 4 for natural gas, and by a factor of almost 3 for conventional coal. The only technologies with lower variable costs are geothermal, wind, solar, and hydro.
Id.

As noted above, plans for reactor construction do change over time, so that uranium requirements will evolve over time. Demand for uranium is not constant. However, the changes in long-term demand are unlikely to be responses to uranium price signals. For these reasons, the analysis below will assume that medium- and long-term demand has low elasticity.

D. The Nature of Uranium Supply

1. Primary Versus Secondary Supply

As explained above, supply of uranium concentrates, conversion, and enrichment includes both primary and secondary supply. According to charts developed by uranium market consultancy ERI, total production of uranium concentrates in 2015 and 2016 will be approximately 190 million pounds U
3
O
8
. 2015 ERI Report, 9.
19

Secondary supply is expected to total approximately 40 million pounds, about 20% of the total. Over half of secondary supplies of uranium concentrates come from enricher underfeeding and tails re-enrichment. Other sources of secondary supply include DOE inventory, plutonium/uranium recycle (MOX), and other commercial inventories. 2015 ERI Report, 80. Prior to 2014, the natural uranium component of LEU delivered under the Russian HEU Agreement represented a significant source of secondary supply. This program ended in 2013. Consequently, natural uranium from Russian HEU is no longer a significant source of secondary supply.

19
DOE tasked ERI to assess the potential effects on the domestic uranium mining, conversion, and enrichment industries of the introduction into the market of DOE excess uranium inventory. ERI's analysis of these effects is contained in the 2015 ERI Report. ERI's analysis is based in part on information it collects to develop its forecasts for annual reactor requirements, uranium demand, and uranium production. ERI develops these forecasts for various customers. The references to information from ERI in Section II are generally based on this type of information rather than on ERI's economic analysis of these data specifically for DOE. Because of ERI's expertise in the uranium markets and contacts with market participants, DOE believes ERI's general market information is reliable.

For conversion services, ERI expects that primary supply in 2015 and 2016 will total approximately 65 million kgU as UF
6
, with secondary supply representing between 15 and 16 million kgU or about 25%. 2015 ERI Report, 14. As with uranium concentrates, over half of secondary supplies of conversion come from enricher underfeeding and tails re-enrichment. Other sources of secondary supply include DOE inventory, plutonium/uranium recycle (MOX), and other commercial inventories.
Id.

For enrichment services, ERI expects that primary supply in 2015 and 2016 will total approximately 63 million SWU, with secondary supply representing between 4 and 5 million SWU or about 8%. 2015 ERI Report, 16. Unlike uranium concentrates and conversion services, underfeeding and tails re-enrichment do not constitute a secondary supply of enrichment because those processes utilize enrichment capacity. Sources of secondary supply of enrichment include DOE inventory, plutonium/uranium recycle (MOX), and other commercial inventories.
Id.

2. Price Elasticity of Supply

Price elasticity of supply measures how the quantity supplied of a good or service responds to a change in price. If suppliers are highly responsive to changes in price, supply is relatively elastic. If suppliers are weakly responsive to changes in price, supply is relatively inelastic.

Enrichment services are relatively inelastic, and conversion services are complicated by pricing phenomena described below. With respect to uranium concentrates, the level of elasticity in the uranium markets varies depending on the time frame, just as demand elasticity does.

a. Short Term

In the short term, supplies of uranium concentrates from primary producers are relatively inelastic. There is some limited capability for mines to decrease production. Conventional mines may choose to continue operation and stockpile uranium ore without milling it into yellowcake. ISR mines require constant development of new wellfields; these mines may slow production gradually by slowing wellfield development. These measures may take many months. Thus, in the short term, mines will be weakly responsive to changes in price. In contrast, secondary sources of uranium concentrates may respond more to changes in price. Underfeeding and tails re-enrichment, for example, depend on the relationship between SWU and uranium concentrate prices. In the short-term, enrichers cannot increase or decrease capacity, but they can quickly shift how much capacity is devoted to underfeeding versus primary enrichment.

Primary supply of conversion services is relatively inelastic in the short term. Conversion plants typically have high fixed production costs. Thus, there is relatively little incentive to change production in response to changes in price. (As discussed below, conversion supply has fluctuated in recent years; but those changes were not necessarily caused by price changes.) Secondary supplies of conversion, however, are more able to respond to changes in price. Underfeeding and tails re-enrichment results in natural UF
6
, which includes both uranium concentrates and conversion services. Since the price of uranium concentrates is a larger proportion of the value of that UF
6
, secondary supplies of conversion from these two sources can be expected to respond more strongly to the uranium concentrates price than to the conversion price.

Primary supply of enrichment is also relatively inelastic in the short term. As discussed above, enrichers typically cannot remove machines from production due to technical concerns. Enrichers also cannot bring additional machines online in the short term to respond to changes in price because it takes several years to add new machines. Secondary supply of enrichment is a smaller proportion of the total supply than for uranium concentrates or conversion services. In addition, enrichers can change the amount of capacity devoted to primary enrichment as opposed to underfeeding. These supplies are more able to respond to changes in price.

b. Medium and Long Term

In the medium and long term, primary supplies of uranium concentrates and enrichment should be more elastic than in the short term. Producers can develop and install additional capacity in response to projections that prices will increase. These decisions, however, typically involve very long time frames. It may take several years of active development before a new mine may begin production. New enrichment and conversion capacity may take on the order of ten years.
20

Alternatively,

producers can reduce production and accelerate plans to retire capacity if prices are projected to decrease. URENCO, for example, has chosen to retire enrichment capacity at its European facility without replacement.
See
2015 ERI Report, 16.

20
Louisiana Energy Services, LLC, now a subsidiary of URENCO, submitted a license

application for a gas centrifuge enrichment plant in late 2003. The facility, known as Urenco USA (UUSA), began operation in mid-2010, almost seven years after the license application was submitted. Given the licensing process, planning for the facility would have had to have begun well before the license application was submitted. Similarly, the timeline for AREVA's COMURHEX II conversion project included feasibility and design studies taking place between 2004 and 2007, with full production capacity reached in 2015. AREVA, “COMURHEX II: Investing for the Future,” Nov. 2010, available at
http://www.areva.com/mediatheque/liblocal/docs/activites/amont/chimie/plaket%20CXII%20GB%20MD.pdf.

E. Uranium Prices

Uranium markets function in two ways, broadly speaking: Short-term deliveries, called the spot market, and longer-term commitments, called the term market.

1. Spot and Term Prices

For all three markets discussed here, there is a price for an immediate delivery, called the spot price, and a price for long-term contractual commitments, commonly called the term price. The vast majority of purchases on these markets are through term contracts. According to data from EIA, over 80% of purchases of uranium by U.S. owners and operators of nuclear power reactors in 2013 were through term contracts.
21

EIA, 2013 Uranium Marketing Report, 3 (2014). In addition approximately 97% of enrichment services purchased by U.S. owners and operators in 2013 were through term contracts.
Id.
at 46. EIA does not report data on conversion contracts. Ux Consulting Company, LLC (UxC), a private consulting firm, publishes data on spot and term contract volume for conversion services. According to UxC, deliveries in 2013 under term contracts—[REDACTED]. UxC Conversion Market Outlook—December 2014, 36 (2014). In contrast, spot contract volume in 2013 [REDACTED].
Id.
at 26. Thus, term contract deliveries represented [REDACTED] of 2013 deliveries of conversion services.

21
EIA defines these contracts as those having one or more deliveries to occur after a year following contract execution.

Several commenters say that medium-term futures contracts have increased in importance in recent years. Such a contract entitles a buyer to delivery of material at a future date between one and a few years after contract execution. The commenters observe that these contracts differ from traditional term contracts in that they involve one-time-only deliveries and that buyers ordinarily do not use them to secure long-term fuel supplies. In a sense, the commenters suggest, these contracts form an extension of the spot market to deliveries up to a few years in the future.

2. Price Information

Unlike many other commodities, most uranium contracts are not traded through a commodities exchange. Instead, a handful of entities with access to the terms of many bids, offers, and contracts develop what are called “price indicators” based on those transactions. Two private consulting firms—UxC and TradeTech, LLC (TradeTech)—publish monthly spot and term price indicators for uranium concentrates, conversion, and enrichment. Both also publish weekly spot price indicators for uranium concentrates.
22

Note, however, that the UxC and TradeTech indicators do not necessarily summarize completed transactions. They may be based only on offers. The UxC and TradeTech price indicators are influential; industry practice is generally to price sales contracts based on one or both of these price indicators.

22
The Euratom Supply Agency (ESA) also publishes spot and term price indicators for U
3
O
8
based on deliveries to EU utilities. These prices are published annually rather than monthly or weekly.
See
ESA, “ESA Average Uranium Prices,”
http://ec.europa.eu/euratom/observatory_price.html
(accessed Mar. 25, 2015).

There are also a number of related published prices for U
3
O
8
. These include a Broker Average Price (BAP) and a Fund Implied Price (FIP), both published by UxC. The former is based on pricing data from “commodity style” brokers that have agreed to provide information to UxC and the latter is based on the traded value of the Uranium Participation Corporation (UPC) compared to its uranium holdings.
23

UxC Uranium Market Outlook—Q4 2014, 35-37 (2014). Futures contracts for U
3
O
8
are also traded through CME/NYMEX. Through this platform, futures contracts are traded with delivery dates ranging from a month to five years.
See
UxC, “CME/NYMEX Uranium Futures (UX) Contract,”
http://www.uxc.com/data/nymex/NymexOverview.aspx
(accessed Mar. 25, 2015); CME Group, “UxC Uranium U3O8 Futures Quotes,”
http://www.cmegroup.com/trading/metals/other/uranium.html
(accessed Mar. 25, 2015).

23
UPC is a publicly traded holding company that invests substantially all of its assets in uranium. 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
http://www.uraniumparticipation.com/i/pdf/ppt/UPC-Investor-Update-August-2014.pdf.

III. Analytical Approach

As noted above, section 3112(d) states that DOE may transfer “natural and low-enriched uranium”
24

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 this analysis considers in the section 3112(d)(2) assessment.

24
In the nuclear industry, the term “natural,” with respect to uranium, ordinarily refers to material that contains the various uranium isotopes in their naturally occurring concentrations—most significantly, U-235 at 0.711 wt-%. Uranium can be converted into many different physical or chemical forms without necessarily altering the isotopic concentrations, and in common usage any physical or chemical form with the naturally occurring concentrations is called “natural uranium.” Although the USEC Privatization Act does not define the term, it appears to use “natural uranium” in accordance with its customary technical meaning. In particular, section 3112(a) refers to “natural uranium concentrates” and “natural uranium hexafluoride” as being species of “uranium.” This usage indicates that being “natural” is a characteristic that cuts across chemical and physical form, and confirms that “natural” does not refer to the form in which uranium is found in nature (uranium ore). Moreover, section 3112(d) establishes prerequisites for a transfer of “natural uranium.” If “natural uranium” were only a particular physical or chemical form, the Department would be permitted to transfer other forms of uranium without regard to the section 3112(d) conditions. For example, if “natural uranium” meant uranium concentrates, DOE need not make a section 3112(d)(2) determination before transferring uranium hexafluoride. DOE believes such a limited understanding of “natural” would not best serve the purposes of section 3112. Accordingly, DOE understands “natural uranium” to refer to the isotopic concentrations, regardless of the physical or chemical form.

One commenter has argued that section 3112 does not permit DOE to transfer uranium hexafluoride (except pursuant to section 3112(b)). According to the commenter, “natural uranium” as used in section 3112(d) does not include uranium hexafluoride, at any isotopic concentration. For the reasons just given, DOE interprets “natural uranium” section 3112(d) to encompass transfers of uranium hexafluoride with the naturally occurring isotopic concentrations.

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 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.
25

Uranium transactions can take myriad forms, and the effect of any given transaction on any one or all of these industries will depend 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.

25
Some commenters objected that the meaning of “adverse material impact” cannot change depending on circumstance. DOE did not suggest that it would alter its interpretation of the statutory language over time. But statutory interpretation is not simply a matter of supplying for one word, like “material,” a longer recitation drawn from a dictionary. Applying a statute to a given factual circumstance inevitably involves an exercise in interpretation, and no verbal formula developed
ex ante
can answer all questions that may arise. Indeed, some phrases are, by their nature, best “given concrete meaning through a process of case-by-case adjudication.”
INS
v.
Cardoza-Fonseca,
480 U.S. 421, 446 (1987). “Adverse material impact” is such a phrase.

Thus, the Department 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 Department is responsible for analyzing relevant information in light of the statutory text and purposes to determine whether a particular sale or transfer will have an “adverse material impact” on the domestic uranium mining, conversion, or enrichment industry.

To make that assessment, DOE must first articulate what is the “domestic industry” for each of these markets. DOE interprets the word “domestic” to refer to activities taking place in the United States, regardless of whether the entity undertaking those activities is itself foreign. Hence, a facility operating in the United States would be part of “domestic industry” even if the facility is owned by a foreign corporation. DOE believes that the phrase “uranium mining, conversion or enrichment industry” includes only those activities concerned with the actual physical processes of mining, converting, and/or enriching uranium. Thus, acting solely as a broker for material mined, converted, or enriched by other entities does not constitute part of the domestic “industry.” The relevant purpose of section 3112(d) is to help preserve, to the degree possible, viable mining, conversion, and enrichment capacity in the United States. That purpose depends on the actual operation of facilities. To that end, DOE believes “domestic industry” should also include, to some extent, activities to develop and activate a facility in the United States, even if the facility has not yet entered production.

One commenter suggested that DOE should interpret “domestic . . . industry” to include secondary suppliers and supply chain companies, including remediation, reclamation, decontamination, decommissioning, and waste management. NIPC Comment of Fluor B&W Portsmouth (FBP), at 2-3. DOE believes that these other entities should not be included because doing so would not be necessary for the purpose noted above of preserving viable mining, conversion, and enrichment capacity in the United States. Participants in those industries need various services and supplies to be available, but they need not as a general matter obtain those services or supplies from domestic suppliers.

Next, DOE elaborates 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.
26

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 of whether DOE made a particular transfer, it would ill serve the purposes of the USEC Privatization Act for section 3112(d) to block the transfer.

26
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).

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.

Some commenters agreed that DOE's approach is reasonable. But other commenters believed DOE's approach amounted to saying DOE could justify a transfer solely on the basis that it has less impact than other factors. These commenters appear to have misunderstood DOE's analytical approach. DOE has not suggested that it will compare the impact of its transfers to the impact of other factors and consider an impact from its transfers “material” only if it is larger than others. Rather, DOE simply believes that if a given state of affairs would exist whether or not DOE made a certain transfer of uranium, that status should not be regarded as an “impact” that the transfer “ha[s],” for purposes of section 3112(d). Other comments argued that it should not be relevant whether a given negative outcome for domestic industry would occur independent of DOE's transfers. DOE disagrees. If, for example, a set of industry participants have halted plans to invest in production, and they would maintain that position with or without DOE transfers, it is appropriate under section 3112(d) to conclude that the transfers do not “have” the abandoned investments as an “impact.”

Commenters also suggested that DOE should not try to “justify” transfers on the ground that DOE transfers “are not the driver of the current negative state” of domestic uranium industries. Whether DOE's transfers are the “driver” of an industry's current state is not directly at issue. The statute uses the future tense; it directs DOE to determine, before a transfer, that the transfer “will not have an adverse material impact.” Thus, DOE's task is to make a prediction, before engaging in a transfer, about what consequences will flow from that transfer in the future. What contribution past transfers have made to the existing situation can be important for informing DOE's predictive judgment, and this analysis appropriately considers such matters. But whether or how DOE's past transfers caused or contributed to current circumstances is not, itself, the question that section 3112(d) poses.

DOE recognizes that causation can be difficult to determine, especially with respect to something as complex as a set of three interlocking markets and industries being possibly affected by DOE transactions that may vary over

time. It will often not be possible to have certainty that past transfers did or did not cause a present state of affairs, and it will be less certain that a possible future outcome was actually the result of DOE transfers. Accordingly, DOE does not interpret the statute to require certainty about what impacts its transfers will or will not have. DOE will regard its transfers as having as impacts, for purposes of section 3112(d), the consequences that can reasonably be attributed to the transfers.

DOE also notes that the statute directs DOE's attention to the “impact” on “industry.” Consistent with common understandings of these words, DOE believes a section 3112(d) analysis should address the actual effects on each industry. A set of transfers may have various influences on a given market (for uranium, conversion, or enrichment), but section 3112(d) does not instruct DOE to assess effects on the markets. Of course, market effects will be the most common mechanism through which transfers have impacts, if any, on domestic industry. But DOE will focus ultimately on the impacts to industry, rather than the market effects in the abstract. For example, if a hypothetical domestic company had locked in prices for the next ten years in long-term contracts, a decrease in prices during that time would not have an adverse impact on that company. Indeed, the price decrease could ultimately be beneficial to that company, if competitors were more exposed to and thus suffered greater harm from the price change.

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 takes “adverse material impact” to mean harms that go beyond the effects of 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 section 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. Instead, the USEC Privatization Act explicitly directed DOE to transfer various quantities of uranium to market participants and permitted certain other transfers. 42 U.S.C. 2297h-10(b)(2), (c) & (e).

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 content of the Russian material. The limits started at 2 million pounds U
3
O
8
equivalent in 1998, and increased by 2 million pounds each year reaching a maximum of 20 million pounds U
3
O
8
equivalent in 2009 and each year thereafter. 42 U.S.C. 2297h-10(b)(5).
27

For comparison purposes, this last figure represented over four times the volume of U
3
O
8
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 section 3112(b) transfers that would have been inconsistent with the policy goals of section 3112(d).

27
Sales under the Russian HEU Agreement ceased at the end of 2013.

Indeed, the structure and legislative history of section 3112(b) confirm that the schedule for Russian material's entering domestic markets reflects Congress's balancing of concerns similar to those that motivated section 3112(d)(2). Congress could have simply allowed all Russian material into the United States without limitation. Instead, Congress provided a schedule that ramped up over a period of 20 years. Congress evidently balanced the competing concerns of providing a market for down-blended 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.

The preceding discussion is not intended automatically to support transfers of up to 20 million pounds under section 3112(d). DOE must exercise judgment as to whether a given set of 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 expected would not cause “adverse material impact.”

B. Comments on DOE's Interpretation of Section 3112(d)(2)

Several commenters stated their belief that DOE's understanding of “material” sets an impermissibly high bar and would make the section 3112(d)(2) restriction meaningless. NIPC Comments of ConverDyn, at 3; NIPC Comment of UPA, at 3. DOE clarifies that it does not read section 3112(d)(2) to mean that an impact must threaten the viability of an industry to be “material.” That example illustrates a type of impact that would be material, but other impacts could, depending on the circumstances, also be material. Exactly what impacts would rank as “material” cannot be specified in advance; as noted above, “adverse material impact” is a phrase the meaning of which is best developed by applying it to specific situations, as in the analysis below. DOE does believe that “adverse material impact,” in section 3112(d)(2), should be taken to mean harmful effects of great consequence, and it adheres to the view that effects comparable to what would result from ordinary market fluctuations will usually not qualify as “material.” As the example of the Russian uranium supply authorized by section 3112(b) illustrates, Congress contemplated that the government would affect uranium markets to a substantially greater extent than do commercial market participants. In addition, the USEC Privatization Act left DOE with a large inventory of

surplus uranium. Section 3112 reflects an intent to enable DOE to reduce that inventory—and the associated storage costs the government bears—while making productive use of the uranium, so long as the domestic industries are adequately protected from harm. That framework does not suggest that DOE should be limited to the scale of participation of a typical commercial market participant.

Some commenters also stated that “material” should mean any impact that is greater than
de miminis.
NIPC Comment of ConverDyn, at 4; NIPC Comment of UPA, at 3-4. This suggestion is at odds with ordinary methods of statutory interpretation. Because an effect that was only
de minimis
would not really be an adverse impact at all, the word “material” would add little if it simply reinforced the point that section 3112(d) is concerned only with non-trivial effects. In addition, the suggested interpretation would make section 3112(d) largely irrelevant to DOE transfers as a practical matter. Nearly every transfer has some nontrivial impact on some segment of the industry; if DOE could transfer uranium pursuant to section 3112(d) only when the forecast impacts were
de minimis,
it would make use of section 3112(d) rarely if at all.
28

DOE believes section 3112(d) was meant to be a practical mechanism for managing the uranium inventory subject to certain constraints, not a restriction so severe it becomes a virtual dead letter. Consistent with that view, section 3112(e)(2) permits DOE to transfer enriched uranium in any quantity to any person “for national security purposes.” It would be odd for Congress to commit such open-ended authority to DOE, with such extensive discretion, for one type of transfer, while simultaneously constricting section 3112(d) transfers to essentially zero. For these reasons, DOE rejects the suggestion that any impact that is more than
de minimis
is material.

28
DOE has identified one type of transfer for which the impacts, if any, may truly be
de minimis,
namely the transfers of high-assay LEU for research reactors mentioned above in section I.D.2.e. The rarity of this circumstance demonstrates the point.

Commenters also cited examples of other meanings of “material,” particularly in statutes that include definitions for the term. There is no such definition in the USEC Privatization Act, however. These examples confirm that “material” can have a variety of meanings, depending on context, but are of little help for identifying a specific meaning for the phrase “adverse material impact” in the particular context of section 3112(d)(2).

Commenters also contended that DOE's transfers would have material impacts because they would affect prices or profits by a given percentage. To the extent commenters tied these claims to specific arguments why the given numerical effects are material in current circumstances, DOE addresses those arguments below. However, some commenters appear to believe that a change in price or profits is material solely because it exceeds some threshold percentage. DOE does not believe such rigid formulas are appropriate. First, as discussed above, DOE's task under section 3112(d)(2) is to predict impacts on the domestic industries, not just market effects. How much a given change in price affects an industry depends on the circumstances, including the degree to which industry members are exposed to that price change. Second, whether a given impact is material will generally depend on the circumstances as well. As a hypothetical example, suppose a transfer had the consequence of forcing a production facility to close. That outcome might not rank as a material impact on the industry if the facility were one out of fifteen facilities industry-wide and the others were in good financial condition.

With respect to the relationship DOE observes between section 3112(d) and uranium permitted under the Russian HEU Agreement, several commenters objected to DOE's observation, for several reasons. NIPC Comments of ConverDyn, Uranerz, and UPA. Some argued that the language in section 3112(d)(2) directing DOE to “take account” of the Russian HEU Agreement was meant only to ensure the viability of the Agreement. Under this view, section 3112(b) was the more important provision because it permitted the reduction of weapons stockpiles. Congress knew that section 3112(b) sales might severely disrupt domestic industries, and, the argument continues, it did not want section 3112(d) transfers to interfere with the proce

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2015-11035. Public record. Not legal advice.