```

[Federal Register Volume 80, Number 88 (Thursday, May 7, 2015)]
[Notices]
[Pages 26365-26419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11035]

[[Page 26365]]

Vol. 80

Thursday,

No. 88

May 7, 2015

Part III

Department of Energy

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

Federal Register / Vol. 80 , No. 88 / Thursday, May 7, 2015 / 
Notices

[[Page 26366]]

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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.

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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 Sec.  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

[[Page 26367]]

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

[[Page 26368]]

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

[[Page 26369]]

provisions covering transfers of enriched uranium to other federal 
agencies, Sec.  2297h-10(e)(1), to any person for national security 
purposes, Sec.  2297h-10(e)(2), and to State or local agencies or 
nonprofit, charitable, or educational institutions, Sec.  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. Sec.  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 (UF6) 
of various origins, uranium of various enrichments in forms other than 
UF6 that does not meet commercial specifications (``off-spec 
non-UF6''), and depleted uranium in the form of 
UF6. 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
------------------------------------------------------------------------
                                                              Natural
                                                              uranium
               Inventory                 Amount (in MTU)  equivalent (in
                                                               MTU)
------------------------------------------------------------------------
Unallocated HEU \4\....................             67.6          12,440
U.S.-origin natural UF6................          5,156               N/A
Russian-origin natural UF6.............         12,440               N/A
Off-spec non-UF6 \5\...................          4,461             2,900
Depleted UF6 \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 
UF6 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

[[Page 26370]]

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
------------------------------------------------------------------------
                                                              Natural
                                           Amount  (in        uranium
               Inventory                       MTU)         equivalent
                                                             (in MTU)
------------------------------------------------------------------------
Unallocated HEU........................             18.0           3,394
Allocated HEU..........................             11.4           2,077
LEU....................................             47.6             409
U.S.-origin natural UF6................          5,234               N/A
Russian-origin natural UF6.............          7,705               N/A
Off-spec LEU as UF6....................          1,106             1,876
Off-spec non-UF6 \8\...................            221               600
Depleted UF6 \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 UF6 either through disposal or sale.
    \9\ The quantity of depleted uranium in this table includes only 
the UF6 with an assay above 0.34 wt-% U-235. The 
corresponding figure from the 2008 plan included UF6 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

[[Page 26371]]

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

[[Page 26372]]

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 (DUF6) 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 
UF6 (DUF6). In total, the material includes 
approximately 538 thousand MTU of DUF6 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 
DUF6 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-UF6 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 
U3O8, 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 
U3O8 equivalent in 1998. The limit increased 
annually, finally reaching 20 million pounds U3O8 
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

[[Page 26373]]

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 U3O8 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 
U3O8 equivalent. After the end of the Russian HEU 
Agreement, restrictions range between 11.9 and 13.4 million pounds 
U3O8 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 U3O8. 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, U3O8 is converted into uranium 
hexafluoride (UF6), which sublimes--i.e. converts directly 
from solid to gas--at a temperature (at normal atmospheric pressure) of 
approximately 134[emsp14][deg]F (56.5 [deg]C). The UF6 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 
U3O8 to UF6. 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 UO3 powder prior to 
reduction.\13\ In the dry

[[Page 26374]]

process, used at the Metropolis Works facility in Illinois, 
purification takes place at the very end of the process through 
distillation of UF6.\14\
---------------------------------------------------------------------------

    \13\ Port Hope, Ontario, Canada, and COMURHEX Malv[eacute]si/
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 UF6 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 UF6 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 UF6 
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 
(UO2). At the fabrication facility, the enriched 
UF6 is converted into UO2 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-

[[Page 26375]]

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 
U3O8, conversion services are generally measured 
in kgU as UF6, 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 
U3O8 whereas the conversion metric refers only to 
the mass of the uranium atoms. Only about 85% of the mass of 
U3O8 consists of uranium. Thus, one kilogram of 
U3O8 contains approximately 0.848 kgU. 
Furthermore, converting between pounds U3O8 and 
kgU as UF6 must take into account an estimated 0.5% loss 
during the conversion process. Taking all this into account, one pound 
U3O8 is equivalent to 0.383 kgU as 
UF6, and one kgU as UF6 is equivalent to 2.61 
pounds U3O8.
    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 UF6 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 UF6--i.e. with an assay 
of 0.711%--1 MTU would represent 2,610 pounds 
U3O8, 1,000 kgU as UF6 of conversion 
services, and 0 SWU. For enriched or depleted UF6, the 
amount of natural uranium equivalent depends on the assay. For depleted 
UF6, 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 DUF6 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 U3O8. 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 U3O8 to the converter, and the converter 
will provide UF6 in return. The UF6 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 UF6 feed and the 
enricher to deliver a specific amount of UF6 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 UF6, which would reflect both the uranium 
concentrate and the conversion services. Similarly, it is possible to 
buy enriched UF6--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

[[Page 26376]]

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 U3O8 is converted into 
UF6, 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 
UF6 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 UF6 may enter into a contract to 
sell SWU whereby it provides the desired amount of enriched 
UF6 in exchange for the cost of the SWU and a specific 
amount of natural UF6 ``feed.'' A person can also use 
natural UF6 to sell conversion services by exchanging it for 
the cost of the conversion services plus the equivalent amount of 
U3O8.
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 MWe (megawatt 
electrical), 98,638 MWe 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 MWe, and the 
average capacity of U.S. reactors is 996 MWe. 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 
MWe 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 
U3O8. 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

[[Page 26377]]

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 UF6 
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

[[Page 26378]]

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 U3O8. 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 UF6, 
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 UF6, which includes both 
uranium concentrates and conversion services. Since the price of 
uranium concentrates is a larger proportion of the value of that 
UF6, 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,

[[Page 26379]]

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 U3O8 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 
U3O8. 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 U3O8 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

[[Page 26380]]

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

[[Page 26381]]

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 U3O8 equivalent in 
1998, and increased by 2 million pounds each year reaching a maximum of 
20 million pounds U3O8 equivalent in 2009 and 
each year thereafter. 42 U.S.C. 2297h-10(b)(5).\27\ For comparison 
purposes, this last figure represented over four times the volume of 
U3O8 produced at U.S. mines in 1996, the year the 
statute was passed. EIA, Domestic Uranium Production Report (2005). The 
size of this explicit authorization informs DOE's understanding of what 
impacts Congress would have regarded as ``material.'' It seems unlikely 
that Congress would have authorized in 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

[[Page 26382]]

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 process by disrupting them further. To that end, 
these commenters say, the statute directed DOE to bear the section 
3112(b) sales in mind in making section 3112(d) determinations, so that 
DOE transfers would not ``get in the way'' of the Russian HEU 
Agreement.
    The commenters' interpretation of the ``taking account'' language 
seems unduly constrained. Section 3112(d)(2) does not, by its terms, 
indicate that DOE's goal in taking account of Russian-origin uranium 
sales should be to facilitate or preserve those sales. To be sure, as 
commenters note, the successful implementation of the Russian HEU 
Agreement was an important policy goal of section 3112. However, the 
``taking account'' clause also covers sales under the Suspension 
Agreement. Congress is unlikely to have had as strong an interest in 
ensuring the success of the Suspension Agreement, because it was simply 
the settlement of a trade dispute regarding Russian uranium producers. 
The mention of the Suspension Agreement supports DOE's view that it 
should ``tak[e] account'' of the two categories of Russian-origin 
uranium in various ways that depend on the circumstances. When sales of 
uranium under the two Agreements are high, that contribution to supply 
should be an important consideration when DOE makes a determination 
under section 3112(d)(2). When sales under the Agreements decrease, 
that decrease in supply can also be important to a determination.
    Some commenters pointed out that market participants took steps to 
mitigate the effects of section 3112(b) sales, for example by 
committing the uranium on long-term contracts. DOE recognizes that the 
practical consequences of section 3112(b) were not as significant as 
section 3112(b) would have permitted. In addition to the mitigation 
efforts commenters described, the actual amounts delivered have 
generally been lower than the section 3112(b) caps. But as DOE stressed 
in the Notice, it does not believe the comparison to section 3112(b) 
leads to the conclusion that any transfers short of 20 million pounds 
per year would be permissible under section 3112(d). Section 3112(d) 
directs DOE to predict the actual impacts of transfers, in current 
conditions; DOE does not seek to rely on a numerical trigger like 20 
million pounds. Rather, the comparison to section 3112(b) informs DOE's 
understanding of what degree of impact is ``material'' in the section 
3112(d) sense.
    It also bears mention that DOE's use of the section 3112(b) caps to 
inform interpretation of section 3112(d)(2) is not the mechanism by 
which DOE ``tak[es] account of the sales of uranium'' under the two 
Russian Agreements. As commenters point out, the sales that have 
actually occurred under the Russian HEU Agreement were smaller than 
what section 3112(b) permitted. DOE takes account of these sales--as 
well as those under the Suspension Agreement--in its analysis, below, 
of impacts on the domestic uranium industries. Apart from that analysis 
and the amounts of actual sales, DOE considers the volumes that 
Congress authorized in section 3112(b) to be informative for 
understanding what degree of consequence would

[[Page 26383]]

constitute an ``adverse material impact.'' The section 3112(b) limits 
would be relevant in that regard even if section 3112(d) lacked the 
``taking account'' clause. But the inclusion of that clause confirms 
DOE's view because it indicates that Congress legislated the two 
provisions congruently.
    Section 3112(b) itself provides further evidence in support of that 
conclusion. It directs the President to monitor sales under the Russian 
HEU Agreement and report on any actions the President proposes to take 
``to prevent or mitigate any material adverse impact'' the sales might 
have on the domestic uranium industries. But it does not require any 
particular presidential action. Thus, Congress evidently intended 
section 3112(b) sales not to have material adverse impacts but realized 
that they might. Notably, the possibility of material impact was 
uncertain enough that Congress deemed it unnecessary to mandate any 
preventative steps. Taken together, the structure of section 3112(b) 
suggests that ``material'' impacts refers to consequences of such 
significance that they might or might not result from sales at the 
rates section 3112(b) contemplated.
    In general, commenters on this topic suggest that by instructing 
DOE to ``tak[e] account'' of sales under the Russian HEU Agreement, 
section 3112(d) meant to limit DOE's sales in light of the impact of 
the Agreement. These commenters argue that in the past DOE implicitly 
viewed the ``taking account'' clause as such a limit; Secretary 
Richardson placed a 10-year moratorium on transfers of Russian-origin 
uranium hexafluoride in DOE's inventory. DOE agrees that the ``taking 
account'' language can limit DOE's transfers: To the extent that sales 
under the Russian HEU Agreement are causing impacts on an industry, DOE 
must consider those impacts when assessing the possible impacts of a 
transfer it contemplates pursuant to section 3112(d). The discussion 
above is consistent with that view.
    Finally, commenters argued that section 3112(b) sales have less 
impact, relative to the amount of uranium, than DOE's section 3112(d) 
transfers because they are capped, predictable, and transparent. DOE 
notes that the cap was 10 million pounds in 2002 and has now increased 
to 20 million pounds. Neither DOE's section 3112(d) transfers nor the 
section 3112(b) sales have ever reached those scales, so it seems 
unlikely that simply having the cap would make a difference to the 
actual economic impact of the transactions. DOE does recognize that the 
predictability of supply is an important factor, and predictability or 
lack thereof can increase or decrease the impact of a program of 
transfers. The analysis below considers this factor. With respect to 
transparency, as distinct from predictability, DOE believes it provides 
at least as much public notice about planned section 3112(d) transfers 
as was available for section 3112(b) sales. The Department publicly 
announces its determinations, each of which reflects an amount actually 
to be transferred; and the Department has published an accounting of 
the quantities of uranium it has available for transfer. By contrast, 
section 3112(b) sales happened through a private entity that had no 
obligation to release data publicly about sales. The statutory limit on 
sales, being much larger than the sales that actually occurred, 
provided little information about how sales of Russian uranium would 
affect the markets in practice.
    One commenter pointed out that Russian-origin material continues to 
be available from commercial sources. NIPC Comment of ConverDyn, 
Enclosure, at 4. DOE believes this commenter was referring to the 2008 
amendment to the Suspension Agreement discussed in Section I.D.3.b. DOE 
will take account of any sales under the Suspension Agreement in the 
analysis below.
    Several commenters suggested that DOE should utilize a quantitative 
annual cap on transfers. Although the specific proposals varied, 
several suggested a rate of approximately 5.0 million pounds 
U3O8 per year. E.g. RFI Comment of UPA, at 9; RFI 
Comment of ConverDyn, at 8; NIPC Comment of Cameco, at 2-3.\29\
---------------------------------------------------------------------------

    \29\ One commenter suggested the possibility of waiver of future 
Secretarial Determinations if DOE would maintain such a cap. NIPC 
Comment of Cameco, at 3. The commenter did not suggest who might 
waive DOE's obligation to perform a determination before a transfer 
pursuant to section 3112(d). The statute imposes that duty and does 
not seem to provide a mechanism for it to be waived.
---------------------------------------------------------------------------

    These commenters appear to have two chief reasons for their 
proposal. First, the commenters seem to think the various limits they 
propose are, in fact, the outside bounds of what DOE can transfer 
consistent with section 3112(d). Thus they would have DOE keep 
transfers below their preferred limits to avoid material impacts. 
However, DOE does not believe a quantitative trigger--whether 
implemented as an annual cap or only as a guideline--is a necessary or 
appropriate way to analyze whether DOE transfers will cause adverse 
material impacts. In the past, DOE has stated that, as a general 
matter, the introduction into the domestic market of uranium in amounts 
that are less than ten percent of the annual fuel requirements for U.S. 
nuclear power plants should not have an adverse material impact on the 
domestic uranium industries.\30\ See 2008 Policy Statement, at 2; 2008 
Plan, at ES-1. In July 2013, DOE noted that DOE's experience between 
2008 and 2013 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, DOE 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. 2013 Plan, 
at 2. DOE further notes that the global nature of the markets for 
uranium concentrates, conversion services, and enrichment services 
suggests that a focus on U.S. reactor needs will not adequately capture 
the impact on domestic industries. DOE therefore adheres to the views 
it expressed in 2013. It further notes that what impacts would be 
material will depend on the circumstances expected to prevail at the 
time of a transfer, and what impacts a transfer has will depend on 
those circumstances as well as on the details of the transfer. A simple 
rule that transfers below a certain amount are acceptable and those 
above are not would be inaccurate. In some circumstances, a transfer 
below the trigger could actually cause an adverse material impact to 
one or more of the domestic uranium industries; and in some 
circumstances a transfer above the trigger would actually not cause 
adverse material impacts. Rather than commit itself to a course that 
risks both types of inaccuracy, DOE prefers to perform the relevant 
analysis for each determination.
---------------------------------------------------------------------------

    \30\ Commenters argue it was impermissible for DOE to eliminate 
the ``cap'' they say the 2008 Plan imposed. DOE does not regard the 
2008 plan as having prescribed a strict cap on transfers. The plan 
itself said only that transfers below ten percent of annual U.S. 
reactor requirements would generally not be an adverse material 
impact. It did not purport to prohibit DOE from making section 
3112(d) determinations for transfers above that amount. Moreover, 
the 2008 Plan specifically stated that DOE may transfer more than 
the 10 percent figure for certain purposes. 2008 Policy Statement, 
at 2. DOE announced in July 2013 that it would no longer utilize 
that guideline. 2013 Plan, at 2.
---------------------------------------------------------------------------

    Commenters also urge DOE to maintain a cap because they believe 
long-term certainty about the maximum scale of transfers would mitigate 
the impact of the transfers and help industry attract investors. DOE 
recognizes that certainty and predictability are important for planning 
investments and industrial activities, especially in industries like 
the uranium

[[Page 26384]]

industries where developing new facilities can take many years. At the 
same time, DOE needs some degree of flexibility for transferring 
uranium as appropriate--and consistent with section 3112--in support of 
its various missions. After balancing the value of certainty for 
fostering industrial investment against the mandate to make effective 
use of the excess uranium inventory, DOE declines to commit to a preset 
limit on transfers.

C. Factors Under Consideration

    For these reasons, DOE believes that whether the effects of a given 
transfer constitute an ``adverse material impact'' should not depend on 
a quantitative bright-line test, but rather should be based on an 
evaluation of potential impacts by examining a number of factors. 
Accordingly, this analysis considers the effects of DOE transfers using 
the following six factors:

1. Prices
2. Production at existing facilities
3. Employment levels in the industry
4. Changes in capital improvement plans and development of future 
facilities
5. Long-term viability and health of the industry
6. Russian HEU Agreement and Suspension Agreement

    While no single factor is dispositive of the issue, DOE believes 
that these factors are representative of the types of impacts that the 
proposed transfers might have on the domestic uranium industries. Not 
every factor will necessarily be relevant on a given occasion or to a 
particular industry; DOE intends this list of factors only as a guide 
to its analysis.
    DOE notes two ways that these factors differ from the list of 
factors DOE provided in the March 2015 Notice of Issues for Public 
Comment. First, DOE has combined the first two factors listed in the 
NIPC, ``market price'' and ``realized prices of current operators.'' 
DOE continues to believe that the effect of DOE transfers in these two 
areas is a relevant consideration. However, DOE recognizes that market 
prices, in the abstract, will not always be directly relevant for 
assessing the impact on an industry. More important will be the prices 
that various industry members actually receive for their products or 
services, which under most circumstances is a function of both the 
change in price and the contours of the various contracts through which 
industry members sell their uranium. As DOE's focus is ultimately the 
effect on industry, it is appropriate to consider these two aspects of 
price together. Second, DOE has added a factor regarding the Russian 
HEU Agreement and Suspension Agreement. Although the analysis below, to 
a certain extent, considers these transfers as part of the discussion 
for all of the factors, DOE believes it is appropriate to discuss these 
two Agreements separately as well.
    Several comments submitted in response to the March 2015 Notice of 
Issues for Public Comment refer to some or all of these factors. 
Uranerz Energy Corporation expressed its view that the six factors 
listed in the NIPC provide significant context for analyzing the 
impacts to the domestic uranium industries. NIPC Comment of Uranerz, at 
1. Similarly, Fluor B&W Portsmouth (FBP), contractor to DOE for cleanup 
services at Portsmouth, noted that these factors are ``reasonable and 
indicative of the types of impacts that DOE Transfers of Excess Uranium 
could have on the domestic industries.'' NIPC Comment of FBP, at 3. 
Nuclear Fuel Services, Inc. (NFS), which conducts down-blending 
services for DOE through a subcontract with WesDyne, suggested that DOE 
should consider the potential impact of DOE transfers on the ability of 
DOE to meet nonproliferation and defense missions. NIPC Comment of NFS, 
at 2-3. While DOE agrees that these policy concerns can be significant 
to DOE's decision whether to undertake a given transfers, DOE does not 
believe these concerns are relevant to the prerequisite section 
3112(d)(2) finding on whether DOE transfers will have an adverse 
material impact on the domestic uranium industries.
    ConverDyn states that DOE should consider ``displaced sales'' as a 
separate factor. NIPC Comment of ConverDyn, at 6. DOE disagrees that 
this should be considered separately. DOE believes that displaced sales 
are an aspect of production at existing facilities. Thus, these 
considerations fit within that category and do not need to be 
considered separately. ConverDyn also commented that DOE appears to 
give double weight to prices by considering both ``market price'' and 
``realized price.'' Id. at 7. As discussed above, DOE has combined 
these two concepts into a single factor, ``prices.'' However, as 
discussed above, DOE continues to believe it is appropriate to consider 
the effect of DOE transfers on ``market price'' and ``realized price.''
    In any case, it bears emphasis that DOE does not place extra 
``weight'' on price or any other individual factor. DOE's analysis 
considers all the factors taken together as a whole. DOE has not 
assigned specific ``weights'' to the factors. To the extent that some 
considerations overlap multiple factors, DOE will take this into 
account in its analysis. ConverDyn also argues that the long-term 
viability and health of the industry factor should be ``of minimal 
weight'' because the Secretarial Determinations are only valid for two 
years. Id. at 8. As stated above, DOE has not assigned any particular 
weight to each factor. DOE agrees that the relevant analysis for this 
factor should focus on the impact of DOE transfers on the long-term 
viability and health of each industry, not simply on the long-term 
prospects for each industry in the abstract. Finally, ConverDyn 
suggests that DOE should expressly consider the need for domestic 
capacity to produce material for national defense needs. Id. DOE notes 
that section 3112 of the USEC Privatization Act implements a policy of 
ensuring, to the degree consistent with the statute's purpose, that 
domestic capacity remains within the uranium mining, conversion, and 
enrichment industries. DOE believes that section 3112(d), which 
requires the Secretary to determine whether DOE transfers will have an 
``adverse material impact'' on these industries, itself addresses, in 
part, the national security concern ConverDyn mentions.
    In addition to the above discussion, several comments in response 
to the December 2014 Request for Information suggested additional 
factors that DOE should consider. DOE has chosen not to consider those 
factors in the manner commenters suggested, for the reasons given in 
the March 2015 Notice of Issues for Public Comment.\31\
---------------------------------------------------------------------------

    \31\ One commenter takes issue with DOE's assertion in the NIPC 
that many domestic producers are part of multiline businesses, so 
that their share prices are not related solely to uranium markets. 
The commenter does not dispute DOE's related observations that share 
price reflects myriad inputs such as the nature of company 
management, gearing ratio (debt vs. equity), inflation, and the 
particular risks associated with the uranium market (such as the 
influence of political changes, like the shift in energy policy in 
Germany, or public responses to nuclear accidents). Because of this 
complexity, it is difficult to meaningfully attribute a change in a 
company's share price to DOE transfers; and it is also not fully 
meaningful to predict how a given change in share price will affect 
investment decisions. Indeed, while the commenter contends that 
ERI's report shows market capitalization to be tied to market 
prices, in fact ERI notes that producers' share prices have not 
reacted to recent price increases as much as could be expected based 
on the rough correlation between share prices and market prices in 
the aftermath of the Fukushima disaster. For these reasons, DOE 
remains convinced that analyzing the economic case for investments 
in new production is a more reliable and appropriate method for 
assessing the impact of transfers than would be a focus on share 
prices.
---------------------------------------------------------------------------

    Several commenters also inquired whether the analytical method DOE 
is now articulating is consistent with the analyses supporting prior 
section

[[Page 26385]]

3112(d) determinations. While today's approach is broadly tracks DOE's 
analyses of past transfers, DOE recognizes that this analysis 
elaborates in much greater detail than DOE has provided before. The 
level of detail with which DOE has performed this analysis, the set of 
factors being considered, and the process in which DOE has engaged are 
appropriate for this determination for several reasons, including the 
scale of the transfers considered in this analysis and the rate at 
which market conditions have changed in the recent past. Depending on 
the circumstances, a different approach may be warranted for subsequent 
determinations.

IV. Assessment of Potential Impacts

    This section assesses the potential impacts of DOE transfers at the 
levels and for the purposes described above in Section I.D.1. The 
overall volume of transfers for cleanup services at Portsmouth and 
down-blending services in each year from 2015 to 2024 is provided in 
Table 3. Although this assessment focuses on the impacts of transfers 
in the next few years, parts of the analysis make assumptions about 
transfers under these programs in future years.
    This assessment assumes that DOE transfers for cleanup at the 
Portsmouth Gaseous Diffusion Plant will continue at the preexisting 
rates through the first six months of 2015. Beginning in July 2015, DOE 
would transfer at a rate of 1,600 MTU per year of natural uranium 
hexafluoride. DOE has a finite amount of natural uranium hexafluoride. 
DOE anticipates that at this rate, this material would be exhausted in 
the year 2020. Transfers for down-blending services would decrease to a 
total of no more than 60 MTU of enriched uranyl nitrate at an assay of 
4.95 wt-% in 2015 and each year thereafter. DOE assumes transfers for 
down-blending will continue at this rate throughout the next 10 years 
Together, the natural uranium and LEU to be transferred each year are 
the equivalent of 2,100 MTU contained in uranium concentrates, 2,100 
MTU as UF6 in conversion services, and 520,000 SWU of 
enrichment services.

       Table 3--Volume of Transfers for Portsmouth Cleanup and HEU Down-Blending in the ``Assessed Case''
----------------------------------------------------------------------------------------------------------------
                                                            Concentrates        Conversion
                                                          (MTU/million lbs  services  (MTU as      Enrichment
                                                               U3O8)               UF6)         services  (SWU)
----------------------------------------------------------------------------------------------------------------
2015...................................................          2,500/6.5              2,500            520,000
2016...................................................          2,100/5.5              2,100            520,000
2017...................................................          2,100/5.5              2,100            520,000
2018...................................................          2,100/5.5              2,100            520,000
2019...................................................          2,100/5.5              2,100            520,000
2020...................................................            992/2.6                992            520,000
2021...................................................            500/1.3                500            520,000
2022...................................................            500/1.3                500            520,000
2023...................................................            500/1.3                500            520,000
2024...................................................            500/1.3                500            520,000
----------------------------------------------------------------------------------------------------------------

    In addition to the transfers listed in Table 3, this assessment 
also includes potential impacts associated with transfers that are not 
subject to section 3112(d). Specifically, this analysis includes prior 
transfers of depleted uranium hexafluoride to Energy Northwest, prior 
and continuing transfers to the Tennessee Valley Authority of blended 
low-enriched uranium, potential future transfers of off-specification 
uranium, and potential future transfers of depleted uranium 
hexafluoride to GE-Hitachi Global Laser Enrichment.\32\ These transfers 
are discussed above in Section I.D.2.\33\
---------------------------------------------------------------------------

    \32\ Although some of these transfers have already taken place, 
DOE nevertheless recognizes they can affect the uranium industries 
in future years. DOE believes it is reasonable to view these 
transfers as affecting the market in the years and quantities ERI 
analyzes--typically one year prior to the material being reloaded 
into a reactor for uranium concentrates and conversion, and six 
months prior for enrichment.
    \33\ This assessment also takes account of sales of uranium 
under the Russian HEU Agreement and the Suspension Agreement. 
However, these transfers are considered as part of the background 
market, and are not part of the ``assessed case.''
---------------------------------------------------------------------------

    Collectively, this assessment refers to the transfers described 
above as the ``assessed case.'' Consistent with the analytical approach 
described above, this section reflects comparison of two forecasts: one 
reflecting the state of each domestic uranium industry if DOE goes 
forward with transfers at this level, and one reflecting the state of 
each domestic uranium industry if DOE does not go forward with these 
transfers.

A. Uranium Mining Industry

    The domestic uranium mining industry consists of a relatively small 
number of companies that either operate currently producing mines or 
are in the process of developing projects expected to begin production 
at some point in the near future. These projects are mostly 
concentrated in the western states--in recent years, there have been 
producing facilities in Arizona, Nebraska, Utah, Texas, and Wyoming. 
Most uranium mining facilities are owned and operated by publicly 
traded companies based in the United States or Canada. According to 
DOE's Energy Information Agency (``EIA''), production from domestic 
producers in 2014 totaled approximately 4.9 million pounds 
U3O8. EIA, Domestic Uranium Production Report Q4 
2014, 2 (January 2015). For comparison, the World Nuclear Association 
(WNA) reports that worldwide production in 2013 was approximately 155 
million pounds U3O8.
1. Prices for Uranium Concentrates
    The effect of DOE transfers on prices is one of the chief vehicles 
through which the transfers can cause impacts on an industry. 
Accordingly, DOE has considered numerous inputs to forecast how 
transfers in the assessed case will affect prices. DOE analyzes both 
market prices and the prices that, on average, industry actually 
realizes for its products. Realized prices may be more significant for 
assessing the impact of transfers, but, as discussed below, they are 
not necessarily the same as market prices at any given time.
    As described above, market prices for uranium concentrates are 
generally described in terms of the spot price and the term price. 
Although there are other types of published uranium prices, these two 
prices are the ones most frequently used as the basis for pricing terms 
in contracts for the purchase and sale of uranium concentrates. This 
section discusses the potential impacts

[[Page 26386]]

of DOE transfers on these two prices.\34\ For reference, as of March 
30, 2015, UxC's spot price indicator was $39.50 per pound 
U3O8 and its term price indicator was $49.00 per 
pound U3O8.
---------------------------------------------------------------------------

    \34\ DOE further notes that several of the other published 
uranium prices described in Section II.E appear to be based--either 
directly or indirectly--on either the spot or term price. To the 
extent there are differences between these and other published 
prices, DOE believes that the behavior of the spot and term price is 
representative of changes its transfers may cause in other prices.
---------------------------------------------------------------------------

    DOE has reviewed several different estimates of the effect of DOE 
transfers on the market prices for uranium concentrates based on 
different economic models. These estimates appear in market analyses 
from four different uranium market consultants: ERI, TradeTech, NAC 
International (NAC), and UxC. DOE has reviewed and evaluated to the 
extent possible the methodology, assumptions, data sources, and 
conclusions of each of the market analyses.
a. Energy Resources International Report
    DOE tasked ERI with estimating the effect of DOE transfers on the 
market prices for uranium concentrates. In the 2015 ERI Report, as in 
previous reports, ERI estimated this effect by employing two different 
types of model that rely on somewhat different assumptions and methods: 
a market clearing price model and an econometric model. For its market 
clearing price model, ERI constructs individual supply and demand 
curves and compares the clearing price with and without DOE 
transfers.\35\ To develop its supply curves, ERI gathers available 
information on the costs facing each individual supply source. ERI then 
uses that information to estimate the marginal cost of supply for each 
source using a discounted cash flow model. 2015 ERI Report, 41 n.22. To 
develop its demand curve, ERI assumes a perfectly inelastic demand 
curve based on its Reference Nuclear Power Growth forecast.\36\ ERI 
develops this forecast by combining estimates of the needs and reload 
schedules for operating plants with projections about future reactor 
retirements and new development. 2015 ERI Report, 17-18. The second 
model that ERI used to predict the effects of DOE transfers on the spot 
price for uranium is an econometric model. ERI compared the monthly 
spot and term market prices published by TradeTech with published 
offers to sell uranium for delivery within one year of publication and 
published inquiries to purchase uranium for delivery within one year. 
Based on this information, ERI developed a multivariable correlation to 
estimate how the market prices would respond to the availability of new 
supply from DOE. 2015 ERI Report, 50.
---------------------------------------------------------------------------

    \35\ The market clearing price is the price at which quantity 
supplied is equal to quantity demanded.
    \36\ In other words, ERI assumes that demand for uranium will 
stay the same regardless of variations in market price.
---------------------------------------------------------------------------

    Several commenters requested that DOE subject the 2015 ERI Report 
to peer review. E.g. NIPC Comment of UPA, at 9; NIPC Comment of 
ConverDyn, Enclosure, at 1. DOE is not obligated to subject the 2015 
ERI Report to peer review. DOE also does not believe the lack of peer 
review is a reason to doubt the ERI Report. Peer review is not 
appropriate in all circumstances, particularly outside of the 
scientific research context; and market analyses like ERI's are 
commonly not subject to peer review. DOE has reviewed the 2015 ERI 
Report for completeness and evaluated ERI's methodology, assumptions, 
and conclusions, particularly in comparison to other reports submitted 
by commenters. Meanwhile, DOE made the 2015 ERI Report available for 
public review through the March 2015 Notice of Issues for Public 
Comment. DOE also made public in May 2014 an analogous report that ERI 
prepared to assist the deliberations for the 2014 Determination. The 
analytical methods in the 2015 report are largely the same as those ERI 
used in the 2014 report. The public has thus had opportunities to offer 
substantive criticisms of ERI's analyses. One commenter points out that 
the Office of Management and Budget has advised that notice-and-comment 
procedures for agency rulemaking would not be considered an adequate 
substitute for peer review. DOE notes, however, that the concern 
motivating this advice was that the relevant experts may not file 
comments in such a process.\37\ This concern seems less significant 
here, because commenters on the RFI submitted reports that three expert 
uranium market consultancies prepared specifically to address DOE's 
proposed transfers. To the extent commenters offered critiques of ERI's 
work, DOE has considered that input in its evaluation of the 2015 ERI 
Report.
---------------------------------------------------------------------------

    \37\ Office of Management & Budget, Final Information Quality 
Bulletin for Peer Review, (Dec. 16, 2004), available at https://www.whitehouse.gov/sites/default/files/omb/assets/omb/memoranda/fy2005/m05-03.pdf.
---------------------------------------------------------------------------

    After reviewing the 2015 ERI Report and ERI's explanation of its 
methodology, as well as comments such as those that provided additional 
or alternative forecasts of market prices, DOE believes that ERI's 
first methodology described above is reasonable for estimating the 
impact of DOE transfers in the long-term. The methodology is consistent 
with common economic principles applicable to a competitive market. In 
general in such a market, competition from DOE-sourced uranium can be 
expected to displace units of supply that have the highest marginal 
cost. Given buyers that demand uranium at the lowest price available, 
the displacement of those supplies would cause the price to decrease 
towards the highest marginal cost of the remaining supplies. However, 
some producers with relatively high marginal cost have entered into 
long-term contracts based at least partially on fixed price mechanisms. 
Under such circumstances, DOE-sourced uranium might not immediately 
displace units of supply with the highest marginal cost. Over the 
longer term, these fixed price contracts will eventually expire and the 
higher marginal cost producers would have to enter into new contracts 
at the then-prevailing market prices. Therefore, DOE believes the price 
for uranium concentrates reflects an ordinary price-setting mechanism 
over the long term.
    In a market with elastic demand, calculating the effect of an 
addition to supply would be more complicated than ERI's analysis. ERI 
assumes a perfectly inelastic demand curve, and in that case the ERI 
analysis is consistent with the pricing mechanism just described. As 
stated above, it appears that the uranium concentrate market exhibits 
behavior suggesting that demand is relatively inelastic, but perhaps 
not completely inelastic. To the extent that demand is at all elastic, 
this would tend to dampen the price effect of DOE material. However, 
given that ERI's assumption about the market is conservative, in that 
it will tend to produce overestimates of the effect of DOE's transfers 
on prices, DOE believes it is reasonable for achieving the purposes of 
this analysis.
    ERI relies upon an extensive collection of data about the 
production costs for various aspects of supply. ERI has explained the 
various sources from which it collects data about the different primary 
producers. ERI then applies a discounted cash flow analysis to 
determine an expected production cost. Where information is not 
available publicly, ERI makes assumptions based on information from 
similar production facilities. DOE believes that this approach would 
yield reasonably accurate data because most of the uranium producers 
are publicly traded companies that must disclose company financial and 
production information to

[[Page 26387]]

regulatory agencies. DOE also notes that this approach to data 
collection about the industry appears to be standard among similar 
consulting firms. DOE is aware of no errors that would call ERI's data 
and methodology into question. In addition, the cost curve that ERI 
constructed from its data is comparable to analogous curves published 
by its industry peers.
    DOE tasked ERI with estimating the effects of DOE transfers under 
three scenarios.\38\ Under Scenario 1, DOE would transfer 2,055 MTU per 
year in the form of natural UF6 and 650 MTU natural uranium 
equivalent per year of LEU for a total of no more than 2,705 MTU per 
year. Under Scenario 2, DOE would transfer 1,410 MTU per year in the 
form of natural UF6 and 445 MTU natural uranium equivalent 
per year of LEU for a total of no more than 1,855 MTU per year. Under 
Scenario 3, DOE would transfer no uranium under these two programs. The 
transfer rates in these scenarios refer only to the level of uranium 
transfers for cleanup at the Portsmouth Gaseous Diffusion Plant and 
down-blending of LEU. For each scenario, ERI also analyzes the impacts 
of transfers under the following programs: TVA BLEU, Energy Northwest 
depleted uranium, potential future transfer of off-specification 
uranium, and a possible future sale of depleted uranium currently under 
negotiation. 2015 ERI Report, 21-32. The level of transfers across 
these three programs is the same in all three scenarios, and ERI's 
predictions about market price reflect these transfers as well as the 
cleanup services and down-blending transfers.
---------------------------------------------------------------------------

    \38\ One commenter suggests that DOE should not have tasked ERI 
to consider specific scenarios; instead the commenter states that 
DOE should have asked ERI to evaluate the ``optimal conditions for 
transfers, including how to minimize the adverse impact of the 
transfers on domestic industry while also maximizing the benefit to 
DOE.'' NIPC Comment of ConverDyn, Enclosure, at 9. As the impact of 
DOE transfers depends heavily on the specific circumstances, it is 
unlikely that there is a single ``optimal'' level of transfers. DOE 
believes a more appropriate approach is for DOE to seek out 
information regarding how its uranium transfers will affect the 
domestic uranium industries--including through tasking ERI to 
analyze these effects--and then for DOE to assess whether those 
effects amount to an adverse material impact on one or more of the 
domestic uranium industries.
---------------------------------------------------------------------------

    ERI notes that uranium transfers do not necessarily impact the 
market at the time of transfer. In general, the market impact will take 
place at the point in time where the transfers displace commercial 
supply. This can be estimated based on the expected schedule for 
delivery as reactor fuel. Thus, even though most of the TVA BLEU and 
all of the Energy Northwest transfers have already taken place, ERI 
estimates that these transfers will affect the market at various times 
in the future based on the expected delivery schedule. 2015 ERI Report, 
21-22. Given that these transfers are targeted for specific reactors on 
predictable time-frames, DOE believes it is reasonable to assume that 
these transfers affect the market at the point when they displace 
commercial supply.
    The transfer rates analyzed by ERI for down-blending services and 
cleanup at the Portsmouth Gaseous Diffusion Plant are summarized in 
Table 4. The assessed case is included for reference. Transfers under 
the other three programs mentioned above are included in ERI's analysis 
but are not included in this table because they are the same under any 
of the scenarios.\39\
---------------------------------------------------------------------------

    \39\ Under each of the three scenarios analyzed by ERI and the 
assessed case, the annual rate listed in Table 4 represents the rate 
only until uranium available for the Portsmouth cleanup is 
exhausted. Under scenarios 1 and 2 and the assessed case, this will 
occur by 2019, 2021, and 2020, respectively. The rates transferred 
for down-blending are the same throughout the study period.

                            Table 4--Different Scenarios Considered in This Analysis
----------------------------------------------------------------------------------------------------------------
                                         MTU natural uranium equivalent
-----------------------------------------------------------------------------------------------------------------
                                                             Portsmouth
                                                              cleanup         Down-blending          Total
----------------------------------------------------------------------------------------------------------------
ERI Scenario 1.........................................              2,055                650              2,705
ERI Scenario 2.........................................              1,410                445              1,855
ERI Scenario 3.........................................                  0                  0                  0
Assessed Case (2016 and after).........................              1,600                500              2,100
----------------------------------------------------------------------------------------------------------------

    Using its market clearing approach, ERI estimates that DOE 
transfers will have the effects listed in Table 5. For each year ERI 
included (2015-2024), the relationship between the amount of transfers 
under each scenario and the price effect is essentially linear. Compare 
Table 3.6 to Table 4.1 of 2015 ERI Report, 25-26, 45. This linearity is 
unsurprising, because the slope of ERI's cost curve does not change 
much as a function of supply at the levels of current supply. 
Therefore, the price effect of DOE transfers under the assessed case 
can be interpolated from ERI's estimates. Table 5 presents ERI's 
estimates of the price effect of DOE transfers for all three scenarios 
and DOE's interpolation of the price effect for the assessed case.\40\
---------------------------------------------------------------------------

    \40\ Note that to infer the price effect, DOE has not simply 
interpolated the 2,100 MTU figure between the annual rate for 
Scenarios 1 and 2. As discussed above, the appropriate time for 
assigning a price effect to a quantity of transferred uranium is the 
time at which it would displace commercial supply. In addition, both 
Scenario 2 and the assessed case involve transferring natural 
uranium more slowly than Scenario 1, yet DOE assumes (as ERI did) 
that it will continue transferring natural uranium until it exhausts 
its current inventory. Thus, in Scenario 2 and the assessed case, 
the Department will be transferring uranium in later years when, 
under Scenario 1, natural-uranium transfers would have ceased. The 
Department's interpolation reflects these calculations.

  Table 5--ERI's Estimate of Effect of DOE Transfers on Uranium Concentrate Spot and Term Prices in $ per Pound
                                                      U3O8
                                           [Market clearing approach]
----------------------------------------------------------------------------------------------------------------
                                                 2015 ERI Report
-----------------------------------------------------------------------------------------------------------------
                                                                                                 Assessed case
                                        ERI Scenario 1     ERI Scenario 2     ERI Scenario 3     (interpolated)
----------------------------------------------------------------------------------------------------------------
2015................................              $3.00              $2.10              $0.30              $2.80
2016................................               2.80               1.90               0.10               2.20

[[Page 26388]]

 
2017................................               2.70               1.80               0.00               2.10
2018................................               3.30               2.50               0.60               2.70
2019................................               2.50               3.00               1.20               3.20
2020................................               2.80               4.00               2.10               3.10
2021................................               3.00               3.20               2.40               2.90
2022................................               2.70               2.50               2.10               2.60
2023................................               3.20               3.00               2.50               3.10
2024................................               2.60               2.40               2.00               2.50
Average (2015-2024).................               2.80               2.60               1.30               2.70
----------------------------------------------------------------------------------------------------------------

    It is important to emphasize that this is not a prediction that 
prices will drop by the specified amount once DOE begins transfers 
following a new determination. A level of price suppression consistent 
with the estimate for Scenario 1 would, in this model, already be 
roughly reflected in the current market price because DOE is currently 
transferring uranium at that rate. 2015 ERI Report, 44. The price 
suppression that ERI estimates would persist under Scenario 3 is 
largely attributable to past DOE transfers, from which some of the 
uranium is still expected to be entering the market in future years. 
Similarly, if DOE begins transferring at the level of the assessed 
case, instead of at current rates, a positive effect on market prices 
of $0.60, compared to existing prices, could be expected in 2016, the 
first full year of DOE transfers at the rate of 2,100 MTU per year.
    One commenter argues that the price effect described by ERI under 
Scenario 1 is not already built into current market prices and suggests 
that the price effect described by ERI should be cumulative. NIPC 
Comment of UPA, at 9. This commenter appears to misunderstand the 
nature of ERI's analysis. ERI's market-clearing approach is based on 
the economic principle that the market price will tend toward the 
competitive equilibrium price, i.e. the price at which the demand curve 
intersects the supply curve. The existing supply and demand curves 
include DOE transfers at the existing rates. Thus, the current market 
price should reflect, in part, this level of supply.\41\ The price 
effect estimated by ERI is based on a calculation of where the two 
curves would intersect in the absence of DOE-sourced material. ERI uses 
its production data to estimate the amount of 
U3O8 that will be supplied each year over the 
next ten years, and uses these annual supply curves to estimate the 
price effect. 2015 ERI Report, 42. Since ERI is comparing the volume of 
DOE transfers in each year to the expected amount of supply in that 
year, these estimates take account of future changes in supply. For 
these reasons, it would be inappropriate to add the estimated price 
effect in separate years together, as the commenter proposes to do. In 
addition, the commenter's argument that adding 2,705 MTU to a market 
will necessarily cause a further price decrease does not take account 
of the fact that material is continually produced and consumed over 
time. Transfers at a rate of 2,705 MTU per year would be at the same 
rate as (or slightly below) transfers in the past few years. It is 
appropriate to assess the effect of that rate of transfers in light of 
the ongoing rates of production and consumption. DOE notes that the 
commenter's suggestion is also contrary to the forecasts of the three 
other market reports discussed below.
---------------------------------------------------------------------------

    \41\ As noted above, the majority of uranium production is sold 
on long-term contracts. While DOE has been transferring at a rate at 
or below 2,800 MTU per year since 2012, contract terms may run 10 
years. Thus, the market may not have fully equilibrated in response 
to continued transfers at the current rate.
---------------------------------------------------------------------------

    ERI also used its econometric model to estimate the effect of DOE 
transfers on the spot market price. As with ERI's market clearing price 
analysis, the relationship between the average volume of DOE transfers 
and ERI's estimated price effect over each time period is roughly 
linear. Thus, the price effect of transfers at the levels in the 
assessed case can be interpolated.\42\ ERI's predictions based on its 
econometric model and the interpolated price effect for the assessed 
case are summarized in Table 6. By comparison to the market clearing 
analysis, the econometric model deals with short-term supply and demand 
and spot prices. Existing market prices should reflect already ongoing 
transfers at the levels of Scenario 1. Thus, on ERI's analysis prices 
already exhibit a level of price suppression similar to the level 
predicted in the near term under Scenario 1. 2015 ERI Report, 52-53. 
Thus, ERI's econometric model estimates suggest that if DOE begins 
transferring at the lower level represented by the assessed case, a 
positive influence on market prices approximately $0.40 would be 
expected in the near term.
---------------------------------------------------------------------------

    \42\ See note 40 above for details of how DOE performs the 
interpolation.

[[Page 26389]]

      Table 6--ERI's Estimate of Effect of DOE Transfers on Uranium
               Concentrate Spot Price in $ per Pound U3O8
                           [Econometric model]
------------------------------------------------------------------------
                             2015 ERI Report
-------------------------------------------------------------------------
                                             Estimated       Estimated
                                           price effect    price effect
                                            (2015-2017)     (2018-2024)
------------------------------------------------------------------------
ERI Scenario 1..........................           $2.40           $5.10
ERI Scenario 2..........................            1.70            4.80
ERI Scenario 3..........................            0.30            2.00
Assessed Case (Interpolated)............            2.00            4.80
------------------------------------------------------------------------

    DOE notes that certain assumptions in the model seem relatively 
uncertain over the longer term. The basic nature of the model is that 
ERI calculated a functional relationship between published prices and 
certain supply and demand variables representing, in essence, 
uncommitted supply and demand. ERI established this relationship by 
means of statistical correlations between past prices and past supply 
and demand variables. The model then predicts future prices based on 
the future course of the supply and demand variables. However, 
forecasts of uncommitted supply and demand require assumptions not only 
about how supply and uranium requirements will evolve, but also about 
how suppliers and purchasers will vary their mix of long-term and 
short-term purchasing. In the short-term, the mix of long- and short-
term purchasing can be predicted based on the mix in recent years and 
on the estimates of uncovered supply. Such forecasts become 
significantly less reliable for later years. Thus, for example, market 
consultant UxC provides only limited future projections of future 
contracting activity in its annual Uranium Market Outlook--[REDACTED]. 
UxC Uranium Market Outlook--Q4 2014, 63, 66 (2014). Consequently, while 
DOE believes that ERI's econometric model provides a reasonable 
estimate of the response of the spot price to DOE transfers in the near 
term, it believes estimates of this response in future years will be 
increasingly less reliable the further out in time the estimate.
    Commenters urge DOE to distinguish between spot sales, term sales, 
and other types of ``forward sales.'' Cameco Corporation (Cameco) 
states that forward delivery contracts are ``simply contracts along the 
forward price curve, which is essentially the spot price with a minor 
adjustment for carrying costs.'' NIPC Comment of Cameco, at 3. 
Similarly, ConverDyn states that a new market has arisen for ``buy and 
hold'' or ``carry trade'' sales that should be characterizes as ``an 
extension of the spot market to approximately a 3-year term.'' NIPC 
Comment of ConverDyn, Enclosure, at 5. DOE recognizes that market 
participants use a range of contracts with characteristics that fall 
somewhere between the ``traditional'' term contracts and spot contracts 
described by commenters. EIA defines a ``spot contract'' to call for 
delivery of the entire contracted amount within one year. A ``term 
contract''--of short, medium, or long term--involves one or more 
deliveries after one year. A contract that would be a ``term contract'' 
under this definition may influence either the spot market or the term 
market (as defined by UxC and TradeTech) more or less depending on 
various contractual terms such as length of time before initial 
delivery, number of deliveries, and the pricing mechanism. Consistent 
with this notion, and as noted above in Section II.E.2, sources other 
than the UxC and TradeTech offer price indicators for future-delivery 
contracts that appear to be similar to what commenters describe.
    With respect to DOE transfers affecting the spot market, ERI 
assumes that 50% of DOE transfers for cleanup at Portsmouth are 
introduced through term contracts. 2015 ERI Report, 34. ERI's 
assumption relies in part on statements by Traxys North America LLC 
(Traxys), the entity that currently purchases the material that DOE 
transfers to Fluor B&W Portsmouth for cleanup work at the Portsmouth 
Gaseous Diffusion Plant. Traxys has stated it sells as much as 90% of 
the material it purchases from Fluor under forward delivery contracts 
that do not affect the spot market. Declaration of Kevin P. Smith, 
ConverDyn v. Moniz, Case no. 1:14-cv-01012-RBW, Document 17-7, at ] 14 
(July 7, 2014); RFI Comment of Traxys, at 1. Some of the commenters 
that made observations about the difference between forward delivery 
contracts and term contracts also rejected ERI's assumption because, 
these commenters say, the Traxys sales are actually spot sales even if 
they are for future delivery.
    DOE notes that ERI's assumption that only 50% of these sales enter 
the term market is conservative, in that Traxys claims this figure is 
closer to 90%. In any case, if in fact more or less than 50% of DOE 
transfers for Portsmouth cleanup in fact are not sold through term 
contracts--in that they do not affect the term price indicators 
published by UxC and TradeTech--such an error in ERI's assumptions 
would simply decrease the reliability and certainty of ERI's 
econometric forecast in the mid- to long-term.\43\ As described above, 
DOE concludes that this analysis is likely to be less reliable over the 
longer term anyway, because predictions about uncommitted supply and 
demand in future years are uncertain. Comments about the nature of 
Traxys's sales do not call into question the utility of ERI's 
econometric analysis for near-term forecasting, because commenters do 
not dispute that Traxys sells at least 50% of its material on contracts 
with deliveries more than a year in the future.\44\ Even if those 
deliveries would affect future spot prices, it is appropriate for ERI's 
econometric model not to include the material in present supply.\45\

[[Page 26390]]

Furthermore, ERI's market clearing approach forecasts how prices will 
respond to changes in supply over the longer term and depends on the 
overall level of supply rather than on the specific mix of spot versus 
term contracts in a given year. Accordingly, ERI's market-clearing 
analysis did not use the assumption about Traxys's mix of spot and term 
deliveries of DOE-sourced uranium.
---------------------------------------------------------------------------

    \43\ ERI's report includes tables laying out how much DOE-
sourced material will enter each spot market--uranium, conversion, 
and enrichment--in coming years. These tables would be relevant for 
comparing the scale of DOE's transfers to the volume of uncommitted 
supply and demand in the various markets. However, as explained in 
the NIPC, DOE does not consider such a comparison, on its own, as 
useful for assessing the impact of transfers as forecasts about 
price.
    \44\ Commenters suggest that sometimes a seller of a future-
delivery contract will ``forfeit'' its contract. They do not claim 
Traxys does so with DOE-sourced material.
    \45\ In the analysis ERI prepared for the Department's 
deliberations on the 2014 Determination, it made a similar 
assumption that around 50% of the material transferred for cleanup 
services at Portsmouth would only affect term markets. If in fact 
those sales have essentially been one- to three-year spot sales, the 
material transferred in 2012 through 2014 could be affecting spot 
markets at present and in the near term. The econometric analysis of 
future transfers need not account for that material explicitly, 
because existing uncommitted supply and demand already reflect those 
quantities.
    ERI assumed that the other past transfers included in the 
assessed case--such as the blended LEU provided to the TVA--are 
effectively on term contracts. Commenters do not contest that 
characterization, and DOE believes it is reasonable to assume these 
materials are not appearing on spot markets.
---------------------------------------------------------------------------

b. TradeTech Report
    The Uranium Producers of America (UPA) attached to its comment in 
response to the RFI a market analysis it commissioned from TradeTech, 
LLC, a uranium market consultant. RFI Comment of UPA, Attachment, 
TradeTech, ``UPA DOE Material Transfer Study'' (2015) (hereinafter 
``TradeTech Report''). A summary of TradeTech's estimates appears in 
Table 7. TradeTech explains that it estimated the price effect of DOE 
transfers using its proprietary Dynamic Pricing Model. This model uses 
an econometric forecasting approach to estimate the equilibrium between 
two dimensions TradeTech calls ``active supply'' and ``active demand.'' 
\46\ In its estimates, TradeTech assumes that 50 percent of DOE 
transfers enter the spot market and 50 percent enter the term market. 
TradeTech Report, 14. Using its model, TradeTech estimates that DOE's 
transfer reduced the spot price by an average of $3.55 per pound 
between January 2012 and December 2014. TradeTech Report, 15. TradeTech 
also estimates that continued DOE transfers at current rates would 
reduce the spot price by an average of $2.43 per pound between January 
2015 and December 2016. TradeTech Report, 20.
---------------------------------------------------------------------------

    \46\ TradeTech states that the uranium markets are relatively 
illiquid and are characterized by periods of high price volatility. 
TradeTech Report, at 2-5. It does not appear that TradeTech is 
suggesting that DOE transfers significantly affect these 
characteristics of the market. Instead, it appears that TradeTech 
believes these are mechanisms by which DOE transfers impact the 
market price. DOE assumes that TradeTech's prediction of the price 
effect of DOE transfers reflects these market characteristics that 
TradeTech highlights.
---------------------------------------------------------------------------

    DOE understands this ``reduction'' to mean, as with ERI's analysis, 
not an additional decrease in prices beginning in January 2015, but a 
continued price suppression. In other words, TradeTech suggests that if 
DOE ceased transferring at current rates then prices could be higher by 
an average of $2.43 per pound in 2015 and 2016.
    TradeTech also provides estimates for the effect of DOE transfers 
at several decreased transfer rates. If DOE transfers decreased to 75% 
of current levels, TradeTech estimates that the spot price would 
increase by an average of $0.53 per pound between January 2015 and 
December 2016. TradeTech Report, 26.\47\ Based on TradeTech's estimate 
of the price suppression of DOE transfers at current levels, it appears 
that TradeTech is estimating that price suppression at 75% of current 
levels would be $1.90. If DOE transfers decreased to 50% of current 
levels, TradeTech estimates that the spot price would increase by an 
average of $1.10 per pound between January 2015 and December 2016. 
TradeTech Report, 25. This corresponds to a price suppression of $1.33. 
If DOE transfers decreased to 25% of current levels, TradeTech 
estimates that the spot price would increase by an average of $1.73 per 
pound between January 2015 and December 2016. TradeTech Report, 24. 
This corresponds to a price suppression of $0.70. The TradeTech Report 
does not state the numerical volumes that correspond to these decreased 
transfer rates. However, DOE notes that the 2,100 MTU rate is slightly 
above 75% of the level included in the May 2014 Determination. Thus, 
DOE believes that TradeTech's ``75%'' figure is roughly equivalent to, 
although slightly below, that level.
---------------------------------------------------------------------------

    \47\ Figures 16-19 of the TradeTech Report show TradeTech's 
estimates for the price impact at a range of different transfer 
rates. Although these charts and the related text refer to 
``Transfers at [25, 50, or 75] Percent of Established 2014 
Volumes,'' it appears that these charts actually reflect an estimate 
for a 25%, 50%, or 75% decrease relative to current levels, rather 
than transfers at the specified percentage of current levels.

   Table 7--TradeTech's Estimate of Effect of DOE Transfers on Uranium
               Concentrate Spot Price in $ per Pound U3O8
------------------------------------------------------------------------
                            TradeTech Report
-------------------------------------------------------------------------
                                                             Estimated
           Transfer rate (compared to current)             price effect
                                                            (2015-2016)
------------------------------------------------------------------------
100%....................................................           $2.43
75%.....................................................            1.90
50%.....................................................            1.33
25%.....................................................            0.70
------------------------------------------------------------------------

    TradeTech's forecast for the scenario in which DOE continues 
transferring uranium at current rates is fairly similar to the forecast 
ERI generated for that scenario using its econometric model. This 
apparent agreement could be taken as confirmation that the forecasts 
are reasonable. Alternatively, the agreement between the two could just 
indicate that TradeTech and ERI have applied similar mathematical tools 
to similar inputs and modeling assumptions. It does not necessarily 
validate either the assumptions or the choice of mathematical model.
    As with ERI's econometric model, DOE notes that TradeTech's 
assumptions about the amounts of uncommitted supply and demand seem 
relatively uncertain over the longer term because they depend on the 
actions of individual market participants that may reflect economic 
influences about which little information is available. For example, a 
strategic buyer or seller of uranium does not have to buy uranium at a 
given time; that participant may or may not contribute to uncommitted 
supply and demand depending on current prices, the participant's 
expectations of prices, and other factors. In responding to the 
possibility of such effects, ERI assumes that uncommitted supply and 
demand will repeat their courses of recent years. Meanwhile TradeTech 
introduces a ``quadratic coefficient to capture market exuberance, 
which measures market momentum.'' TradeTech Report, 14. Although the 
mix of long- and short-term purchasing can likely be predicted in the 
short-term based on prior contracting activity, forecasts based on this 
type of data would be significantly less reliable in the long-term.\48\
---------------------------------------------------------------------------

    \48\ In addition, TradeTech has assumed that 50% of the uranium 
that DOE transfers ultimately goes on the term market. As noted 
above, commenters suggest that assumption is incorrect because, they 
say, the material is actually sold on spot-like future-delivery 
contracts. As explained above with respect to ERI, this argument 
simply serves to decrease further the reliability of medium- and 
long-term price forecasts based on these econometric models.
---------------------------------------------------------------------------

    For reasons like these, although TradeTech's forecast based on 
uncommitted supply and demand may provide a reasonable estimate of the 
price response of DOE transfers in the short term, DOE believes the 
price response over the medium- and long-term is most appropriately 
estimated and forecast using information and assumptions about overall 
demand and supply. ERI's ``market-clearing'' model is a reasonable 
implementation of this approach.
c. NAC International Report
    Fluor-B&W Portsmouth attached to its comment in response to the RFI 
an April 2014 market analysis from NAC

[[Page 26391]]

International (NAC). RFI Comment of Fluor-B&W Portsmouth, Attachment A, 
NAC International, ``Impact of DOE Excess Uranium Sales on the 
U3O8 Market'' (April 2014) (hereinafter ``NAC 
Report'').\49\ In its analysis, NAC based its production cost estimates 
on its Uranium Supply Analysis System (USAS). NAC updates this model 
each year based on a review of various published reports and 
presentations. NAC then applies cost models to derive specific cost 
estimates for individual properties. NAC Report, C-1. Specifically, NAC 
applies a discounted cash flow rate of return model based on both full 
cost (including sunk costs) and forward costs for each property. NAC 
Report, C-2 to C-3. NAC also utilized an estimate of reactor 
requirements and uncommitted demand developed from its Fuel-Trac 
database. NAC Report, D-1.
---------------------------------------------------------------------------

    \49\ As this report was prepared in April 2014, it does not 
contain updated information on developments in the markets since 
that time. The level of uranium transfers that it analyzes is based 
on the levels specified in the May 2012 Secretarial Determination, 
which is roughly similar to, though slightly higher than, the 
current rate of transfers. NAC Report, A-1 to A-3.
    Some commenters expressed concern that DOE's 2014 Determination 
relied on information from Fluor-B&W that was outdated and that, 
because Fluor-B&W is not a regular participant in uranium markets, 
warranted no reliance. DOE recognizes that the NAC Report is based 
on data that are now more than one year old. DOE's analysis relies 
on information from myriad sources, described throughout, and uses 
the data currently available. Data from EIA and other sources may 
lag the market by as much as several months, but given the rate at 
which these markets change, it is appropriate to rely on data after 
such a limited delay.
---------------------------------------------------------------------------

    NAC developed a range of estimates of the impact of DOE transfers 
utilizing its production cost estimates at three different rates: 2,800 
MTU per year, 2,400 MTU per year, and 10% of U.S. reactor requirements. 
NAC Report, 3-21 to 3-22. First, NAC applied a methodology it believes 
approximates ERI's approach to its own cost estimates. Specifically, 
NAC identified the incremental cost of the last property needed to meet 
demand in a given year based on total supply and demand. NAC Report, 3-
22. NAC then explains that because long-term contracts with fixed 
pricing mechanisms have allowed some high-cost producers to produce 
ahead of lower cost supply, it believes a better approach is to base 
the model on uncommitted supply and demand. NAC then applies a 
multiplier to these estimates to account for additional incremental 
costs not included in its site forward production costs estimate. These 
additional costs include increased site forward costs due to operation 
at less than nominal capacity, taxes, corporate overhead, and 
variations in the required rate of return. NAC Report, 3-23. NAC also 
applies a time shift to the cost trend to account for the fact that 
producers need a price signal before investing in a new production 
center--i.e. producers need to have prices that justify an investment 
before actually making the investment. NAC Report, 3-24. The specific 
quantitative impact projected by NAC is summarized in Table 8.

                   Table 8--NAC Estimates of Price Effect of DOE Transfers on Uranium Concentrate Spot Price in $ Per Pound U3O8 \51\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       NAC Report
---------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Uncommitted supply demand                 Uncommitted supply demand adjusted by  [REDACTED]
                                             ------------------------------------------------------                         \50\
                                                                                                   -----------------------------------------------------
                                                  2400 MTU          2800 MTU       10% of US Req.       2400 MTU          2800 MTU       10% of US Req.
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014
2015
2016
2017                                                                                          [REDACTED]
2018
2019
Average (2014-2018)
--------------------------------------------------------------------------------------------------------------------------------------------------------

    DOE has considered NAC's forecast, but does not place much weight 
on these estimates for the reasons explained below. DOE notes that NAC 
estimates a price effect from DOE transfers that is much smaller than 
what other experts (including ERI) conclude. While, as noted above, an 
agreement between two similar models does not necessarily increase the 
credibility of either, a substantial difference like that between NAC's 
model and others creates some doubt. Some important input, either of 
data or of modeling assumption, must have caused the departure; the 
difference in predictions thus represents a disagreement between the 
modeler and other experts. That is not to say that NAC's model is 
necessarily incorrect. But in this context, where an error would mean 
substantially misestimating the potential impact of DOE's transfers, 
DOE would only rely on the estimate if the difference from other 
forecasts were well understood and justified.
---------------------------------------------------------------------------

    \50\ Note that NAC states that it believes it is appropriate to 
apply a multiplier [REDACTED]. See NAC Report, 3-22 to 3-24.
    \51\ NAC also provides estimates based on Total Supply and 
Demand at Table 3.4. NAC Report, 3-22. Given that the report states 
that NAC believes this approach is inaccurate, these estimates are 
not reproduced in this table.
---------------------------------------------------------------------------

    In addition, DOE does not agree that it is appropriate to focus on 
uncommitted supply and uncommitted demand, as opposed to total supply 
and demand, in the manner described by NAC. Entities other than primary 
producers and reactor owners/operators participated in the uranium 
concentrates market. NAC's estimate of uncommitted supply and demand 
appears not to incorporate these other participants. See NAC Report, 3-
20.\52\ Given this uncertainty, DOE does not believe relying on NAC's 
conclusions would be justified.
---------------------------------------------------------------------------

    \52\ NAC explains that its estimate of uncommitted demand 
consists of uncommitted utility demand plus supplier delivery 
commitments in excess of estimated production capability. This 
second aspect may refer to some of the demand created by brokers and 
traders. However, it is not clear whether this includes strategic or 
discretionary purchases by utilities or other entities.
---------------------------------------------------------------------------

d. UxC Report
    Cameco Corp. attached to its comment in response to the RFI a 
market analysis it commissioned from UxC, another uranium market 
consultant. RFI Comment of Cameco Corp., Attachment, UxC Special 
Report, ``Impact of DOE Inventory Sales on the Nuclear Fuel Markets'' 
(January 2015) (hereinafter ``UxC Report''). A summary of UxC's

[[Page 26392]]

estimates of the effect of DOE transfers on future prices appears in 
Table 9. UxC explains that it estimated the price effect of DOE 
transfers using two proprietary econometric models: The U-PRICE model 
and the SWU-PRICE model. UxC explains that these models were developed 
using historical data on the nuclear fuel markets collected and 
compiled by UxC. These two models take into account and quantify the 
impact of ``key factors influencing the markets.'' UxC also explains 
that the two models can be linked to simulate the interrelationship 
between uranium concentrates and enrichment. UxC Report, 3.
    Using these two models, UxC estimates the effects of DOE transfers 
on prices during the period between 2012 and 2014. UxC provides two 
estimates. It derived the first, which it labels the ``incremental 
approach,'' by running its models from 2011 onwards, with and without 
DOE transfers. It prepared the second, which it calls the ``total 
impact approach,'' by running its models from 2008 onwards. UxC's 
models generally ascribe to DOE's transfers an accumulating effect on 
price, because, according to UxC, past transfers ``have a longer-term 
effect on market perceptions among both buyers and sellers.'' UxC 
Report, 5. Thus, by running its models from 2008 onwards, UxC produces 
2012 estimates that reflect cumulative effects it ascribes to transfers 
between 2008 and 2011. UxC's ``incremental'' estimate is that between 
2012 and 2014 DOE's transfer reduced the spot price by an average of 
$4.50 per pound and the term price by an average of $2.88 per pound. 
UxC's ``total impact'' estimate is that between 2008 and 2014 DOE's 
transfers reduced the spot price by an average of $7.11 per pound and 
the term price by an average of $5.10 per pound. UxC Report, 6-7.
    UxC also forecasts the effect of continued DOE transfers at current 
rates for the period 2015 to 2030. UxC predicts that such transfers in 
the near and medium terms would reduce the spot price by an average of 
$5.78 per pound. UxC projects that this effect will change slightly in 
the medium term as market prices start to recover. Specifically, DOE 
transfers (at current rates) would reduce the spot price between 2018 
and 2030 by an average of $4.47 per pound. UxC also notes that the 
former number is larger relative to the expected price of uranium than 
the latter number (14.1% versus 7.1%). UxC Report, 10. UxC forecasts 
that DOE transfers (at current rates) in the near and medium terms 
would reduce the term price by an average of $4.86 per pound. Between 
2018 and 2030, DOE transfers are predicted to reduce the term price by 
an average of $5.30 per pound. Again, the near and medium term impact 
is larger in relation to the expected price (9.0% versus 7.1%). UxC 
Report, 11.

  Table 9--UxC's Estimate of Effect of DOE Transfers on Uranium Concentrate Spot and Term Prices in $ per pound
                                                      U3O8
----------------------------------------------------------------------------------------------------------------
                                                   UxC Report
-----------------------------------------------------------------------------------------------------------------
                                                   Near- & mid-
                                                    term price      Percent of       Long-term      Percent of
                                                      effect      expected price   price effect   expected price
----------------------------------------------------------------------------------------------------------------
Spot Price......................................           $5.78           14.1%           $4.47            7.1%
Term Price......................................            4.86            9.0%            5.30            7.1%
----------------------------------------------------------------------------------------------------------------

    UxC puts particular emphasis on the interrelationship between the 
uranium and enrichment markets. UxC states that uranium and SWU are 
``substitutes.'' Thus, UxC uses enrichment prices as an input into its 
uranium concentrate price forecast, and vice versa. UxC Report, 5, 8, 
17. As described in Section II.A.5, DOE understands that this interplay 
can take several forms. First, to the extent that enrichers have unsold 
enrichment capacity, they may apply that excess capacity to 
underfeeding and/or re-enriching DUF6 tails. This 
essentially allows enrichers to generate additional natural uranium 
hexafluoride, which could then be sold on the open market. Second, if 
the price of enrichment decreases relative to the price of uranium 
concentrates, the optimum tails assay decreases, so that customers may 
deliver less natural uranium feed to get the same amount of enriched 
uranium output.
    The other market analyses do not appear to take these interactions 
into account.\53\ DOE has carefully considered UxC's analysis. However, 
DOE does not believe UxC's consideration of the above-referenced 
interactions is a reason to place greater weight on UxC's modeling for 
the following reasons. Among other things, the contribution of 
enrichment price changes to the uranium price, in the conditions 
relevant here, is quite small, even compared to the effect of DOE's 
transfers, particularly in the short term. Assuming an enriched product 
assay of 4.5% and a tails assay of around 0.25%, applying one SWU of 
additional enrichment can generate roughly one kilogram of additional 
natural uranium. Thus, if the price for one SWU decreases by 4% and the 
price for one kilogram of uranium decreases by 7%, as UxC forecasts to 
be the average effect of continued transfers at current rates, the 
comparative value of using spare capacity to provide enrichment or for 
underfeeding would change by only 3%. ERI forecasts that underfeeding 
will supply about 8 million kg of natural uranium per year in the 
medium term, about 11-12% of predicted world requirements. Changing 
that supply by 3% would mean a change of about 200 MTU, much less than 
the 2,705 MTU of DOE transfers that UxC assumed.
---------------------------------------------------------------------------

    \53\ ERI's market clearing price analysis, for example, includes 
material from underfeeding as ``Secondary Supply.'' However, ERI 
does not consider how a change in uranium concentrate and/or 
conversion prices would affect the price of SWU or the level of 
underfeeding present in secondary supply. In effect, ERI assumes 
that secondary supply based on enrichment services has a marginal 
cost lower than any primary producer in the market, so that this 
source would contribute the same amount of supply at any price level 
among those likely to be attained. TradeTech's and NAC's reports do 
not mention accounting for enrichment-based secondary supply.
---------------------------------------------------------------------------

    Furthermore, UxC's forecast for the price effect attributed to DOE 
transfers in coming years is substantially higher than what any of the 
other reports predict. That difference may be a reason to scrutinize 
UxC's predictions. In addition, aspects of UxC's models, as explained 
below, appear to make them less reliable in this regard, especially for 
the task of attributing price effects to a discrete element of supply, 
specifically DOE's transfers. UxC uses several exogenous variables to 
account for subjective, unquantifiable phenomena such as ``market 
participants' general perception of the industry outlook'' and 
``changes in market psychology.'' These exogenous variables appear to 
play key

[[Page 26393]]

roles at certain steps in the models. UxC assigns values for the 
variables prior to running its model in order to define the scenario 
that the model will forecast. Thus, the outputs depend in part on UxC's 
subjective decisions about input factors such as ``market sentiment.'' 
Perhaps that characteristic does not impair UxC's ability to forecast 
prices in the near future, because it might be possible to choose 
appropriate values for these variables by finding those for which the 
model best reproduces the recent past. But to assign a price change to 
DOE's transfers, UxC necessarily ran its models with counterfactual 
scenarios, namely the markets without DOE transfers, and it made 
different assumptions about future markets. While UxC has not said 
whether it used the same values for its exogenous variables in running 
the model with and without DOE transfers, DOE must presume it used 
different values because the report stresses that DOE's transfers have 
a long-term effect on ``market perceptions,'' the type of 
unquantifiable factor the variables are meant to represent. For all 
these reasons, DOE concludes that a model reliant on subjective 
exogenous variables is likely to be less reliable than those used by 
the other reports.
e. Effect of DOE transfers on market price
    In light of these market analyses and its review of them, DOE 
concludes that transfers under the assessed case will continue to exert 
some downward pressure on the market price for uranium concentrates. 
DOE believes $2.70 per pound is a reasonable estimate of how much 
downward price pressure transfers under the assessed case will 
contribute on average over the next decade. In 2016 and 2017, the price 
impact will be even lower, between $2.10 and $2.20 according to ERI's 
market clearing analysis, and approximately $1.90-$2.00 according to 
ERI and TradeTech's econometric forecasts. To be cautious, DOE will 
base its analysis on the full amount of $2.70.\54\
---------------------------------------------------------------------------

    \54\ Two commenters contended that DOE's forecast of the price 
effect is implausibly low because, they said, the spot price has in 
the past changed by almost $6 per pound in response to volume 
changes less than 2% of DOE's transfers. DOE notes that 2% of DOE's 
transfers would amount to around 54 MTU per year. It seems highly 
unlikely that a change in supply by 54 MTU per year would cause a 
price change of $6 per pound, and the commenters cited no specific 
examples.
---------------------------------------------------------------------------

    The significance of price suppression at this level depends, at 
least in part, on market price. Recent spot and term price indicators 
published by UxC on March 30, 2015, were $39.50 per pound 
U3O8 on the spot market and $49.00 per pound 
U3O8 on the term market. The forecast price 
effect reasonably attributable to DOE transfers represents 6.8% and 
5.5% of these values, respectively. But comparing future price changes 
to current prices provides at most a sense of scale. DOE believes it is 
more appropriate to compare the price effect in future years to 
forecasted market prices in those years.
    Several sources generally predict an increase in market prices over 
the next several years. ERI notes that term prices are expected to 
increase in the future, but does not provide a specific forecast. 2015 
ERI Report, 46. ERI's econometric model, however, does show an increase 
in the spot price. Specifically, ERI forecasts that spot prices will 
recover over the course of 2015-2018 eventually settling in the $52-57 
range after 2019. 2015 ERI Report, 52. TradeTech's Exchange Value spot-
price forecast increases to approximately $50 as early as June 2016, 
even with DOE transfers. TradeTech Report, 20. UxC's estimates of the 
effect of DOE transfers assume that market conditions will improve in 
the medium term. [REDACTED]. Figures 5 & 6, UxC Report, 11. In its 
annual Uranium Market Outlook, UxC provides a more detailed explanation 
of its price forecast, which generally predicts an increase in price 
over the next 10 years. UxC Uranium Market Outlook--Q4 2014, 111-19 
(2014). [REDACTED]. Id. at 119.\55\
---------------------------------------------------------------------------

    \55\ Commenters describe a variety of different market effects 
that will affect market prices in future years, including currency 
exchange rates, changes in demand due to Fukushima, high near-term 
production. UxC's appears to take these various factors into account 
in developing its price projections. Given these considerations, and 
given that UxC's projections of prices are in general agreement with 
the other models, DOE has noted UxC's price projections in the above 
discussion, although, for the reasons discussed above, DOE does not 
take the same view with respect to UxC's forecast of the price 
effect attributable to DOE transfers. Forecasts of the overall trend 
of prices ultimately reflect predictions about total requirements 
and total supply, which are less susceptible to some of the 
uncertainties that arise for the econometric models discussed in 
this analysis.
---------------------------------------------------------------------------

    Using these price forecasts, it is possible to project the 
estimated price effect in future years as a percentage of the expected 
market price. ERI's market clearing price model predicts that the price 
effect will remain relatively stable over the next years. As prices 
increase, this price effect will represent a smaller proportion of the 
then-prevailing market prices. As spot prices increase above $50, which 
DOE expects will happen by 2019 or 2020, the long-term price effect 
attributable to DOE transfers would represent approximately 5.4% of the 
spot price.
f. Effect on realized prices
    A principal mechanism through which a change in market price could 
impact the domestic uranium mining industry is through the effect on 
the prices that various production companies actually receive for the 
uranium they sell--the ``realized price.'' The market prices published 
by TradeTech and UxC are based on information about recent offers, 
bids, and transactions. Thus, the market price is a snapshot of 
contracting activity at the time of the publication. It includes 
activity that does not involve the domestic uranium producers--i.e. 
transactions involving international producers, traders, and brokers. 
In addition, the current market prices do not reflect the fact that 
many uranium producers actually achieve prices well above the market 
prices due to the prevalence of long-term contracts that lock in 
pricing terms over a period of several years.
    Most deliveries of uranium concentrates take place under term 
contracts. According to contracting data published by UxC, utilities 
made spot purchases of [REDACTED].\56\ UxC Uranium Market Outlook--Q4 
2014, 27 (2014). UxC projects that spot purchases in 2015 and 2016 
[REDACTED]. Id. at 63.\57\ These figures indicate that utilities met 
approximately [REDACTED] of their requirements in 2014 through 
contracts greater than one year in duration.\58\
---------------------------------------------------------------------------

    \56\ As this figure was published in December 2014, it does not 
include contracting activity for the balance of 2014. UxC projects 
that spot purchases by utilities in the remainder of [REDACTED]. UxC 
Uranium Market Outlook--Q4 2014, 63 (2014).
    \57\ UxC also reports that purchases by traders, brokers, and 
entities other than utilities [REDACTED]. UxC Uranium Market 
Outlook--Q4 2014, 27 (2014). UxC projects that purchases by non-
utilities [REDACTED]. Id. at 63.
    \58\ EIA defines the spot market to include contracts for 
delivery in less than one year. UxC appears to use the same 
definition.
---------------------------------------------------------------------------

    It is also significant that long-term contracting volume has not 
been uniform in recent years. [REDACTED].\59\ [REDACTED]. Id. at 29. 
[REDACTED]. Id. at 28, 61, 66. [REDACTED]. Id. at 28. Based on this 
information, DOE notes that the vast majority of current term contracts 
were entered into when market prices were significantly higher,

[[Page 26394]]

i.e. when term prices were above $60.00.
---------------------------------------------------------------------------

    \59\ This figure refers to the aggregate volume purchased under 
all term contracts entered into during each year. However, actual 
deliveries would not take place for several years. For example, a 
hypothetical term contract entered into in 2010 might provide for a 
specified amount of U3O8--say 200,000 pounds--
to be delivered in each year beginning in in 2012 and ending in 
2019. The number included in the 2010 total volume figure for this 
contract would be 1.6 million pounds.
---------------------------------------------------------------------------

    These observations are particularly significant because uranium 
prices have declined in recent years and only recently began to 
recover. In 2014, the spot price reached a low of $28.25, after 
decreasing from a high of $136.00 in 2007. Compared to the low of 
$28.25, a price effect from DOE transfers of $2.70 per pound would 
represent 9.6%. However, the actual effect experienced by a primary 
producer would be the proportionate change in its realized prices. As 
mentioned above, several of the market analyses that DOE reviewed 
forecast that prices will be increasing substantially in the next few 
years and should reach $50 by 2019 or 2020. Consistent with those 
forecasts, spot prices are currently 16-20% higher than they were one 
year ago. Because the low prices of 2013-2014 were only temporary, 
realized prices for most producers can be expected to be more in line 
with the longer-term trend of prices. Consequently, the price effect of 
DOE's transfers should be regarded in comparison to the longer-term 
trend rather than to the recent past of especially low prices. 
Furthermore, based on current trends in term contracting, there will be 
relatively few new term contracts entered into on the basis of current 
prices and they will likely have a shorter average duration than in 
years past. Thus, although the price effect attributable to DOE 
transfers in the term market would have an effect that would persist 
through the life of any new term contracts, this effect is likely to be 
limited in the near term.
    ERI estimates the prices realized by U.S. producers by gathering 
information from public filings representing approximately 95% of U.S. 
production. 2015 ERI Report, 60-61. Realized prices declined for most 
primary producers in 2014, an outcome that presumably reflects the fact 
that market prices had, by 2014, been declining continually for several 
years. 2015 ERI Report, 61. Still, ERI estimates that several producers 
achieved realized prices in 2014 well above the average spot price over 
the course of the year. At least one producer achieved a realized price 
well above the average term price for 2014. 2015 ERI Report, 61.
    ERI reports that some mining companies have negotiated contracts 
that base the price paid at least partially on a fixed or base-
escalated pricing mechanism. As an example, Cameco has reported that 
the price sensitivity of its current contract portfolio is about 50% of 
any change in spot market price. ERI estimates that less than 30% of 
U.S. production currently comes from companies that are effectively 
unhedged against changes in spot price. 2015 ERI Report, 60-61.
    TradeTech also provides its estimates of the decline in realized 
price for several producers--both U.S. and foreign. Although TradeTech 
does not provide specific figures, it provides information on several 
firms in chart form. It appears from the chart that among the firms for 
which TradeTech provides estimates, realized prices in 2013 varied from 
as low as about $38 to as high as about $57. For most producers, there 
was a decline in realized price between 2011 and 2013. The magnitude of 
that decline ranges from approximately $12 to as low as $2 or $3. 
TradeTech Report, 13. TradeTech notes that one reason for declining 
realized prices is the expiration of long-term contracts signed when 
prices were substantially higher. TradeTech Report, 12.
    NAC similarly notes that some higher cost suppliers have locked in 
higher prices through fixed price contracts that allow them to realize 
prices greater than current market prices. NAC Report, 3-22. Although 
NAC estimates the effect of DOE transfers on market price, as described 
above, NAC does not provide specific estimates of the effect on the 
price realized by individual producers.
    EIA reports several figures that are relevant to the prices 
realized by current producers. EIA reports that the weighted average 
price in sales directly from U.S. producers in 2013 was $44.65. EIA, 
2013 Uranium Production Report, 7 (2014). Similarly, EIA reports that 
the weighted average price paid by U.S. reactor operators in 2013 was 
$51.99 per pound U3O8 equivalent. Id. at 4. 
Although EIA does not provide a complete range of prices paid by U.S. 
reactor operators, it does report that the bottom 7.1 million pounds 
U3O8 equivalent (approximately \1/8\th of uranium 
delivered in 2013) purchased by U.S. operators had a weighted average 
price of $34.34. The top 7.1 million pounds had a weighted average 
price of $72.62.\60\ Id. at 26. EIA also provides average prices broken 
down by origin--foreign vs. U.S.--and by seller--U.S. producer, U.S. 
brokers and traders, other U.S. suppliers (i.e. other reactor 
operators, converters, enrichers, or fabricators), and foreign 
suppliers. The weighted average price in 2013 for U.S. origin uranium 
was $56.37 per pound U3O8. The weighted average 
price in 2013 from U.S. brokers and traders was $50.44. For 2013, EIA 
does not report the weighted average price of uranium purchased by U.S. 
reactor operators directly from U.S. producers to avoid disclosure of 
individual company data. However, in recent years when that value is 
reported, it has been above the average price paid for U.S. origin 
uranium. Id. at 4. For comparison, DOE notes that the 2013 average spot 
price was around $39.00 and the average term price was around 
$54.00.\61\
---------------------------------------------------------------------------

    \60\ These two figures do not differentiate between U.S.-origin 
versus foreign material. However, EIA reports that the weighted 
average price of U.S. origin material is higher than the average for 
all foreign material. EIA, 2013 Uranium Marketing Report, 20 (2014).
    \61\ As calculated according to monthly price indicator data 
from UxC.
---------------------------------------------------------------------------

    EIA provides data about sales using different pricing mechanisms. 
EIA reports that of the approximately 23.3 million pounds 
U3O8 equivalent purchased by U.S. reactor 
operators from domestic sources \62\ and delivered in 2013, 14.5 
million pounds were purchased based on fixed or base-escalated 
pricing--approximately 62.3%--with a weighted-average price of $54.95. 
Approximately 3.6 million pounds were purchased based purely on spot-
market pricing--approximately 15.6%--with a weighted-average price of 
$42.55. The remaining 5.1 million pounds--approximately 22%--was sold 
based on some other pricing mechanism with a weighted average price of 
$52.68. EIA, Uranium Marketing Report, 24 (2014).
---------------------------------------------------------------------------

    \62\ Note that EIA's figure includes purchases of U.S.-origin 
uranium as well as purchases from a firm located in the United 
States. Therefore, this number includes uranium from sources other 
than the domestic uranium industry. EIA reports that approximately 
9.5 million pounds of U.S. origin uranium was delivered to U.S. 
reactor operators in 2013. EIA, Uranium Marketing Report, 20 (2014).
---------------------------------------------------------------------------

    Many companies report their realized prices in public filings. 
Based on average market prices over the time-frame these filings cover, 
this information can be used to infer the extent to which each firm is 
exposed to market price fluctuations. DOE has reviewed public filings 
with the SEC and other public financial information for several U.S. 
producers. This information is summarized in Table 10. Based on this 
information, it appears that only two producers sell 
U3O8 exclusively at the spot price. Although ERI 
estimates that less than 30% of U.S. producers are currently unhedged 
against changes in the spot price, data from public filings, many of 
which were released after publication of the 2015 ERI Report, indicate 
that producers selling exclusively at the spot price represented less 
than 15% of reported production in 2014.

[[Page 26395]]

   Table 10--Reported Sales and Realized Price by U.S. Producers \69\
------------------------------------------------------------------------
                     Information from public filings
-------------------------------------------------------------------------
                                     2014 Sales  (lbs
             Producer                     U3O8)          Realized price
------------------------------------------------------------------------
Uranium One \63\..................            410,800                $32
Ur-Energy \64\....................             90,000                 55
Cameco \65\.......................          2,700,000                 48
Uranerz \66\......................            175,000                 57
Energy Fuels \67\.................            800,000                 57
Uranium Energy Corp \68\..........                N/A                N/A
------------------------------------------------------------------------

    Contracting decisions are specific to the buyer and the particulars 
related to these decisions are not routinely made public. However, from 
the information that is available, DOE notes the following key points 
related to the effect of DOE transfers on realized prices in the 
domestic uranium mining industry. Most high cost suppliers hold fixed 
price contracts that allow them to realize prices significantly greater 
than current market prices. These fixed price contracts insulate the 
producers from changes in market price and tend to dampen the short-run 
effect of DOE transfers. To be sure, new long-term contracts expected 
to be signed in the next few years, would reflect any continued 
suppression of market prices resulting from DOE transfers. However, as 
mentioned above, term contract activity is expected to remain low in 
the near term. In addition, prices have already increased from recent 
lows and are expected to increase substantially in the next few years. 
Given that the vast majority of uranium is purchased from producers 
under term contracts,\70\ DOE believes the effect on future term 
contracts will be small compared to the effect on existing contractual 
deliveries.
---------------------------------------------------------------------------

    \63\ These figures represent sales only through Sept. 30, 2014. 
Uranium One operates the Willow Creek mine in Wyoming. Uranium One 
Inc., Management's Discussion and Analysis, Quarter Ending September 
30, 2014, at 2, 17 (Nov. 14, 2014), http://www.uranium1.com/index.php/en/component/docman/doc_download/926-q3-2014-managements-discussion-a-analysis.
    \64\ UR-Energy operates the Lost Creek ISR mine in Wyoming. UR-
Energy Inc. Form 10-K, Securities and Exchange Commission, at 50 
(Mar. 2, 2015) https://www.sec.gov/Archives/edgar/data/1375205/000155837015000251/urg-20141231x10k.htm (accessed Mar. 27, 2015).
    \65\ Cameco operates the Smith Ranch-Highland (Wyoming) and Crow 
Butte (Nebraska) ISR mines. Cameco, Management's Discussion and 
Analysis, Quarter Ending December 31, 2014, at 40, 69-70 (Feb. 9, 
2015), http://s3-us-west-2.amazonaws.com/assets-us-west-2/quarterly/CCO_2014_Q4_MDA_and_Financial_Statements.pdf.
    \66\ Uranerz Energy Corp., which operates the Nichols Ranch ISR 
mine in Wyoming, reports that it sold 175,000 pounds of uranium 
oxide in 2014 for a revenue of $10,006,673. Uranerz Energy Corp. 
Form 10-K, Securities and Exchange Commission, at 50 (Mar. 16, 2015) 
https://www.sec.gov/Archives/edgar/data/1162324/000106299315001350/form10k.htm (accessed Mar. 27, 2015).
    \67\ Energy Fuels, which operates the White Mesa conventional 
mill in Utah, reports that its realized price in 2014 averaged 
$57.19. Energy Fuels Inc., Management's Discussion and Analysis, 
Year Ending December 31, 2014, at 4 (Mar. 18, 2015), https://www.sec.gov/Archives/edgar/data/1385849/000106299315001408/exhibit99-2.htm.
    \68\ Uranium Energy Corp. (UEC) operates the Hobson/Palanga ISR 
mine in Texas. UEC reports that it had no sales during the fiscal 
year ending July 31, 2014, although it continued to produce uranium 
concentrates. UEC states that future uranium concentrates sale are 
expected to occur at the spot price. Uranium Energy Corp. Form 10-K, 
Securities and Exchange Commission, at 72 (Oct. 10, 2014) https://www.sec.gov/Archives/edgar/data/1334933/000106299314005923/form10k.htm (accessed Mar. 27, 2015).
    \69\ In addition to the companies listed in text, DOE's EIA also 
reports one additional operating mine at the end of Q4 2014: Alta 
Mesa in Texas. The parent company for this mine, Mestena Uranium 
LLC, is closely held and publishes little information publically. 
UxC reports [REDACTED]. UxC Uranium Suppliers Annual--December 2014, 
225-26 (2014).
    \70\ For example in 2014--[REDACTED]--producers worldwide 
contracted to deliver [REDACTED] through term contracts, but only 
[REDACTED] on the spot market. UxC Uranium Market Outlook--Q4 2014, 
126-127 (2014). In 2012, [REDACTED], producers contracted to deliver 
approximately [REDACTED] through term contracts, but only [REDACTED] 
on the spot market. Id.
---------------------------------------------------------------------------

    In light of all these factors, DOE concludes that the anticipated 
effect of its transfers on market prices will tend to overstate the 
effect on the domestic uranium mining industry in terms of actual 
realized price. Although public filings suggest that only 15% of 
producers are unhedged against fluctuations in the spot price, DOE will 
conservatively assume that 30% of the industry is not insulated from 
these fluctuations due to preexisting long-term contracts as ERI 
suggests. Further assuming that this insulation is equivalent to 50% 
exposure to the changes in market price, the average price effect on 
the domestic uranium industry's realized prices in the near term would 
be closer to $1.75. DOE notes that this price effect is relatively 
small when compared to the market prices forecasted for the next 
several years--between 3.5% and 4.5% of expected spot market prices. 
That said, consideration of the effect on realized prices on its own is 
not sufficient to determine whether the impacts will be material. The 
implications of transfers for the factors discussed in the next four 
sections have also been considered.
2. Production at Existing Facilities
    DOE believes that primary producers consider a range of different 
inputs in determining whether to decrease, continue, or increase 
production at currently operating facilities. Market prices are 
certainly one element of this calculation, but producers also consider 
contractual obligations (and what these contracts may mean for realized 
prices), projections about future prices, and the various costs 
associated with changing production levels. In order to forecast how 
DOE transfers will affect production levels, DOE has considered how 
producers have responded to price changes in the past. Some of the 
primary inputs in these decisions are the relationship between market 
prices and production costs, and expectations about future price 
trends.
    EIA reports data on production levels in the domestic uranium 
industry on a quarterly and annual basis. EIA's most recent quarterly 
report provides preliminary data for 2014. U.S. primary production in 
2014 stood at 4.9 million pounds U3O8. This is 
about 5% higher than in 2013 and 15% higher than in 2012. In fact, this 
represents the highest production total in any calendar year since 
1997. EIA, Domestic Uranium Production Report Q4 2014, 2 (January 
2015). ERI also notes that U.S. production has risen since the recent 
program of DOE uranium transfers began in December 2009. In 2014, 
production was 5% higher compared to the previous year. However, ERI 
reports that production in 2015 is expected to decline to 2013 levels. 
2015 ERI Report, 58.
    Since 2009, four new operations have begun production in the United 
States: Willow Creek in 2010, Hobson/Palangana in late 2010/early 2011, 
Lost Creek in 2013, and Nichols Ranch in 2014. ERI also reports that 
one

[[Page 26396]]

additional production center is expected to begin operations in 2015. 
Despite these new operations, ERI notes that several conventional and 
in-situ leach operations have scaled back operations. 2015 ERI Report, 
57. EIA reports that the same number of uranium concentrate processing 
facilities--seven--operated in 2014 as in 2013. Specifically, while the 
Nichols Ranch ISR plant began operation in the second quarter of 2014, 
the White Mesa conventional mill halted production in the fourth 
quarter of 2014. EIA Domestic Uranium Production Report Q4 2014, 3-6 
(January 2015).
    ERI presents a chart showing the price levels at the time cutbacks 
were announced at various U.S. suppliers. ERI reports price points for 
cutbacks at four operations: $45 per pound in the spot market for 
conventional mines in Utah; $40 per pound in the spot market for two 
in-situ-leach operations; and $35 per pound in the spot market for 
additional conventional mines and a uranium mill. 2015 ERI Report, 62.
    ERI then estimates average production costs for existing mines by 
referring to EIA's published data on production expenditures across the 
uranium industry. Using a three year average to smooth out year-to-year 
differences, ERI notes that average production costs have remained 
fairly constant since 2009 at about $40 per pound. 2015 ERI Report, 63. 
ERI further reports that it estimates production costs at U.S. in-situ-
leach facilities to range from the low $30s to the mid $40s per pound. 
ERI concludes that the pattern of cutbacks and estimated production 
costs ``do not seem to indicate that adding back the $3 per pound price 
effect attributed to all DOE inventory material for Scenario 1 would 
move current prices enough to cause U.S. producers to ramp well field 
development and production activities back up.'' 2015 ERI Report, 64. 
ERI further notes that the spot price would remain near $40 per pound 
and ``may still not be sufficient for higher cost ISL producers to 
restart well field development or higher cost conventional mines to 
resume mining activities, and likely would not have prevented the 
decisions to cut back when prices declined to $35/lb in mid 2013 and 
then below $30/lb in mid 2014.'' 2015 ERI Report, 64.
    The UxC Report does not provide any specific estimates of 
production levels or costs at currently operating facilities. However, 
UxC has developed production cost data elsewhere in its annual report 
on uranium suppliers and a 2013 production cost study. UxC Uranium 
Suppliers Annual--December 2014 (2014); UxC Uranium Production Cost 
Study (2013). [REDACTED].\71\
---------------------------------------------------------------------------

    \71\ Information from this paragraph is collected from the two 
UxC studies mentioned above. The price bands come from UxC Uranium 
Production Cost Study, 80-84 (2013), and cost estimates in 
parentheses comes from UxC Uranium Suppliers Annual--December 2014 
(2014) (except for data on [REDACTED] which comes from UxC Uranium 
Production Cost Study, 111-12 (2013).
---------------------------------------------------------------------------

    The TradeTech Report predicts a ``potential reduction in the number 
of market participants.'' TradeTech Report, 21. It applies the price 
effect it estimates for DOE transfers to a hypothetical uranium 
producer with a production cost of $47.41 per pound. See Figure 15 of 
TradeTech Report, 22. TradeTech does not apply its estimate to any 
particular producer. TradeTech does, however, provide estimates for the 
production costs of several firms in both 2011 and 2013.\72\ Although 
TradeTech does not provide numerical cost data, it does provide 
information on several firms in chart form. It appears from the chart 
that among the firms TradeTech provides estimates for, production costs 
in 2013 varied from as low as $30 to as high as $50. TradeTech also 
notes that many producers have been able to reduce or stabilize costs 
in recent years. This is also reflected in the difference between the 
producers' costs in 2011 and in 2013. TradeTech Report, 13.
---------------------------------------------------------------------------

    \72\ This figure includes information on some projects that are 
not part of the domestic uranium mining industry, such as Uranium 
One's Kazakh projects.
---------------------------------------------------------------------------

    NAC provides estimated production cost ranges for segments of 
current supply, but it does not directly estimate the effect of DOE 
transfers on production levels. NAC Report, 3-9 to 3-11. Specifically, 
NAC provides a chart showing the breakdown of worldwide operating 
production capacity [REDACTED]. NAC Report, 3-10. DOE notes that this 
chart does not provide separate estimates of production from U.S. 
facilities, although NAC does state that [REDACTED]. NAC Report, 3-11.
    A commenter noted that production in the recent past is not an 
accurate indicator of how DOE's transfers affect the mining industry, 
because current production reflects conditions of three or four years 
ago when the investment decisions were made. This commenter suggested 
that exploration data would be a better guide for assessing how 
industry is responding to current conditions. In addition, the 
commenter submitted information it received from Cameco indicating that 
production at Cameco's two main areas will decline from 2.7 million 
pounds in 2014 to 1.7 million pounds in 2015. This information is 
generally consistent with the data provided by the various reports 
summarized above.
    DOE recognizes that large-scale changes in production can take 
several years, and for that reason among others it does not base its 
analysis simply on the fact that current production is comparable to 
2013 production. At the same time, DOE notes that declines in 
production in 2015 are not, in their entirety, reasonably attributable 
to DOE's transfers. According to the commenter, the effect of market 
conditions takes three to four years to be fully manifest in production 
levels. If so, then a decline in production in 2015 would presumably 
result primarily from the large-scale market changes in the second half 
of 2011 and then in 2012 as a result of the Fukushima disaster. To 
forecast the effects reasonably attributable to DOE's transfers, a more 
careful analysis like that described below is more appropriate.
    As actual production levels and costs are usually proprietary 
information, DOE must generally rely on estimates. The production cost 
estimates from TradeTech, NAC, and UxC are all generally consistent 
with ERI's conclusions. Each market analysis describes production costs 
falling within a similar range.
    As noted above, based on the current spot price of $39.50 \73\ and 
ERI's estimates of the price effect of DOE transfers, removing DOE-
sourced material from the market altogether--including material already 
transferred in the past as well as the material to be transferred under 
the assessed case--could lead to spot prices around $42.50 and DOE 
transfers under the assessed case could lead to market prices between 
$39.70 and $40.10. Although UxC estimates [REDACTED].
---------------------------------------------------------------------------

    \73\ UxC's monthly spot price as of March 30, 2015.
---------------------------------------------------------------------------

    To summarize, it does not appear that the price effect of DOE 
transfers would cause realized prices to be below production costs at 
any particular facility. DOE recognizes that receiving prices barely 
above production costs would not provide enough return to justify 
investing in production, and a producer needs to receive a certain 
amount of margin. The TradeTech Report suggests 10% is an appropriate 
margin. But elevating the threshold for these mines from production 
cost to production cost plus 10% would not alter the conclusions 
discussed above.\74\

[[Page 26397]]

Accordingly, DOE concludes that ceasing transfers entirely--which could 
cause prices to increase by up to $2.70 per pound--would not cause U.S. 
producers to increase production levels substantially in the near term.
---------------------------------------------------------------------------

    \74\ One commenter suggests that DOE calculate the effect of its 
transfers on average margins, which it claims would be a 
straightforward calculation. The commenter cites as an example a 
hypothetical model included in the TradeTech report. In DOE's view, 
the TradeTech hypothetical, as discussed below, seems to bear little 
relation to any actual mine. To calculate margins, DOE would need to 
know actual realized prices, linked to production costs, on a mine-
by-mine basis. Absent such details, DOE believes the estimation 
method described above is a sufficiently robust approach to 
forecasting the effect on production reasonably attributable to 
DOE's transfers.
---------------------------------------------------------------------------

    The estimates in the preceding paragraph are based on a comparison 
of expected realized prices of specific mines and estimates of 
production cost at those mines. However, DOE notes that this is a 
somewhat oversimplified comparison. Decisions regarding whether to 
increase or decrease production are based on a number of 
considerations, of which the instantaneous market price is only one. 
Recent production data provides some evidence that market prices are 
not the sole consideration. Despite the fact that market prices were at 
their lowest levels in recent memory, EIA's most recent quarterly 
report states that U.S. primary production in 2014 was higher than in 
any calendar year since 1997. Even while production ceased at some 
facilities, production began for the first time at others. Meanwhile, 
producers with production costs above the average spot price in recent 
years have continued operations. One of those considerations is 
included in the above discussion, namely the difference between 
realized price and market price. In addition, DOE believes that this 
behavior is related to the significant cost and time lag involved in 
ceasing or slowing production at an existing facility. Due to these 
facts, DOE believes that production decisions are likely to be based on 
future expectations about market prices and contracting trends in 
addition to current market prices.
    Given that removing the price effect associated with DOE transfers 
is not likely to be enough to materially change the relationship 
between price and cost for any particular producer and that production 
decisions are based on additional considerations that include future 
expectations about market prices and contracting trends, DOE agrees 
with ERI's conclusion that adding back the price effect of DOE 
transfers would not move current prices enough to cause U.S. producers 
to increase production at existing facilities.
    Some commenters objected that this conclusion is irrelevant. 
However, it is an appropriate implementation of the analytical approach 
discussed above, in which DOE assesses the impact reasonably 
attributable to its transfers. To do so, DOE compares the likely state 
of affairs with transfers and without DOE transfers. The conclusion 
that continuing transfers under the assessed case would not result in 
U.S. production's being markedly lower than it would in the absence of 
DOE transfers constitutes such a comparison.
3. Employment Levels in the Industry
    DOE has considered information from EIA reports relating to 
employment in the domestic uranium production industry. EIA's most 
recent Uranium Production Report states that employment stood at 1,156 
person-years in 2013, 1,196 person-years in 2012, and 1,191 person-
years in 2011. EIA, 2013 Uranium Production Report, 10 (May 2014).
    In its analysis, ERI compared EIA's employment figures with changes 
in uranium spot and term prices. Based on a statistical correlation, 
ERI infers that employment responds to changes in price. 2015 ERI 
Report, 73. ERI then uses this correlation to estimate that the 
decrease in uranium prices over the course of 2014 resulted in a loss 
of 114 person-years from the 2013 value of 1,156. 2015 ERI Report, 55. 
ERI then estimates that the price effect it attributes to DOE transfers 
lowered employment by 41 person years in 2013, and 44 person years in 
2014. 2015 ERI Report, 56. ERI further estimates that price effects due 
to DOE transfers at the levels described in Scenario 1 would result in 
an average employment loss of 42 person years over the next 10 years. 
For Scenario 2 and 3, ERI estimated that the average employment loss 
would be 39 and 21 person years, respectively. Again, it is important 
to note that this estimate is not a prediction that the uranium 
production industry under Scenario 1 would shed 42 jobs in 2015 and 
each subsequent year. Instead, this figure reflects ERI's estimate that 
total employment in the industry would be higher by an average of 42 
person-years without DOE transfers compared to with DOE transfers.
    Several commenters asserted that employment has decreased in recent 
years as a consequence of decreases in uranium prices. E.g., RFI 
Comment of Mark S. Pelizza, at 1. Some commenters stated that the 
uranium production industry has lost half its workforce since May 2012. 
RFI Comment of UPA, at 2; RFI Comment of Uranerz, at 2.
    Several uranium producers provided data regarding their employment. 
The combined figures from several producers come to employment of 845 
in 2012 and 424 in 2014. NIPC Comment of UPA, at 7-8.
    DOE nonetheless does not believe that employment in the uranium 
mining industry has decreased by half since May 2012. That claim runs 
contrary to reporting by EIA that employment was 1,191 in 2011, 1,196 
in 2012, and 1,156 in 2013. EIA, 2013 Uranium Production Report, 10 
(May 2014). This is only a 3% decline between 2011 and 2013. Although 
EIA has not yet reported uranium employment in 2014, DOE notes that 
production levels in 2014 were very close to levels in 2013 and that 
one new facility began operation in 2014. Thus it seems reasonable to 
assume that employment levels were similar as well. EIA Domestic 
Uranium Production Report Q4 2014, 3-6 (January 2015).
    DOE believes the EIA reports on uranium-industry employment are 
more reliable than the commenter's submission on this point. In 
general, the EIA collects its data through a survey, responses to which 
are mandatory. The survey terms are well defined and, with respect to 
employment, should capture the relevant employment. By contrast, the 
commenter describes its data as counting ``current employment 
activities.'' It is not clear which employees are included in the count 
or whether the inclusion criteria are even uniform across companies. 
More significantly, the commenter's submission does not encompass the 
whole domestic industry. A number of the companies represented did 
decrease production, but the commenter's figures appear not to include 
some mines that have increased production.
    Even if industry employment had decreased by half since 2012, for 
predicting the effect of DOE's transfers in the assessed case it is 
important to understand what portion of recent employment decreases is 
reasonably attributable to past transfers. No commenter attempted such 
an estimation. While it is difficult to infer causal connections 
between employment and any particular market phenomenon, DOE thinks it 
is likely that most if not all of the reduction in employment in the 
mining industry since 2011 can reasonably be attributed to the downturn 
in the demand for uranium, primarily due to the Fukushima events.
    DOE believes that ERI's method for attributing an employment effect 
to DOE transfers is reasonable. ERI's method is based on an empirical 
observation that prices (particularly the two-year moving average of 
price) have been strongly correlated with employment over the last 
decade. This correlation exists despite the remarkable fluctuations in 
market conditions that have taken place

[[Page 26398]]

in that period. The relatively small price effects likely to result 
from DOE's transfers--even the price effects that UxC forecasts--are 
much smaller than the variations of the past decade. Therefore, the 
correlation ERI observes should hold true for these small price 
effects. In addition, it is reasonable to expect that prices and 
employment will continue to correlate in such a way, because the 
correlation reflects persistent market phenomena. DOE expects that a 
producer increases or decreases employment in order to increase or 
decrease production, and it does so in response to increases or 
decreases in the price it will receive. For any given producer the 
relationship between employment and price will depend on multiple 
factors such as the producer's cost of production and its cost 
structure (e.g. what proportion of cost depends on employee numbers) 
and the producer's sales structure and realized prices. Aggregated over 
producers, the result would be the sort of correlation between prices 
and employment that ERI observes.
    ERI forecasts that employment will be persistently lower by 42 
person-years over the next decade if DOE transfers uranium at the rates 
specified in Scenario 1. While the assessed case involves significantly 
lower rates, DOE uses the Scenario 1 forecast in order to forecast 
employment effects conservatively. A decrease of 42 person-years is 
relatively small--approximately 4%--compared to overall employment. 
Notably, the industry has weathered significantly larger changes in 
employment in the past. Between 1998 and 2001, the industry went from 
employment at 1120 to 423. EIA, Domestic Uranium Production Report 
(2005). Similarly, from 2008-2009, the industry went from 1563 to 1096; 
a drop of 467 in a single year. EIA, 2013 Uranium Production Report, 10 
(May 2014). Additionally, ERI points out that employment for 2014 
likely declined by 114 person-years, even though DOE transfers did not 
change appreciably from 2013 to 2014. These comparisons indicate that 
the small change attributable to DOE's transfers will be well within 
the range of employment fluctuations that independent market conditions 
produce.
    Some comments in response to the RFI, mentioned above, warn that 
employment losses may lead to a loss of intellectual capacity. The 
relevant employees have technical skills that can take time to acquire. 
If the lost employees have retired or moved into other fields, it may 
not be possible to restore them even as demand increases. While in 
principle replacements could be trained, these commenters argued that 
employment losses have been so severe that the industry is losing the 
capability to train replacements. Commenters provided no evidence to 
support these claims. Moreover, these commenters' suggestion is 
inconsistent with the industry experience of the past 20 years. The 
industry has more than once in the last 20 years experienced decreases 
in employment an order of magnitude above what ERI attributes to recent 
DOE transfers, and has maintained and, when appropriate, increased 
production. Thus, DOE does not expect its transfers in the assessed 
case will cause employment losses that threaten the intellectual 
reserves of the industry. DOE believes that the current levels of 
employment (and the expected future levels of employment) adequately 
protect against loss of this resource.
4. Changes in Capital Improvement Plans and Development of Future 
Facilities
    As stated above, ERI reports that four new production centers began 
operation since 2009: One in 2010, one in late 2010/early 2011, one in 
2013, and one in 2014. In addition, one new production center--
Peninsula's Lance project--is expected to begin operations in 2015. 
2015 ERI Report, 57. ERI explains that the new production centers may 
have been able to begin operations only because they were supported by 
fixed price term contracts that were signed when prices were 
substantially higher than they are currently--i.e. $55 to $70 per pound 
term price. At least one of these companies has directly stated that 
its project would not have been able to proceed at current price 
levels--$45 to $50 per pound term price. ERI also reports that some 
owners of proposed conventional mines outside the U.S. have stated that 
prices in the range of $60 to $70 per pound would be necessary for 
further development. 2015 ERI Report, 61.
    Based on the above, ERI concludes, ``[i]t does not appear that 
removing the DOE inventory from the market and adding back the $2 to $3 
per pound price effect attributed to the DOE inventory material . . . 
would necessarily increase current prices enough to change the 
situation regarding the viability of new production centers in the 
U.S.'' 2015 ERI Report, 62. However, ERI reports that some lower cost 
ISL projects in the U.S. may be able to move forward at current prices. 
2015 ERI Report, 62.
    NAC provides estimates of the site forward cost, including rate of 
return, for ten properties it considers to be under development.\75\ 
[REDACTED]. NAC Report, 3-11. NAC does not directly apply its estimate 
of the price effect of DOE transfers to the production costs for these 
specific properties.
---------------------------------------------------------------------------

    \75\ NAC defines ``under development'' as a property for which 
ground breaking has begun. Note that NAC considers ten properties 
worldwide to be ``under development''; they are not limited to U.S. 
properties. NAC Report, 3-11.
---------------------------------------------------------------------------

    The UxC Report does not provide any specific estimates of 
production levels or costs at planned facilities. However, UxC has 
developed production cost data elsewhere in reports cited. UxC Uranium 
Suppliers Annual--December 2014 (2014); UxC Uranium Production Cost 
Study (2013). [REDACTED]. UxC Uranium Production Cost Study, 62, 
(2013). [REDACTED].
    As with existing production centers, UxC [REDACTED].\76\ 
[REDACTED]. Id. at 82-83.
---------------------------------------------------------------------------

    \76\ Information from this paragraph is collected from the two 
UxC studies mentioned above. The price bands come from UxC Uranium 
Production Cost Study, 80-84 (2013), and cost estimates in 
parentheses comes from UxC Uranium Suppliers Annual--December 2014 
(2014) (except for data on [REDACTED], which come from UxC Uranium 
Production Cost Study, 111-12 (2013).
---------------------------------------------------------------------------

    EIA reports that production expenditures were $168.8 million in 
2011, $187 million in 2012 and $168 million in 2013--when spread across 
annual production, these numbers represent approximately $41 per pound 
in 2011, $43 per pound in 2012, and $36 per pound in 2013. EIA, 2013 
Domestic Uranium Production Report, 7, 11 (2014). Including costs 
related to drilling between 2011 and 2013 raises this figure by about 
$56 million per year per pound, and including land, exploration, and 
reclamation costs in those years increases these figures by a further 
$96 million per year. EIA, 2013 Domestic Uranium Production Report, 11 
(2014). Some commenters argued that the average cost for a U.S. 
producer is $67.10 per pound--apparently the sum of the EIA figures for 
all costs, divided by the total of recent production. NIPC Comment of 
UPA, at 7. DOE is not convinced that this simple aggregation provides 
an accurate estimate of production costs. For one thing, some expenses, 
like reclamation, occur after production and therefore should be 
attributed to past production (sometimes long-past production) rather 
than current production. Some expenses, like exploration costs, relate 
to future production. U.S. production has varied over time, and will 
continue to do so. So accounting for past and future production costs 
as part of the cost of current production can lead to error. DOE 
believes a more reliable method for estimating the cost of

[[Page 26399]]

production, for purposes of forecasting the consequences of DOE uranium 
transfers, is to use industry reports such as UxC's, which provide data 
about the expected costs of actual projects.\77\
---------------------------------------------------------------------------

    \77\ UPA and others also stated that DOE should consider the 
fact that total drilling, exploration, and development expenditures 
decreased in 2013 compared to 2012 according to EIA. They also state 
that it is reasonable to expect that these expenditures were even 
lower in 2014. RFI Comment of UPA, at 3; RFI Comment of Uranerz, at 
3. Since uranium prices decreased over this period, it is not 
surprising that producers reduced their activities to develop new 
resources. However, consistent with the analytical approach 
described above, the relevant question is what will be the effect on 
these activities of DOE transfers. DOE believes that a more reliable 
approach is to compare the expected market price with and without 
DOE transfers to estimated production costs at potential new 
production centers.
---------------------------------------------------------------------------

    As with production at existing mines, DOE believes that production 
decisions are more likely to be based on future expectations about 
market prices and contracting trends than on a straightforward 
comparison of current market prices to production cost. The comments 
received were consistent with DOE's understanding. New production 
centers are a long-term investment, and new facilities require several 
years of lead-time before production can begin. Since market prices 
fluctuate over time, many producers are unwilling to bring a new 
facility into production without long-term supply contracts in place.
    TradeTech's report included an estimate that DOE's transfers, at 
the 2,705 MTU per year rate, ``could be the deciding factor'' in 
whether a hypothetical miner continues production. TradeTech Report, at 
22. The hypothetical mine has a marginal production cost of $47.41 per 
pound, a 50% exposure to the spot market price, and a long-term 
component to its realized price of $50. In addition, TradeTech assumes 
that the hypothetical mine requires a 10% margin to justify production. 
Observing that prices in the next couple years are forecast to range 
from $40 to $55 per pound, and that DOE transfers at 2,705 MTU per year 
would in TradeTech's estimate reduce prices by on average $2.43 per 
pound, TradeTech concludes that the $2.43 per pound difference 
``could'' matter for the hypothetical mine.
    Some commenters characterized the TradeTech report as 
``overwhelming evidence'' that DOE's transfers are ``threatening the 
very existence of several U.S. producers.'' NIPC Comment of UPA, at 4. 
These commenters urged DOE to rely on TradeTech's hypothetical example 
for assessing the consequences of DOE transfers for future production. 
NIPC Comment of UPA, at 7. DOE does not consider this example 
appropriate for that purpose, and does not think it constitutes 
evidence that DOE's transfers actually threaten the viability of U.S. 
producers, for several reasons. The analysis appears to compare current 
production costs at the hypothetical mine to near-term spot prices. DOE 
believes a producer would actually make its long-term investment 
decisions on the basis of expectations about prices over the longer 
term and the availability of long-term contracts at an acceptable 
price. TradeTech's example does not reflect either of these factors. In 
addition, the hypothetical example uses assumptions that do not appear 
well justified. The hypothetical mine has average production costs of 
$47.41 per pound.\78\ There also appear to be only one or two projects, 
out of the number being developed in the United States, that have 
expected production costs near the assumed figure. The hypothetical 
producer also has long-term contracts at an average price of $50 per 
pound, just 5.5% higher than the producer's assumed average cost. Yet, 
according to TradeTech's hypothetical, this producer needs a 10% margin 
to justify production. This hypothetical producer would have needed 
spot prices to be not just 10% higher than its costs, but even higher 
($54.30 per pound) to compensate for the low price of its long-term 
contracts. It seems unlikely a producer would actually have developed 
such a speculative project. In short, the hypothetical example as a 
whole is inconsistent with DOE's understanding of how producers decide 
whether and when to invest in production resources.
---------------------------------------------------------------------------

    \78\ That figure is well below what some commenters argued DOE 
should use--$67.10 per pound, based on the aggregate of EIA-reported 
costs and the amount of 2014 production.
---------------------------------------------------------------------------

    Consistent with the analytical approach outlined above, DOE's task 
is to assess what the state of affairs would be with and without 
transfers in the assessed case. DOE agrees with ERI's conclusion that 
whether DOE makes these transfers is not likely to affect the economic 
viability of new U.S. production centers in development. The production 
cost estimates from NAC and UxC are consistent with ERI's conclusions. 
ERI reports that there may be some low-cost ISR production centers that 
can move forward at current market prices. This is consistent with 
estimates from NAC and UxC's of production costs at specific facilities 
that are currently under development. The only production center 
expected to begin operations in the near future is Peninsula's Lance. 
Both NAC and UxC estimate [REDACTED]. For such a project, DOE transfers 
may affect overall revenues but seem unlikely to change whether the 
project proceeds. [REDACTED]. Compared to current term market prices, 
one or two projects have production costs that are close to or just 
above the current market price, but in light of the low rate of term 
contracting activity in the next one or two years, these projects are 
unlikely to settle on contracts at the current term price.
    DOE recognizes that, as some commenters explained, there has been 
limited investment in uranium projects in recent years. E.g., RFI 
Comment of Uranerz, 4; RFI Comment of Energy Fuels, 4-5. However, 
although commenters attribute the decrease in investment to DOE's 
transfers of uranium, DOE believes that investment decisions reflect 
market conditions overall, primarily current market prices and 
expectations of future market price. The analysis described above 
identifies the amount of decrease that can reasonably be attributed to 
DOE's transfers. Ultimately, DOE must assess what the effect of future 
transfers will be. Prices have increased since the lows of the past two 
years, and future prices are now expected to be higher. As prices 
increase in the coming few years, term contracts will become available 
that would justify one or more additional projects with higher costs. A 
persistent $2-3 per pound price effect, as DOE forecasts for the 
assessed case, may delay investment on a given project for a time. But 
it does not appear that eliminating the effects of DOE transfers, would 
markedly change decisions whether to develop future production centers.
5. Long-Term Viability and Health of the Industry
    As described above, ERI notes that U.S. industry production has 
risen since the start of DOE uranium inventory transfers for Portsmouth 
cleanup in December 2009. ERI also notes that four new operations began 
production since 2009, and one additional production center is expected 
to begin operations in 2015. 2015 ERI Report, 57.
    ERI also presents its future expectations regarding demand for 
uranium. ERI's most recent Reference Nuclear Power Growth forecasts 
project global requirements to grow to approximately 182 million pounds 
annually between 2018 and 2020, approximately 15% higher than current 
requirements. Global requirements are expected to continue to rise to a 
level of 203 million pounds in 2025, approximately 28% higher than 
current

[[Page 26400]]

requirements. 2015 ERI Report, 6-7. ERI presents a graph comparing 
global requirements, demand, and supply from 2013-2035. Global 
secondary supply and supply from current mines are expected to exceed 
global reactor demand until approximately 2018. However, if China's 
practice of purchasing amounts of uranium well in excess of its current 
reactor demand is included--what ERI terms ``Discretionary Strategic'' 
demand--global demand approximately equals supply from secondary supply 
and currently operating mines. 2015 ERI Report, 9-10. If planned 
expansions and new mines under development are included, supply is 
expected to exceed demand until approximately 2024, regardless of 
whether ``Discretionary Strategic'' demand is included.\79\ In the time 
period following 2025, ERI forecasts that demand will significantly 
exceed supply. 2015 ERI Report, 9. In order to meet this demand, ERI 
anticipates that mines it terms ``planned'' and ``prospective'' will 
need to begin operations. 2015 ERI Report, 11.
---------------------------------------------------------------------------

    \79\ ERI assumes that China's discretionary strategic inventory 
building will taper off by 2023. 2015 ERI Report, 10. This is 
generally consistent with other projections regarding Chinese 
strategic inventory purchasing behavior. See TradeTech Report, 41-
42; NAC Report, at 3-4.
---------------------------------------------------------------------------

    A variety of other sources predict substantial increases in reactor 
requirements and/or demand.\80\ TradeTech forecasts reactor-only growth 
at 3.52% per year through 2024. Total uranium requirements growth is 
much slower during this period due to stock building purchases which 
taper downward.\81\ TradeTech Report, 34. The OECD and IAEA expect 
reactor requirements to grow by at least 35.4 million pounds \82\ by 
2025--representing approximately 21% of 2015 requirements.\83\ OECD-
IAEA, Uranium 2014: Resource, Production, and Demand, 105 (2014). In 
its Uranium Market Outlook for the 4th quarter of 2014, UxC similarly 
predicts significant increases in both requirements and demand in the 
long-term. UxC Uranium Market Outlook--Q4 2014, 56-60 (2014). 
Specifically, [REDACTED]. Id. at 60. [REDACTED]. Id. at 57.
---------------------------------------------------------------------------

    \80\ DOE notes that uranium ``demand'' and reactor 
``requirements'' are different. Requirements refers to an estimate 
of the amount of uranium needed to support operating reactors in a 
particular year. Demand includes additional purchased quantities for 
strategic or discretionary purposes. For example, in recent years 
China has purchased quantities of uranium far in excess of its 
reactor requirements. 2015 ERI Report, 10-11; TradeTech Report, 41-
42; NAC Report, 3-2 to 3-5.
    \81\ TradeTech also appears to assume China's stock building 
purchases will cease to outpace Chinese requirements around 2023. 
TradeTech Report, 41-42. TradeTech also notes that most Japanese 
reactors are expected to resume operation by 2020 while around 70% 
of contracted deliveries continue to be made. Id. at 35. TradeTech 
projects that this will lead to decreased demand from Japan after 
2020 as Japanese reactors utilize excess stocks that were delivered 
while the reactors were not operating. Id. at 36. Despite decreased 
demand during this period from Japan, China, and other countries, 
TradeTech still predicts that uranium demand will grow by 
approximately one percent per year between 2015 and 2030. Id. at 33.
    \82\ Converted from metric tons uranium in 
U3O8 (MTU) using a conversion rate of 2,599.79 
pounds U3O8 per MTU.
    \83\ This represents OECD-IAEA's low growth scenario. The high 
growth scenario anticipates growth of almost 90 million pounds, 
approximately 50% above the high-growth scenario for 2015. Id.
---------------------------------------------------------------------------

    Other sources also generally agree with ERI's forecast for supply. 
UxC's annual Uranium Market Outlook projects [REDACTED]. UxC Uranium 
Market Outlook--Q4 2014, 68 (2014). [REDACTED]. Id. at 69.
    In addition to a predicted increase in demand, several sources 
predict a recovery in either spot or term uranium prices--or both. 
These forecasts are discussed above in Section IV.A.1, but they 
generally predict an increase in spot price to $50 by 2019 or 2020, and 
to $55.00 or $60.00 in the years thereafter.
    Finally, DOE recognizes that the predictability of transfers from 
its excess uranium inventory over time is important to the long-term 
viability and health of the uranium industries. ERI has noted the 
importance of predictability ``for long-term planning and investment 
decisions by the domestic industry.'' 2015 ERI Report, 100; 2014 ERI 
Report, 60-61. Some commenters also stated that DOE transfers should be 
predictable. RFI Comment of UPA, at 2; RFI Comment of Cameco, at 2. 
Other comments stressed the importance of predictability to permit the 
industry to engage in long-term planning. NIPC Comment of Cameco, at 4; 
NIPC Comment of UPA, at 5. DOE notes that the upper scenario considered 
by ERI would represent continued transfers at rates consistent with the 
May 2014 determination and roughly similar to the May 2012 
determination. Compare 2015 ERI Report, 25, with 2014 ERI Report, 28. 
Thus, DOE's section 3112(d) transfers have been stable for three years: 
DOE has transferred at essentially the rate identified in the May 2012 
determination. The series of Secretarial Determinations has, DOE 
believes, made these transfers predictable. While the assessed case 
involves a lower rate of transfers, DOE does not believe a reduction of 
this magnitude will cause harmful uncertainty for the industry.
    DOE recognizes that, as with any prediction, the future course of 
events may differ from forecasts. But section 3112(d) itself instructs 
DOE to predict the impact of its transfers, in that the statute 
requires a determination that a transfer ``will not'' have adverse 
material impacts on the domestic industries. Forecasts of reactor 
requirements should be fairly reliable, because constructing a nuclear 
reactor is a major investment requiring years to come to fruition and a 
reactor then operates for decades. A reactor that will need uranium in 
the next decade must either exist now or be at least in the planning 
stages now. Conversely, if a reactor is operating now, its operator has 
strong incentives to keep it running as long as possible, and the 
licensed lifetimes for reactors are known. Therefore, barring extreme 
events such as the Fukushima disaster and various large-scale policy 
responses to it, DOE believes it is possible to forecast reactor 
requirements with a fairly high degree of precision. The various 
sources DOE has consulted, including the ERI report, offer similar 
forecasts, and DOE concludes it is appropriate to rely on those 
forecasts.
    Forecasts of production may be somewhat more uncertain, for several 
reasons. Developing a new mining project does not take as long as 
building a new reactor, and the process differs also in terms of when 
money is spent over the course of the development. If a new reactor 
would be running in 2020, a significant amount of investment will 
already have been made by this point. So it is likely that, while 
schedules might slip, the reactor would indeed begin operating. Mines 
that might be operating in 2020 include projects that are still in a 
more speculative phase of development. A producer might halt 
development for various reasons, including market conditions or a 
discovery that the uranium resource was smaller than expected. These 
factors could make the eventual supply smaller than forecasted.
    Nonetheless, the rough course of future supply can be predicted 
with a reasonable degree of reliability. Producers know the amount of 
uranium available at their existing resources. Technology might improve 
to permit more uranium to be recovered at a given price--a phenomenon 
that has reshaped the oil industry. But DOE is not aware of any 
technology in development that would significantly alter mine economics 
in the next few years. Consequently, DOE believes it can rely on 
forecasts about the depletion of

[[Page 26401]]

existing production centers. Forecasts about the amount of uranium 
available at a mine still in the planning phase are necessarily more 
uncertain. Any given mine might prove to have more or less capacity 
than currently forecasted. In aggregate, these differences should 
average out to some degree, so that overall forecasts of aggregate 
supply are appropriate predictions of the likeliest course of events. 
The various sources DOE has consulted offer similar forecasts on this 
point, and DOE concludes it is appropriate to rely on them.
    Even if existing production centers continued producing uranium at 
their current rates, prices could be expected to increase because 
requirements will increase. Consistent with the ordinary operation of 
supply and demand, higher prices would be necessary to bring additional 
supplies into the market. In fact, as existing production centers are 
depleted, the predicted replacements will have slightly higher 
production costs. Thus, higher prices will be necessary in the future 
even to maintain production at current levels. For these reasons the 
price of uranium is likely to increase over the coming decade.
    Most sources DOE has reviewed agree that there will be an increase, 
although the specific estimates of that increase vary. This price 
increase is expected to take place even with DOE transfers. See Figures 
5 & 6, UxC Report, 11.
    The effect of DOE transfers on this process is not certain. UxC 
projects that DOE transfers will essentially slow the rate of this 
price increase. For example, [REDACTED]. Id. Even if this projection is 
correct, DOE transfers would only have the effect of slightly delaying 
the development of future production facilities. Significantly, DOE 
transfers will not prevent new facilities from coming online, and is 
not expected to permanently affect the viability of any new production 
centers. At worst, the effect of DOE transfers in the long run is 
equivalent to the difference in present value based on earnings 
beginning later in time. DOE does not believe that this difference is 
significant enough to appreciably affect the long-term viability and 
health of the industry.
6. Russian HEU Agreement and Suspension Agreement
    Section 3112(d) of the USEC Privatization Act requires DOE to 
``take into account'' the sales of uranium under the Russian HEU 
Agreement and the Suspension Agreement. Consistent with this 
instruction, DOE believes this assessment should consider any sales 
under these two agreements that are ongoing at the time of DOE's 
transfers.
    Under the Russian HEU Agreement, upon delivery of LEU derived from 
Russian HEU, the U.S. Executive Agent, USEC Inc., was to deliver to the 
Russian Executive Agent, Technabexport (Tenex), an amount of natural 
uranium hexafluoride equivalent to the natural uranium component of the 
LEU. The USEC Privatization Act limited the volume of that natural 
uranium hexafluoride that could be delivered to end users in the United 
States to no more than 20 million pounds U3O8 in 
each year after 2009. ERI has in the past analyzed material from the 
Russian HEU Agreement as part of worldwide secondary supply. DOE notes 
that the Russian HEU Agreement concluded in December 2013. Thus, there 
are no ongoing transfers under this agreement.\84\
---------------------------------------------------------------------------

    \84\ Following the end of the Russian HEU Agreement, Tenex 
signed a commercial agreement to provide EUP to customers in the 
United States. Commenters appear to suggest that this material is 
equivalent to a continuation of the Russian HEU Agreement. NIPC 
Comment of ConverDyn, Enclosure, at 4. DOE notes that this material 
is not produced from down-blended HEU; it is from commercial primary 
supply. Thus, it is covered under the Suspension Agreement and 
included within ERI's estimates of worldwide supply, as described in 
text.
---------------------------------------------------------------------------

    The current iteration of the Suspension Agreement, described above 
in Section I.D.3.b, sets an annual export limit on natural uranium from 
Russia. 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--equivalent to between 0.4 and 1.1 million 
pounds U3O8. After the end of the Russian HEU 
Agreement, restrictions range between an amount equivalent to 11.9 and 
13.4 million pounds U3O8 per year between 2014 
and 2020. 73 FR 7705, at 7706 (Feb. 11, 2008). Material imported from 
Russia in accordance with the Suspension Agreement is not derived from 
down-blended HEU; thus, this material is part of worldwide primary 
supply as analyzed by ERI in the 2015 ERI Report. This material is also 
presumably accounted for in the various projections and models 
developed by TradeTech, UxC, and NAC International. Thus, DOE's 
analysis takes sales of uranium under the Suspension Agreement into 
account as part of overall supply available in the market.
7. Mining Industry Conclusion
    After considering the factors discussed above, DOE concludes that 
transfers under the assessed case will not have an adverse material 
impact on the domestic uranium mining industry. As explained above, DOE 
transfers under the assessed case will continue to exert some downward 
pressure on the market price for uranium concentrates. DOE forecasts 
that about $2.70 of price suppression will be reasonably attributable 
to DOE transfers; this is somewhat smaller than the effect attributable 
to transfers in the past few years.
    Because the vast majority of deliveries of uranium concentrates 
take place under long-term contracts that allow producers to realize 
prices based on term prices prevailing at the time the contracts were 
entered, DOE concludes that the average effect on the realized price of 
U.S. producers under current contracts is closer to $1.75. For future 
term contracts, price suppression associated with DOE transfers would 
decrease the base price for these contracts, potentially decreasing the 
average realized price over the life of each contract. However, DOE 
concludes that this type of effect will be minimal because term 
contracting activity is expected to remain low during the next few 
years.
    DOE transfers are expected to have a small effect on employment in 
the domestic industry, but the magnitude of this effect is well within 
the range of employment fluctuations the industry has experienced in 
the past due to market conditions unrelated to DOE transfers.
    Even focusing on the entities most likely to be impacted--i.e. 
producers that sell primarily on the spot market and are thus not 
protected from fluctuations in the spot price--it is not likely that 
removing the $2.70 price effect attributable to DOE transfers under the 
assessed case would be enough to materially change the relationship 
between price and cost for any producer with respect to production 
levels at currently operating facilities or decisions whether to 
proceed with developing new production centers. Both types of decisions 
involve considerations beyond current spot prices, and they likely will 
be based on expectations about future trends in market price. DOE 
concludes that, given the expected increases in future demand for 
uranium concentrates and, more importantly, the expected increases in 
market prices, the price effect attributable to DOE might delay 
decisions to expand or increase production capacity but would not 
change the eventual outcomes. DOE does not believe that these effects 
have the substantial importance that would make them ``adverse material 
impacts'' within the meaning of section 3112(d).

[[Page 26402]]

B. Uranium Conversion Industry

    The domestic uranium conversion industry consists of a single 
facility, the Metropolis Works (MTW) in Metropolis, Illinois. This 
facility is owned and operated by Honeywell International Inc. MTW has 
a nameplate capacity of 15,000 MTU as UF6. ConverDyn, Inc., 
(``ConverDyn'') is the exclusive marketing agent for MTW and submitted 
comments in response to DOE's notices. In what follows, DOE will refer 
to MTW or ConverDyn, interchangeably, because the two appear to have 
essentially the same interests in uranium markets.
1. Prices for Conversion Services
    Like market prices for uranium concentrates, conversion market 
prices are generally described in terms of the spot price and the term 
price. This section discusses the potential impacts of DOE transfers on 
these two prices. For reference, as of March 30, 2015, UxC's spot price 
indicator was $7.50 per kgU as UF6 and its term price 
indicator was $16.00 per kgU as UF6.
    Three of the market analyses discussed above--those by ERI, 
TradeTech, and UxC--contain estimates of the effect of DOE transfers on 
the market prices for conversion services: ERI, TradeTech, and UxC. 
This section begins with a summary of each report and then discusses 
DOE's review of the reports' methodologies and conclusions. This 
section concludes with a discussion of how a change in conversion 
market prices would affect the domestic uranium conversion industry. A 
principal mechanism through which such a change in market price could 
impact individual producers is through the effect on the realized price 
of primary converters.
a. Energy Resources International Report
    DOE tasked ERI with estimating the effect of DOE transfers on the 
market prices for conversion services. To estimate this effect, ERI 
employed a market clearing price model very similar to what is 
described above for the uranium market. As with uranium concentrates, 
ERI constructed individual supply and demand curves for conversion 
services and estimated the clearing price with and without DOE 
transfers. 2015 ERI Report, 44.
    DOE tasked ERI with estimating the effects of DOE transfers under 
the same three scenarios described in Section IV.A.1. The levels of the 
different scenarios are outlined above in Table 4 in terms of natural 
uranium equivalent.\85\ All the transfers in the assessed case have the 
potential to displace conversion services. The natural uranium 
hexafluoride that DOE transfers could displace conversion services 
directly, in that this material is the ordinary output of a conversion 
facility. The low-enriched uranium that DOE transfers could also 
displace conversion services because natural uranium must be converted 
into uranium hexafluoride before it can be enriched. A purchaser of 
low-enriched uranium from DOE transfers would purchase correspondingly 
less conversion services.\86\ As conversion services are denominated in 
kgU as UF6, the figures reported in Table 4 also refer to 
the amount of conversion services embodied in the DOE inventory. As 
with uranium concentrates, the assessed case falls between Scenarios 1 
and 2.
---------------------------------------------------------------------------

    \85\ As noted above, the transfer rates for these scenarios 
refer only to the level of uranium transfers for cleanup at 
Portsmouth and down-blending of LEU. The level of transfers for 
other DOE programs is the same in all three scenarios.
    \86\ The LEU that DOE transfers is in the form of uranyl 
nitrate, which must be converted to uranium oxide in the fuel 
fabrication process. Analogously, enriched uranium hexafluoride must 
also be transformed into uranium oxide. If there were a difference 
in cost between these two chemical processes, buyers might be 
willing to pay more (or less) for the enriched nitrate than for 
enriched hexafluoride, and the market effect of LEU transfers would 
be somewhat more complicated to predict. However, DOE is not aware 
of any substantial difference in these costs.
---------------------------------------------------------------------------

    Using its market clearing approach, ERI estimates that DOE 
transfers will have the effects listed in Table 11. As with uranium 
concentrates, the relationship between the amount of transfers under 
each scenario and the price effect is essentially linear for each year 
ERI analyzed (2015-2024). Compare Table 3.7 to Table 4.2 of 2015 ERI 
Report, 25-26, 45. Therefore, the price effect of DOE transfers in the 
assessed case can be interpolated from ERI's estimates.

          Table 11--ERI's Estimate of Effect of DOE Transfers on Conversion Prices in $ per kgU as UF6
                                           [Market clearing approach]
----------------------------------------------------------------------------------------------------------------
                                                 2015 ERI Report
-----------------------------------------------------------------------------------------------------------------
                                                                                                   Assessed case
                                                  ERI Scenario 1  ERI Scenario 2  ERI Scenario 3  (interpolated)
----------------------------------------------------------------------------------------------------------------
2015............................................           $0.90           $0.70           $0.10           $0.90
2016............................................            0.90            0.60            0.00            0.70
2017............................................            0.80            0.60            0.00            0.70
2018............................................            1.00            0.80            0.20            0.90
2019............................................            0.80            0.90            0.40            1.00
2020............................................            0.90            1.30            0.70            1.00
2021............................................            1.00            1.00            0.80            1.00
2022............................................            0.90            0.80            0.70            0.80
2023............................................            1.00            0.90            0.80            0.90
2024............................................            0.80            0.80            0.60            0.80
Average (2015-2024).............................            0.90            0.80            0.40            0.90
----------------------------------------------------------------------------------------------------------------

    As with uranium concentrates, it is important to emphasize that 
this is not a prediction that prices will drop by the specified amount 
once DOE begins transfers following a new determination. A level of 
price suppression consistent with the estimate for Scenario 1 would, on 
ERI's analysis, already be reflected to some degree in the current 
market price because DOE is currently transferring uranium at that 
rate. 2015 ERI Report, 44. The price suppression that ERI estimates 
would persist under Scenario 3 is largely ERI's estimate of the 
consequence of past DOE transfers, from which some of the uranium is 
still expected to be entering the market in future years.

[[Page 26403]]

b. TradeTech Report
    In addition to its estimate of the price effect of DOE transfers on 
the uranium concentrate market, TradeTech estimates the effect on the 
price of conversion services. A summary of TradeTech's estimates 
appears in Table 12. It appears that TradeTech developed this estimate 
using its econometric Dynamic Pricing Model. TradeTech Report, 14. 
Using its model, TradeTech estimates that DOE's transfer reduced the 
spot price by an average of $2.13 per kgU as UF6 between 
January 2012 and December 2014. TradeTech Report, 17. TradeTech also 
forecasts that continued DOE transfers at current rates would reduce 
the spot price by an average of $0.91 per kgU as UF6 between 
January 2015 and December 2016. TradeTech Report, 21.
    TradeTech also provides predictions for the effect of DOE transfers 
at several decreased transfer rates. If DOE transfers decreased to 75% 
of current levels, TradeTech estimates that the spot price would 
increase by an average of $0.21 per kgU as UF6 between 
January and 2015 and December 2016. TradeTech, 31.\87\ Based on 
TradeTech's estimate of the price suppression caused by DOE transfers 
at current levels, it appears that TradeTech is forecasting that price 
suppression given transfers at 75% of current levels would be $0.70. If 
DOE transfers decreased to 50% of current levels, TradeTech predicts 
that the spot price would increase by an average of $0.43 per kgU as 
UF6 between January and 2015 and December 2016. TradeTech, 
30. This corresponds to a price suppression of $0.48. If DOE transfers 
decreased to 25% of current levels, TradeTech forecasts that the spot 
price would increase by an average of $0.66 per kgU as UF6 
between January and 2015 and December 2016. TradeTech, 29. This 
corresponds to a price suppression of $0.25. As with uranium 
concentrates, the TradeTech Report does not state the numerical volumes 
that correspond to these decreased transfer rates. However, DOE notes 
that the 2,100 MTU rate is slightly above 75% of the level included in 
the May 2014 Determination. Thus, DOE believes that TradeTech's ``75%'' 
figure is roughly equivalent, although slightly below, that level.
---------------------------------------------------------------------------

    \87\ Figures 21-24 of the TradeTech Report show TradeTech's 
estimates for the price impact at a range of different transfer 
rates. Although these charts and the related text refer to 
``Transfers at [25, 50, or 75] Percent of Established 2014 
Volumes,'' it appears that these charts actually reflect an estimate 
for a 25%, 50%, or 75% decrease relative to current levels, rather 
than transfers at the specified percentage of current levels.

 Table 12--TradeTech's Estimate of Effect of DOE Transfers on Conversion
                     Spot Price in $ per kgU as UF6
------------------------------------------------------------------------
                            TradeTech Report
-------------------------------------------------------------------------
                                                             Estimated
           Transfer rate (compared to current)             price effect
                                                            (2015-2016)
------------------------------------------------------------------------
100%....................................................           $0.91
75%.....................................................            0.70
50%.....................................................            0.48
25%.....................................................            0.25
------------------------------------------------------------------------

c. UxC Report
    UxC's U-PRICE and SWU-PRICE econometric models predict the markets' 
reaction to changes in supply for the uranium concentrate and 
enrichment industries. UxC does not directly model the conversion 
services market. Instead, UxC relies on other evidence to conclude that 
the price effect of DOE transfers on spot conversion prices have been 
``at least equal to, if not greater than, the impact on spot uranium 
prices.'' Specifically, UxC notes that much of the world's spot 
conversion is sold in conjunction with uranium through contracts for 
UF6. UxC also notes that over the past few years the 
UF6 price has fallen as much as the 
U3O8 price has on a percentage basis. Finally, 
UxC notes that the Ux North American UF6 Price has been 
below the Ux NA UF6 value (i.e. the sum of spot uranium and 
spot conversion prices for a given quantity of UF6) over 
most of the period of DOE transfers. UxC Report, 15. With respect to 
the future effect of DOE transfers, UxC expects that DOE transfers will 
continue to have a similar effect on spot conversion prices and a 
somewhat less but still ``noticeable'' effect on term conversion 
prices. UxC Report, 16.
d. Effect of DOE Transfers on Market Price
    DOE has reviewed each of the market analyses described above. Each 
report uses a somewhat different methodology in estimating the effects 
of DOE's uranium sales. ERI's approach is likely to greatly 
overestimate the effect of DOE's transfers on term conversion prices 
because it rests on the assumption that conversion prices arise from a 
competitive market price-setting mechanism. While the analysis would be 
reasonable if the term price for conversion had a competitive price-
setting mechanism, DOE believes that it does not. The market includes 
only five significant suppliers, one of which provides services almost 
exclusively to Chinese purchasers. This market structure could, on its 
own, make the market susceptible to parallel pricing in which rational 
pricing decisions by individual firms could lead the market price to be 
unresponsive to supply and demand changes.\88\ Conversion services are 
also homogeneous from the market's point of view; converters take in 
uranium concentrates meeting industry standards and produce uranium 
hexafluoride meeting industry standards. The main buyers of conversion 
services, nuclear utilities, are relatively insensitive to the price of 
conversion. As noted above, medium-term demand is generally inelastic 
because a utility must supply fuel for its reactors and the price of 
fuel is a relatively small part of its generation cost. Conversion is 
an even smaller fraction of that cost, because (using current term 
prices) conversion accounts for only seven to nine percent of the total 
cost of enriched uranium product. Meanwhile, conversion is a necessary 
step in the fuel cycle, and conversion facilities operate with a 
relatively high degree of investment compared to their variable costs. 
To ensure that conversion capacity remains available, it could be 
rational for utilities to accept and commit to higher prices than a 
free price mechanism reflecting available supply and demand would 
produce. In short, the insensitivity of buyers to conversion prices in 
the medium term, combined with the market structure, would make it 
likely that market-based pricing mechanisms would not function freely 
in the medium-term conversion market.
---------------------------------------------------------------------------

    \88\ See generally DOJ/FTC Horizontal Merger Guidelines, chapter 
7. Depending on the calculation basis, the Herfindahl-Hirschman 
Index of the conversion services market is between 1200 and 2800. 
The former is near the threshold of what, under the Guidelines, 
would be considered an unconcentrated market in which, absent 
additional circumstances, uncompetitive behavior would not likely be 
a concern. The latter figure would qualify the market as highly 
concentrated.
---------------------------------------------------------------------------

    Consistent with this expectation, the term price for conversion has 
not reacted to fairly large market shocks, much less changes in the 
rate of DOE's transfers. In 2010, when term prices were around $11-13 
per kgU, ConverDyn announced that it would no longer enter long-term 
contracts for less than $15 per kgU. 2014 ERI Report, 12; Michael 
Schwartz & Julian Steyn, ``Supply Margins Erode,'' Nuclear Engineering 
International (Oct. 6, 2011), available at http://www.neimagazine.com/features/featuresupply-margins-erode/. This behavior would be 
surprising if the medium-term conversion market were a competitive 
market in which the lowest

[[Page 26404]]

price attracts the most business. By contrast, it is consistent with 
the notion that this market is prone to parallel pricing decisions. 
Furthermore, the term market price increased shortly after ConverDyn's 
announcement to $15 per kgU, and then to $16.50 per kgU after ConverDyn 
made another announcement that it would not enter into long-term 
contracts for less than $16.50 per kgU. See Kevin P. Smith, ConverDyn 
v. Moniz, Case no. 1:14-cv-01012-RBW, Document 17-7, at ] 16 (July 7, 
2014). It remained at $16.50 per kgU even as the Fukushima disaster led 
to a 25% decrease in demand for conversion, and while the uranium term 
price decreased by 50% and the conversion spot price decreased by 50%. 
The price also did not respond when DOE announced in May 2012 that it 
would increase transfers for Portsmouth cleanup to 2,400 MTU per year, 
or when the much larger-scale sales of Russian-origin uranium ceased in 
2013.
    In sum, the conversion term price has not responded in recent years 
to major market disruptions. It appears that conversion providers are 
able to command roughly $16 per kgU regardless of the level of demand 
or of secondary supply. While it remains conceivable that some very 
small price effect could be attributed to DOE's transfers, DOE 
concludes that ERI's forecast of $0.90 per kgU is a very substantial 
overestimate.
    By contrast, the spot market in conversion would be more likely to 
have a competitive price-setting mechanism. In the spot market, 
conversion providers are in full competition with sources of secondary 
supply, many of which might not participate on the medium-term market. 
For example, enrichers that engage in underfeeding depending on spot 
prices of uranium and enrichment are unlikely to enter into long-term 
contracts to supply the resulting excess uranium. Meanwhile, demand on 
the spot market includes some buyers, like brokers, that purchase 
relatively little on the long-term market and may be more sensitive to 
price. Indeed, conversion spot prices do fluctuate by amounts 
comparable to the fluctuations in uranium concentrates spot prices. And 
conversion spot prices appear to respond to disruptions in supply or 
demand. For example, spot prices decreased by 50% in the months 
following the Fukushima disaster, and they also increased by 50% after 
MTW announced an extended shutdown in 2012. For these reasons, DOE 
concludes that market-based economic modeling like what ERI and 
TradeTech performed for uranium spot prices is also an appropriate 
method to forecast conversion spot prices in the near term.
    TradeTech provides an econometric model that is based roughly on 
uncommitted supply and demand. For that reason, and reasons like those 
discussed above with respect to the analogous models for uranium 
prices, DOE relies on TradeTech's forecast for near-term conversion 
spot prices.\89\ It bears emphasis that as with uranium prices, 
forecasts of conversion spot prices in the medium term are highly 
uncertain because uncommitted supply and demand are only a small 
portion of the overall market.\90\
---------------------------------------------------------------------------

    \89\ ConverDyn states that DOE should recognize the limits of an 
economic model in a market with low liquidity. TradeTech's forecast 
explicitly takes the liquidity of these markets into account in 
modeling active supply and active demand. TradeTech Report, at 2-4.
    \90\ DOE does not place much weight on UxC's rough estimate of 
conversion spot prices based on a premise that the effect of DOE 
transfers on spot prices should be about the same, proportionally, 
as the effect on uranium prices. UxC's U-PRICE and SWU-PRICE models 
appear not to be designed to forecast conversion prices, and UxC's 
premise is not well justified. The conversion and uranium markets 
are distinct in many ways. Uncommitted conversion supply is 
different from uncommitted uranium supply, among other reasons 
because conversion providers have much higher ratios of fixed to 
variable costs than do uranium producers.
---------------------------------------------------------------------------

    As mentioned above, the assessed case is similar to the 75% 
scenario that TradeTech analyzed. TradeTech forecasts that in the near 
term, DOE transfers at that rate would produce a persistent price 
suppression of about $0.70 per kgU, on average, or about 8.7% of 
current spot prices. In addition, ERI employs its market clearing model 
to predict a very similar price effect, approximately $0.90 in 2015 and 
$0.70 in 2016 and 2017.\91\ For these reasons, DOE concludes that 
$0.70-$0.80 is a reasonable, although somewhat conservative, estimate 
of the effect of DOE transfers in the spot market over the next several 
years and notes that, given that the market price currently reflects 
DOE transfers at a rate of 2,705 MTU, conversion spot prices will be 
subject to a smaller price suppression than at present. DOE concludes 
that its transfers have had essentially no effect on the term price for 
conversion and will continue not to affect the term price.
---------------------------------------------------------------------------

    \91\ ConverDyn argues that DOE and ERI have confused sales on 
the ``term market'' with ``buy and hold'' or ``carry trade'' sales. 
NIPC Comment of ConverDyn, Enclosure, at 5. DOE notes that ERI's 
market clearing model does not depend on whether DOE sales are made 
under spot contracts, term contracts, or some other type of 
contract.
---------------------------------------------------------------------------

e. Effect on Realized Price
    As with uranium concentrates, market prices would affect MTW 
chiefly through their effect on the price it actually realizes for its 
services. Since the domestic conversion industry consists of only one 
producer, the effect of DOE transfers depends on the mix of contracts 
on which MTW's services are sold: The proportion of spot and term 
contracts, and the extent to which these contracts lock in prices 
higher (or lower) than current market prices or conversely expose MTW 
to spot prices.
    No commenter provides specific information about the current 
realized prices achieved in the conversion industry, and no commenter 
directly estimates the effect of DOE's transfers on realized prices. 
ConverDyn is not a publicly traded company, and neither it nor 
Honeywell routinely make public information about contracting 
strategies and realized prices for MTW.\92\ However, DOE believes that 
the following information is relevant to ConverDyn's contracting 
practices and its realized price.
---------------------------------------------------------------------------

    \92\ ERI notes that ConverDyn's realized price has increased 
over the last decade. Even in the absence of publicly available data 
about ConverDyn's pricing, this conclusion seems nearly inevitable 
because term prices have increased from $10 to $16 per kgU. ERI also 
suggests that ConverDyn may have an average realized price, at 
present, of around $14 per kgU. While ConverDyn's average realized 
price is probably lower than current term prices because some 
proportion of its long-term contracts date from a time of lower 
prices, ERI's particular figure seems to be based mainly on 
ConverDyn's claim to be operating at a loss. It is thus not a very 
precise estimate. In any case, DOE's analytical task is to 
understand how ConverDyn's realized price would be different with 
and without transfers under the assessed case. As the discussion 
below indicates, DOE can perform that task without necessarily 
having a precise figure for ConverDyn's current average realized 
price.
---------------------------------------------------------------------------

    ConverDyn has stated in the past that the conversion market 
generally relies on long-term contracts. Declaration of Malcolm 
Critchley, ConverDyn v. Moniz, Case no. 1:14-cv-01012-RBW, Document 7-
3, at ] 37 (June 23, 2014). ConverDyn has also stated that these long-
term contracts are generally ``linked, at least in part, to market 
prices at the time of the contract.'' Id. ConverDyn's March 10, 2014 
letter to DOE [REDACTED]. See Letter from Malcolm Critchley, ConverDyn, 
to Peter B. Lyons, DOE, 6 (Mar. 10, 2014). In that same letter, 
ConverDyn explained [REDACTED]. Id. at 7. ConverDyn then states, 
[REDACTED]. Id.
    Traxys, a brokerage and trading firm active in the uranium markets, 
has stated that ConverDyn specifically sells conversion services 
``almost exclusively'' on long-term contracts. Declaration of Kevin P. 
Smith, ConverDyn v. Moniz, Case no. 1:14-cv-01012-RBW, Document 17-7, 
at ] 16 (July 7, 2014). Because Traxys is a frequent participant in the 
markets in

[[Page 26405]]

which ConverDyn sells, and because this statement appeared in a 
declaration filed in court, DOE considers Traxys's observation 
reliable. Traxys has also stated that ConverDyn exercises significant 
pricing power in the market. Traxys refers to a 2011 letter from 
ConverDyn to its customers notifying them that it would not sell 
conversion services for less than $16.50 per kgU. Id. Since then, the 
term price indicator for conversion services has remained remarkably 
stable, even as spot prices for conversion have fluctuated. 2015 ERI 
Report, 12. UxC's annual conversion outlook [REDACTED]. UxC Conversion 
Market Outlook--December 2014 (2014). [REDACTED]. Id. at 32. 
[REDACTED]. Id. at 36.\93\ UxC also estimates that primary production 
totaled approximately [REDACTED], about [REDACTED] of which was from 
MTW. Id. at 45. Assuming the spot contracting activity from primary 
producers was divided proportionately by production among the Western 
converters,\94\ ConverDyn's share would be [REDACTED]. Id. Conducting 
the same calculation using [REDACTED]. Id.
---------------------------------------------------------------------------

    \93\ [REDACTED]. UxC Conversion Market Outlook--December 2014, 
34-36 (2014).
    \94\ The converters are typically divided into two groups, the 
``Western'' converters and the ``non-Western'' converters in Russia 
and China. The Western converters consist of MTW, Cameco's Port Hope 
facility in Ontario, Canada, AREVA's Comurhex facility in France, 
and the former Springfield-Westinghouse plant in the UK (closed in 
2014). There is also a very small conversion facility in Sao Paulo, 
Brazil, with a capacity of approximately 100,000 kgU as 
UF6. For comparison, the nameplate capacity of MTW is 15 
million kgU as UF6.
---------------------------------------------------------------------------

    To the extent that ConverDyn engages in spot sales, they represent 
no more than 5% of its total sales, and likely represent significantly 
less. Considering this in combination with ConverDyn's statements about 
its contracting practices, namely that ConverDyn's long-term contracts 
are priced at the prevailing term price (with some escalation for 
inflation), DOE concludes that ConverDyn has virtually no exposure to 
the spot price.
    This conclusion is somewhat counterintuitive. ConverDyn evidently 
has a high proportion of fixed costs. If variable costs are low, then 
the marginal cost of an additional unit of production should be very 
low, likely below the current spot price. In addition, ConverDyn states 
that it has excess capacity at its facility. NIPC Comment of ConverDyn, 
Enclosure, at 7. One would expect a facility with low marginal cost and 
excess capacity to sell any additional capacity on the spot market. 
However, the conversion market is characterized by a very small number 
of primary producers, and ConverDyn has demonstrated that it has 
significant influence over the price. Furthermore, the vast majority of 
contracting activity in conversion services continues to take place on 
the term market. DOE believes that this can be explained by utilities' 
preference for security of long-term supply. As ConverDyn explains, the 
term price for conversion is set based on the price necessary to 
include all costs of operations, capital recovery, and a return on 
investment. NIPC Comment of ConverDyn, Enclosure, at 5. Although 
utilities obviously have an interest in keeping variable costs for fuel 
as low as possible, paying prices that are not sufficient to cover a 
conversion providers' costs may, over time, jeopardize the continued 
operation of primary conversion facilities. By paying the premium 
associated with the term price, utilities can help prevent this outcome 
by paying a price that allows these facilities to cover their full 
operation and capital costs. UxC's reports regarding industry concerns 
support this concept, reflecting [REDACTED]. UxC Conversion Market 
Outlook--December 2014, 73 (2014).
    Based on the above, it is unsurprising that ConverDyn is unwilling 
to enter into contracts at the spot price. A rational producer of 
conversion services with high fixed cost may be willing to reduce 
production rather than sell conversion services at a price that is not 
sufficient to cover the set of forward costs described below, even if 
the market price is higher than its marginal cost per unit. UxC's 
estimates of current production provide evidence that some primary 
converters have in fact adopted this strategy. Specifically, 
[REDACTED]. UxC Conversion Market Outlook--December 2014, 46 (2014).
    Given that ConverDyn sells conversion services almost exclusively 
through term contracts, it follows that the effect on ConverDyn's 
realized price depends on the effect of DOE transfers on the term 
price. However, as noted above, DOE concludes that its transfers have 
had, and will likely continue to have, essentially no effect on term 
prices for conversion. Consequently, DOE transfers under the assessed 
case will have very little effect, if any, on the pricing of 
ConverDyn's term contracts.
    DOE recognizes that this conclusion is contrary to an assertion 
that ConverDyn has made. ConverDyn has claimed that price suppression 
due to DOE transfers has caused it to lose millions of dollars in 
revenue. ConverDyn's analysis apparently applied the supposed price 
suppression across all the company's sales. DOE does not find 
ConverDyn's analysis convincing. ConverDyn stated in its March 10, 2014 
letter that price suppression [REDACTED]. Letter from Malcolm 
Critchley, ConverDyn, to Peter B. Lyons, DOE, 7 (Mar. 10, 2014). 
ConverDyn, citing to the 2012 ERI report, states that it developed 
these estimates by applying a 5.8% price impact to contracts awarded 
since the start of the DOE sales program in 2009, and to expected 
futures sales between 2014 and 2016. Id.; Supplemental Declaration of 
Malcolm Critchley, ConverDyn v. Moniz, Case no. 1:14-cv-01012-RBW, 
Document 21-2, at ] 8 (July 14, 2014). But in 2009, DOE transferred 
uranium at a rate closer to 1,200 MTU per year, and it did not begin 
transferring at 2,800 MTU per year until 2012. Even if DOE transfers 
beginning in May 2012 suppressed term prices by 5.8%--which DOE has 
concluded they did not--ConverDyn offers no explanation for why 
transfers at the prior, lower rate should also have had a 5.8% price 
impact. More importantly, as discussed in the previous section, the 
term conversion price appears to respond very weakly, if at all, to 
changes in supply and demand for conversion services. Given the 
stability of the term conversion price since 2010, in the face of major 
market shocks and also despite the May 2012 increase in DOE's 
transfers, DOE does not believe transfers under the assessed case will 
appreciably affect the price at which ConverDyn makes long-term 
contracts.
2. Production at Existing Facilities
    As stated above, there is only one conversion facility in the 
United States, the Metropolis Works facility (MTW) operated by 
Honeywell International. ConverDyn is the exclusive marketing agent for 
conversion services from this facility. This section focuses on two 
types of potential effects of DOE transfers on production levels at 
MTW: Loss of sales volume for conversion services from MTW, and change 
in average production costs at MTW.
a. Sales Volume
    The nominal capacity of the Metropolis Works facility is 15 million 
kgU as UF6. However, the facility generally operates below 
that level and has consistently produced no more than 11-12 million kgU 
in recent years. Supplemental Declaration of Malcolm Critchley, 
ConverDyn v. Moniz, Case no. 1:14-cv-01012-RBW, Document 21-2, at ] 10 
(July 14, 2014).
    ERI estimated the effect of DOE transfers on production at MTW on a 
series of assumptions based in part, on

[[Page 26406]]

various statements from ConverDyn.\95\ ERI estimates that production at 
this facility was approximately 11 million kgU as UF6 per 
year prior to the loss of sales associated with Fukushima. Because 
ConverDyn has stated that this volume loss was approximately 25%, ERI 
estimates current sales volume at 8.25 million kgU as UF6. 
2015 ERI Report, 65. Based on statements from Traxys, the entity that 
currently purchases the material that DOE transfers to Fluor B&W 
Portsmouth for cleanup work at the Portsmouth Gaseous Diffusion Plant, 
ERI assumes that 50% of the material used for cleanup at Portsmouth and 
100% of all other DOE material enters the U.S. market. 2015 ERI Report, 
65-66. To estimate ConverDyn's U.S. and worldwide market share, ERI 
refers to a statement from ConverDyn that its share of the U.S. market 
for conversion services is 25%. ERI uses this to calculate ConverDyn's 
share of the international market as 16% by subtracting an amount 
equivalent to 25% of the U.S. market from ERI's estimate of ConverDyn's 
total sales volume. 2015 ERI Report, 68.
---------------------------------------------------------------------------

    \95\ The analysis below differs from the discussion above 
regarding production by the domestic mining industry. The two 
industries and markets have different characteristics. With respect 
to mining, the presence or absence of DOE transfers is expected to 
result in a small change in uranium prices. The result of a price 
increase or decrease would be to motivate a production increase or 
decrease, respectively, by the producers with marginal costs in the 
relevant range. By contrast, as discussed below, converters 
generally have relatively low variable costs. DOE estimates that 
ConverDyn's marginal cost is substantially lower than the current 
spot price for conversion. Thus, changes in price do not motivate 
production in the same way as in the uranium markets, and a 
different approach is warranted for estimating production changes.
---------------------------------------------------------------------------

    A summary of ERI's estimates of the effect of DOE transfers on 
ConverDyn's sales volume appears in Table 13. Using the assumptions 
described above, ERI estimates that under Scenario 1, DOE transfers 
decrease ConverDyn's market volume by 0.7 million kgU, or 8%. Under 
Scenario 2, ERI estimates that DOE transfers decrease ConverDyn's 
market volume by 0.5 million kgU, or 6%. Under Scenario 3, ERI 
estimates that DOE transfers decrease ConverDyn's market volume by 0.1 
million kgU, or 1%. 2015 ERI Report, 69-70. As with ERI's price 
estimates discussed above, these estimates do not suggest that were DOE 
to transfer uranium in accordance with Scenario 1, ConverDyn would lose 
the predicted volume of sales. DOE has been transferring at or above 
the rate of Scenario 1 for nearly three years. On ERI's analysis, to 
some degree the estimated effect has already occurred. Transfers in 
accordance with Scenario 1 would continue the effect, and transfers in 
accordance with Scenario 2 or 3 would lead to an increase in 
ConverDyn's sales volume in the long term by the amount ERI predicts.

  Table 13--ERI's Estimate of Decrease in ConverDyn's Sales Volume \96\
------------------------------------------------------------------------
                                                    Volume
                                                   (million     Percent
                                                     kgU)       change
------------------------------------------------------------------------
Scenario 1.....................................          0.7           8
Scenario 2.....................................          0.5           6
Scenario 3.....................................          0.1           1
------------------------------------------------------------------------

    ConverDyn's comments in response to the RFI and NIPC do not provide 
a separate estimate of the effect of DOE transfers on its sales 
volume.\97\ ConverDyn's comments refer to the relevant sections of the 
2014 ERI Report and 2015 ERI Report regarding its sales volume and 
production costs. RFI Comment of ConverDyn, Enclosure, at 5; NIPC 
Comment of ConverDyn, Enclosure, at 9. With respect to the ERI Reports, 
ConverDyn does not refute or confirm the assumptions ERI used in its 
analysis regarding ConverDyn's sales volume, market share, or 
production costs.\98\ ConverDyn also incorporated by reference into its 
comments a document it submitted to DOE in March 2014. RFI Comment of 
ConverDyn, Enclosure, at 5 n.12; NIPC Comment of ConverDyn, Enclosure, 
at 1 n.1. That document provides estimates of the effect of DOE 
transfers on ConverDyn's sales volume and profits, but it does not 
provide financial information demonstrating that those effects have 
occurred or supporting analysis explaining why a given change in 
ConverDyn's sales or revenue should be attributed to DOE transfers. 
Letter from Malcolm Critchley, ConverDyn, to Peter B. Lyons, DOE (Mar. 
10, 2014); see also Supplemental Declaration of Malcolm Critchley, 
ConverDyn v. Moniz, Case no. 1:14-cv-01012-RBW, Document 21-2, at ] 7 
(July 14, 2014). Specifically, ConverDyn [REDACTED] and that the lost 
sales associated with DOE transfers would be equally distributed among 
itself, Areva and Cameco. This amounts to 933 MTU per year, [REDACTED]. 
Id. at 5 n.3. ConverDyn then provides a table asserting that it would 
experience [REDACTED]. Id. at 4-5.
---------------------------------------------------------------------------

    \96\ A version of this table appeared as Table 7 in Section 
III.B.3 of the Department's March 18, 2015, Notice of Issues for 
Public Comment. 80 FR 14,119. The figures in that table and 
accompanying text were slightly different from those found in the 
2015 ERI Report. This version of the table includes the correct 
figures from page 68-70 of the 2015 ERI Report. This difference 
between the two sets of figures is minimal.
    \97\ ConverDyn states that any economic model should analyze 
actual sales data including both historic and forward sales. RFI 
Comment of ConverDyn, Enclosure, at 2. To the extent that such data 
has been provided to DOE through responses to the RFI, NIPC, and 
ConverDyn's March 10, 2014 letter, this analysis considers those 
data. However, if the suggestion is that no economic model 
constructed without such data is reasonable, DOE does not agree.
    \98\ ConverDyn suggests that it believes DOE is requesting or 
requiring it to submit specific information. NIPC Comment of 
ConverDyn, Enclosure, at 1-2. To the contrary, DOE is merely 
describing its assumptions and its reasoning. In some respects DOE 
has made use of information that ConverDyn provided, and on some 
points DOE has used other inputs. It is appropriate for DOE to 
consider, in making factual inferences, whether a given inference is 
consistent with information provided by ConverDyn, conflicts with a 
submission, or is made in the absence of information from ConverDyn.
---------------------------------------------------------------------------

    In addition to the above, ConverDyn notes in its RFI comment that 
the Metropolis Works facility ceased production beginning in January 
2015 for a period of approximately three months. The facility 
apparently stops operating on an annual basis for maintenance and 
upgrades, but ConverDyn states that the pause is ordinarily only one 
month long. ConverDyn states that the longer shutdown was necessitated 
by ``the continued depressed state of the conversion market.'' Although 
ConverDyn refers to the displacement of conversion sales by DOE's 
transfers, it acknowledges that DOE's transfers are not the sole cause 
of the lengthening of Metropolis Works facility's annual shutdown. 
ConverDyn does not include supporting data or otherwise provide a 
proportionate breakdown of the impact of DOE material versus other 
factors in causing this shutdown. RFI Comment of ConverDyn, Enclosure, 
at 4.
    The UxC Report does not provide estimates for production levels or 
production costs at individual facilities, but its report does note 
that the cost for primary producers is ``known to be in the range of 
$10-$15/kgU.'' UxC Report, 15. In a separate publication, UxC provides 
more detailed estimates of both current production levels and projected 
future production for individual facilities. Market share can be 
determined by comparing production levels to those of other primary 
producers and secondary sources. UxC Conversion Market Outlook--
December 2014, 45-47 (2014). Notably, UxC's estimates of production at 
MTW [REDACTED]. Id. at 47. [REDACTED].\99\ Id. at 46. [REDACTED]. Id. 
at 48.
---------------------------------------------------------------------------

    \99\ UxC's figures for worldwide supply include both primary 
production and secondary supplies from sources such as re-enrichment 
of tails and underfeeding. [REDACTED]. UxC Conversion Market 
Outlook--December 2014, 46 (2014).

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

[[Page 26407]]

    Traxys provides some information relevant to DOE's assessment of 
the likely impact its transfers will have on production by the domestic 
conversion industry. Traxys explains that in selling material obtained 
from Fluor-B&W Portsmouth, it pursues a goal to sell at least 50% of 
the material to non-U.S. customers. Traxys states that it has 
consistently met this goal. RFI Comment of Traxys, at 1. Traxys further 
explains that in 2014 no more than 40% of DOE-derived material was sold 
in the U.S. market. RFI Comment of Traxys, at 2.\100\ This is similar 
to the amount of conversion that Traxys has separately stated went to 
the U.S. market in prior years. Traxys stated in July 2014 that 42% of 
DOE-derived conversion entered the U.S. marketplace during calendar 
year 2013. Declaration of Kevin P. Smith, ConverDyn v. Moniz, Case no. 
1:14-cv-01012-RBW, Document 17-7 at ]11 (July 7, 2014).
---------------------------------------------------------------------------

    \100\ Traxys also states that it purchased additional conversion 
in 2014 above and beyond what it purchased from Fluor B&W 
Portsmouth. Traxys suggests that these purchases ``offset'' an 
equivalent of DOE-introduced quantities. RFI Comment of Traxys, at 
1. As far as DOE is aware, these purchases are unrelated to its 
transfers of natural uranium hexafluoride to FBP. Thus, DOE does not 
treat these purchases as ``offsetting.''
---------------------------------------------------------------------------

    MTW's actual production has fluctuated dramatically in recent 
years, ranging from 4.5 to 11 million kgU, for a number of reasons 
including work stoppages due to labor disputes, shutdowns imposed by 
MTW's safety regulator, and plant upgrades as well as possibly 
competition with other sources of conversion. The scale of those 
fluctuations, and of the associated financial consequences, makes it 
difficult to identify an amount of reduced production that could 
reasonably be attributed to DOE's past transfers--an analytical step 
that would otherwise help inform DOE's forecast of the effect of future 
transfers on MTW's production. In what follows, DOE will apply basic 
economic principles to information gleaned from ConverDyn and other 
sources to make that evaluation.
    ConverDyn offers a scenario in which DOE transfers at 2,800 MTU per 
year would cause ConverDyn to lose sales of 933 MTU per year. Letter 
from Malcolm Critchley, ConverDyn, to Peter B. Lyons, DOE, 4-5 (Mar. 
10, 2014); see also Supplemental Declaration of Malcolm Critchley, 
ConverDyn v. Moniz, Case no. 1:14-cv-01012-RBW, Document 21-2, at ] 7 
(July 14, 2014). DOE does not believe that ConverDyn's estimate that it 
would lose volume of 933 MTU per year is accurate. ConverDyn estimated 
that loss by reasoning that each of three Western conversion 
providers--i.e. not those providers in Russia or China--would 
experience volume losses equal to one third of the amount of DOE 
transfers (at the old 2,800 MTU per year rate). That analysis is overly 
simplistic. As ERI explains, approximately one third of DOE-sourced 
uranium is distributed in the world outside the United States, whereas 
ConverDyn's U.S. sales generally represent more than a third of its 
recent production. Assuming that ConverDyn's domestic market share is 
25%, or 4.5 million kgU, data from UxC indicate that approximately 
[REDACTED] would be devoted to U.S. sales. UxC Conversion Market 
Outlook--December 2014, 45-46 (2014). The relative volume loss to the 
different converters should depend on the relative proportions of each 
converter's production that ends up on the U.S. versus world market. It 
seems unlikely that the three converters have identical market shares 
in the various world markets. Thus, all else being equal, one would not 
expect ConverDyn to have the same volume loss as its peers elsewhere.
    ERI's analysis takes account of this difference in market share 
between the U.S. and the rest of the world. DOE believes that ERI's 
approach to estimating lost sales volume based on market share is 
reasonable.\101\ However, ERI's estimate assumes that ConverDyn's 
production volume will be 8.25 million kgU in 2015. Based on other 
available information, DOE believes that that both sales and production 
at MTW are significantly higher. Specifically, ConverDyn has provided 
information about sales, and UxC estimates and forecasts MTW's 
production. ConverDyn's March 10, 2014 Letter suggested [REDACTED]. 
Letter from Malcolm Critchley, ConverDyn, to Peter B. Lyons, DOE, 5 n.3 
(Mar. 10, 2014). Similarly, UxC estimates [REDACTED]. UxC Conversion 
Market Outlook--December 2014, 46 (2014). Applying ERI's approach to 
this higher estimate of MTW production, DOE concludes that as a 
consequence of DOE transfers under the assessed case, MTW can be 
expected to experience a reduction in production volume of about 
700,000 kgU in 2015, and 600,000 kgU in 2016 and 2017.\102\
---------------------------------------------------------------------------

    \101\ ConverDyn urges DOE to consider the effects of prior 
uranium inventory transfers in assessing the reduction in demand and 
sales volume. DOE believes that for transfers for Portsmouth cleanup 
and down-blending services, any displaced sales volume will take 
place in the year of transfer. However, DOE agrees that certain 
prior transfers have effects in the market several years after the 
actual transfer, and it has taken these effects into account.
    \102\ This calculation assumes MTW production volumes in line 
with UxC's base case primary conversion supply estimate for 2015, 
2016, and 2016. UxC Conversion Market Outlook--December 2014, 46 
(2014). Specifically, UxC estimates [REDACTED]. Id.
---------------------------------------------------------------------------

    In addition to the above effects, ConverDyn's March 10, 2014, 
letter also refers to [REDACTED]. Letter from Malcolm Critchley, 
ConverDyn, to Peter B. Lyons, DOE, 5-6 (Mar. 10, 2014). DOE believes 
that these [REDACTED]. ConverDyn acknowledges that this may be the case 
[REDACTED]. Id. at 5 n.3. [REDACTED]. [REDACTED] on the basis of the 
total price gap between term and spot prices, which is about $8.50 per 
kgU. As discussed above, DOE's best estimate of the price effect under 
the assessed case is a suppression of about $0.80. That amount 
represents about 9% of the current gap between the spot and term 
prices.
b. Production Costs
    Based on the estimates of the effect of DOE transfers on 
ConverDyn's production volume, ERI also estimated the change in average 
per unit production costs that a volume decrease would cause. ERI's 
approach to calculating this effect is straightforward. Average per 
unit production cost can be calculated by dividing the total production 
cost by the number of units produced. If MTW's costs were 100% 
variable, then average production costs would not change, regardless of 
the volume produced. However, if some portion of MTW's costs are fixed, 
then a decrease in the number of units produced would lead to increased 
production costs, and vice versa. If the proportion of fixed costs, 
current production volume, and current per unit production cost are all 
known, the change in average production cost can be easily calculated. 
ERI looked to various public sources and estimates to provide a basis 
for its assumptions. DOE believes that this a reasonable approach for 
estimating the effect of DOE transfers on production cost at MTW.
    As discussed above, ERI estimates that ConverDyn's current sales 
volume is 8.25 million kgU. This estimate is based on ConverDyn's 
statements about prior production levels at MTW and a stated 25% 
decrease in volume associated with the Fukushima accident. 2015 ERI 
Report, 65. ERI then estimates that MTW's current average per unit 
production cost is $15 kgU. This cost is primarily based on ConverDyn's 
claim that it has lost more than $100 million in the past decade. 
Finally, ERI analyzed two scenarios

[[Page 26408]]

assuming fixed costs make up 80% or 100% of MTW's total production 
costs. ERI states that these assumptions are based on the fact that 
conversion facilities in general have fairly high fixed costs relative 
to variable costs. 2015 ERI Report, 71.
    DOE believes that ERI's estimate of production cost at $15 per kgU 
is reasonable. This appears to be a conservative estimate because it 
falls at the upper end of UxC's estimate, and because it is about as 
high as production costs could be for ConverDyn to have a viable 
business at the price point it set by its own announcement in 2010 and 
2011. In addition, ConverDyn has not disputed ERI's estimate of MTW's 
production costs.
    However, as stated above, based on ConverDyn's statements and 
estimates from UxC, DOE believes MTW's current production volume is 
higher than 8.25 million kgU. Thus, ERI's estimate of MTW production 
volume appears to be an underestimate. In addition, DOE believes that 
ConverDyn's fixed costs are somewhat lower than 80%. ConverDyn has not 
provided details of its cost structure, but it has provided information 
that is consistent with ERI's analysis while suggesting that ERI 
overestimated ConverDyn's fixed costs. ConverDyn offers a scenario in 
which DOE transfers at 2,800 MTU per year would cause ConverDyn to lose 
sales of 933 MTU per year. The company says that decrease in volume 
would result in [REDACTED]. Letter from Malcolm Critchley, ConverDyn, 
to Peter B. Lyons, DOE, 4-5 (Mar. 10, 2014). ConverDyn's fixed costs 
would not change if ConverDyn lost sales, so the change in profit would 
be due to the decrease in revenues, offset by the elimination of the 
variable costs that would have been incurred to produce the lost 
volume. See Supplemental Declaration of Malcolm Critchley, ConverDyn v. 
Moniz, Case no. 1:14-cv-01012-RBW, Document 21-2, at ] 7 (July 14, 
2014). The revenue decrease from losing 933 MTU in volume would be 
about $14.9 million. [REDACTED].\103\ Assuming MTW has production costs 
of $15 per kgU and MTW's variable costs are [REDACTED], then fixed 
costs at MTW should be [REDACTED]. This represents about [REDACTED] of 
total costs. DOE adopts this estimate of ConverDyn's variable costs, 
because it is based on information ConverDyn has provided.
---------------------------------------------------------------------------

    \103\ DOE assumes that ConverDyn's calculation is based on the 
loss of sales at the prevailing term price in March 2014, i.e. 
$16.00 per kgU. DOE recognizes that there are actually two 
mechanisms by which ConverDyn may lose sales. [REDACTED] Letter from 
Malcolm Critchley, ConverDyn, to Peter B. Lyons, DOE, 5 n.3 (Mar. 
10, 2014). To the extent that some reduced sales come from this 
latter category, [REDACTED]. Given that term prices have remained 
relatively steady for the past several years, DOE does not believe 
the difference would be significant for the purposes of this 
analysis.
---------------------------------------------------------------------------

    DOE has performed an analysis like ERI's, using the different 
assumptions discussed above. Specifically, this calculation uses $15 
per kgU as MTW's current production cost, [REDACTED] as the proportion 
of fixed cost, and UxC's base case primary conversion supply estimate 
of MTW's production volume as MTW's production volume with DOE 
transfers \104\--namely[REDACTED]. UxC Conversion Market Outlook--
December 2014, 46 (2014). Based on these inputs, DOE concludes that 
transfers in the assessed case would increase MTW's average production 
cost by $0.63 in 2015, $0.49 in 2016, and $0.45 in 2017.
---------------------------------------------------------------------------

    \104\ UxC's conversion market outlook bases these estimates 
based on current market conditions. As described above, DOE believes 
that the ConverDyn's current sales volume should reflect a level of 
transfers at 2,705 MTU per year. DOE notes that this is somewhat 
higher than the assessed case. Thus, MTW's production volume in 
future years should be slightly higher due to this reduction. DOE 
does not believe this difference is significant enough to markedly 
change this calculation.
---------------------------------------------------------------------------

    DOE does not believe this increase indicates an adverse material 
impact. In recent years MTW has experienced several significant 
disruptions in its business that are not attributable to DOE transfers. 
These disruptions have caused MTW's annual production to vary 
significantly--from as high as 11 million kgU to as low as 4.5 million 
kgU, the latter figure representing less than a third of MTW's 
nameplate capacity. DOE notes that the predicted decrease in volume 
reasonably attributable to DOE--i.e. 700,000 kgU in 2015 and 600,000 
kgU in 2016 and 2017--and the associated decrease in MTW's average 
production cost, are substantially smaller than the production 
decreases at MTW from these other disruptions. The production swings 
experienced at MTW in recent years have been as much as seven times the 
magnitude of the sales volume decreases attributable to DOE.
    Moreover, the conversion industry has maintained term prices at 
around $16 per kgU notwithstanding those fluctuations. As discussed 
above, converters seem able to demand, and conversion purchasers seem 
willing to accept, prices high enough to cover production costs and 
justify the investment to maintain conversion capacity. As average 
production costs increase over time--which they will do even absent 
DOE's transfers--it seems likely the prices of term contracts will keep 
pace.
3. Employment Levels in the Industry
    ERI notes that Metropolis Works restarted after an extended 
shutdown in summer 2013 with approximately 270 employees. Prior to the 
2012-2013 shutdown, ERI estimates that the facility employed 
approximately 334 people. As this change coincided with a change in 
long-term production volume, ERI concludes that it is unlikely that 
100% of Metropolis Works' production costs are fixed. 2015 ERI Report, 
72-73. Although it does not provide specific estimates, ERI states that 
``[a] portion of the reduction in work force at Metropolis Works may be 
associated with the introduction of DOE inventory into the market.'' 
However, ERI also notes that several other factors likely played a part 
as well. 2015 ERI Report, 73. ConverDyn does not provide a separate 
estimate of decreased employment levels due to DOE transfers; instead 
ConverDyn referred to the relevant sections of the 2014 ERI Report, 
which reaches conclusions similar to those in the 2015 ERI Report. RFI 
Comment of ConverDyn, Enclosure, at 5.
    The Department recognizes that employment at the MTW facility is 
lower than in prior years. Little of this decrease can reasonably be 
attributed to DOE transfers. While some portion of MTW's labor force is 
a fixed cost that does not depend on volume, DOE estimates the maximum 
amount of decrease attributable to DOE transfers by assuming all 
employment at ConverDyn and MTW varies directly with production. As 
discussed above, DOE forecasts that transfers under the assessed case 
will reduce MTW's production by 700,000 kgU in 2015 and 600,000 kgU in 
2016 and 2017, or 7% of expected 2015 production and 5% expected 
production in 2016 and 2017. Assuming all of ConverDyn's current labor 
force is fully variable with production, the employment decrease 
reasonably attributable to DOE transfers in futures years would be 
approximately 19 person-years in 2015, 14 person-years in 2016, and 13 
person-years in 2017. Of course, the assumption that labor is fully 
variable is likely to be quite conservative, and it is more likely that 
a substantial portion of the labor force is a fixed cost. If 50% of 
labor costs are variable, this would result in a reduction of 9 lost 
person-years in 2015 and 7 lost person-years in 2016 and 2017. As with 
comparable analyses discussed above, these figures represent a 
persistently lower employee count; DOE is not forecasting that every 
year ConverDyn will lose an additional 7 to 19 employees.

[[Page 26409]]

    A reduction in employment of 7 or even 19 person-years is 
relatively small, particularly in comparison to MTW's reduction of 
approximately 64 after the 2012-2013 shutdown. The industry has been 
able to weather employment losses much larger than any that could 
reasonably be attributed to DOE transfers.
4. Changes in Capital Improvement Plans and Development of Future 
Facilities
    Although there are several large-scale development projects 
currently planned or underway outside the United States--namely AREVA's 
COMURHEX II modernization project and TVEL's plan for a new facility at 
SCC--DOE is not aware of any such plans in the United States. See 
Eileen Supko & Thomas Meade, ``New facilities are on the horizon,'' 
Nuclear Engineering International (Oct. 6, 2014), available at http://www.neimagazine.com/features/featurenew-facilities-are-on-the-horizon-4394892; UxC Conversion Market Outlook--December 2014, 50, 56-57, 73 
(2014).\105\
---------------------------------------------------------------------------

    \105\ ConverDyn states that large-scale projects outside the 
United States are immaterial. NIPC Comment of ConverDyn, Enclosure, 
at 7. Consistent with the analytical approach described above, DOE's 
task is to forecast the state of the domestic uranium conversion 
industry with and without DOE transfers under the assessed case. 
However, DOE believes activities in the global conversion industry 
may in some cases be relevant for predicting how DOE transfers will 
affect the domestic conversion industry.
---------------------------------------------------------------------------

    Metropolis Works has, however, undertaken substantial capital 
expenditures at its existing facility in recent years. Honeywell has 
stated that it has invested ``nearly $177 million over the past 10 
years in capital improvements, including $50 million in safety 
projects.'' ``About Us,'' Honeywell, http://www.honeywell-metropolisworks.com/about-us.\106\ Some of these upgrades came during 
an extended shutdown in 2012 and 2013, in which Metropolis Works made 
upgrades to ensure the facility could withstand extreme natural 
disasters. These changes were made under an agreement with the U.S. 
Nuclear Regulatory Commission (``NRC'') in response to an inspection 
NRC conducted in the wake of the Fukushima disaster in Japan. 
``Honeywell and U.S. Nuclear Regulatory Commission Reach Agreement on 
Necessary Upgrades to Metropolis Nuclear Conversion Facility,'' News 
Release (Oct. 16, 2012), available at http://www.honeywell-metropolisworks.com/?document=oct-16-2012-press-release-honeywell-and-u-s-nuclear-regulatory-commission-reach-agreement-on-necessary-upgrades-to-metropolis-nuclear-conversion-facility&download=1.
---------------------------------------------------------------------------

    \106\ Letters from Honeywell management include similar numbers. 
A November 20, 2014, letter included identical figures. Jim 
Pritchett, Honeywell Metropolis Works, Letter to Employees (Nov. 20, 
2014), available at http://www.honeywell-metropolisworks.com/?document=letter-to-employees-23&download=1. Older letters provided 
slightly different figures. Jim Pritchett, Honeywell Metropolis 
Works, Letter to Community (Dec. 19, 2013), available at http://www.honeywell-metropolisworks.com/?document=letter-to-the-community-from-new-metropolis-works-plant-manager&download=1.
---------------------------------------------------------------------------

    In terms of current plans, Metropolis Works announced in November 
2014 that it would be shutting down for approximately 90 days beginning 
in early January 2015. Honeywell noted that it would use the extended 
shutdown to make updates and capital improvements. Jim Pritchett, 
Honeywell Metropolis Works, Letter to Employees (Nov. 20, 2014), 
available at http://www.honeywell-metropolisworks.com/?document=letter-to-employees-23&download=1; see also Comment of ConverDyn, Enclosure, 
at 4. Honeywell has further stated that the company plans to spend 
$17.5 million in improvements during 2015. Jim Pritchett, Honeywell 
Metropolis Works, Letter to Employees (Jan. 30, 2014), available at 
http://www.honeywell-metropolisworks.com/?document=letter-to-employees-24&download=1. Honeywell recently announced that MTW would restart 
production on or about April 1, 2015. Honeywell Metropolis Works, News 
Item (Mar. 27, 2015), http://www.honeywell-metropolisworks.com/news/ 
(accessed Mar. 31, 2015).
    With the expected increase in demand for conversion services 
worldwide, DOE believes that it is likely that MTW will continue to 
make capital improvements and refurbishments necessary to maintain 
current capacity. Honeywell has invested a substantial amount in such 
capital improvements in recent years. UxC reports that [REDACTED]. UxC 
Conversion Market Outlook--December 2014, 70 (2014). ConverDyn's 
comments agree with that proposition; ConverDyn indicates that it is 
not planning to expand capacity but does intend to maintain its 
capacity. NIPC Comment of ConverDyn, Enclosure, at 7.
    DOE does not believe that the price effect associated with DOE 
transfers would make a significant difference in plans for new 
facilities or other capital improvements at existing facilities. As 
described above, the term price, at which the vast majority of capacity 
is transacted, appears to respond weakly to changes in supply. DOE 
transfers are expected to decrease ConverDyn's sales volume, but even 
without DOE transfers, ConverDyn's total sales would still be below 
MTW's current maximum nameplate capacity. In addition, transfers under 
the assessed case will represent only about 3% of total supply in 
coming years, and about 11% of secondary supply. In light of forecasts 
of supply and demand by ERI and UxC, DOE concludes that eliminating 
this amount of conversion would not make a difference to the assessment 
that new capacity is not warranted.
5. Long-Term Viability and Health of the Industry
    ERI's most recent Reference Nuclear Power Growth forecast predicts 
global requirements for conversion services will grow to approximately 
67.2 million kgU by 2020, approximately 20% higher than current 
requirements. Global requirements are expected to continue to rise to a 
level of 91.4 million kgU by 2035, approximately 63% higher than 
current requirements. 2015 ERI Report, 13.\107\ ERI presents a graph 
comparing global requirements, demand, and supply from 2013-2035. 
Global secondary supply and supply from primary converters are expected 
to exceed global demand until at least 2025. Beyond that point, supply 
is forecast generally to keep pace with growth in requirements. 2015 
ERI Report, 14.
---------------------------------------------------------------------------

    \107\ ERI's reference requirements include anticipated future 
reactor shutdowns, both in the United States and elsewhere, due to 
reasons such as competition with natural gas and other energy 
sources.
---------------------------------------------------------------------------

    Although not focused on conversion, the requirements forecasts 
noted above in Section IV.A.5 are also relevant to the conversion 
industry. In general, requirements and/or uranium concentrate demand 
forecasts should also apply to demand for conversion services.\108\ 
However, there may be some small differences due to strategic and 
discretionary inventory building. For example, China has been 
purchasing strategic supply well in excess of its requirements. Those 
purchases have come in the form of U3O8. 2015 ERI 
Report, 13. Thus, these purchases affect near-term uranium concentrate 
demand, but do not affect near-term conversion demand.
---------------------------------------------------------------------------

    \108\ ConverDyn suggests that forward demand from Japanese 
reactors should be assumed to be zero until at least 2018. As stated 
above, the requirements and demand outlooks of TradeTech predict 
growth in demand despite planned reactor shutdowns in Germany and 
decreased demand from Japan. It also appears that UxC projections 
account for decreased demand from Japan as well.
---------------------------------------------------------------------------

    In its December 2014 Conversion Market Outlook, UxC predicts 
significant increases in both

[[Page 26410]]

requirements and demand in the long-term. UxC Conversion Market 
Outlook--December 2014, 40, 44 (2014). Specifically, [REDACTED]. Id. at 
44. In the longer term, [REDACTED]. Id. UxC projects that conversion 
supply [REDACTED]. Id. at 46. [REDACTED]. Id. at 47.
    UxC also provides a more detailed explanation of its price 
forecast, which generally predicts an increase in price over the next 
10 years. UxC Conversion Market Outlook--December 2014, 82, 85 (2014). 
[REDACTED]. Id. at 82. [REDACTED]. Id. at 75. UxC provides a separate 
forecast for the term price. [REDACTED]. Id. at 85. UxC also notes that 
some market participants [REDACTED]. Id. at 73.
    Finally, as with uranium concentrates, DOE recognizes that the 
predictability of transfers from its excess uranium inventory over time 
is important to the long-term viability and health of the uranium 
conversion industry. Again, DOE notes that the upper scenario 
considered by ERI would represent continued transfers at rates 
consistent with the May 2012 and May 2014 determinations. Compare 2015 
ERI Report, 25, with 2014 ERI Report, 28.
    As described above, demand is expected to increase substantially in 
the next several years. Along with it, as the existing conversion 
facilities age, additional capital improvement for refurbishments will 
be required. Even with these refurbishments, eventually, new conversion 
capacity will be necessary to match increasing demand. Given that 
demand in North America is not expected to decrease substantially and 
that enrichment capacity is expected to increase, it is likely that the 
domestic uranium conversion industry will retain its capacity, either 
through continuing refurbishments at MTW or through the development of 
one or more new conversion facilities.\109\
---------------------------------------------------------------------------

    \109\ ConverDyn suggests that Russian, Chinese, and Indian 
demand should be excluded because these markets are closed to sales 
from the domestic conversion industry. DOE notes that even if North 
American converters lack access to these markets, converters in 
those countries have access to markets worldwide. ConverDyn does not 
contest the notion that conversion is essentially a global 
commodity. Thus, increased demand in Russia, China, and India will 
consume capacity with which ConverDyn would otherwise compete in 
markets that it can access.
---------------------------------------------------------------------------

    Although DOE transfers may not have a large effect on the 
conversion term price, displaced production volume increases average 
production costs for primary producers. DOE does not believe this 
effect will be large enough to significantly alter planned decisions 
about conversion capacity in the United States. At worst, as with the 
uranium mining industry, the effect of DOE transfers would be to shift 
major capital improvements later in time. DOE does not believe that 
this difference is significant enough to appreciably affect the long-
term viability and health of the domestic uranium conversion industry.
    ConverDyn has submitted, on several occasions, figures for losses 
it says it has suffered in the recent past. These figures vary. 
ConverDyn stated in its March 10, 2014 letter that [REDACTED]. Letter 
from Malcolm Critchley, ConverDyn, to Peter B. Lyons, DOE, 1 (Mar. 10, 
2014). In addition, ConverDyn asserts that it is a marginal business, 
by which it appears to mean that it is only barely viable. There is 
some tension between these assertions, together with the fact that MTW 
has continued to invest substantial amounts of money to maintain and 
upgrade the facility, most recently in the beginning of 2015. In any 
case, many causes have contributed to ConverDyn's financial results. 
Those causes include, among others, the consequences of the Fukushima 
disaster \110\ and the various production stoppages MTW has 
experienced. Indeed, some of the losses ConverDyn has cited predate any 
substantial DOE transfers of uranium hexafluoride. As explained above, 
DOE bases its determination on an analysis of what the state of an 
industry would be with DOE transfers as compared to its state without 
transfers, and an assessment of what impacts can reasonably be 
attributed to the transfers. ConverDyn's submissions do not include 
such an analysis that would attribute some portion of the losses to 
DOE's transfers. They therefore do not call into question the economic 
analysis described above.
---------------------------------------------------------------------------

    \110\ ConverDyn further states [REDACTED]. Letter from Malcolm 
Critchley, ConverDyn, to Peter B. Lyons, DOE, 4 (Mar. 10, 2014). 
[REDACTED].
---------------------------------------------------------------------------

6. Russian HEU Agreement and Suspension Agreement
    Section 3112(d) of the USEC Privatization Act requires DOE to 
``take into account'' the sales of uranium under the Russian HEU 
Agreement and the Suspension Agreement. As discussed above, DOE 
believes this assessment should consider any transfers under these two 
agreements that are ongoing at the time of DOE's transfers.
    Under the Russian HEU Agreement, upon delivery of LEU derived from 
Russian HEU, the U.S. Executive Agent, USEC Inc., was to deliver to the 
Russian Executive Agent, Technabexport (Tenex), an amount of natural 
uranium hexafluoride equivalent to the natural uranium component of the 
LEU. DOE notes that the Russian HEU Agreement concluded in December 
2013. Thus, there are no ongoing transfers under this agreement.
    The current iteration of the Suspension Agreement, described above 
in Section I.D.3.b, sets an annual export limit on natural uranium from 
Russia. 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-- equivalent to between 170,000 and 
410,000 kgU as UF6. After the end of the Russian HEU 
Agreement, restrictions range between an amount equivalent to 4,540,000 
and 5,140,000 kgU as UF6 per year between 2014 and 2020. 73 
FR 7705, at 7706 (Feb. 11, 2008). Material imported from Russia in 
accordance with the Suspension Agreement is not derived from down-
blended HEU; thus, this material is part of worldwide primary supply as 
analyzed by ERI in the 2015 ERI Report.\111\ This material is also 
presumably accounted for in the various projections and models 
developed by TradeTech and UxC. Thus, DOE's analysis takes those sales 
that have a conversion component under the Suspension Agreement into 
account as part of overall supply available in the market.
---------------------------------------------------------------------------

    \111\ ERI states that it assumes 80% of the material supplied 
under the Suspension Agreement includes a conversion component. ERI 
further states that it believes Rosatom would not have a market for 
these included conversion sales without the Suspension Agreement. 
2015 ERI Report, 83. In any case, it appears that ERI's analysis 
includes this material as part of the overall conversion supply.
---------------------------------------------------------------------------

7. Conversion Industry Conclusion
    After considering the six factors as discussed above, DOE concludes 
that transfers under the assessed case will not have an adverse 
material impact on the domestic uranium conversion industry. MTW and 
ConverDyn, together the sole conversion provider in the United States, 
sell nearly exclusively on term contracts. As explained above, DOE 
transfers will not affect the term price at which those contracts are 
transacted. DOE transfers under the assessed case will contribute to 
the spot price a continued $0.70-$0.80 suppression, a somewhat smaller 
effect than transfers in the past few years have had. Because only a 
very small proportion--if any--of MTW's sales take place at the spot 
price, that price suppression will not be material for the domestic 
industry.
    In addition, DOE forecasts that over time, MTW's production will be 
smaller

[[Page 26411]]

than it would have been in the absence of DOE transfers by 700,000 kgU 
in 2015 and 600,000 kgU in 2016 and 2017. DOE conservatively estimates 
such a reduction would increase MTW's average production costs by about 
$0.63 in 2015, $0.49 in 2016, and $0.45 in 2016. DOE does not believe 
this change would constitute an adverse material impact, within the 
meaning of section 3112(d), because it is well within the range of 
production changes that MTW has experienced in recent years independent 
of DOE transfers. The reduced production may also lead to a decrease in 
employment, but DOE expects that decrease to be no more than a 
persistent 19 person-years in 2015 and 14 person-years thereafter, a 
smaller change than what MTW has implemented on its own in ordinary 
business decisions.
    Honeywell, the owner and operator of MTW, continues to invest in 
maintaining and refurbishing the MTW facility, and DOE transfers seem 
unlikely to change those plans. ConverDyn claims that MTW is on the 
verge of collapse. If that is so, DOE does not believe that MTW's state 
is reasonably attributable to DOE's recent transfers or that the dire 
outcomes ConverDyn predicts will reasonably be attributable to 
transfers under the assessed case.
    DOE does not believe that any of the effects described for the 
domestic uranium conversion industry have the substantial importance 
that would make them ``adverse material impacts'' within the meaning of 
section 3112(d).

C. Uranium Enrichment Industry

    The domestic uranium enrichment industry consists of a relatively 
small number of companies, one of which operates a currently operating 
enrichment facility and several of which are developing facilities 
expected to begin production in the near future. The Paducah Gaseous 
Diffusion Plant, which was operated by USEC Inc.--since restructured as 
Centrus Energy Corp.--closed in 2013. Centrus may still be selling SWU 
from its inventory of uranium enriched at that facility, but this 
material is finite. Thus, there is only one currently operating 
enrichment facility in the United States, the URENCO USA (UUSA) gas 
centrifuge facility in New Mexico.\112\ DOE is also aware of three 
other planned enrichment facilities in Idaho, Ohio, and North Carolina.
---------------------------------------------------------------------------

    \112\ This facility is operated through Louisiana Energy 
Services, LLC, a subsidiary of Urenco Limited.
---------------------------------------------------------------------------

    The current capacity of the UUSA facility is 3.7 million SWU. For 
comparison, the World Nuclear Association reports that worldwide 
capacity in 2015 is approximately 61 million SWU. See WNA, ``Uranium 
Enrichment'' (Jan. 2015), http://www.world-nuclear.org/info/Nuclear-Fuel-Cycle/Conversion-Enrichment-and-Fabrication/Uranium-Enrichment/ 
(accessed Mar. 31, 2015).
1. Prices for Enrichment Services
    Like market prices for uranium concentrates and conversion, 
enrichment market prices are generally described in terms of the spot 
price and the term price. This section discusses the potential impacts 
of DOE transfers on these two prices. For reference, as of March 30, 
2015, UxC's spot price indicator is $79.00 per separative work unit 
(SWU) and its term price indicator is $90.00 per SWU.
    Two of the market analyses discussed above contain estimates of the 
effect of DOE transfers on the market prices for conversion services: 
ERI and UxC. This section begins with a summary of each report and then 
discusses DOE's review of the reports' methodologies and conclusions. 
This section concludes with a discussion of how a change in conversion 
market prices would affect the domestic uranium enrichment industry. A 
principal mechanism through which such a change in market price could 
impact individual producers is through the effect on the realized price 
of primary enrichers.
a. Energy Resources International Report
    In its analysis, ERI estimates the effect of DOE transfers on the 
market prices for enrichment services. To estimate this effect, ERI 
employed a market clearing price model similar to what is described 
above for the uranium and conversion markets. As with uranium 
concentrates and conversion, ERI constructed individual supply and 
demand curves for enrichment services and estimated the clearing price 
with and without DOE transfers. 2015 ERI Report, 44. The discussion in 
Section IV.A.1 regarding DOE's analysis of ERI's market clearing 
approach analysis also applies to ERI's estimates of the effect of DOE 
transfers on market prices for enrichment services. A summary of ERI's 
estimates of the effect of DOE transfers on the market price for SWU 
appears in Table 15.
    As with uranium concentrates, DOE tasked ERI with estimating the 
effects of DOE transfers under the same three scenarios described in 
Section IV.A.1. The amounts of uranium entering the market at various 
times in different scenarios are outlined above in Table 4 in terms of 
MTU natural uranium equivalent.\113\ Not all of the uranium under these 
scenarios includes an enrichment component--denominated in SWU. The 
amount of SWU that is necessary to produce the volumes contemplated 
under the different scenarios are listed in Table 14. For the LEU 
transferred for down-blending services, these figures are calculated 
assuming natural uranium feed, a tails assay of 0.20 wt-% U-235, and a 
product assay of 4.95 wt-% U235.\114\ As with uranium concentrates, the 
assessed case falls somewhere between Scenarios 1 and 2 when calculated 
in terms of SWU.
---------------------------------------------------------------------------

    \113\ As noted above, the transfer rates for these scenarios 
refer only to the level of uranium transfers for cleanup at 
Portsmouth and down-blending of LEU. Uranium transfers under other 
programs--i.e. blended LEU to TVA, depleted uranium hexafluoride to 
Energy Northwest, and the possible future transfer of depleted 
uranium hexafluoride to GE-Hitachi Global Laser Enrichment--are the 
same in all three scenarios.
    \114\ The ``natural uranium equivalent'' figures for material 
from down-blending listed in Table 4 are also based on these 
assumptions. The natural uranium equivalent is then adjusted to take 
account of the natural uranium required as diluent as part of the 
down-blending process--typically 10% of the total natural uranium 
equivalent.

                     Table 14--Enrichment Component of Scenarios Considered in This Analysis
----------------------------------------------------------------------------------------------------------------
                Enrichment component of transfers for Portsmouth cleanup and down-blending in SWU
-----------------------------------------------------------------------------------------------------------------
                                                             Portsmouth
                                                              cleanup         Down-blending          Total
----------------------------------------------------------------------------------------------------------------
ERI Scenario 1.........................................                  0            680,000            680,000
ERI Scenario 2.........................................                  0            470,000            470,000
ERI Scenario 3.........................................                  0                  0                  0
Assessed Case..........................................                  0            520,000            520,000
----------------------------------------------------------------------------------------------------------------

[[Page 26412]]

    Table 15 summarizes ERI's results. As with uranium concentrates, 
the relationship between the amount of transfers under each scenario 
and the price effect is essentially linear for each year ERI analyzed 
(2015-2024). Compare Table 3.8 to Table 4.3 of 2015 ERI Report, 25-26, 
45. Thus, it possible to interpolate the price effect that ERI's 
analysis would predict for other levels of transfers. The estimated 
price effect for the assessed case is approximately $0.20 higher than 
ERI's estimates for Scenario 2. These interpolated values are included 
in Table 15.

          Table 15--ERI's Estimate of Effect of DOE Transfers on Uranium Enrichment Prices in $ per SWU
                                           [Market clearing approach]
----------------------------------------------------------------------------------------------------------------
                                                 2015 ERI Report
-----------------------------------------------------------------------------------------------------------------
                                                                                                 Assessed case
                                        ERI Scenario 1     ERI Scenario 2     ERI Scenario 3     (interpolated)
----------------------------------------------------------------------------------------------------------------
2015................................              $5.90              $5.10              $3.20              $5.30
2016................................               3.80               3.00               1.10               3.20
2017................................               3.50               2.60               0.70               2.80
2018................................               4.70               3.90               2.00               4.10
2019................................               5.10               4.20               2.30               4.40
2020................................               4.90               4.00               2.10               4.20
2021................................               5.20               4.30               2.40               4.50
2022................................               4.60               3.70               1.80               3.90
2023................................               4.40               3.50               1.60               3.70
2024................................               2.80               1.90               0.00               2.10
Average (2015-2024).................               4.50               3.60               1.70               3.80
----------------------------------------------------------------------------------------------------------------

    As with uranium concentrates and conversion, it is important to 
emphasize that this is not a prediction that prices will drop by the 
specified amount once DOE begins transfers following a new 
determination. A level of price suppression consistent with the 
estimate for Scenario 1 would, on ERI's analysis, already be reflected 
to some extent in the current market price because DOE has been 
transferring uranium at that rate for some time. 2015 ERI Report, 44. 
The price suppression that ERI estimates would persist under Scenario 3 
is largely ERI's estimate of the consequence of past DOE transfers, 
from which some of the uranium is still expected to be entering the 
market in future years.
b. UxC Report
    UxC estimates past effects of DOE uranium transfers on the price of 
enrichment services using its proprietary U-PRICE and SWU-PRICE models 
and then uses those models to forecast the effects of continued 
transfers at the rates described in the May 2014 Determination. UxC 
Report, 5. As with its uranium concentrate estimates discussed above, 
UxC provides ``incremental'' and ``total impact'' figures. In UxC's 
models, continued transfers at a given rate have a cumulative effect, 
so that the change to prices increases over time. UxC's ``incremental 
approach'' estimates the effect of DOE transfers beginning in 2012. The 
``total impact approach'' estimates the effect of DOE transfers 
beginning in 2008, so as, in UxC's view, to take full account of the 
cumulative effect of all transfers.
    Using its incremental approach, UxC estimates that between 2012 and 
2014 DOE's transfers reduced the spot price by an average of $7.49 per 
SWU and the term price by an average of $5.37 per SWU. Using its total 
impact approach, UxC estimates that DOE's transfers between 2008 and 
2014 reduced the spot price in the period from 2012 to 2014 by an 
average of $9.19 per SWU and the term price by an average of $6.96 per 
SWU. UxC Report, 8-9.
    UxC also forecasts the effect of DOE's continuing transfers at 
current rates for the period 2015 to 2030. A summary of UxC's estimates 
of the effect of DOE transfers on future enrichment prices appears in 
Table 16. UxC estimates that DOE transfers in the near and medium terms 
would reduce the spot price by an average of $5.31 per SWU. UxC 
projects that this effect will change slightly in the medium term as 
market prices start to recover. Specifically, DOE transfers would 
reduce the spot price between 2018 and 2030 by an average of $4.86 per 
SWU. UxC also notes that the former number is larger relative to the 
expected price of enrichment than the latter number (5.9% versus 
3.8%)--both, DOE surmises, because the longer-term price effect is 
smaller, and because the longer-term price is higher. UxC Report, 12. 
UxC forecasts that DOE transfers in the near and medium terms would 
reduce the term price by an average of $5.50 per SWU. Between 2018 and 
2030, UxC forecasts that DOE transfers would reduce the term price by 
an average of $5.00 per SWU. Again, the near and medium term impact is 
larger in relation to the expected price (5.6% versus 3.6%). UxC 
Report, 11.

 Table 16--UxC's Estimate of Effect of DOE Transfers on Enrichment Spot
                      and Term Prices in $ per SWU
------------------------------------------------------------------------
                               UxC Report
-------------------------------------------------------------------------
                                           Near- & mid-
                                            term price       Long-term
                                              effect       price effect
------------------------------------------------------------------------
Spot Price..............................           $5.31           $4.86
Term Price..............................            5.50            5.00
------------------------------------------------------------------------

[[Page 26413]]

c. Effect of DOE Transfers on Market Price
    After reviewing the market analyses described above, and other 
information including other comments received, DOE concludes that ERI's 
method for estimating and forecasting the price effects reasonably 
attributable to DOE's transfers is reasonable. As explained above, the 
market-clearing price analysis is consistent with basic economic 
principles and should be a reasonable way to estimate relatively small 
changes in price, assuming the market has a competitive price-setting 
mechanism. It is not clear whether the enrichment market functions in 
that way. The market is even more concentrated than the conversion 
market: Only four companies worldwide provide enrichment services, and 
one provides services essentially exclusively to Chinese purchasers. 
Unlike uranium and conversion, the enrichment market does not include 
significant sources of secondary supply.\115\ On the other hand, buyers 
may be more sensitive to enrichment prices, both because enrichment 
constitutes a larger portion of the total cost of enriched uranium 
product and because natural uranium can be substituted, in the 
``underfeeding'' sense described above, with uranium.\116\ DOE observes 
that enrichment prices have been more variable than conversion prices 
and nearly as variable as uranium prices. For example, while enrichment 
prices did not drop immediately after the Fukushima incident, as 
uranium spot prices did, they have decreased by about 45% since 2011. 
Finally, there is not a large gap between spot and term prices for 
enrichment, as there is for conversion.
---------------------------------------------------------------------------

    \115\ In principle, overfeeding could generate surplus 
enrichment services just as underfeeding generates surplus natural 
uranium. At the prices prevailing in the recent past and anticipated 
in the near future, overfeeding would not be economical. Other 
sources of secondary supply in the uranium and conversion markets 
provide natural uranium, not enriched uranium. DOE's transfers for 
down-blending are secondary supply, but they constitute a much 
smaller portion of overall supply than total transfers do relative 
to uranium and conversion supplies.
    \116\ As noted elsewhere in this analysis, DOE believes the 
magnitude of any effect of DOE transfers on the uranium or 
enrichment price that is transmitted through the interaction with 
the enrichment or uranium price, respectively, is small. It is not 
inconsistent with that conclusion to believe that the interaction of 
the two prices could help limit the market's susceptibility to 
parallel pricing conduct.
---------------------------------------------------------------------------

    To be conservative, DOE will assume that a competitive price-
setting mechanism does determine enrichment prices. On that assumption, 
ERI's market-clearing analysis should provide an appropriate forecast 
for the effects of DOE's transfers. To the extent that enrichment 
prices are uncompetitive, the price effect will tend to be smaller than 
what ERI forecasts.
    Also, DOE notes that ERI's analysis assumes demand for enrichment 
to be perfectly inelastic. This assumption is a reasonable 
approximation, because, as discussed above, nuclear utilities have 
predictable requirements that must be filled. In reality, demand may 
have some small degree of elasticity. That elasticity would also tend 
to make the price effect smaller than what ERI forecasts.
    However, as noted above, ERI's model does not take account of the 
interplay between uranium concentrates and enrichment prices. As 
explained above, for the uranium concentrates market, DOE expects that 
this interplay is not large enough to make a significant difference to 
this analysis. With respect to the enrichment market, DOE notes that 
only about one quarter of DOE's future transfers under the assessed 
case will displace enrichment services. Consequently, the effect of 
DOE's transfers on uranium hexafluoride prices should generally be 
larger than the effect on enrichment prices. Both ERI and UxC forecast 
such a relative difference--about 7% for concentrates for a rate of 
2,705 MTU per year, compared to about 4% for enrichment. The amount of 
enrichment currently devoted to underfeeding depends in part on the 
relative prices of natural uranium hexafluoride and enrichment. If 
uranium prices decrease by a relative 3%, enrichers can be expected to 
devote less primary supply to underfeeding--on the order of 3% less, or 
about 200,000 SWU given that enrichers currently use about 8 million 
SWU for underfeeding. This is close to 40% of the total amount of SWU 
from DOE transfers under the assessed case.
    UxC's model takes these interactions into account. DOE further 
notes that UxC's forecast of the effect on SWU prices is quite similar 
to ERI's, although it predicts a slightly larger effect on the price. 
UxC analyzed transfers that are equivalent to ERI's Scenario 1. Whereas 
ERI forecasts a price effect in the near term (2015-2017) of $4.40 for 
Scenario 1, UxC forecasts a near-term price effect of $5.31 (spot) or 
$5.50 (term). ERI forecasts a longer-term effect averaging $4.50 over 
the next decade. By comparison, UxC forecasts an effect of $4.86 (spot) 
or $5.00 (term).
    While UxC did not provide forecasts for other possible transfer 
rates, it is reasonable to assume the price change would be 
proportional to the market displacement for supply changes that, like 
DOE's, constitute small proportions of total supply and have small 
effects on price. Accordingly, DOE concludes that UxC's model would 
forecast, for transfers under the assessed case, price effects of $4.55 
(spot) or $4.70 (term) in the near-term and $4.15 (spot) or $4.30 
(term) in the longer term.\117\ DOE does not place much weight on UxC's 
forecast because, as discussed above, UxC's model relies on subjective 
exogenous variables such as ``market participants' general perception 
of the industry outlook'' and ``changes in market psychology'' that UxC 
sets prior to running its model in order to define the scenario that 
the model will predict.
---------------------------------------------------------------------------

    \117\ Transfers under the assessed case contain, on average, 
about 14% less SWU per year than the prior transfer rate.
---------------------------------------------------------------------------

    However, DOE does believe that the consistency between UxC's 
forecast and ERI's indicates that the effect of interactions between 
the uranium and enrichment markets is unlikely to be larger than what 
DOE estimates here. Because the forecast price effects are only 
estimates, not precise to the penny, and because the underlying 
assumptions of ERI's model are reasonable, DOE concludes it is 
appropriate to rely on ERI's model with a revision to account for 
underfeeding. Accordingly, DOE adjusts the resulting estimate upward by 
40% to reflect the additional enrichment supply that may become 
available due to the relative changes in uranium and enrichment 
prices.\118\ Based on the above, DOE forecasts that transfers under the 
assessed case will continue to exert some downward pressure on the 
market prices for enrichment services, ranging from around $5.25 in the 
near term and $5.40 over the longer term.
---------------------------------------------------------------------------

    \118\ DOE notes that the additional suppression in enrichment 
prices would itself affect the interaction between the enrichment 
and uranium markets. Because that effect would tend push more 
enrichment capacity back to underfeeding, DOE believes it would at 
worst cause DOE's 40% adjustment to be an overestimate.
---------------------------------------------------------------------------

    The significance of price suppression at this level depends, at 
least in part, on market price. The 2015 ERI Report relies on the price 
indicators for SWU published by TradeTech on January 31, 2015. The spot 
price for SWU has decreased by about $9.00 since that date. The current 
price indicators, as published by UxC, are $79.00 per SWU in the spot 
market and $90.00 per SWU in the term market.\119\ Thus, the estimated 
near-term price effect attributable to DOE transfers represents 6.7% 
and 5.9% of the spot and term

[[Page 26414]]

prices, respectively. Although it may be useful to compare the 
estimated price effect to current market prices for a sense of scale, 
comparing a longer term price effect to current market prices can be 
somewhat misleading; it is more appropriate to compare the price effect 
in future years to forecasted market prices in those years.
---------------------------------------------------------------------------

    \119\ URENCO states that the term enrichment price is currently 
$87.00 per SWU. NIPC Comment of URENCO, at 2. The most recent data 
available to DOE do not support this figure.
---------------------------------------------------------------------------

    In its annual Enrichment Market Outlook, UxC provides a detailed 
explanation of its price forecast, which generally predicts an increase 
in term prices over the next 10 years. UxC Enrichment Market Outlook--
Q4 2014, 91-94 (2014). [REDACTED]. Id. at 94. UxC reports [REDACTED]. 
Id. at 74. In the mid-term, UxC projects that the term price for SWU 
[REDACTED]. Id. at 94. UxC does not provide a separate forecast for the 
spot price. Id. at 79.
    Using these price forecasts, it is possible to project the 
estimated price effect in future years as a percentage of the expected 
market price. DOE predicts that the price effect reasonably 
attributable to DOE transfers under the assessed case will be around 
$5.25 in the near term, and then average approximately $5.40 between 
2018 and 2024. As prices increase, this price effect will represent a 
smaller proportion of the then-prevailing market prices. Based on UxC 
forecasts, which DOE believes to be a reasonable expectation for future 
prices, the price effect will average approximately [REDACTED] of the 
term price in 2015-2017, and [REDACTED] between 2018 and 2024.
d. Effect on Realized Price
    As with uranium concentrates and conversion, the principal 
mechanism through which a change in market price would impact the 
domestic uranium enrichment industry is through the effect on what 
prices an enricher actually receives for its services. The market 
prices published by TradeTech and UxC are based on information about 
recent offers, bids, and transactions, and are thus a snapshot of 
contracting activity at the time of the publication. Enrichment, like 
uranium concentrates and conversion, is primarily sold on long-term 
contracts. Consequently an enricher's actual revenues are somewhat 
insulated from short-run fluctuations in price.
    There is only one currently operating enrichment facility in the 
United States, the UUSA gas centrifuge facility in New Mexico. No 
commenter provides information about the realized price achieved by 
URENCO or the effect of DOE transfers on that price. However, other 
sources provide some relevant information.
    In recent years, the vast majority of SWU has been sold on the term 
market. UxC Enrichment Market Outlook--Q4 2014, 17, 20 (2014). UxC 
reports that approximately [REDACTED] SWU were sold through spot 
contracts in 2014. Id. at 19. UxC estimates that 2014 enrichment demand 
stood at approximately [REDACTED]. Id. at 38. Based on these figures, 
spot sales in 2014 accounted for [REDACTED] of total SWU demand. ERI 
estimates that more than 95% of enrichment requirements are covered 
under long-term contracts. 2015 ERI Report, 74. Long-term contracts for 
SWU typically last for 10 or more years, in some cases and in some 
cases 15 or more years. UxC Enrichment Market Outlook--Q4 2014, 100 
(2014).
    Current term contracting volume is much smaller than pre-2010 
volumes. Id. at 9, 21. UxC reports that long-term contracting activity 
[REDACTED]. Id. at 20. [REDACTED]. Id. at 20. UxC also projects that 
term contracting activity will [REDACTED]. Id. at 21. Therefore, DOE 
concludes that only 10-20% of term sales will reflect current prices. 
For the next few years, most sales will be on contracts concluded 
several years ago when prices were higher. More contracting will take 
place when those contracts expire, and those contracts will reflect the 
relevant future term prices.
    Consistent with DOE's analysis, EIA reports that in 2013, the 
average price paid for SWU was $142.22. EIA, Uranium Marketing Report, 
7 (2014). This is well above the average market prices for 2013, 
approximately $110 in the spot market and $120 in the term market 
according to UxC.
    URENCO's most recent financial statements indicate that at least a 
portion of its contract portfolio ``extend[s] beyond 2025.'' URENCO 
Limited, Interim Financial Statements for the 6 Months Ended 30 June 
2014, at 6, available at http://www.urenco.com/_/uploads/content-files/Urenco_Group_Interim_Accounts_to_30_June_2014-final-02092014.pdf.\120\ 
URENCO has also stated that its enrichment contracts are usually fixed 
base price with escalation, leaving URENCO with ``no direct exposure to 
uranium prices.'' URENCO Investor Update, 4 (Sept. 9, 2014), available 
at http://www.urenco.com/_/uploads/results-and-presentations/URENCO_Bond_Investor_Presentation_2014.pdf. These statements reflect 
all enrichment activity at URENCO, not just production at the UUSA 
facility. But URENCO has controlled the U.S. facility since the 
beginning of planning, and it is unlikely U.S. sales depart from the 
company's overall practices. Because UUSA began operating in 2010, its 
contract terms will only have begun at that time. And it is likely that 
the vast majority of the facility's capacity was under long-term 
contracts at inception, because an enrichment plant operator ordinarily 
does not construct a plant before having contractual commitments for 
virtually the entire capacity. That approach would also be consistent 
with what URENCO reports for its overall contracting approach.
---------------------------------------------------------------------------

    \120\ DOE notes that URENCO's financial statements have referred 
to its order book as ``extending up to and beyond 2025'' at least 
since 2010. See URENCO, Annual Report & Accounts 2010, at 3 (2010), 
available at http://media.urenco.com/corp-Web site/298/
annualreportandaccounts2010_1.pdf.
---------------------------------------------------------------------------

    Therefore, DOE concludes that URENCO USA has essentially zero 
exposure to current term prices. Transfers under the assessed case will 
eventually affect URENCO's realized price, because URENCO's contracts 
will expire and URENCO will enter new contracts at the prevailing 
future term prices. Therefore, DOE concludes that the effect of DOE 
transfers on URENCO's prices will be through the effect on longer-term, 
rather than near-term, prices. As noted above, the longer-term price 
effect forecast for transfers under the assessed case is $5.40 per SWU.
    As noted above, URENCO has stated that a small amount of its 
capacity is devoted to underfeeding. RFI Comment of URENCO, at 3.\121\ 
ERI notes that URENCO estimates it is using 10-15% of its capacity for 
underfeeding. 2015 ERI Report, 75. To the extent that URENCO sells the 
natural uranium hexafluoride yielded from underfeeding, DOE transfers 
could affect its revenues to the extent the transfers cause decreases 
in the prices for uranium concentrates and conversion services. Using 
the price effects forecast above for the uranium and conversion spot 
prices, transfers under the assessed case would affect the price for 
that amount of material by 7.1%.
---------------------------------------------------------------------------

    \121\ On May 22, 2014, URENCO submitted an application to the 
U.S. NRC to amend its license for the facility to allow it to use 
high assay tails (approximately 0.4 wt-% U-235) as feed material. 
See 79 FR 43099 (July 24, 2014); ``Redacted--Supplement to License 
Amendment Request for Capacity Expansion of URENCO USA Facility 
(LAR-12-10),'' Letter from URENCO to U.S. NRC, LES-14-00071-NRC 
(June 17, 2014).
---------------------------------------------------------------------------

2. Production at Existing Facilities
    URENCO reports that the nameplate capacity for the UUSA facility is 
3.7 million SWU. RFI Comment of URENCO, at 1. URENCO has also stated

[[Page 26415]]

that construction of additional centrifuges will continue until the 
facility reaches 5.7 million SWU. ``About Us, URENCO USA,'' URENCO, 
http://www.urenco.com/about-us/company-structure/urenco-usa (accessed 
Feb. 21, 2015).
    Due to the nature of gas centrifuges, it is highly unlikely that 
UUSA will decrease production of SWU. As URENCO states, due to the low 
level of electricity required to run the centrifuges, slowing 
production would have almost no effect on operating expenses. 
Furthermore, stopping and restarting a centrifuge may damage the 
equipment. RFI Comment of URENCO, at 3. That said, there is a 
possibility that URENCO will divert capacity currently used to produce 
LEU to underfeeding or tails re-enrichment. Specifically, UxC notes 
[REDACTED]. UxC Enrichment Market Outlook--Q4 2014, 42 (2014). Given 
how little spot contracting activity there has been in recent years, 
DOE believes that this effect will be small.
3. Employment Levels in the Industry
    ERI does not provide an estimate of the change in employment due to 
DOE transfers in the enrichment industry. No commenter references 
changes in employment in the enrichment industry. URENCO states that 
its business is essentially fixed-cost and makes no reference to 
changes in employment.
    Although DOE notes that there have been changes in employment in 
the enrichment industry in recent years, mostly related to the closure 
of the Paducah Gaseous Diffusion Plant, DOE does not believe that its 
transfers will have any significant effect on employment levels in the 
enrichment industry.
4. Changes in Capital Improvement Plans and Development of Future 
Facilities
    URENCO recently completed ``Phase II'' of its expansion plans, 
bringing the capacity of its facility to 3.7 million SWU. ``Phase II 
Completion,'' URENCO (Apr. 9, 2014), http://www.urenco.com/news/detail/phase-ii-completion (accessed Feb. 22, 2014). URENCO is continuing to 
move forward with ``Phase III'' expansion, which will bring plant 
capacity to approximately 5.7 million SWU. URENCO notes that it has 
slowed its plan for construction of additional capacity. RFI Comment of 
URENCO, at 3. URENCO expects to reach 5.7 million SWU capacity by 2023. 
URENCO Investor Update, 31 (Sept. 9, 2014). Although the company 
recently received a license amendment that would allow it to expand 
capacity to 10 million SWU per year, URENCO states that this move is 
``to provide for future licensing flexibility should the market 
recover.'' URENCO notes that it cancelled construction of ``Phase IV'' 
in 2013. RFI Comment of URENCO, at 3.
    DOE is aware of several other planned or proposed enrichment 
facilities in the U.S., namely, AREVA's Eagle Rock Enrichment Facility 
in Idaho, Centrus Energy's--formerly USEC Inc.--American Centrifuge 
Plant in Piketon, OH, and Global Laser Enrichment's facility in 
Wilmington, NC.\122\ Development of each of these facilities has been 
put on hold or slowed until market prices improve.
---------------------------------------------------------------------------

    \122\ Although not the subject of this determination, DOE notes 
that ERI analyzed the possible future transfer to GLE of high-assay 
depleted uranium. 2015 ERI Report, 27-28. As this transaction would 
involve re-enrichment of depleted tails, it would tend to support 
additional demand for enrichment services.
---------------------------------------------------------------------------

    The Eagle Rock Enrichment Facility would use gas centrifuge 
technology and would have a capacity of approximately 3.3 million SWU. 
``Eagle Rock Enrichment Facility,'' AREVA, http://us.areva.com/EN/home-203/eagle-rock-enrichment-facility.html (accessed Feb. 21, 2015). After 
announcing several delays in construction, AREVA stated in May 2013 
that it was no longer projecting a start date for building the 
facility. ``French company won't set date for Idaho nuclear facility,'' 
The Oregonian (May 23, 2013), http://www.oregonlive.com/pacific-northwest-news/index.ssf/2013/05/french_company_wont_set_date_f.html 
(accessed Feb. 21, 2015). At the time of this announcement, the term 
market price for SWU was approximately $130, according to UxC's monthly 
price indicator.
    The proposed American Centrifuge Plant would use gas centrifuge 
technology and would have a capacity of approximately 3.8 million SWU. 
``USEC Inc. Gas Centrifuge,'' U.S. NRC, http://www.nrc.gov/materials/fuel-cycle-fac/usecfacility.html (accessed Feb. 22, 2015). Active 
construction of new centrifuges has ceased. In a November 2013 
quarterly filing with the SEC, Centrus Energy, then known as USEC, 
stated, ``[a]t current market prices USEC does not believe that its 
plans for American Centrifuge commercialization are economically viable 
without additional government support.'' USEC Form 10-Q, Securities and 
Exchange Commission, at 10 (Nov. 5, 2013) https://www.sec.gov/Archives/edgar/data/1065059/000106505913000049/usu-2013930x10q.htm (accessed 
Feb. 22, 2015). When this form was submitted to the SEC, the term 
market price for SWU was approximately $115, according to UxC's monthly 
price indicator.
    Global Laser Enrichment, a venture of GE-Hitachi and Cameco, has 
proposed an enrichment plant that would use laser enrichment technology 
developed by Silex Systems, an Australian company. The proposed 
facility in Wilmington, NC, would have a capacity of about 6 million 
SWU. GLE License Application, Rev. 7, U.S. NRC, Docket 70-7016, at 1-16 
(August 20, 2012), available at http://pbadupws.nrc.gov/docs/ML1224/ML12242A227.pdf. In July 2014, GLE announced that it would slow 
continued development of the facility ``in line with current and future 
market realities.'' ``Global Laser Enrichment,'' GE-Hitachi, https://nuclear.gepower.com/fuel-a-plant/products/gle.html (accessed Feb. 22, 
2015). At the time of GLE's announcement, the term market price for SWU 
was approximately $95, according to UxC's monthly price indicator.
    Based on ERI's estimate, as adjusted to account for underfeeding, 
eliminating all DOE-transferred material from the market--including 
material already transferred in the past as well as the material to be 
transferred under the assessed case--could cause prices to rise by no 
more than $7.40 in 2015 and less than $4.50 in 2016 and 2017, which 
could result in a term price of around $97.00 in 2015 and just under 
$95.00 in 2016 and 2017.
    The timing of the above announcements suggests that enrichers would 
require a substantially higher price signal in order to move forward 
with adding new capacity. Specifically, the American Centrifuge project 
was put on hold when term prices were close to $115 and the Eagle Rock 
facility was put on hold when prices were close to $130. Although GLE's 
announcement came at a time when prices were $95, the level of near-
term uncovered requirements is low--[REDACTED], UxC Enrichment Market 
Outlook--Q4 2014, 39 (2014)--and it is not clear that GLE would be able 
secure the necessary long-term contracts even at that price. Because 
the developers stopped the projects just discussed on the basis of 
prices at or above $95, DOE concludes that DOE transfers in the near 
term will not change the decisions whether to complete those projects. 
In the longer term, as prices improve, there may come a point for each 
of these projects at which its owner is willing to invest to complete 
the project. The price effect forecast for transfers under the assessed

[[Page 26416]]

case may delay that point, but given the forecasts and the announced 
decisions, DOE does not believe it would change the long-term outcome 
for these projects. Meanwhile, although URENCO is still moving forward 
with a capacity expansion from 3.7 million SWU to 5.7 million SWU, it 
has slowed the pace of expansion and stated that it does not expect to 
reach this capacity until 2023. Even though URENCO has announced 
expansion plans for UUSA, it presumably still intends to secure long-
term contracts prior to construction. It appears that URENCO has 
decided to slow expansion to await higher prices that it expects will 
prevail in a few years--UxC's [REDACTED]. Id. at 114. Thus, DOE 
believes that a term price of $95.00-$97.00 would likely not be 
sufficient to support URENCO's planned price expansion.\123\
---------------------------------------------------------------------------

    \123\ URENCO similarly notes that uncovered requirements are 
low. URENCO further notes that DOE transfers are equivalent to about 
72% of unfilled global demand in 2015. RFI Comment of URENCO, at 4. 
As noted in the NIPC, DOE believes that figures for unfilled 
enrichment demand or uncovered enrichment requirements likely 
already reflect DOE uranium transfers at recent rates. Even if this 
were not true, the prediction above for the price effect of DOE 
transfers does not depend on an estimate of uncovered requirements. 
Thus, changing this input would not alter DOE's forecast. URENCO may 
also be suggesting that the lack of uncovered requirements means 
that DOE is directly displacing its own sales. However, as described 
above, even if DOE transfers were removed from the market, it does 
not appear that prices would rise enough to justify UUSA's 
increasing capacity substantially.
---------------------------------------------------------------------------

    As a result, DOE believes that transfers under the assessed case 
will not have a significant effect on capacity expansion at UUSA or at 
other planned facilities.
5. Long-Term Viability and Health of the Industry
    ERI's most recent Reference Nuclear Power Growth forecast projects 
global requirements for enrichment services to grow to approximately 59 
million SWU between 2021 and 2025, approximately 31% higher than 
current requirements. Global requirements are expected to continue to 
rise to a level of 74 million SWU between 2031 and 2035, approximately 
64% higher than current requirements. 2015 ERI Report, 13. ERI presents 
a graph comparing global requirements, demand, and supply from 2013-
2035. Global supply is expected to continue to significantly exceed 
global demand over the long term. 2015 ERI Report, 16.
    Although not focused on enrichment, the requirements forecasts 
noted above in Section IV.A.5 are also somewhat relevant to the 
enrichment industry. In general, requirements and/or uranium 
concentrate demand forecasts should also apply to demand for low 
enriched uranium. As with conversion, there may be some small 
differences due to strategic and discretionary inventory building. For 
example, China has been purchasing strategic supply well in excess of 
its requirements. Those purchases have come in the form of 
U3O8. 2015 ERI Report, 13. Thus, these purchases 
affect near-term uranium concentrate demand, but do not affect near-
term demand for LEU.
    In addition to demand for LEU, higher demand for uranium 
concentrates can affect demand for enrichment because of the 
relationship described above between natural uranium and enrichment as 
inputs for producing enriched uranium product. In the medium to long 
term, supply from current mines will cease to exceed demand. Meanwhile, 
enrichment supply will continue to exceed requirements for LEU. As 
prices for uranium concentrates and conversion increase relative to SWU 
prices, it may become more economical to re-enrich high-assay tails. In 
this vein, ERI suggests that enrichers will continue to redirect 
capacity to underfeeding and that Rosatom will continue to re-enrich 
tails. 2015 ERI Report, 16.\124\
---------------------------------------------------------------------------

    \124\ Again, DOE notes that although it is not included in ERI's 
chart of enrichment supply, GLE's proposed Paducah Laser Enrichment 
Facility would represent additional enrichment supply that is not 
intended to be devoted to producing LEU. Compare 2015 ERI Report, 
16, with 2015 ERI Report, 27-28.
---------------------------------------------------------------------------

    In its Uranium Enrichment Outlook for the 4th quarter of 2014, UxC 
predicts significant increases in both requirements and demand in the 
long-term. UxC Enrichment Market Outlook--Q4 2014, 36, 38 (2014). 
Specifically, [REDACTED]. Id. at 38. In the longer term, UxC estimates 
that enrichment demand [REDACTED]. Id. UxC's base case supply outlook 
projects that supply [REDACTED]. Id. at 46. UxC's projected base case 
supply [REDACTED]. Id. at 50. DOE recognizes that a significant amount 
of the forecast increase in demand will be in China (and to a lesser 
extent in Russia), markets that URENCO asserts it cannot access. But 
enrichers in those countries do currently have access to markets 
elsewhere in the world, and enrichment is fungible. URENCO does not 
contest the notion that enrichment is essentially a global commodity 
with a single world price. Thus, increased demand in China and Russia 
will consume capacity with which URENCO would otherwise compete in 
markets that it can access.\125\
---------------------------------------------------------------------------

    \125\ DOE also notes that the Russian Suspension Agreement 
places limits on EUP imported into the United States from Russia. 
Thus, URENCO is somewhat protected from the effects of competition 
with Russian enrichers for domestic demand.
---------------------------------------------------------------------------

    As discussed above in Section IV.C.1, UxC also predicts a 
significant increase in enrichment prices over the next ten years.
    Finally, as with uranium concentrates and conversion services, DOE 
recognizes that the predictability of transfers from its excess uranium 
inventory over time is important to the long-term viability and health 
of the uranium enrichment industries. Again, DOE notes that the upper 
scenario considered by ERI would represent continued transfers at rates 
consistent with the May 2012 and May 2014 determinations. Compare 2015 
ERI Report, 25, with 2014 ERI Report, 28.
    DOE notes that enrichment market prices are at levels not seen in 
the past decade. There is also tremendous uncertainty in the market 
regarding future production. Centrus Energy Corp. (formerly USEC, Inc.) 
emerged from bankruptcy in the past year and has been forced to rethink 
its business model since the closure of the Paducah Gaseous Diffusion 
Plant. A significant source of business for Centrus and URENCO in 
recent years has been from the Asian markets, specifically Japan, 
Taiwan, and South Korea. Demand in these markets has been directly 
affected by the Fukushima Daiichi accident. In addition, the enrichment 
market faces uncertainty related to Areva's finances and the potential 
for GLE to build and operate a new facility utilizing the Silex 
technology. DOE is cognizant of these uncertainties facing the market.
    However, as described above, enrichment capacity is expected to 
shift over time toward a trajectory that more closely tracks demand. 
The moves in recent years by several enrichers to curtail or postpone 
planned capacity increases contributes to this. As a result, prices are 
expected to recover over the next ten years. DOE does not believe that 
the price effect attributable to DOE transfers is large enough to cause 
a significant change to production and development plans at existing or 
planned facilities. At worst, as with the uranium mining industry, the 
effect of DOE transfers would be to shift major capital investments 
later in time. DOE does not believe that this difference is significant 
enough to appreciably affect the long-term viability and health of the 
domestic uranium enrichment industry.
6. Russian HEU Agreement and Suspension Agreement
    Section 3112(d) of the USEC Privatization Act requires DOE to 
``take into account'' the sales of uranium

[[Page 26417]]

under the Russian HEU Agreement and the Suspension Agreement. As 
discussed above, DOE believes this assessment should consider any 
transfers under these two agreements that are ongoing at the time of 
DOE's transfers.
    Under the Russian HEU Agreement, Russian HEU was down-blended to 
LEU and then delivered to USEC Inc. for sale to end users in the United 
States. DOE notes that the Russian HEU Agreement concluded in December 
2013. Thus, there are no ongoing transfers under this agreement.
    The current iteration of the Suspension Agreement, described above 
in Section I.D.3.b, sets an annual export limit on natural uranium from 
Russia. 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--equivalent to between 100,000 and 250,000 
SWU. After the end of the Russian HEU Agreement, restrictions range 
between an amount equivalent to 2,750,000 and 3,110,000 SWU per year 
between 2014 and 2020. 73 FR 7705, at 7706 (Feb. 11, 2008). Material 
having a SWU component imported from Russia in accordance with the 
Suspension Agreement is not derived from down-blended HEU; thus, this 
material is part of worldwide primary enrichment supply as analyzed by 
ERI in the 2015 ERI Report. This material is also presumably accounted 
for in the various projections and models developed by UxC. Thus, DOE's 
analysis takes those sales that have an enrichment component under the 
Suspension Agreement into account as part of overall supply available 
in the market.
7. Enrichment Industry Conclusion
    After considering the six factors as discussed above, DOE concludes 
that transfers under the assessed case will not have an adverse 
material impact on the domestic uranium enrichment industry. As 
explained above, DOE transfers under the assessed case will continue to 
exert some downward pressure on the market price for enrichment 
services. DOE believes that $5.25 per SWU in the near-term and $5.40 
per SWU over the longer term is a reasonable estimate of the price 
effect attributable to DOE transfers; this is somewhat smaller than the 
effect transfers in the past few years have had. Sales from UUSA, the 
sole operating enrichment facility in the United States, are almost 
exclusively under term contracts with no exposure to the spot price. 
Thus, the effect of DOE transfers on realized price for enrichment from 
UUSA will come through the effect on new term contracts that URENCO 
will enter into in the longer term, i.e. $5.40 per SWU. DOE transfers 
may also affect the price realized for natural uranium hexafluoride 
from underfeeding at UUSA by about 7%. Because DOE believes that less 
than 15% of UUSA's capacity is devoted to underfeeding, this effect is 
expected to be small. Due to technical constraints, DOE concludes that 
the price effect attributable to DOE transfers under the assessed case 
will not cause URENCO to decrease capacity or change employment levels 
at UUSA.
    DOE believes that decisions to expand capacity at UUSA or at other 
planned enrichment facilities require prices significantly higher than 
current prices. This would be true with or without DOE transfers. Thus, 
DOE concludes that transfers under the assessed case will not have a 
significant effect on near-term decisions to build future enrichment 
capacity in the United States. DOE expects that SWU prices will 
increase in the medium- to long-term enough to support these expansion 
plans. DOE transfers would, at worst, have the effect of slightly 
delaying the development of such future capacity without preventing 
these new facilities from coming online. As such, DOE concludes that 
transfers under the assessed case would not significantly affect the 
long-term viability or financial health of the domestic uranium 
enrichment industry. DOE does not believe that any of these effects has 
the substantial importance that would make it an ``adverse material 
impact'' within the meaning of section 3112(d).

V. Other Comments

    DOE received a number of comments in response to the NIPC and RFI 
that warrant additional discussion. Many comments included suggestions 
for how DOE might mitigate any potential adverse impacts.
    Several commenters asserted that for a given amount of transferred 
uranium, introducing the material into the spot market is particularly 
harmful to industry. These commenters contend that DOE should analyze 
its transfers on the assumption that the material is primarily 
appearing on the spot market. They also urge DOE to take steps to 
ensure that the uranium it transfers is sold through term contracts, 
rather than through spot contracts or through future-delivery contracts 
that commenters say are little different from future spot contracts. 
Some of these commenters, representing members of the domestic mining 
industry, suggest that DOE could achieve this goal by distributing its 
material through uranium concentrate producers. These producers, the 
commenters say, have incentives to place DOE-sourced uranium into long-
term deliveries, in order to mitigate the effect on spot prices. To the 
extent such an arrangement led to higher spot prices, DOE would also 
receive greater value for the uranium.
    With respect to the impacts caused by DOE transfers, the foregoing 
analysis has, in almost all respects, assumed the material contributes 
to the spot markets over time.\126\ DOE therefore believes its analysis 
has comported with commenters' suggestion. Assuming the commenters are 
correct that spot sales of DOE-sourced uranium are the most harmful way 
for the material to enter the markets, DOE has assessed the 
consequences.
---------------------------------------------------------------------------

    \126\ As noted above, one exception to this approach is ERI's 
econometric model for the spot price of uranium concentrates, for 
which the difference between term sales and spot sales of DOE-
sourced uranium could influence the model's medium- and long-term 
forecasts. Because DOE considers those forecasts fairly uncertain 
anyway, the possibility that less DOE-sourced uranium is delivered 
on term contracts than ERI assumed would not alter DOE's 
conclusions.
---------------------------------------------------------------------------

    DOE recognizes that if some or all of its transfers entered the 
markets through term contracts, the effects on spot prices could be 
smaller.\127\ However, for DOE itself to make transfers on the 
equivalent of traditional term contracts would not serve the purposes 
for which, in the main, DOE transfers uranium. In DOE's understanding, 
a buyer on a term contract has a right to receive material at various 
future delivery dates; and it ordinarily pays for the material at or 
near the time of delivery, at a price determined by the contract. By 
contrast, DOE transfers uranium in exchange for services provided 
substantially contemporaneously with the transactions, not years in the 
future.
---------------------------------------------------------------------------

    \127\ Assessing whether the effects would actually be smaller, 
and by how much, would require additional analysis. For example, if 
a term sale of DOE-sourced uranium displaced a corresponding amount 
of supply onto the spot market, the overall effect could be the same 
as if the DOE-sourced uranium were sold directly on the spot market. 
The likelihood of such a direct displacement differs among the 
uranium concentrates, conversion, and enrichment markets.
---------------------------------------------------------------------------

    At least one commenter says that some utility buyers have the 
financial capacity to buy uranium and hold it for a few years before 
using it. According to the commenter, the price curve for uranium, 
coupled with the financial environment in which interest rates have 
remained very low, makes such transactions advantageous for utilities. 
DOE notes, however, that holding the

[[Page 26418]]

material for a few years would not, apparently, serve the purpose of 
commenters who seek to remove DOE-sourced material from the spot 
markets. These commenters stress that what they consider the true term 
market involves deliveries five to ten years in the future. No 
commenter identified a person or group of persons that would have the 
financial wherewithal to pay the spot price for DOE-sourced uranium in 
the present and then retain the uranium for delivery that far in the 
future.
    Commenters from the mining industry did indicate that they would be 
interested in managing the distribution of DOE-sourced uranium. 
However, DOE notes that the commenters appear to contemplate that DOE 
would receive in such an arrangement substantially less than the 
prevailing spot market price for the uranium. If, on the other hand, 
the commenters expect to pay prevailing spot market prices, DOE 
believes they could in principle already undertake to manage how the 
material enters the markets. DOE transfers uranium to commercial 
businesses; and one of them, DOE believes, sells its uranium to Traxys, 
a uranium trading firm. A person that wanted to buy uranium from DOE to 
transfer it from the spot market to the term market could buy the 
equivalent amount of material from Traxys instead.
    For these reasons, while DOE is willing to explore whether it would 
be feasible for some persons, such as uranium concentrate producers, to 
manage the appearance of DOE-sourced uranium on the markets, DOE does 
not consider it appropriate to incorporate this suggestion in today's 
determination.
    Commenters also suggested a variety of other actions that could 
help to mitigate the impact of DOE transfers. Several suggested that 
DOE consider a matched sales arrangement similar to the arrangement 
used during an earlier iteration of the Suspension Agreement with 
Russia. Under that program, Russian-origin natural uranium 
(U3O8 or UF6) or SWU could only be 
imported into the U.S. if it was ``matched'' to an equal portion of 
newly-produced U.S. origin natural uranium or SWU and the two 
quantities were sold together as a unit. See generally 59 FR 15,373 
(Apr. 1, 1994). Commenters suggest that an arrangement of this type for 
DOE-sourced uranium would incentivize new production capacity that is 
not already committed to long-term contracts. DOE acknowledges that a 
matching program could benefit domestic producers, but it is concerned 
that it would not serve the purposes for which DOE transfers uranium. 
In general, domestic producers already participate in domestic and 
global spot markets for uranium. A new sale that would not have 
occurred absent the matching program will tend to be from production 
that would not have been economic at current prices. The effect of a 
matching program would be to secure a viable, somewhat above-market 
price for the new sale. Because buyers will presumably be unwilling to 
pay more than the relevant market prices overall, the DOE-sourced 
uranium would have to be transferred at a lower price to compensate. 
The net effect would be for DOE to receive less value for its uranium 
in exchange for an additional monetary benefit to producers. For these 
reasons, DOE declines to incorporate a matched sales approach into 
today's determination.
    One commenter suggested several alternatives to DOE's exchanging 
LEU for down-blending services. First, the commenter suggested that DOE 
down-blend only to an assay of 19.75 wt-% U-235, an assay that 
commercial enrichers do not provide and therefore will not compete with 
commercial supply. However, because there is very little demand for LEU 
at this assay--which is predominantly used in research reactors--the 
resulting LEU would have little value to a contractor receiving it in 
exchange for services. Granted, the contractor could down-blend the LEU 
further to assays of 5 wt-% or below; but that outcome would affect 
markets the same as if DOE itself transferred the low-assay LEU. 
Further, DOE allocates the portion of the down-blended LEU that is not 
transferred to the down-blending contractor to various programmatic 
needs, many of which require LEU with an assay of 5 wt-% or below. The 
commenter also suggests that DOE devote the LEU resulting from down-
blending to either the U.S. nuclear fuel bank, the American Assured 
Fuel Supply, or to the IAEA's nuclear fuel bank. Both proposals amount 
to a request that DOE cease exchanging LEU for down-blending services 
altogether. The second proposal suggests that the difference in funding 
could be made up by decreasing U.S. financial contributions to the IAEA 
by an amount equivalent to the value of the LEU. The Agency currently 
plans to purchase LEU from the market to stock its fuel bank. If the 
United States provided LEU, the IAEA would need to purchase less LEU 
from the market. Thus, it appears that this type of transaction would 
not decrease the impacts on the domestic enrichment industry because it 
would displace purchases of LEU on the open market that the IAEA would 
have otherwise made. In any case, DOE believes that it can meet its 
purpose of exchanging 4.95 wt-% LEU for down-blending services without 
causing an adverse material impact on the domestic uranium industries; 
thus, DOE declines to incorporate these alternatives into today's 
determination.
    One commenter suggested that DOE should consider as a mitigating 
strategy implementing regulations that limit the amount of secondary 
supply obtained from underfeeding that enrichers can sell in the United 
States. Doing so would mean protecting producers from competition with 
underfeeding by enrichers, at enrichers' expense. DOE is not inclined 
to engage in such capacity controls.
    With respect to the domestic conversion industry, one commenter 
suggested stopping transfers of conversion services would have a 
positive effect. DOE does not transfer conversion services; it 
transfers natural uranium hexafluoride. This displaces primary 
conversion because in order to obtain natural uranium hexafluoride from 
primary production, one would need to buy uranium concentrates and then 
pay for that material to be converted into uranium hexafluoride. The 
commenter is presumably suggesting that DOE should accept in exchange 
for its uranium an amount of services equivalent to the value of the 
uranium concentrates and ``credits'' for the amount of conversion 
services necessary to produce the material from primary production. 
These ``credits'' would be in the form of a tradeable contract for 
conversion services from a primary supplier. This process would mean 
that DOE would receive less services in exchange for its uranium while 
making the individual transfers substantially more complicated. DOE 
further notes that this would decrease the impacts on the domestic 
conversion industry, but it would have no effect on the impacts to the 
domestic uranium mining or enrichment industries. For these reasons, 
DOE declines to engage in this type of transaction.
    One commenter also suggested that DOE could establish price bands 
below which DOE would not transfer uranium. The commenter presented 
this proposal specifically for conversion services. Thus, this would 
require DOE to accept conversion ``credits'' as described in the 
preceding paragraph if the conversion price fell below a given 
threshold. However, DOE recognizes that this approach could in 
principle apply to any uranium transfers. As DOE has concluded that its 
transfers will not have an adverse material impact on the domestic 
uranium industries in market conditions that are expected to occur,

[[Page 26419]]

DOE declines to establish price thresholds below which DOE will 
transfer less uranium. However, DOE expects to reassess its transfers 
at least every two years, consistent with the statutory limit on the 
validity of section 3112(d)(2) determinations. Such reassessments are, 
among other things, an opportunity to ensure that DOE evaluates its 
transfers in light of changing market conditions.
    In addition to comments regarding potential ways to mitigate any 
impacts caused by DOE transfers, DOE received a number of comments that 
are related to DOE's current plans, but do not directly implicate how 
DOE conducts its analysis of whether DOE transfers will cause adverse 
material impacts.
    One commenter suggested that DOE should prepare two separate 
Secretarial Determinations--one for Portsmouth cleanup, and one for 
down-blending services. DOE agrees that it could conceivably prepare 
separate determinations for these two programs. However, DOE believes 
it is more informative to analyze these transfers together, to assess 
their cumulative impacts on the domestic uranium industries. Thus, DOE 
declines to adopt separate determinations for these programs at this 
time. This commenter also suggests that DOE could potentially conduct 
transfers for down-blending under section 3112(e)(2) of the USEC 
Privatization Act, which allows certain transfers for national security 
purposes. DOE recognizes that certain programs may potentially fall 
under more than one subsection of the Act. DOE believes it is 
unnecessary to determine whether these transfers could be conducted 
under section 3112(e)(2) because DOE has concluded that these transfers 
will not have an adverse material impact on the domestic uranium 
industries.
    Several commenters suggested that DOE is not getting fair market 
value for its uranium--as section 3112(d)(2)(C) of the USEC 
Privatization Act requires--because DOE values the material at the spot 
price rather than the term price. This assessment does not analyze 
whether DOE will receive fair market value for its transfers. DOE 
evaluates whether it receives fair market value prior to each transfer 
through a separate process. With respect to this analysis, DOE has 
assumed that in its uranium transfers it will receive roughly the 
prevailing spot price for its material. That assumption is reasonable 
because it is consistent with DOE's past experience and with the 
contracts under which DOE transfers uranium.
    DOE received a number of comments requesting that it publish a 
draft Secretarial Determination for notice and comment. DOE notes that 
notice and comment is not required for determinations pursuant to 
section 3112(d)(2). However, DOE has solicited public comment on two 
occasions in preparation for this determination, through a December 
2014 Request for Information and a March 2015 Notice of Issues for 
Public Comment. DOE received substantial input, described above, in 
response to those two notices, and it has carefully considered these 
comments.\128\
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    \128\ One commenter suggested that DOE subject each Secretarial 
Determination to an analysis under the National Environmental Policy 
Act. DOE notes that the actual uranium transfers--as opposed to the 
Secretarial Determination--are already covered under other NEPA 
processes. Thus, it is unnecessary to conduct further NEPA analysis 
for today's determination.
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VI. Conclusion

    For the reasons discussed above, DOE concludes that transfers under 
the assessed case will not have an adverse material impact on the 
domestic uranium mining, conversion, or enrichment industries, taking 
into account the Russian HEU Agreement and Suspension Agreement.

[FR Doc. 2015-11035 Filed 5-6-15; 8:45 am]
 BILLING CODE 6450-01-P
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