MINIMIZE COSTS OF EXISTING PLANT OPERATIONS

Placing the Oak Ridge Gaseous Diffusion Plant in Standby

Because minimizing the cost of existing plant operations is key to near term DOE price competitiveness, Secretary Herrington decided in June 1985 to place the Oak Ridge (Tennessee) Gaseous Diffusion Plant in standby status at the earliest possible date. This major, near-term cost reduction decision followed extensive analysis that showed that about $250 million could be saved between FY 1986 and FY 1991 by taking that action. The Oak Ridge Gaseous Diffusion Plant has been in standby status since August 1985, and will remain in that condition with the DOE Office of Defense Programs providing the standby funding because of projected defense demands for enriched uranium in the outyears. If the standby funding is not provided, the plant will be shut down permanently. If the plant is premanently shut down, it will not be operable because critical components will no longer be maintained.

Reducing the Cost of Gaseous Diffusion Plant Operations

The costs of operating the Portsmouth and Paducah Gaseous Diffusion Plants (GDP's) were also reduced in FY 1985. New and innovative ways of operation, coupled with the use of lower cost unfirm power which is about 30 percent cheaper than firm power, improved the economics of operating the GDP's. Significant savings have been demonstrated through the use of lowcost evening, weekend, and off peak seasonal power. It is planned to

continue to take advantage of this lower cost, unfirm power to the maximum extent possible in the future.

Gas Centrifuge Enrichment Plant Termination

Another strategically necessary but very difficult cost reduction decision was the termination of the GCEP project. After extensive analyses, the Department concluded that any GCEP completion scenario that required the outlay of significant amounts of additional capital was unjustifiable from an investment point of view. Simply put, the best GCEP scenarios resulted in production costs that were about equal to the production costs of the GDP's that are operating today, and all GCEP scenarios involved greater technical and economic risks than continued GDP operation.

Closeout of all GCEP-related activities is proceeding well and DOE is working diligently to identify alternative uses for the GCEP equipment and facilities as well as other centrifuge facilities throughout the country.

RETAIN U.S. LEADERSHIP IN ADVANCED TECHNOLOGY

The U.S. currently enjoys a commanding lead in developing the world's most advanced enrichment technology, the AVLIS process. We plan to maintain that lead to assure that, even when other countries decide to deploy AVLIS, the U.S. will have a more advanced, lower cost process on line.

The figures of merit that favored the selection of AVLIS over the Advanced Gas Centrifuge for further development clearly showed its greater potential for low cost and reliable production for the future. The AVLIS technology is less capital intensive, requires significantly less investment prior to a decision to deploy, has a lower estimated SWU cost, has greater potential for cost reductions through technology improvements, and is more adaptable

to deployment in increments that can match the evolving needs of the enrichment marketplace.

In FY 1985, the one-half scale MARS separator was successfully integrated with the first phase of the Laser Demonstration Facility for enrichment tests. Test results will establish an experience base in the operation of large scale integrated hardware as well as calibrate the consistency between model prediction and measured enrichment performance. The near full scale Materials Handling Demonstration Module was operated continuously for over 100 hours, thereby establishing the initial key segment of materials handling technology for design and operation of a full-scale separator pod.

In FY 1986, these facilities will be used to demonstrate enrichment for extended periods of time and to demonstrate the materials handling capability of this subsystem. Attention will focus on resolution of issues identified by the Process Evaluation Board as being technically critical or having high economic leverage.

Another important initiative undertaken in February 1986 is to take steps to transfer the development and ultimate deployment of the AVLIS technology to the private sector. This initiative is needed to relieve pressure on the annual budget, and to help assure the pace and schedule of the program leading to the construction of the first and any follow-on plants.

DOE is seeking responses from qualified parties describing their desire to fund development and deployment of the AVLIS technology. The Department is willing to provide access to AVLIS technology and, in return, to transfer

technical, managerial, and financial responsibility for remaining

development and demonstration activities.

DOE will keep Congress informed of the progress made in obtaining private sector participation in the AVLIS program.

REPAYMENT OF OUTSTANDING GOVERNMENT INVESTMENTS

The Government's outstanding investment will be recovered in a manner that will assure that commercial and military customers will continue to obtain competitively priced enrichment services.

The write-off of the equivalent of the unproductive assets will be reflected in DOE's 1985 financial statement. This is consistent with generally accepted accounting practices and the Uranium Enrichment Services Criteria, both existing and proposed. As a result, the level of outstanding Government investment will be reduced from $7.5 billion to $3.5 billion. In addition, interest on this account will be based on the average historical long-term Government borrowing rate. This will have the effect of lowering the imputed interest rate. This approach establishes annual payment goals, and proposes to begin with $110 million in FY 1986 and $235 million in FY 1987.

MODIFICATION OF URANIUM ENRICHMENT SERVICES CRITERIA

One key action recently initiated by DOE is the proposed modification of the Uranium Enrichment Services Criteria. A Notice of Proposed Rulemaking was published in the Federal Register on January 29, 1986. The proposed Criteria modification addresses: (1) items that were questioned in the

miners' lawsuit; (2) other aspects of the enterprise, including flexibility for future competitive actions; and (3) reiteration of the Administration's position opposing import restrictions on natural uranium.

Accordingly, the proposed Criteria address two of the issues mentioned in the Subcommittee's invitation letter for this hearing--the requirements of the Atomic Energy Act relevant to enrichment pricing and the domestic uranium industry. The complete text of the proposed rulemaking is attached for inclusion in the hearing record.

We hope to complete the rulemaking process by the end of summer. All interested parties will have an opportunity to comment on the proposed Uranium Enrichment Services Criteria, both in writing and at a public hearing that will be held in Washington, D.C., on March 18-19, 1986.

Subsequent to the review and consideration of public comments, DOE will submit the revised Uranium Enrichment Services Criteria to Congress at least 45 days prior to their actual effective date pursuant to Section 161(v) of the Atomic Energy Act.

NUCLEAR ENERGY RESEARCH AND DEVELOPMENT

Finally, I will comment briefly on three areas of our Light Water Reactor R&D program in which the Subcommittee expressed interest. These are the Three Mile Island (TMI) R&D, Extended Fuel Burnup, and Loss-of-Fluid Test (LOFT) programs.