Testimony of John R. Longenecker

Longenecker & Associates, Inc.

Management Consultants

United States Senate

Committee on Energy and Natural Resources

**Hearing on Uranium Enrichment D&D Fund**

**November 15, 2007**

Mr. Chairman, thank you for the opportunity to appear today to present
my views on the Uranium Enrichment D&D Fund. The United States has an
overarching need for a comprehensive strategy for how to maintain
viable, competitive nuclear fuel cycle companies in this country for the
decades ahead. Addressing nuclear fuel cycle issues is a key element in
allowing the US to continue to rely on nuclear power in the future. Over
the past several years DOE has been working to put in place the policy
and technology base for a sustainable, competitive domestic nuclear fuel
industry for the future.

A healthy US uranium enrichment business is a key part of a sustainable
domestic nuclear fuel industry. It's troubling that today the US imports
a higher percentage of its uranium enrichment services for nuclear fuel
than it does crude oil. However, it's gratifying to see that there are
multiple efforts underway to construct new uranium enrichment capacity
in the US.

The issue of how to decommission and decontaminate the existing GDPs is
also vitally important. GDP D&D is an important issue to those who
reside in the vicinity of the three US GDP sites, the nuclear industry,
electric ratepayers, and the federal government.

There is no question that the GDPs sites must be remediated, and DOE is
working to define the most effective approach to that task. However,
there are significant public policy questions regarding how to pay for
the GDP D&D.

I strongly believe that the US government should be liable for all
future costs of GDP D&D, just as they were prior to the enactment of
this provision in 1992. The US government can secure all of the funds
required for GDP D&D by selling in a controlled manner its excess
inventories of HEU and other forms of uranium, including high assay
tails, material previously considered as waste.

US HEU was generated by the GDPs as part of the nation's defense effort
under programs that were paid for by all taxpayers. It seems reasonable
public policy to recover the value of this material, and to use the
proceeds for a range of DOE and other programs that have broad public
benefit, such as GDP D&D.

There is a strong factual base that US utilities were not responsible
for the radioactive contamination of the gaseous diffusion plants.
Essentially all of the contamination at the three GDP sites occurred
during the first 15-20 years of operation, during which time these
plants were devoted solely to generating enriched uranium for US
military needs. When the GDPs began operating for commercial fuel
enrichment in the late 1960's, the three GDPs were already highly
contaminated. When DOE managed the GDPs for commercial enrichment
operations, its pricing structure was developed to include all program
costs, including the eventual D&D of the GDPs.

USEC's GDP lease, that was approved in 1993, reflects this fact, with
USEC having no GDP D&D liability for either the Portsmouth or Paducah
GDPs. As a commercial enterprise, USEC has the liability for any
depleted uranium that it generates, and for new facilities that it
constructs like the Advanced Centrifuge Plant. It seems to me that this
definition of D&D liability is fair and equitable, and also should
extend to the US utilities that purchased enrichment services produced
by the GDPs in the past.

Despite this, over the past 15 years, utilities were assessed more than
\$2.5 billion for GDP D&D, as well as uranium and thorium mill tailing
remediation costs.

Extension of the current tax on utilities that operate nuclear power
plants to fund future D&D activities could place added pressures on USEC
and other evolving US uranium enrichment businesses that are already
under strong competitive pressures.

Taxes like this lead utilities to be concerned about future assessments
to generate funds for US government programs, and are just one
additional factor encouraging US utilities to buy enrichment services
from foreign suppliers. Since this provision was enacted in 1992, USEC's
share of the US SWU market has decreased from more than 80% to about 45%
in 2006. Even more striking, this reduction in market share occurred in
the face of trade sanctions imposed against foreign competitors.

Also, of the SWU delivered to US utilities today, an overwhelming
majority is obtained by USEC from Russia under the Megatons to Megawatts
program, which downblends weapons grade uranium for commercial use. The
Russian government agreed to downblend 500 MT of its HEU inventories in
1993 and this program has had significant non proliferation benefits.

But, the US now is very dependent on these supplies from Russia, and
deliveries are scheduled to terminate in six years.

Based on the success of the Russian HEU downblending program, it seems
that there is an obvious and equitable source for funding future GDP D&D
-- namely, the downblending and sale in a controlled manner of a portion
of the excess inventories of US HEU and other forms of uranium. This HEU
was produced by the US GDPs, and can be used to fund their clean up, to
provide supply security for new nuclear power plants in the US, as a key
part of US non proliferation policy, and to help stabilize future
nuclear fuel prices.. This approach is particularly attractive given the
increase in uranium and enrichment prices.

The quantities to be sold, the timing, and the sales process must be
carefully developed to assure that a healthy domestic nuclear fuel cycle
industry continues in the future. Since the existence of large
government inventories of HEU and other forms of uranium will always be
a concern impacting future investment in the commercial nuclear fuel
cycle industry, a firm disposition plan and schedule are essential.

# Summary

In summary, I believe that the US government should be liable for all
future costs of GDP D&D as it was prior to the enactment of this
provision in 1992. US utility payments over the past 15 years of
approximately \$2.66 billion more than satisfy the desire for industry
to make an equitable contribution to GDP D&D in the public interest.

The US government can secure all of the funds required for GDP D&D by
selling in a controlled manner its excess inventories of HEU and other
forms of uranium. US HEU was generated by the GDPs as part of the
nation's defense effort, and was paid for by all taxpayers. Its seems
reasonable public policy to recover the value of this material and to
use the proceeds for a range of programs that have broad public benefit.

Thank you for your attention.