Foreign Relations of the United States, 1969–1976, Volume E–14, Part 2, Documents on Arms Control and Nonproliferation, 1973–1976

106. Report Prepared by an Ad Hoc Interagency Study Group¹

Washington, undated.

REPORT OF THE NSSM 209 STUDY GROUP² U.S. POLICY ON ENRICHED URANIUM

The President has directed that a reexamination be made of issues associated with a shift to private ownership of future U.S. uranium enrichment capacity. Present capacity resides in three government plants. Their capacity is fully committed under contract and they are anticipated to continue to be owned and operated by the government for the foreseeable future. The request for a restudy of issues on the approach to capacity expansion is incorporated in a letter of September 5, 1974, from Secretary Kissinger to heads of selected agencies (Appendix A), outlining the desired scope of this NSSM 209.

I. BACKGROUND

The supply of uranium enrichment services to meet future needs for nuclear fuel, domestic and foreign, requires a major and continuing expansion of U.S. capacity. The planned government capacity of 27 million units per year and associated preproduction stocks will permit meeting all defined U.S. needs and that portion of foreign needs contracting with the U.S. for nuclear power plants initially requiring services through the early 1980s. Projections indicate that thereafter new increments of enrichment capacity averaging about 6 million units per year each will be required to come into operation in the U.S. each year through about the end of the century. Financial, manpower, or other possible resource constraints do not appear to present barriers to the availability of these levels of enrichment capacity.

The thrust of present policy is to look to the private sector to assume responsibility for expansion of U.S. enrichment capacity. This policy is based primarily upon domestic considerations, including avoidance of net government expenditures of $7–9 billion through 1985 which further construction of Government capacity would involve. It also recognizes that the provision of new production plant capacity, in other areas of the U.S. economy, is normally a private sector responsibility; there are many functions which only the government can perform, but uranium enrichment is not one of them.

The present policy is targeted at achieving substantial financial commitments by U.S. firms to new capacity over the coming year. A number of firms are contemplating such commitments. Achievement of private entry under the present government strategy is believed possible and, according to the AEC, likely, although by no means assured.

A complex four-way negotiation is in process between the U.S. Government, industry, financing sources, and electrical utility customers to establish the risks and responsibilities to be assumed by each party in connection with the first private plants. At the same time, the planned capacity of the existing government plants is fully committed under contract. Accordingly, there is uncertainty on the part of potential foreign and domestic customers as to the character and timing of expansion of U.S. capacity, the terms and conditions under which future U.S. enriching services will be offered, and by whom. This is particularly so since the U.S. has ceased long-term contracting for the supply of enrichment services, pending decisions by potential private suppliers. In the interim, foreign customers have received Presidential assurances that the U.S. will meet future foreign contractual needs. Foreign customers, however, would clearly prefer the ability to contract as compared to receiving assurances that future U.S. capacity will be available for them.

The current “contracting gap” in the U.S. is contributing to substantial international strains. Foreign customers are increasingly motivated by the existence of delay and uncertainty in the U.S. to seek supply elsewhere, to initiate or expand their own R&D and construction programs, to enter into enrichment supply alliances or to take other actions which could be detrimental to U.S. foreign policy and economic interests. In addition to affecting political relations generally, U.S. enrichment services contribute to our energy cooperation, nonproliferation, and balance of payments objectives. Hence, it is in the strong international and economic policy interest of the U.S. to achieve an early commitment to increase capacity in the U.S.

If the U.S. were to go on for a protracted period, implying uncertainty as to its interest or ability to pursue the foreign market, economic advantages in the form of enrichment and, possibly, nuclear reactors sales might well be lost, along with any associated international political benefits. Any losses would be difficult to regain even with a more aggressive market stance later.

U.S. enrichment policy has played and will continue to play an important role in our efforts to limit the further spread of nuclear weapons. Our position as a commercially attractive supplier of enrichment services has given us leverage to obtain appropriate safeguards and nonproliferation guarantees on our exports and to make dependence on us for periodic refueling of nuclear power plants a factor that helps enforce such undertakings. Foreign commitments to U.S. fuel supply enable us to impose safeguards and controls over foreign nuclear programs even if the reactors are not of American origin, through the required Agreement for Cooperation.

The United States is engrossed in establishing strong links among major energy consuming nations to reduce their dependency on imported oil. Part of the consumer nation strategy is to establish nuclear power as an alternative to oil and the U.S. has offered to assist in the construction of multilateral enrichment facilities to provide the fuel for nuclear power plants abroad. Maintaining our position as a leader in the enrichment field will be an important factor in enlisting the support of other nations on energy cooperation programs, in the International Energy Agency and other forums.

Somewhat over three years ago the AEC initiated steps to give industry access to the classified aspects of the gaseous diffusion (used in the existing government plants) and centrifuge (developmental) technologies.

One of the participating groups, Uranium Enrichment Associates (UEA), presently headed by the Bechtel Corporation with other participants not yet identified, is prepared to make the earliest commitment to construction of large scale private capacity. UEA had announced that it was prepared and expected to be able to reach a decision before the end of this calendar year on proceeding to construct a new 9 million unit gaseous diffusion plant at a projected cost of nearly 3 billion dollars in 1974 dollars. This plant would be operating in the early to mid-1980s.

UEA is now negotiating contract details with customers. These include arrangements involving foreign equity participation in the UEA plant (but do not include foreign access to classified U.S. technology). In addition to Japan, these include discussions in process with Iran and Germany. The remaining problems in the ongoing negotiations center around the reluctance of many domestic utilities to accept proposed contract terms and conditions suggested by UEA and the hesitancy of foreign customers to act in advance of U.S. domestic utilities to commit themselves to contracts with UEA.

While UEA has selected a near-term commitment to diffusion as its approach, other companies in the program have indicated a preference to pursue centrifuge technology. Because of the status of the centrifuge technology, firm commitments to large plants are not likely to be made until several years from now. However, the companies involved have indicated the feasibility of committing to the construction of small Demonstration Centrifuge Enrichment Facilities (DCEF’s) within the coming year. This is being pursued under a government program involving government financial assistance to joint industry-utility customer projects through government subsidization of the cost of the enriching services during the demonstration phase of the project.

Additional government assistance has been offered to all potential private entrants primarily involving (1) availability of government stocks of enriched uranium to back-stop the early years of operation of private plants and (2) availability of government expertise to help assure reliability of plant performance.

However, industry still faces substantial risks and uncertainties in contemplating private entry because of the large financial investments required, the limited time available for transfer of the classified technology from government to industry, uncertainty as to government actions with respect to licensing, including possible economic regulation, and because most of the interested companies prefer a newer enrichment technology (centrifuge) still under development and therefore having higher associated technological risks.

Thus, from the domestic standpoint, there has also been a recognition that, if the attempt to achieve an adequate private entry were to fail, it would be necessary for the government to assume the responsibility of providing additional enrichment capacity. This view is taken because of the benefits perceived nationally for a shift to nuclear power—economic, environmental, and national security (reduces dependencies on foreign energy resources).

Accordingly, in testimony before the Joint Committee on Atomic Energy, on August 6, 1974, Chairman Dixy Lee Ray of the AEC stated:

“The choice, however, is not between private supply or lack of it . . .”

“Private plans exist which can, over the course of the coming year, lead to commitments to new enrichment capacity. Government planning can be reviewed at the end of the period should private actions not match expectations . . .”

Based on planning statements of the Department of Defense, a portion of the continuing capacity of the existing three government enrichment plants has been allocated to meet future national security needs. Needs not presently foreseen can be met by reprogramming government-owned resources (materials and facilities) or from new capacity (including purchase from new private capacity) if adequate advance notice of such need is given. Under emergency conditions, the diversion of enriched uranium from civilian uses to meet critical national security needs would be a government option under all policy alternatives considered in this study. The retention of present government capacity within the government for the forseeable future and the maintenance of a contingency reserve of highly enriched uranium could enable the government to respond flexibly to changing national security requirements.

II. ALTERNATIVE APPROACHES TO ENRICHMENT CAPACITY EXPANSION

The fundamental issue in determining U.S. policy to ensure adequate enrichment capacity for both domestic and foreign needs concerns the mode of ownership of enrichment facilities that will have to be constructed in the future. Specific decisions to be made at this juncture are related to three basic policy alternatives which could be followed in seeking to provide future enrichment capacity:

a. Persevere in actively seeking the construction of the fourth and subsequent plants by private industry.

b. Defer private entry for the next two enrichment plants (one diffusion, followed by a smaller centrifuge plant) but seek to accomplish this goal for subsequent plants.

c. Abandon the objective of private entry into the enrichment business in favor of all future capacity being provided by the government.

As will be discussed below, differing organizational arrangements could be implemented to carry forward each of these policy approaches. The choice of organizational arrangement may depend, to a certain extent, on the approach adopted for providing future enrichment capacity; to a lesser degree, available organizational options could influence decisions regarding the preferred policy approach. In any event the decision on the current approach should reflect a view both on the strategy to achieve capacity expansion and the associated government organization to carry out the government’s responsibilities under the strategy.

The decision to select one of these courses of action should be made now. This will allow a sufficient period for modifying or reaffirming present policy in order to assure that the decision to construct the next increment of capacity will be taken in time to meet demand and to set in motion contingency plans and longer-range programs which would serve domestic and foreign policy purposes.

Alternative A is predicated on the view that private entry remains a desirable and viable objective and that this goal can and should be pursued through June 1975, at which time, if not achieved, another approach will be required.

Alternative B does not challenge the desirability of private entry as such but is based on the premise that the likelihood of success in achieving private entry for the next two increments of capacity is low and that further delay in taking positive actions to assure new near-term capacity would be unwise.

Alternative C is based on the premise that private enrichment is basically less desirable than continuing government responsibility and should not be sought in either the near-term or the long-term.

Alternative A. Persevere in Seeking Private Entry

This approach entails the continuance of present programs designed to accomplish the objective of all new enrichment capacity being provided by the private sector. As such, it may require the consideration of further government action—initially by ERDA and possibly later by a successor entity—in order to accomplish this goal, above and beyond the technology transfer and financial assistance programs already in existence. However, it is clear that this approach could not be followed indefinitely without substantial near-term progress since the mutual goals of international credibility and assurance of supply would be compromised. As a result, this approach can only be pursued for a defined period of time (until June 30, 1975) while recognizing the possible need for implementing a contingency plan, such as Alternative B, for ERDA to construct the fourth and fifth plants if private entry fails to materialize in time.

Additional AEC assistance might be required to bring private centrifuge plants into being, given the risks associated with exploiting such a new technology. There is, however, an immediate need to facilitate a positive industrial decision on a fourth gaseous diffusion plant. This has led to plans to formulate an expanded program of assistance in support of the UEA activity. Two sets of additional supportive actions are being considered in an attempt to remove the remaining obstacles to a final UEA commitment which stem primarily from the reluctance of many domestic utilities to accept proposed contract terms and conditions suggested by UEA and the hesitancy of foreign customers to act in advance of U.S. domestic utilities to commit themselves to contracts with UEA.

The first AEC action plan has been to identify a “closure package” which would not require legislative action in order to enable UEA to make a commitment. The elements of such a package might include such measures as U.S. Government contracting commitments to purchase UEA services in order to trigger similar decisions by U.S. and foreign customers, and a Presidential level statement to provide assurance that the U.S. Government would take those steps necessary to insure completion and operation of the plant should difficulties arise prior to initial plant operation. This package could potentially be defined by the end of February, 1975. Thus, before June of next year, it would be known whether closure could be reached with utility customers on the basis of these or similar actions enabling UEA to make a formal commitment to proceed.

A second AEC action plan, being pursued in parallel, which could be applied if the first approach was not sufficient to facilitate positive UEA customer action, would involve defining an even more powerful closure package requiring legislative authority. This package might include such measures as a loan guarantee to UEA making the government responsible for the debt in the event the project failed, or alternatively, an agreement by the U.S. Government to take over and complete the private enrichment facility (along with its supporting enrichment customer contracts) in the event of private failure to achieve successful completion. This would assure utilities that their contractual needs would actually be met in the 1980s. This approach would require identification of the elements of the package and agreement among the Executive, UEA and utility customers as to their adequacy by June 30, 1975. In addition there should be assurance, through consultation, of favorable congressional reaction to avoid risk of delay or failure to achieve passage of legislation by September.

Alternative B. Defer Private Entry

Under this approach, legislative authority would be sought for ERDA to construct the fourth full-scale diffusion plant and a smaller centrifuge facility. Existing programs designed to encourage and facilitate the subsequent entry of the private sector into the enrichment industry would be maintained. Further efforts may have to be considered by the government in order to ultimately achieve the objective of private construction of future plants. Alternative C (below) would become the backup approach in the event private entry is not ultimately achieved.

Given demand projections and the lead times involved, the latest possible date for an Agency decision to request authorization in connection with FY 1977 budget actions to construct new capacity is estimated to be September 1, 1975. The AEC has continued design studies and other contingency planning actions so that the government option could be exercised in this time frame if desired and to permit Government contracting to be resumed once a decision to build has been made.

Alternative C. Abandon Private Entry Objective

A decision could be made to abandon the goal of private entry and maintain within the government the responsibility for providing all necessary U.S. enrichment capacity. There would continue to be a need to establish a private centrifuge manufacturing capability but all other programs presently designed to aid the transfer of enrichment technology and expertise to the private sector would be terminated.

Selection of this alternative would require a deliberate decision to be made in early 1975 to seek authority for ERDA to construct the fourth enrichment plant to meet immediate contracting needs with the expectation that this would be followed subsequently by construction of a large-scale government centrifuge facility. The plants would ultimately be constructed either by ERDA or a successor public sector organizational alternative given the task of providing long-term capacity and managing U.S. enrichment activities.

Government Organization Options

Any future strategy for meeting U.S. enrichment policy objectives which involves the government as a source of enrichment services, as an entity to assist the entry of private enterprise into the field or to construct new capacity must consider a number of alternative means to provide for the government’s role. These have been identified in this study as:

1. Continuation of the present government agency (AEC/ERDA) operation.

2. Separation of the enrichment development, management, industry assistance, and operations function from ERDA’s other activities by establishment of a Uranium Enrichment Directorate within the agency; the directorate could assume responsibility for any range of government enrichment objectives desired, as discussed below.

3. Creation of a new government corporation to take over responsibilities for operation of existing plants and the development of gaseous diffusion and centrifuge technology, with the objective of accelerating transfer of government control of enrichment to the private sector and sale of the existing plants to industry (the United States Enrichment Corporation [USEC] concept proposed by Congressman Hosmer).

4. Design of another type of government corporation, more policy-responsive than USEC, either for the same objectives of the Hosmer corporation or for the purpose of expanding government enrichment capacity or for any intermediate objectives that might be desired.

The working group has agreed unanimously that continuation of the present AEC/ERDA mode of organization for uranium enrichment activities should not be considered as a useful alternative in the light of the ERDA directorate alternative which is viewed as superior. It also takes the unanimous position that the USEC concept, at least in the form proposed by Congressman Hosmer, does not adequately provide for the carrying out of the government’s policy objectives and should not be considered as an alternative.³ Therefore only alternatives (2) and (4) are described further in detail.

Directorate. A Uranium Enrichment directorate within AEC was proposed to be administratively implemented several years ago but was subsequently abandoned because of strongly adverse congressional reaction to the potential use of the directorate as a vehicle for transferring ownership of the AEC’s existing enrichment plants from the public to the private sector.

The primary reason for establishment of a directorate would be to give it a cohesive managerial approach, operational flexibility and business-like efficiency, while at the same time retaining its responsiveness to government domestic and foreign policies.

The directorate as now visualized would (unlike the Hosmer corporation) retain ownership of the existing plants by the government. It would be staffed by ERDA employees and headed by an official who reports directly to the Administrator of ERDA. The directorate would continue to carry out all activities associated with the present AEC (and future ERDA) enrichment functions, including research and development, operation of existing plants, and sale of enrichment services to the private sector and to foreign customers. One of its principal objectives could be to facilitate private entry into the enrichment field by continuing to provide technical and financial assistance to prospective entrants. It would be neither authorized to nor be excluded from construction of new enrichment capacity. Financing of the operation of the directorate would include the use of a revolving fund for revenues and appropriations which would provide the source of funds for operation, construction and assistance activities. If costs exceeded revenues, appropriations would be obtained from the Federal Government through the conventional budget process.

The creation of a directorate appears to be necessary regardless of whether encouragement, deferral, or abandonment of private entry is selected from among the options previously outlined. However, the directorate could be considered either as the permanent form of government organization or as an intermediate organization leading to the creation of a new government corporation (alternative 4) as the permanent entity.

Corporation. An alternative approach for obtaining business-like, efficient government operation of the enrichment function in a context of policy responsiveness is the design and creation of a new policy responsive government corporation. It would differ from the directorate primarily in its method of financing, in that it would seek capital by selling bonds to the Treasury or to the private sector, by permitting equity investment, or by a mixture of these. Two possible alternatives for a corporation structure are a wholly owned government corporation or a mixed government/private corporation. Wholly owned corporations are better understood, but, in principle, either form could be designed to incorporate desirable features such as self-financing, business-like operations, policy responsiveness, and attracting foreign participants. The details of such a corporation could not be delineated during the course of this study. Therefore, if this organizational mode is believed to be a viable alternative to the directorate for the future, a more extensive effort would need to be made to define its structure.

In comparing the directorate approach with that of a corporation, emphasis is placed on the fact that the creation of a directorate could proceed at once—that is, as soon as a determination were made that it would be needed to meet the government’s varied objectives. The corporation, on the other hand, could not be created without the passage of legislation, in itself a time-consuming event. Furthermore, as noted above, the drafting of legislation would require considerable thought and time. The earliest opportunity to present legislation would be about June, 1975. Passage of legislation, with the attendant risk that Congress would modify it contrary to the wishes of the administration, would require an additional indeterminate period of time.

It would be possible in early CY 1975 to select a government corporation as the vehicle to eventually implement whichever policy approach is chosen. The ERDA directorate, as noted, could then perform necessary government functions in the near-term until these activities could be transferred to a corporation.

Resumption of government contracting for enrichment services by the Government could begin after obtaining mandatory congressional review (no legislation is required) if it is determined that either the directorate or a corporation is to form the long-term medium for provision of enrichment services domestically and abroad through continued contracting and construction of new capacity.

Organizational Issues. In comparing alternative government organizational options, the following set of key issues have been identified which are of significance in assessing the relative ability of each option to implement a particular policy approach. Each issue is explained and discussed briefly below.

1. Policy responsiveness. Whatever policy approach is chosen, there is agreement that the government enrichment entity should operate in a business-like manner but that it should also be responsive to national policies, particularly in the fields of general energy, international affairs and national security. The ERDA directorate should be adequately responsive. While the Hosmer corporation is deficient in this regard, a policy responsive corporation would, by definition, be designed to be responsive. However, there could be problems in reaching agreement within the Executive and with the Congress as to the most appropriate mechanisms to achieve this.

2. Source of Financing. The directorate concept includes a revolving fund, with excesses of revenues compared to costs returned to the Treasury and annual deficits (expected in the first 5 years even without new capacity expansion) met through new appropriations. Although a formal revolving fund would require legislative authorization, a de facto revolving fund could be established administratively pending passage of such legislation. This would be an improvement over the present situation under which enrichment revenues are credited not against enrichment costs but against total agency appropriations. Net funding needs by the directorate would be requested through the congressional appropriations process and be treated as direct Federal outlays impacting on the budget. All government corporation concepts involve authority for the corporation to borrow funds from the private money market or, alternatively, to borrow from the Treasury. Regardless of the source of funds, the net outlays of the corporation would be included in Federal fiscal totals while, at the same time, these expenditures would be made without being subject to normal Presidential and congressional fiscal controls associated with the annual appropriations process. The resulting fiscal independence enhances the capability of the corporation to carry out its programs, but can complicate the problem of insuring the policy responsiveness which is otherwise desired, as noted earlier.

3. Related ERDA Activities. It does not appear feasible to completely separate from ERDA all of the activities related to or impinging upon enrichment. Some key related matters include classification and materials control policies, activities relating to natural uranium availability, enriched uranium transactions with DOD, and other international energy cooperation activities. The ERDA directorate permits issues in these areas to be addressed by a single Agency head. All corporation concepts would generate a new set of problems by introducing an additional entity into interagency decisions on U.S. enrichment policy matters.

4. Timely Assurance. Actions involving the creation of a new entity might introduce a lengthy period of uncertainty and delay pending final passage of the needed legislation. Problems associated with lame-duck leadership might arise in the interim, depending upon how different the new concept is in its top policy making structure from that previously in existence. There is also a risk that the final product might differ in some significant respect, because of congressional action, from the original Executive conception. These difficulties may be particularly acute for the establishment of a corporation. The directorate could be emplaced by the ERDA administrator without legislation. However, it might be desirable to have it subsequently validated by a legislative action. It should be noted that the internal Agency aspects of the associated revolving fund could also be put into force immediately by administrative action on the part of the ERDA administrator although legislative authority would be required to bring it fully into effect.

5. Existing Plants. A special problem exists in the Hosmer corporation legislation in that it contemplates the disposition of the existing government plants to private industry. This study finds that such action is presently undesirable and would not contemplate such authority or action either by the directorate or the policy responsive corporation—both of which would assume responsibility for the existing plants.

6. Operability. There is a question as to whether any new entity would be structurally able to fulfill its intended mission effectively. Major congressional legislative action might produce compromises which would impair the structure of the resulting organization. Alternatively, the original concept might ultimately prove defective and require revision (assuming that the action was in fact reversible) which, if further legislation were required, might prove difficult. The directorate concept appears somewhat more flexible in this regard than do other approaches.

III. CRITERIA FOR ENRICHMENT POLICY DECISIONS

In assessing the relative benefits and disadvantages of alternative courses of action to meet future enriched uranium needs, both domestic and foreign considerations must be taken into account. Presented below are criteria which can be used to evaluate the relative responsiveness of alternative approaches to these two sets of considerations.

A. DOMESTIC CRITERIA

1. Assurance of adequate enriched uranium to meet projected fuel needs for the U.S. nuclear power program. Assured and timely construction of new increments of enrichment capacity is required to support the projected growth of nuclear power in the U.S. through the balance of this century. The projected growth rate must be maintained if nuclear power is to make its essential contribution to achieving national energy objectives. An early commitment to the first increment of new U.S. enrichment capacity using diffusion technology would help to establish the needed climate of confidence among domestic utilities that fuel will be available to meet the requirements of their reactor programs. But it is at least equally important that the question of long-term supply be satisfactorily resolved.

2. Organization of uranium enrichment processing on a competitive industrial basis. The physical processing of natural uranium into enriched uranium for use in nuclear power reactors is a highly capital-intensive activity utilizing sophisticated technology. The process is essentially industrial in nature. It is, therefore, appropriate to organize this process on an industrial basis in order to secure the benefits of flexible management, receptivity to innovation, and responsiveness to the market. The introduction of contrifuge technology will permit enrichment plants to operate economically on a smaller scale than is possible with the diffusion process. This technology could permit a number of independent enrichment enterprises to come into being and to compete with one another. Transfer of uranium enrichment to the private sector would place the responsibility for determining the rate of expansion of enrichment capacity on free capital markets, where the requirements of the enrichment sector would be weighed along with competing demands for capital originating elsewhere in the economy.

3. Minimization of the expenditure of Federal funds over both the short and long-term. The projected growth needs of the domestic market for enrichment services together with presently projected levels of U.S. foreign sales will require the addition of domestic increments of enriching capacity about every 18 months until the end of the century. If these increments of capacity are built by the U.S. private sector, the private sector will provide financing during the extended period of negative cash flow associated with each new plant. If, on the other hand, the U.S. Government were to retain continuing responsibility for providing enrichment capacity, AEC estimates that cumulative government expenditures through 1985, taking into account offsetting revenue from the existing plants, would be $7–9 billion. Over the long-term (i.e., the 1990s), since government would operate the business, at minimum, on a cost recovery basis, it would break even or generate a surplus.

4. Maximization of balance of payments earnings through foreign financial participation in U.S. enrichment plants and U.S. sales abroad of enrichment services. It is estimated that the U.S. could capture approximately half of the foreign enrichment market over the coming decade, eventually yielding annual balance of payments credits of almost 800 million dollars by 1985. But this projection would prove to be extremely optimistic unless the U.S. moves ahead soon with the construction of additional capacity and regains credibility as an international supplier of enriched uranium services under terms competitive with foreign sources. The availability of U.S. uranium enrichment services for the life of a power plant under favorable terms contributes to the sale of U.S. light-water reactors abroad, and can thus indirectly serve to increase revenues from that source. It should be borne in mind that opportunities for foreign investment in U.S. enrichment plants can provide revenues and reduce capital outlays needed to construct new capacity. Similarly, multilateral enrichment plants built abroad with U.S. technology may assist in securing economic benefits for the U.S.

B. FOREIGN POLICY CRITERIA

1. Restoration of confidence in the U.S. as a reliable supplier of enriched uranium services through a prompt decision to construct the next increment of enrichment capacity and a credible program designed to assure long-term supply for foreign as well as domestic users. An early commitment to construct a fourth U.S. enrichment plant would have considerable benefit in restoring confidence in the U.S. as a reliable and credible source of supply. The present “contracting gap” is expected to continue to have deleterious foreign policy consequences abroad if permitted to persist even until the middle of next year. The ability of the U.S. to restore foreign confidence and thereby capture a reasonable share of the future world enrichment market will depend upon the development of a means to assure longer-term supply that meets the need for a succession of clear commitments to build subsequent plants; decisions on which technology is to be chosen; and the proper phasing of new capacity to efficiently satisfy future domestic and foreign demands. In designing a U.S. policy for assuring long-term enrichment supplies, the crucial aspect from a foreign policy standpoint is not our own confidence in the success of any selected program but rather the perception of such a program by foreign suppliers and consumers.

2. Assurance of competitive price and contract terms for enrichment services provided on a nondiscriminatory basis as between foreign and domestic users and among foreign clients. For foreign as well as domestic consumers, reliability of future enriched uranium supply seems to be more of an issue than price and contract terms. The price of U.S. enrichment services is likely to remain roughly competitive with that charged by other suppliers under any of the available alternatives for developing new U.S. capacity. Foreign policy objectives would be advanced with flexibility to support special diplomatic needs, for example, by offering shorter-term contracts and priority allocations. As a general rule, assurance of nondiscriminatory treatment as between domestic and foreign customers is a particularly crucial concern for foreign policy interests. In this respect, there could be differences associated with particular ownership alternatives, both in their ability to assure equitable contract terms for all customers and in the willingness to supply services in cases where special risks may be perceived for certain non-U.S. customers.

3. Facilitation of cooperation with foreign nations in planning and executing worldwide enrichment programs, including construction of multilateral plants abroad as well as foreign participation in U.S.-based enrichment plants. The U.S. has a clear interest and standing commitments to consult and cooperate in the energy field, and has put forth specific proposals in the IEA for coordinating enrichment planning. Early resolution of U.S. intentions in building the next increment of enrichment capacity would facilitate foreign participation in U.S.-based plants, and is also a prerequisite for effective pursuit of broader U.S. multilateral proposals. The ability of the U.S. to propose and respond effectively to initiatives leading to the establishment of multinational enrichment facilities, possibly involving OPEC as well as OECD nations, will require a clear U.S. national program for assuring a long-term supply of enriched uranium and a coordinated policy for international cooperation in this field.

4. Responsiveness to national security policy in achieving effective safeguards and export control mechanisms in the enrichment field as well as the ability to offer preferential treatment to NPT parties in enrichment services. It is highly desirable for the U.S. to capture a substantial share of the foreign enrichment market in order to ensure that effective safeguards, physical security, and export controls are applied as foreign nuclear power programs increase dramatically over the next decade. Long-term assurances of supply can offer continuing leverage in the enforcement of safeguards and place the U.S. in a position of strength in negotiating common export control measures with other key suppliers. Foreign participation in U.S.-based plants and the construction of multinational enrichment plants abroad with U.S. cooperation can support our nonproliferation objectives by limiting independent programs and offering a means of establishing effective safeguards on nuclear fuel and associated facilities. The requirement to insure appropriate international safeguards on transfers of U.S.-enriched uranium abroad will remain equally applicable under any mode of ownership, but the formulation of new U.S. nonproliferation policies affecting uranium enrichment can only be undertaken by close consultation among governments. In choosing among alternatives for future U.S. capacity, the ability to offer preferential treatment for NPT parties in enrichment services or related activities could be an important consideration.

IV. EVALUATION OF POLICY APPROACHES

ALTERNATIVE A: PERSEVERE IN SEEKING PRIVATE ENTRY

Pros

1. Current policy would, if successful, best place enrichment activities on a commercial and competitive basis in the private sector. (directorate has advantage of rapid establishment; corporation has advantage of more secure ability to fund industry support programs).

2. Avoid Federal Budget impact of $7–9 billion through 1985. (ERDA directorate acquires funds from appropriations and internal revolving fund; corporation acquires funds from private money market and Treasury. Accordingly, corporation impact on government cash-flow less severe.)

3. Positive UEA decision within six months would help restore domestic and foreign confidence at least in near-term and make private entry policy more credible.

4. Once established, a private U.S. enrichment industry will actively seek foreign customers and investors, thus aiding the goal of capturing a substantial share of the foreign market.

5. Within government policy guidelines, private industry will, as corporate interests dictate, engage in technology transfer and multilateral plant activities with foreign organizations.

6. Given continuing legal and policy restrictions, private enrichment efforts would not substantially increase nuclear proliferation risks or subvert safeguards systems.

Cons

1. Six month delay in final UEA decision would continue damaging effect on U.S. foreign policy interests, with no guarantee that private entry will occur.

2. Unclear whether a “closure package” of enhanced U.S. Government support can be developed which will be acceptable to Executive (including possible assumption of guarantee obligations and other long-term implications for subsequent private projects) and to Congress if legislation is required.

3. Favorable UEA diffusion plant decision still leaves residual uncertainty over industry ability to provide longer-term capacity anticipated to employ centrifuge technology.

4. Leaving to private industry decisions on the expansion of enrichment capacity places constraints on the ability of the U.S. Government to coordinate energy cooperation activities with foreign nations including both orderly expansion of and multinational participation in enrichment facilities.

5. New U.S. policy initiatives in strengthening safeguards through multilateral, government-to-government, consultations with other key suppliers can be complicated by major private industry involvement in enrichment business.

ALTERNATIVE B: DEFER PRIVATE ENTRY

Pros

1. Early resolution of uncertainty over availability of next two plants through U.S. Government action with resumption of contracting will satisfy domestic near-term utility needs and substantially restore foreign confidence in U.S. as reliable supplier.

2. Maintains ultimate goal of private entry and, if successful, can obtain long-term benefits of a private enrichment industry and reduces Federal outlays for enrichment.

3. Private entry for subsequent plants could be facilitated by permitting industry to defer critical decisions until time of less technological and economic uncertainty.

4. Addition of new capacity built by U.S. Government assures that enrichment policy, at least in near-term, will remain highly responsive to special diplomatic needs as well as international energy and nonproliferation objectives.

Cons

1. Could defeat goal of ultimate private entry by creating precedent of U.S. Government construction whenever capacity must be assured, thus undercutting industry incentive to build plants and reducing customer interest in seeing a private enrichment business develop. As a minimum may prematurely preempt the current UEA initiative which has been responsive to an administration challenge and upon which substantial funds have been expended.

2. Results in Federal Budget impact of $4–5 billion through 1985 for net costs associated with construction of two plants, and continued industry assistance program.

3. Congress may be reluctant to permit U.S. Government to resume contracting (with commitment to fund subsequent government capacity) for foreign needs in early 1975 on basis that more time should be allowed to obtain private entry since domestic needs will not be yet in jeopardy.

ALTERNATIVE C: ABANDON PRIVATE ENTRY OBJECTIVE

Pros

1. Resolves short- and long-term domestic and foreign uncertainty associated with present policy by establishing clear plan for all future enrichment capacity in the public sector (corporation superior to directorate for this approach in view of major and long-term budgetary and policy responsibilities; however, lengthy and uncertain formative process required for congressional approval of this approach and mechanism).

2. Optimum foreign policy responsiveness through close U.S. Government direction and permanent nature of the U.S. course of action. (directorate superior to corporation in policy responsiveness; however, corporation has greater assurance of fund availability to carry out programs.)

Cons

1. Substantial and continuing budget impact.

2. Uncertain whether Congress would authorize large-scale and long-term public sector commitment of this nature (whether involving directorate or corporation).

3. Foregoes advantages of private sector, free enterprise approach.

1. Summary: In response to NSSM 209, an ad hoc interagency study group examined policy options for development of future uranium enrichment capacity.

   Source: Ford Library, National Security Council, Institutional Files—NSSMs, Box 31, NSSM 209—Future Uranium Enrichment in the U.S. Secret. All brackets are in the original. The NSSM 209 interim report, November 8, and the analysis memorandum to Scowcroft, November 23, are both ibid. According to Ingersoll’s January 8, 1975, memorandum to Kissinger (Document 108), the NSC Staff circulated the report on December 19. NSSM 209, attached as Appendix A, is Document 79. Appendix B is attached but not published.

2. This report is the summary report of the NSSM 209 Study Group. Other documents which can provide additional background and detail include the NSSM 209 Interim Report, dated November 8, 1974, and the State Department analysis of issues and options (memorandum to Scowcroft, dated November 23, 1974). [Footnote is in the original.]
3. See Appendix B for specific Agency comments to OMB on the Hosmer Bill. [Footnote is in the original.]