The CHAIRMAN. Thank you, very much, Mr. Secretary. Obviously, I have a whole list of questions and time will not permit all of them. I don't mean to indicate by my questions that I have no interest in the areas which are not covered by the questions that I ask today because many of them will be covered in the submissions.

Could you give the committee a better idea of your anticipated funding levels and schedule for establishing technical feasibility of Argonne's integral fast reactor concept?

Mr. VAUGHAN. Mr. Chairman, in the fiscal year 1987 budget, there are approximately $7 to $9 million in the program for specific efforts on that reactor, plus a large share of the supporting dollars for the operation of the EBR-2 reactor in Idaho.

The CHAIRMAN. If the predictions on improved safety fuel cycle costs and proliferation resistance prove correct on the IFR, what will be the next step in the development?

Mr. VAUGHAN. Mr. Chairman, as you know, we are carefully going through a series of tests designed to confirm the feasibility of various key features that have been advocated by Argonne for that concept. We would anticipate that near the end of 1988, most but not all of those aspects will have been pinned down one way or the other, and certainly some of the longer-term fuel behavior which is so critical should be achieved by 1989, or 1990 at the latest.

I think that by that time, depending on other work that goes in parallel, it should match our timetable for focusing down and proceeding with more detail design and potentially demonstration of the optimum advanced reactor concept.

The CHAIRMAN. At what level is HTGR research being funded in fiscal year 1986?

Mr. VAUGHAN. In fiscal year 1986, the level is approximately $32 million.

The CHAIRMAN. That is after the sequester?

Mr. VAUGHAN. That is after the sequester.

The CHAIRMAN. What is the proposed funding level for fiscal year 1987?

Mr. VAUGHAN. It may be a little bit less than that after the sequester, but it is not more than 3 or 4 percent less.

The CHAIRMAN. What is the proposed funding level for 1987? Mr. VAUGHAN. The proposed funding level in 1987 is approximately $5 million on that effort, which is a noticeable reduction. That is one of the items that we feel compelled in the priorities, with the budget stringencies, to stretch out based on where we see the market.

The CHAIRMAN. What program elements will be terminated as a result of dropping funding?

Mr. VAUGHAN. Mr. Chairman, and not to be unresponsive, let me concentrate first on the key things we would hope to continue, because I believe the things that we would continue would not force the termination, per se, of any efforts, but simply the deferral of

some.

We plan to concentrate in fiscal year 1987 on the key technical questions which could affect licenseability of that concept, the passive safety features, the licenseability of the overall core and plant,

the capability of the circulating system, and particularly to seek interfaces with NRC on the licenseability.

We think these key factors will enable us to determine whether it is prudent to continue the investment in that project.

The CHAIRMAN. I will make a comment, rather than a question. We have received here quite a lot of interest from the utility sector and some representations that the private sector is willing to move towards some cofunding, and it seems to me if that is true, it might change our sense of priorities with respect to expenditures.

Without pursuing that any further at this time, I want to move to another area that you touched on that is troublesome. I am almost afraid to go into it because of what it may reveal.

Your proposal in fiscal year 1987 budget for making annual payments to Treasury on the uranium enrichment debt is the issue that I would like to explore. The OMB concept, which sounds to me like one of the more clever uses of words in this town, is one in which they justify these payments by saying that you have a debt of $3.4 billion.

Let us look at this like you would a business. And I assume that really is where OMB is coming from; they want to make a business decision here.

Based on the program's funding history, Congress has given you, according to the utility's calculation, $350 million more than your revenues for the commercial part of your business over the last 15 years. Now, if a business had to borrow $350 million over 15 years to sustain its operations, its debt would be $350 million, wouldn't it?

Mr. VAUGHAN. Plus the interest.

The CHAIRMAN. Plus the interest. Now you say that your assets in uranium enrichment are worth $3.4 billion today. Is that correct?

Mr. VAUGHAN. That is correct. That is roughly the value of the assets which we believe are productive and useful.

The CHAIRMAN. If a company is worth $3.4 billion and owes $350 million, its debt is $350 million; is that not right? And its assets are $3.4 billion.

Mr. VAUGHAN. That is correct.

The CHAIRMAN. Now the clever OMB plan is to call your assets a debt and then OMB wants you to charge yourself interest on your assets like it was a debt. Using that kind of accounting, you will always be in debt from the OMB viewpoint, even after you have paid several billion dollars to the Treasury.

What worries me and I would say many of my colleagues is that this issue is more than just semantics. If your business gets saddled with this bogus debt, you have only two ways to pay it; you can sell this business, either in whole or in part, or you can raise your prices so much you can drive all of your business to foreign suppli

ers.

Either way, the United States goes out of the enrichment busi

ness.

I do not want to put you in the impossible position of either trying to convince us again that OMB's position makes any sense, or having you try to rationalize the administration's privitization policies. Can you simply answer me on one point?

Does not forming an enrichment corporation, like that described in Senator Domenici's legislation and setting a realistic and fair debt of $350 million a better plan than having no uranium enrichment business in the United States?

Mr. VAUGHAN. Mr. Chairman, when you put the question that way, if those were the only two choices, it is obvious that the former situation would be better than the latter. We believe that there is some value in recovering the Government's assets, most of which is inventories, and that recovery meets objective for deficit reduction. Very frankly, and secondly, we believe, as I testified here earlier this month, that the proposed quasi-Government corporation concept suggested in Senator Domenici's legislation is one of the concepts that merits evaluation for the future.

The CHAIRMAN. Mr. Vaughan, I don't really want to extend this discussion off into blind alleys or unconstructive detours. It reminds me a little bit of a proposal that might be made but hasn't been made, that we could sell off Yosemite and make money out of it. It is an asset. It has commercial value; in the hands of a commercial operator, it could become a money-maker, instead of us putting money into it in annual appropriations and maybe OMB would really like to see us sell that off, and they could be charging its asset value as a debt and requiring repayment to raise the fees to the point where indeed maybe the public would support it.

But there is another aspect to this, and you touched on it in your statement. Your estimate of payback to the Treasury in fiscal year 1986 would be approximately $110 million. But we did discuss this issue on April 10, during the uranium hearing, that the Consolidated Omnibus Budget Reconciliation Act of 1985, signed into law by the President on April 7, provides only the ceilings for repayment for the next three years.

The ceiling for fiscal year 1986 is $100 million, and $150 million for fiscal year 1987 and 1988. Besides, the Secretary must determine the amount of repayment, taking into consideration the reliability and competitiveness of the program.

Is it inconsistent with the law to continue to project $110 million in fiscal year 1986, and $235 million in fiscal year 1987?

Mr. VAUGHAN. Senator, and please understand I am not trying to avoid a direct answer to your question, we have asked our budget office and our legal office to do a thorough review of those items to make sure that we operate consistent with the law. A couple of people have read it differently and I am trying to make sure we comply with both the literal, as well as the intent of the law.

The CHAIRMAN. Let me ask another question which is technical in nature. If you intend to pay back $235 million to the Treasury, how can it be zero net appropriation?

Mr. VAUGHAN. Here, again, our budget office has, in conjunction with OMB, advised that what we are requesting is an amount of budget authority which, added to the amount of repayment, equals the forecast revenues and that that does represent a net zero accounting.

The CHAIRMAN. That is a constructive use of either accounting or tables or words and I am not sure which.

Mr. VAUGHAN. Certainly, as you know, I am in no way trying to be evasive to your question.

The CHAIRMAN. I understand that, but it seems to me that the policy is, whether you are or not.

Let me pursue that a little further in a different vein. DOE has been trying to capture uncommitted markets. You have signed contracts with utilities into the 1990's with much reduced price for their enrichment requirements, and those prices are in the range of $135 per SWU in 1985, to $85 per SWU in 1995.

You have had a favorable response to that strategy. How can you be sure that you can meet that price if the administration also, at the same time, plans to repay $3.5 billion from the program to the Treasury? Are we going to get into another mess in accounting?

Mr. VAUGHAN. Mr. Chairman, let me respond to that question in two parts. Literally, with respect to the contracts, the amount of the base price, which is the first 70 percent of the requirements of a utility, those contracts for a given price are made on a year-byyear basis, with the 1987 price forecasted and announced at $119 per SWU. We also had an incentive price offering for the top 30 percent, which does go at prices as low as $85 plus escalation for that top 30 percent through 1995.

We have projected the cost of production, the amount to be produced, as well as the amount to be repaid to the Treasury in our budget forecast and believe we can meet those commitments without raising the prices.

Among the premises of our discussions with OMB, the first premise is that we must remain competitive and reliable in the uranium enrichment enterprise.

The CHAIRMAN. And if the payment of $3.4 billion, repayment of $3.4 billion-whatever-whether it is payment or repayment is in conflict with that goal, which gives?

Mr. VAUGHAN. Presumably, the precise number would have to be reexamined and certainly the annual levels of the payment are what are subject to examination on a basis with 2-year projections consistent with the budget cycle.

The CHAIRMAN. It seems to me, and it must be obvious by now, and that is my conclusion at this point, that the two stated administration goals are in direct conflict and irreconcilable. If I am wrong, I need to be persuaded.

Which then leads to the question of, if they are so, obviously, irreconcilable, which one is the administration really pushing? Perhaps you are not the right person to ask that question because I suspect the alternative is embedded in OMB philosophy.

Mr. VAUGHAN. The only thing I would add is that the Department's position, as articulated by the Secretary as well as myself, and Mr. Longenecker, who is here with me, a number of times, is that we are committed to continue to be a competitive and reliable supplier, both for our commercial customers, as well as for our—

The CHAIRMAN. I am sure that is true, but indeed there is a conflicting policy that makes that impossible, then you will have been frustrated in your stated intent and they will have won the day without ever having joined the battle.

Senator Hecht.

Senator HECHT. As you know, we have a short timeframe. I would prefer to give my questions in writing and go on and hear the next witnesses.

The CHAIRMAN. Thank you, very much, Senator. I have a number of other questions also which will be submitted for the record. Other members of the committee may also have until the close of business tomorrow to submit questions in writing for response.

Thank you, very much.

Mr. VAUGHAN. Thank you, Mr. Chairman. It is always a pleasure to appear before this committee, and let me again emphasize how much we appreciate your constructive interest in these programs. The CHAIRMAN. Thank you, very much.

We have two other groups to hear from; one is the Nuclear Regulatory Commission, Mr. Victor Stello, who we will hear from next, and then the military applications. We do propose to complete the hearing.

Mr. Stello, your prepared statement will be placed in the record in full. At this point, I would invite you to summarize in as brief a manner as you can so we can proceed to questions.

STATEMENT OF VICTOR STELLO, EXECUTIVE DIRECTOR FOR OPERATIONS, NUCLEAR REGULATORY COMMISSION, ACCOMPANIED BY ROBERT B. MINOGUE, DIRECTOR, OFFICE OF NUCLEAR REGULATORY RESEARCH, AND DR. CHARLES KELBER, ASSOCIATE DIRECTOR FOR SCIENTIFIC PROGRAMS, OFFICE OF NUCLEAR REGULATORY RESEARCH

Mr. STELLO. Thank you, very much, Mr. Chairman. I have asked with your permission to have Mr. Minogue, who is Director of our Office of Research, join me at the table, as well as Mr. Kelber, who is the Associate Director for Scientific Programs.

I am certainly pleased to have an opportunity to appear before you today, to summarize NRC's views on the Department of Energy's program for research and development of civilian nuclear power and the disposal of the waste from such plants. The NRC and DOE have enjoyed a productive and harmonious relationship; we want it to continue and offer some comments on ways we think it could be strengthened.

Before providing some specific comments, Mr. Chairman, I would like to offer some general remarks on the importance of nuclear safety research, an area I feel rather strongly about.

Nuclear power is a product of one of the most comprehensive scientific research programs ever undertaken in the history of technology. The excellent safety record we have achieved with the peaceful application of nuclear technology is directly coupled to our Nation's nuclear research program.

A healthy and vital national research program is needed. Commercial application of nuclear power is a maturing industry. The several generations of plants which have evolved have provided considerable confidence that this technology can and is being applied safely.

New designs would, however, need the benefit of the insights of research and development in order to demonstrate the reliability