**Marvin Fertel**

**Executive Vice President and Chief Nuclear Officer**

**Nuclear Energy Institute**

**Written Testimony**\
**U.S. Senate**\
**Committee on Energy and Natural Resources**

**Washington, D.C.**\
**March 5, 2008**

Chairman Bingaman, ranking member Pete Domenici, and distinguished
members of the committee, I am Marvin Fertel, Executive Vice President
and Chief Nuclear Officer at the Nuclear Energy Institute (NEI). I am
honored to address the subcommittee on the subject of the Russian
Suspension Agreement (RSA).

NEI brings together and is responsible for developing policy for the
U.S. nuclear industry. NEI's 307 corporate and other members represent a
broad spectrum of interests, including every U.S. electric company that
operates a nuclear power plant, the existing U.S. enricher and all
proposed U.S. enrichers, the sole U.S. convertor, and the major U.S.
uranium miners. NEI's membership also includes suppliers, engineering
and consulting firms, national research laboratories, manufacturers of
radiopharmaceuticals, universities, labor unions, and law firms.

The United States faces major demand for new base-load electricity
generation. The Administration and Congress both have recognized that
nuclear power plants are critical to meeting electricity supply and for
addressing climate change issues. The 104 operating nuclear power plants
represent about 11% of installed capacity; however, they provide nearly
20% of electricity demand. In response, the nuclear industry is in an
expansion mode. One of the strengths of the nuclear option relative to
other energy sources is forward price stability. In the face of rising
energy costs to consumers, ensuring a predictable, reliable nuclear fuel
supply is essential to being able to continue to offer the benefits of
nuclear energy to our electricity consumers. Expansion of nuclear energy
is also occurring throughout the world. The International Atomic Energy
Agency is protecting about a 15% increase in the number of operating
reactors by 2020. This world wide expansion requires the expansion of
the world suppliers of nuclear fuel cycle services. This is why it is
important for U.S. utilities to have access to international suppliers.

In 2007 utilities submitted to the NRC combined license applications for
7 new nuclear power plants and additional announcements account for 24
more plants. This expansion is predicated on a reliable and economically
competitive nuclear fuel supply. Numerous mining and milling companies
have reactivated or have submitted applications to states and/or the
Nuclear Regulatory Commission (NRC) for uranium mines and mills. In 2007
Converdyn, working with Honeywell, increased the conversion capacity of
the Metropolis, IL facility. USEC has licensed a new enrichment facility
which is currently in the demonstration phase, LES has licensed and
begun construction of a new enrichment facility, and AREVA and General
Electric have both announced plans for new enrichment facilities. The
billion of dollars in financing for these facilities is proceeding under
existing law. It is critical to the utilities, nuclear fuel suppliers,
and the country that everyone succeeds. In this environment, the RSA
must be viewed in terms of the overall fuel supply market and how
perturbations in one facet of the market can have ramifications across
all sectors.

Our comments today are based on the following principles:

1.  It is critical from both a non-proliferation and a U.S. nuclear fuel
    reliability perspective that the existing U.S./Russian HEU Agreement
    be fully and efficiently implemented through completion in 2013.

2.  It is desirable to modernize and expand the economical and reliable
    domestic uranium and conversion service capabilities.

3.  It is desirable to modernize and expand economically competitive and
    reliable domestic enrichment capacity as currently being pursued by
    USEC, LES, AREVA, and GE and any others that might want to locate in
    the US.

4.  Given that the U.S.-Russian HEU Agreement will be fulfilled by the
    end of 2013, it is necessary, for reliability of nuclear fuel
    supply, that U.S. nuclear power plants have access to the global
    nuclear fuel supply market including uranium, conversion, and
    enrichment. Even with the expansions previously cited, domestic
    supply will not be sufficient to meet all U.S. needs by 2013.

A key responsibility of NEI is to work together with all sectors of the
industry to develop positions on government policies that support the
overall health of the entire nuclear energy enterprise. In the area of
fuel supply, a healthy tension always exists between the interests of
buyers and suppliers. NEI has been able to successfully bring them
together in preparing input to the U.S. government. The greatest
assurance of market stability is multiple suppliers. Our primary goal
with respect to the fuel market is to create as much certainty in the
marketplace as possible. This certainty is important to the development
and deployment of new properties for all components of the fuel supply
chain. Competition among all suppliers is a good thing. Certainly the
U.S. suppliers want access to sell in the broad international market,
and utilities want to be able to buy internationally as well.

Today's situation in Russian is quite different from what existed when
the RSA first came about. At that time, Russia was still functioning as
a non-market economy. Today it is on the verge of ascension to the World
Trade Organization, and its energy resources form a major component for
its continued economic growth.

Well before the current amendment to the RSA was signed, the U.S.
industry had discussions about what might constitute acceptable
quantities of Russian commercial material entering the U.S. market. The
quantity limits for Russian exports to the U.S. now contained in the RSA
are reasonably consistent with what the industry had discussed. The
provision that states that the Department of Commerce can allow
additional imports in case of supply emergencies provides an important
way to ensure adequate supply. The RSA also provides for a needed
transition period for getting from our current reliance on Russian
supplies under the U.S.-Russian HEU Agreement to what will be required
once that Agreement terminates in 2013. Post-2013, access to Russian
commercial enrichment will be essential.

The material supplied in the U.S. under the U.S.-Russian HEU Agreement
has formed a vital part of the enrichment supply for U.S. reactors over
the term of the agreement, at times providing more than 50 percent of
our annual enrichment requirements through sales by the U.S. executive
agent, USEC. We will continue to rely on this material through the
completion of the existing agreement in 2013. Yet while we have every
expectation that the Russians are committed to fulfilling their
obligations under the existing agreement, the Russians have been very
clear that they do not intend to seek an extension of the agreement.
This agreement that established this significant source of supply for
U.S. reactors will cease to exist after 2013, and alternate sources will
be required to fully meet the needs of existing reactors as well as for
any new generating capacity.

Even assuming the timely completion of USEC's American Centrifuge Plant
(ACP) and the LES National Enrichment Facility now under construction in
New Mexico, the combined capacity of these plants will not fully replace
the existing capacity of USEC's Paducah facility by 2014, much less be
able to compensate for the contribution now received under the HEU
agreement. Looking at the most optimistic projections by all the
companies with future domestic enrichment facilities under construction
or on the drawing boards, production in the U.S. in 2014 is slated to be
less than 11 million SWU, clearly not sufficient to meet the current
demand of about 14.4 and adding new plants will increase it between
approximately 1.5 to over 3.0 million SWU. At least two of the planned
facilities, the ACP and GE Hitachi's SILEX effort, involve commercially
unproven technologies. While AREVA has announced plans for a facility
using proven technology similar to that being used by LES in New Mexico,
the AREVA facility has not yet even been sited. Delays in opening any of
these enrichment plants will further increase the gap between domestic
supply and demand.

With these uncertainties in future supply, it is essential that nuclear
generators have access to international sources of supply, including
that from Russia. The implications of uncertainty and unreliability that
could result from having even one nuclear unit sit idle for lack of
timely delivery of fuel would be totally unacceptable. A nuclear fuel
market that is open and fair will be critical to expansion of nuclear
generation worldwide. Technological innovation is fostered by open
markets. Advancement is fostered by market competition, not by
government protections and allocation schemes. Recent trends in uranium
pricing vividly illustrate that market signals can and do work.

As the ultimate users of nuclear fuel with billions of dollars of
generation investment at stake, no sector has more incentive to ensure
the continued operation of a healthy fuel supply industry than the
utility sector. It is not in the self-interest of fuel buyers to become
over-dependent on any single source of supply. U.S. utilities fully
recognize the need to manage the costs and risks of operating their
generating plants by maintaining diverse sources of supply for all fuel
components. Events in recent years have demonstrated dramatically the
importance of supply diversity. Physical and regulatory issues have
triggered prolonged shutdowns of operating mining and conversion
facilities, and delayed the opening of anticipated new sources.
Unexpected disruptions can occur in any portion of the supply chain, and
utility managers cannot afford to be left without options to ensure
plants stay on line.

The electric utility sector cannot operate its nuclear units without a
secure fuel supply; without a successful nuclear electricity utility
market, the nuclear fuel supply community will have no customers. The
parties represented at this table, along with the other sectors of the
industry, are willing to work together, in cooperation with the U.S.
government and the Russians, to achieve a framework that meets the
common objective we all share -- the continued growth of clean, safe
nuclear energy.

While there could be a number of options used to support continued
growth of nuclear energy and competitive fuel supply, one potential
vehicle for achieving our joint objectives might be a government to
government agreement modeled after the very successful U.S.-Russian HEU
Agreement. Such an agreement could be consistent with the mutual U.S.
and Russian objectives of fuel supply assurance. Successful development
and maintenance of adequate sources for enrichment supply in both
countries to support a robust generation industry underscores that
countries seeking to begin nuclear generation need not pursue their own
enrichment facilities to be certain of supply.

NEI appreciates the opportunity to address the committee and would be
happy to answer any questions you may have.