UNITED STATES OF AMERICA

NUCLEAR REGULATORY COMMISSION

Title: BRIEFING BY U.S. ENRICHMENT CORPORATION

Location: ROCKVILLE, MARYLAND

Date: AUGUST 31, 1994

Pages: 41 PAGES

NEAL R. GROSS AND CO., INC.

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 DISCLAIMER

This is an Unofficial transcript of a meeting of

the United States Nuclear Regulatory Commission held on

August 31, 1994, in the Commission's office at One

White Flint North, Rockville, Maryland. The meeting was

open to public attendance and observation. This transcript

has not been reviewed, corrected or edited, and it may

contain inaccuracies.

The transcript is intended solely for general

informational purposes. As provided by 10 CPR 9.103, it is

not part of the formal or informal record of decision of

the matters discussed. Expressions of opinion in this

transcript do not necessarily reflect final determination

or beliefs. No pleading or other paper may be filed with

the Commission in any proceeding :as the result of, or

addressed to, any statement or argument contained herein,

except as the Commission may authorize.

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UNITED STATES OF AMERICA

NUCLEAR REGULATORY COMMISSION

BRIEFING BY U.S. ENRICHMENT CORPORATION

PUBLIC MEETING

Nuclear Regulatory Commission

Wednesday, August 31, 1994

The Commission met in open session,

pursuant to notice, at 10:00 a.m., Ivan Selin,

Chairman, presiding.

COMMISSIONERS PRESENT:

IVAN SELIN, Chairman of the Commission

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STAFF AND PRESENTERS SEATED AT THE COMMISSION TABLE:

KAREN CYR, General Counsel

ANDREW BATES, Office of the Secretary

WILLIAM H. TIMBERS, JR., President and Chief Executive

J. WILLIAM BENNETT, Vice President, Production, USEC

ROBERT WOOLLEY, Nuclear Regulatory Assurance and

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1 P-R-O-C-E-E-D-I-N-G-S

2 10:00 a.m.

3 CHAIRMAN SELIN: Good morning, ladies and

4 gentlemen.

5 Commissioner Rogers, Commissioner de

6 Planque and I welcome you here, Mr. Timbers, as

7 President and Chief Executive of the U.S. Enrichment

8 Corporation, to brief us on the current state of

9 affairs at the Corporation.

10 We were last briefed in June of '93 by Mr.

11 Timbers. Since that time, a great deal has happened

12 and the Corporation has entered into its lease

13 agreement with the Department of Energy to accept

14 responsibility for both gaseous diffusion plants. The

15 Board of Directors has been confirmed by the Senate.

16 A great deal of activity has happened both at home and

17 abroad.

18 We'd be interested in your views of what's

19 happened, Mr. Timbers, but especially on your plans

20 and where you see the corporation going. And if you

21 had some hints for what you're going to ask us in the

22 future, that would be greatly appreciated.

23 Welcome. The floor is yours, sir.

24 MR. TIMBERS: Thank you, Mr. Chairman.

25 It's a pleasure to be here, and Commissioners.

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1 First, before I start, I'd like to

2 introduce my colleagues who are here with me today.

3 On my right is J. William Bennett, Bill Bennett, who

4 is Vice President for Production for the USEC, and on

5 my left is Robert Woolley, Bob Woolley, who is manager

6 for Nuclear Regulatory Assurance and Policy. In

7 addition, we have added staff in the audience as well.

8 My name is William Timbers, Jr, quite

9 often known around as Nick Timbers. I'm the President

10 and Chief Executive Officer of the United States

11 Enrichment Corporation. It's a pleasure to meet with

12 you today to update the Commission on USEC's

13 activities and operations since I last appeared before

14 you in June of last year.

15 When I spoke to you last June, the

16 Corporation was engaged in lease negotiations with the

17 Department of Energy and was preparing to assume

18 management of the Paducah and Portsmouth Gaseous

19 Diffusion Plants and we'll talk a lot about gaseous

20 diffusion plants today and we refer to these as GDPs.

21 Since that time, we've successfully

22 completed those negotiations, entered into a lease of

23 the GDPs with DOE and have affected a smooth

24 transition to USEC's management of the GDPs in

25 accordance with the July 1, 1993 statutory deadline.

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1 As part of the lease, we entered into a

2 comprehensive regulatory oversight agreement -- again,

3 we'll talk a lot about this today. We refer to this

4 as the ROA -- with DOE that will provide for the

5 continued safe operation of the GDPs under DOE's

6 nuclear safety, safeguards, security controls, pending

7 NRC's assumption of regulatory oversight.

8 Today I would like to summarize the

9 current state of the corporation, including our plans

10 for privatization, update you on the progress of

11 preparing for NRC's certification of the GDPs and

12 describe our current plans for commercialization of

13 the AVLIS technology.

14 Over the last 15 months, USEC has become

15 a fully diversified $1.5 billion international

16 corporate enterprise with significantly enhanced

17 production and marketing capabilities. We have

18 created corporate functions that did not previously

19 exist, including finance, legal function, planning and

20 development and human resources. We have had great

21 success in the production performance and in reducing

22 cost. I would like to emphasize, however, that while

23 our commercial success will be achieved by providing

24 unmatched attention to our customer needs and

25 operating efficiency, our corporate vision can only be

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1 met by also meeting high safety and environmental

2 standards and by fostering the personal and

3 professional success of our employees. These issues

4 are so critical to us that they are part of our

5 mission and vision of this corporation.

6 Earlier this year our Board of Directors

7 was confirmed by the United States Senate and sworn

8 into office. Our Chairman is Mr. William Rainer, who

9 is co-founder and former managing director of

10 Greenwich Capital Markets. The Board also includes:

1i Ms. Greta Joy Dicus, who is Director of the Division

12 of Radiation Control and Emergency Management for the

13 Arkansas Department of Health; Ms. Margaret Hornbeck

14 Green, who is President of the Kentucky Division of

15 South Central Bell Telephone Company; and Doctor

16 Kneeland Youngblood, a practicing emergency room

17 physician in Texas. Mr. Frank Zarb has stepped down

18 from the Board and we're working closely with the

19 White House to fill that vacancy as soon as possible.

20 In addition to my selection as President

21 and CEO, we have retained Mr. George Rifakes as our

22 Executive Vice President for Operations, and Mr.

23 William Bennett, who is here with me today again, as

24 Vice President for Production. George Rifakes joined

25 us from his position as Vice President at Commonwealth

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1 Edison and Bill Bennett was Director of DOE's Office

2 of Uranium Enrichment Operations.

3 The Corporation is now staffed by an

4 experience group of 112 employees. I might mention

5 that I think the last time that I was here that we had

6 a staff of probably about 25 employees, so that we've

7 grown considerably in terms of headquarters staff.

8 These employees have been drawn from both private

9 industry and government. We are continuing to

10 integrate our staff with that of our operating and

11 maintenance contractor for the GDPs, Martin-Marietta

12 Utility Services, in order to develop a coordinated

13 operating organization focused on safety and

14 efficiency of the operation of our plants.

15 In addition to completing the transition

16 to USEC's management of GDPs, we have achieved several

17 other notable accomplishments in our first year of

18 operation. During this time we completed negotiations

19 with the Russian Federation for the purchase of low

20 enriched uranium derived from approximately 500 metric

21 tons of highly enriched uranium from dismantled

22 nuclear weapons. This is a contract that will extend

23 over a period of 20 years and represents approximately

24 $11.9 billion in value.

25 As a result of a separate agreement with

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1 the Russian Federation, we have already taken receipt

2 of about 155 metric tons of low enriched uranium.

3 These were delivered over the past year in four

4 separate deliveries. We have also restructured our

5 contract with Martin-Marietta in order to provide more

6 incentives for efficient and safe operations and to

7 encourage excellence in performance.

8 On the financial side, USEC paid a $30

9 million dividend to the U.S. Treasury after our first

10 three months of operation. We are presently

11 evaluating a number of alternatives to privatize the

12 corporation. USEC will submit a privatization plan to

13 the President of the United States by July of 1995 in

14 accordance with the Energy Policy Act of 1992.

15 Over the last year, the USEC has also been

16 preparing for NRC certification and regulatory

17 oversight of the GDPs. We have provided detailed

18 written comments on the NRC standards contained in

19 proposed Part 76. While a decision on that rulemaking

20 is currently pending before the Commission, we

21 recognize that the rulemaking has been accomplished

22 under very substantial time constraints imposed by the

23 Energy Policy Act.

24 We appreciate the hard work that NRC staff

25 has performed in developing a comprehensive set of new

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1 regulatory standards in such a relatively short period

2 of time for facilities that have been operating for 40

3 years. The development of appropriate regulatory

4 policies and programs for the inspection and oversight

5 of these facilities will be equally challenging. The

6 presence of resident NRC observers, Ken O'Brien at

7 Paducah and Charlie Cox at Portsmouth, should assist

8 in the transition to NRC regulation.

9 USEC has already commenced work on our

10 applications for NRC Certificates of Compliance for

11 the GDPs, as well as the accompanying compliance plans

12 that will address those areas where full compliance

13 with applicable NRC requirements will not have been

14 achieved by the time the applications are filed.

15 Teams of subject matter expects at both plants,

16 supplemented by experienced contractor personnel, are

17 currently working on the applications. We are

18 utilizing a format and approach similar to that used

19 for NRC fuel cycle facility license applications in

20 order to aid the NRC staff in efficiently reviewing

21 the applications. Assuming timely issuance of final

22 Part 76 standards, we are currently anticipating

23 submitting the applications to the NRC in April of

24 1995.

25 Substantial efforts are already underway

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1 to modify and upgrade programs, procedures and

2 training in order to provide the necessary

3 infrastructure to assure compliance with NRC

4 requirements and to further enhance the safety of the

5 operational working environment of the GDPs. While

6 the GDPs have been operating safely for almost 40

7 years, we believe that improvements in the discipline

8 of the operations are necessary to meet the

9 corporation's expectations and to ensure that the GDP

10 operations are on a par with NRC's best fuel cycle

11 licensees. Our efforts include benchmarking visits to

12 NRC-licensed facilities, including reactor and fuel

13 cycle facilities.

14 We are working to instill in the corporate

15 and plant organization attributes that we believe

16 characterize other successful operations regulated by

17 NRC. Among these attributes are effective involvement

18 of senior management in nuclear safety matters, clear

19 communication with NRC, a company-wide commitment to

20 safety, personal accountability and performance-based

21 evaluation criteria, and an effective self-assessment

22 capability. Improvements in our self-assessment

23 capability are essential if USEC is to achieve our

24 desired level of performance. Changes of this nature

25 required a sustained effort, but we are working hard

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1 to achieve them.

2 Finally, I would like to touch on our

3 plans for commercialization of the AVLIS technology.

4 On July 12th of this year, our Board of Directors

5 unanimously voted to authorize management to begin

6 taking steps necessary to commercialize AVLIS. We

7 have begun to take the necessary actions to effectuate

8 the technology transfer from DOE and we're now

9 considering numerous relevant issues including

10 licensing, plant location, size, timing and financing.

11 We hope that our interaction with the NRC staff on

12 AVLIS will be characterized by the same constructive

13 and creative dialogue that has characterized our

14 interaction to date on the GDPs.

15 I want to thank you again for the

16 opportunity to update you on the Corporation's recent

17 activities and progress. We look forward to the

18 continued interaction with NRC as USEC moves forward

19 with certification of the GDPs and ultimately with the

20 AVLIS technology.

21 That concludes my remarks and I'd be glad

22 to answer any questions that you have.

23 CHAIRMAN SELIN: Thank you very much, Mr.

24 Timbers. Without putting in the specific questions,

25 I wondered if you might sketch the economic situation

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1 that you're facing for the next several years and, as

2 appropriate, the process that you'll go through in

3 deciding how many plants the Corporation will

4 eventually operate.

5 MR. TIMBERS: The uranium enrichment

6 market is one that's characterized by excess capacity

7 over demand. It's about 50 percent excess capacity to

8 demand. It's a highly competitive environment

9 characterized by three major competitors: one,

10 Eurodif, a consortium based in France; URENCO, a

11 consortium based in London; and the Russian

12 Federation. There are minor other players, but those

13 are the major competitors in the world marketplace.

14 The competitive market is exacerbated even

15 more because of the open demand in the next five to

16 seven years. That is the open demand where there are

17 no contracts in place and utilities are putting out

18 for bid enrichment requirements. Approximately 70 to

19 75 percent of that open demand is here in the United

20 States, which historically has been our dominant

21 marketplace. So, it is a competitive environment. It

22 also is one where the greatest challenge in terms of

23 our marketing capability rests with our historical

24 marketplace here in the United States.

25 In addition to just the supply/demand

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1 characteristics also is the element of what I would

2 call the Russian supply, which I mentioned briefly in

3 my remarks. That is that we are committed to purchase

4 from Russia LEU derived from highly-enriched uranium

5 derived from weapons. From one standpoint, this is --

6 as a public citizen of the world, I think this is one

7 of the greatest things that has occurred in the last

8 several years where we can be an instrumental player

9 in reducing the nuclear threat worldwide. At the same

10 time, it's our responsibility to incorporate this new

11 Russian supply into our production mix.

12 Now, we had some time to carefully

13 evaluate this and it's structured so that in the next

14 five years we'll be taking the equivalent of ten

15 metric tons of HEU. I always characterize this in the

16 marketplace as that in the year 6 through 20 is when

17 the rubber hits the road and that's when that amount

18 will increase to 30 metric tons or three times

19 individually over the next five years.

20 We'll have to carefully take a look at

21 what is the best integration of this Russian supply

22 together with our own production capabilities. And

23 also you have to recognize that there is an economic

24 performance capability of these plants where you can't

25 run the plants full out because the cost of

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1 electricity. The cost of electricity is the dominant

2 cost element of a gaseous diffusion plant and we have

3 very attractive and economical electric contracts with

4 power suppliers right now. To the extent that we

5 would operate at a full capacity level, it would

6 increase our operating cost significantly.

7 CHAIRMAN SELIN: Because the unit cost

8 would go up above the current --

9 MR. TIMBERS: Significantly. We

10 characterize it sort of like a hockey stick, it would

11 go up very sharply at a certain given level. So, we

12 need to look very carefully about how to increase the

13 production efficiency at our plant and integrate the

14 Russian supply.

15 CHAIRMAN SELIN: Could I just stop you?

16 Is the Russian supply purely a marketing

17 responsibility for the Corporation or do you have some

18 production or processing or transformation

19 responsibilities to do with --

20 MR. TIMBERS: As it stands right now under

21 the contract, we take the Russian supply FOB St.

22 Petersburg and we take it as LEU. One of the basic

23 elements that I feel in terms of the future of this

24 corporation is that we want to deal only with LEU and

25 so we don't want to take possession at any time of

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1 weapons grade material. So, the plan now is for

2 Russia to blend it with natural uranium in

3 Yekaterinburg, transport it to St. Petersburg and we

4 pick it up at the dock and take it FOB at that point,

5 so that we take it as LEU and will pay for the

6 transportation cost to get it here.

7 There's one additional element that I want

8 to mention to this that complicates this. It's like

9 complication on complication on complication. It is

10 nominally a 20 year contract, but it is a contract

11 that has renewal clauses to it every year and

12 basically that renewal is based upon annual

13 negotiations with the Russian federation on price and

14 quantities to be delivered. If there is not an

15 agreement at any given year, the previous quantities

16 in price will stay in place for the succeeding year.

17 If that is not -- if there's not a resolution in

18 succeeding year or in the second year, there is rights

19 of termination by both Russia and the United States.

20 So, it is nominally ten two year contracts

21 that roll and roll and roll as opposed to a fixed take

22 or pay contract for 20 years. So that you can see

23 that it is not something that has a fixed schedule of

24 deliveries over a specified period of time and so that

25 it complicates how we look at our production mix. I

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1 know that's a long answer, but it also is a

2 complicated issue regarding how we run our production

3 facilities relative to the Russian supply.

4 CHAIRMAN SELIN: You take possession and

5 ownership of the --

6 MR. TIMBERS: Yes.

7 CHAIRMAN SELIN: And then it's something

8 to be marketed along with the enriched uranium from

9 the--

10 MR. TIMBERS: Yes. It comes into our

11 supply and as we see it it should be transparent to

12 our customers as to whether it is -- where the

13 enriched uranium is derived from. One of the most

14 important transparencies that I would describe would

15 be price, is that regardless of whatever price the

16 United States government and the U.S. Enrichment

17 Corporation resolve with the Russian Federation, we

18 have to price our product on the market on a

19 competitive basis. We have no other choice. So,

20 that's why we have to -- we cannot segregate this into

21 domestic production price and then a foreign purchase

22 price and sell two different elements. We're selling

23 a commodity, a commodity in the world market. It has

24 to be a unified price.

25 COMMISSIONER ROGERS: If I could just ask

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1 a question on that.

2 MR. TIMBERS: Sure.

3 COMMISSIONER ROGERS: I've heard some

4 reports that the LEU that is coming has some small

5 degree of contamination with plutonium but also has

6 unexpectedly large other isotopes of uranium in it

7 that cause some questions about how this would

8 actually be used in current U.S. reactors. Can you

9 comment on that at all?

10 MR. TIMBERS: Those reports are rather

11 accurate. The initial testing is that there are

12 excess supplies of plutonium and also U-234, U-236 as

13 well. Again I would say to commercial users of our

14 enriched uranium that we supply is that that is our

15 responsibility to ensure the product we deliver meets

16 specs for all reactors here and abroad. We're trying

17 to run and we are running the USEC like a business.

18 The way that I view this is that we signed

19 a contract with the Russian Federation. We're

20 representing the United States government in doing

21 this. The contract has very specific technical

22 specifications as to how -- what the material should

23 be delivered in. We are engaged in discussions with

24 the Russian Federation to meet those specifications.

25 Our belief now is that those specifications will be

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1 met and so by the time that we take possession of

2 this, that those issues of plutonium and the other

3 isotopes will be resolved.

4 COMMISSIONER ROGERS: The material you've

5 received so far, does that meet the specs?

6 MR. TIMBERS: The material that we

7 received was really actually LEU. It was not derived

8 from HEU. So, it was a primer of the pump, so to

9 speak, in terms of the political and also the economic

10 exchange with the United States government and the

11 Russian Federation. So, that LEU was just the normal

12 enriched uranium that they would sell on the

13 commercial marketplace, so that it had no derivation

14 from the HEU that this deal that we're talking about

15 has.

16 CHAIRMAN SELIN: You've talked a little

17 bit about qualitatively the considerations that you're

18 facing. I wonder if you might continue to translate

19 those into rough numbers. Do you see demand going up,

20 going down, sort of constant and then go on to what

21 that means for how you're looking at the continued

22 viability of both production. I'm not asking you for

23 a guess as to whether you're going to close one or the

24 other, which one, but just how are you looking at that

25 issue, what's the process. Would you go from

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1 projections of demand to looking at your posture, at

2 your structure?

3 MR. TIMBERS: Well, we believe that demand

4 is going to be fairly flat in the future. There will

5 be --

6 CHAIRMAN SELIN: Total demand for which

7 you were --

8 MR. TIMBERS: Total demand worldwide, yes,

9 that there will be a number of reactors that will be

10 shut down according to schedule and that also we're

11 anticipating advanced shutdown of reactors, of a

12 variety that have occurred in the past year. In

13 addition, there are new reactors coming on mostly in

14 the Far East and Europe, significantly in Japan, Korea

15 and Taiwan. So, that all on a net basis that we're

16 looking to a fairly flat demand out well into the

17 first quarter of the 21st Century.

18 We believe that our future is based upon

19 being a competitive supplier and to that extent one of

20 the major tenets of this organization now and in the

21 future is to reduce our cost of operations. We have

22 implemented a fairly aggressive program to, in fact,

23 reduce those costs. Both continued efficient

24 utilization of power and also the operating cost of

25 how we run the plant so that it will bring down, based

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1 upon this demand level that exists, our unit costs

2 significantly and significantly so that we will

3 continue to be a very competitive supplier in the

4 world marketplace, if not the lowest cost supplier

5 with the existing GDPs.

6 I will note that we look at this from a

7 global standpoint and a long-term standpoint. Part of

8 that production mix is, I think, a very carefully

9 evaluated decision to move, on taking the next steps

10 on AVLIS, the AVLIS technology. The AVLIS technology

11 was decided on two basic reasons. One, it can provide

12 the U.S. Enrichment Corporation with a significantly

13 lower cost of production. Second of all, it can

14 provide a reliable source of domestic supply well into

15 the 21st Century.

16 This year we celebrate the 40th

17 anniversary of the operation of the Portsmouth plant.

18 As any businessman would do, we're looking at how much

19 we invest in old technology and upgrades to the old

20 technology for efficient operation, but also in terms

21 of regulatory compliance, together with how much we

22 want to invest in new technology that will extend

23 beyond what may be perceived as a useful life of these

24 plants.

25 But all these things come into play in a

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1 fairly complex matrix of running both of these

2 facilities. As it stands now, we view running both of

3 these facilities in the near future, both the existing

4 facilities.

5 CHAIRMAN SELIN: Is there -- given

6 limitations on maximum power, et cetera, are there big

7 cost differences between getting a certain amount of

8 output all from one plant versus splitting them up in

9 both plants of the total outputs within the capacity

10 of either --

11 MR. TIMBERS: Yes. What you'd find if you

12 went to just one plant right now in the current power

13 supply arrangements is that you'd have to -- the cost

14 of power would go up significantly if it all was in

15 one plant right now.

16 CHAIRMAN SELIN: Because the deals are

17 with different suppliers for different amounts?

18 MR. TIMBERS: Yes. And there are

19 different suppliers, different markets that we derive

20 the power from.

21 CHAIRMAN SELIN: How long do these deals

22 hold and when would you have to renegotiate them?

23 MR. TIMBERS: 2005 is the length of the

24 contracts, the power contracts. But we also buy in

25 the spot market as well in terms of low-cost spot

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1 power and right now it's a big portion of our power

2 mix. As we can --

3 CHAIRMAN SELIN: What portion is spot?

4 MR. TIMBERS: We operate seasonally very

5 differently. This month, in August, in one of the

6 plants a big part is purchasing spot power, if we can

7 do it economically. You know, we are out there

8 purchasing power just like a utility would be in terms

9 of what is the best mix between existing paying demand

10 and energy charges under a fixed contract and what

11 would pay in the spot market.

12 CHAIRMAN SELIN: One would have to look at

13 the numbers, but it sounds like there's a potential

14 inconsistency between on the one hand being able to

15 get large amounts of spot power cheaply and, second,

16 not being able to support higher levels of output from

17 a single plant. I guess you wouldn't want to be in

18 the position of really being locked into the spot

19 market for larger amounts of power.

20 MR. TIMBERS: I think that if you have a

21 long-term strategy predicated on solely purchasing of

22 short-term spot market power --

23 CHAIRMAN SELIN: It's the savings and loan

24 stretch.

25 MR. TIMBERS: You're bound to get into

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1 trouble.

2 CHAIRMAN SELIN: Right. Borrow short,

3 sell long.

4 MR. TIMBERS: Yes. But if there are

5 opportunities that we can take advantage of and not be

6 locked into that philosophy, that can be constructive

7 to the corporation.

8 CHAIRMAN SELIN: Before I turn to my

9 colleagues, I'd like to ask you one more question.

10 You talked about the need to reduce operating cost.

11 Can you translate that into safety considerations,

12 where are these reductions likely to be things that

13 would concern us as your regulators to be?

14 MR. TIMBERS: Well, I might ask Bill

15 Bennett who is in charge of the program, of the cost

16 reduction program, to comment a little bit about that.

17 I will say that -- I want to give you one bit of

18 philosophy about this, philosophy permeates through

19 the organization. That is that in terms of public

20 safety and health my philosophy is that from a

21 business standpoint it makes best business sense to do

22 it well and do it right up front, as opposed to trying

23 to fix it later. I think that if you try to fix it

24 later, it costs you more money wise and it costs you

25 more in terms of your reputation. Both of those

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1 elements in terms of cost expenditure of our money and

2 also our reputation are very dear to us. So, we want

3 to be very careful that we're in full compliance

4 because we think business-wise that makes the most

5 sense.

6 But, Bill, do you want to talk a little

7 bit about the cost reduction program vis-a-vis safety

8 and regulatory requirements?

9 MR. BENNETT: Well, the biggest thing we

10 are trying to do is bring equipment that has been

11 inoperational back into operation. The way the plants

12 function, it costs less to produce a unit of enriched

13 uranium with the equipment fully operational than it

14 does with half the equipment operational. So, most of

15 what we've been doing this year and intend to do next

16 year is to bring that equipment back into operation

17 and to couple that with a strong program of

18 preventative maintenance to keep the equipment

19 operating.

20 The other thing we need to do is change

21 the culture, the operational style of the plants to

22 avoid many kinds of mistakes that have been made that

23 have caused either safety problems or equipment going

24 off-line. That's the biggest part of our effort is to

25 keep that equipment operational.

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1 The second thing is to look throughout the

2 operations and find remnants of 30 years of operations

3 under a different structure under a non-competitive

4 structure where things are being done because they

5 always were done that way. Find those, change them,

6 do them more efficiently. We find many things that

7 just don't need to be done anymore that were done as

8 part of the system. But we're stressing efficiency,

9 excellence in operations, avoiding mistakes, adherence

10 to procedures and we think that will both support our

11 cost reduction efforts and our efforts to operate

12 safely.

13 COMMISSIONER ROGERS: Well, yes. Thank

14 you. Just following up on that, what is your

15 engineering support for this kind of activity that

16 you're engaged in now of looking at what you're doing

17 because it's always been done and coming to the

18 conclusion that maybe these are some things that don't

19 have to be done this way.

20 Do you have an engineering group dedicated

21 to this kind of thing? How large is it? What are the

22 resources that you're using to validate a conclusion

23 that something that was done in the past is not a good

24 idea today?

25 MR. BENNETT: Well, let me separate

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1 something that's done in the past into I'll call them

2 physical operational things and bureaucratic things.

3 COMMISSIONER ROGERS: Yes.

4 MR. BENNETT: I was focusing principally

5 on ten reports being prepared and getting mailed to

6 people who didn't look at them anymore and requiring

7 therefore ten people, 20 people to collect the data

8 for those ten reports. Those are the kinds of things

9 we're going after first, the kinds of operational

10 changes where we would decide, make something up if we

11 were to decide we don't need a monitor of a certain

12 kind, which we're doing very little of. We're going

13 the other way where we're putting -- we're

14 strengthening the safety envelope. Those kind of

15 changes though, if we were to make such a change,

16 that's where our engineering organization would be

17 critical in deciding that it's an acceptable change,

18 that it doesn't weaken our safety posture.

19 Now, to get to your question on how many

20 people, we have engineering organizations at both

21 plants and off the top of my head I would think

22 between the two we probably have 100, 150 people at

23 the two plants in the organizations and then we have

24 standing contracts with external organizations that

25 bring different specialties in that supplement our

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1 capabilities that we use depending on the issue that's

2 being addressed.

3 COMMISSIONER ROGERS: Well, the reason I

4 think that we're interested in it is that we are very

5 much in the throes of reviewing our own requirements

6 that have grown up historically in many cases to see

7 where they make sense and where they don't make sense

8 in light of 40 years of operating experience and in

9 light of ability to analyze situations more completely

10 than we could do in the past. I suspect that anybody

11 who's looking at a large 40 year old piece of

12 technology has got lots of opportunities there for

13 raising questions of whether things need to be done

14 the way they were done and whether there isn't a

15 better way to do it. We're finding that in some cases

16 we can relax some of our requirements and in some

17 cases they weren't sufficiently rigorous. It works

18 both ways.

19 On the AVLIS aspect of your work, when do

20 you think you're going to have a time table for moving

21 ahead with implementation of the program commercially?

22 MR. TIMBERS: What the Board of Directors

23 has proved is authorizing management to take the

24 necessary steps to move ahead on AVLIS. It is not a

25 commitment to move ahead on AVLIS. We need to -- as

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1 a business, we're looking at this step by step and so

2 that we're looking at having the technology

3 transferred from DOE to us. We're looking at what is

4 the best licensing approach to take.

5 For example, we believe that the most

6 efficient licensing is the best way to do it

7 consistent with public safety and health. One of the

8 best ways to do that might be according to the process

9 that LES is using in its licensing procedure, which I

10 think is using Part 40 and Part 70 for a single

11 materials license. Right now that may require some

12 statutory change to allow AVLIS to be done that way.

13 But each step along the way, if we find some

14 roadblocks that are insurmountable or make the

15 economics turn around, we reserve the right to change

16 that decision.

17 Right now it's very, very attractive. But

18 I think that when we get through this first hurdle of

19 looking at the technology transfers, the determination

20 if there are any patents outstanding, the relationship

21 we have in terms of licensing, the plant location,

22 things of that nature, each step along the way we'll

23 make the determination if it still makes sense for us

24 and I think that what our plan is to have beginning at

25 the turn of the century, in the year 2000, 2001, a

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1 plant operating and so that we back out from that the

2 timing necessary to construct and build a facility.

3 Also, one of the critical issues that has

4 to be determined also is how we finance it as well and

5 whether it's financed by USEC as a government

6 corporation or whether it's financed as a private

7 corporation. All these are major issues that still

8 have to be addressed. But I think that we're talking

9 in this preliminary stage of a couple of years in

10 terms of these preliminary issues that I've talked

11 about.

12 CHAIRMAN SELIN: That's very important

13 because I don't believe that we, the NRC, are

14 currently planning to be in a position to consider a

15 license application on the schedule that you're

16 talking about. It's not that it can't be done, but

17 that's more aggressive than I was expecting to hear as

18 an answer to that question.

19 COMMISSIONER ROGERS: Yes. Well, that was

20 really the basis on which I was asking the question

21 because I think that this is a totally new technology

22 for us to deal with.

23 MR. TIMBERS: Right.

24 COMMISSIONER ROGERS: And what are the

25 safety questions? Where should we be concerned?

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1 We'll have to get ready for that. So, I think that it

2 is very important that we understand what your plans

3 are in timing and particularly with respect to any

4 kind of a license application. Also, it would be very

5 helpful, I would imagine, for you to engage our staff

6 in dialogue well before you intend to submit a license

7 application just so you understand what our concerns

8 are and we understand what we need to know to be able

9 to deal with the issues. I would imagine that ought

10 to start several years before one contemplates a

11 license application.

12 So, when you start to back off from that,

13 it's coming up very fast. I agree with the Chairman.

14 MR. TIMBERS: That would be my

15 anticipation as well. I think as I mentioned in my

16 prepared remarks that our approach to AVLIS licensing

17 would be similar to that of the GDPs and I give you an

18 idea of what our perspective. I started working here

19 on March 9th of 1993 and I think it was on March 10th

20 that I began discussing with some Commissioners about

21 the licensing process of the GDPs and it was very

22 clear to me from day one that there are long lead

23 elements to this process. I think that as we

24 anticipate submitting an application for certification

25 of the GDPs in April of '95 and perhaps later on

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1 actually being certified and we first began addressing

2 this in March of '93, there's a long lead for just

3 this facility that has been operating for 40 years.

4 But it gives you an indication that the management of

5 this corporation knew right up front that the dialogue

6 is very, very important to be conducted. I think that

7 that dialogue, in my judgment, has been very effective

8 over the past couple of years for this regulation of

9 the GDPs. We have even more to do on the AVLIS so

10 that starting early is -- I guess we're starting right

11 now on that dialogue.

12 CHAIRMAN SELIN: Right. We're a little

13 bit like economists. When we see something that works

14 in practice, we want to figure out if it's feasible in

15 theory. But you're right, it's been an enormous

16 bureaucratic struggle and I think done very

17 successfully by the staff to get these regulations

18 together in effect. But we didn't just take over the

19 DOE regulations, we wrote a new chapter from scratch.

20 But with 40 years of experience, you pretty well know

21 what the safety issues are. You don't have to do a

22 lot of theorizing. You get right down to the job.

23 COMMISSIONER ROGERS: That's all I have.

24 CHAIRMAN SELIN: Commissioner de Planque?

25 COMMISSIONER de PLANQUE: Yes.

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1 Recognizing how big a role the cost of electricity

2 plays, what potential ballpark do you see for

3 decreasing that demand by improved operations or

4 changing technology?

5 MR. TIMBERS: On the GDPs?

6 COMMISSIONER de PLANQUE: Yes.

7 MR. TIMBERS: Bill, do you want to take a

8 shot at that in terms of --

9 COMMISSIONER de PLANQUE: I'm just looking

10 for a figure.

11 MR. BENNETT: I didn't really follow the

12 question.

13 COMMISSIONER de PLANQUE: How much

14 potential do you have for decreasing the amount of

15 electricity required for the operation by making

16 improvements in the operation?

17 MR. BENNETT: Slim.

18 COMMISSIONER de PLANQUE: Slim.

19 MR. BENNETT: Slim chance to decrease the

20 amount of electricity we require from where we are

21 "fnow. We've made -- what I mentioned before about

22 bringing the equipment on-line has allowed us to

23 decrease the amount that we needed by 10, 15 percent.

24 But now that the equipment is operational, the big

25 thrust will be buying cheaper electricity and finding

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1 ways to use it at night when it's cheaper and not

2 operate during the day. But I don't think we have a

3 lot of potential to reduce the amount we need to make

4 a -- a few percent and that --

5 COMMISSIONER de PLANQUE: Sure.

6 MR. BENNETT: Over hundreds of millions,

7 that's valuable and we'll be working to do that.

8 COMMISSIONER de PLANQUE: Okay. I wonder

9 if you'd care to comment on the role of the NRC

10 observers. Did you find that useful? If you had to

ii redo it, would you suggest anything different in that

12 process, either from your point of view or how you

13 perceive it from our point of view?

14 MR. TIMBERS: Actually, I think that it

15 has been a very constructive process. Charlie Cox has

16 been at Portsmouth a very short period of time, but

17 Ken O'Brien has been at Paducah for a longer period

18 and has been providing, I think, effective input to

19 the corporation both from a technical standpoint and

20 also from a cultural standpoint as well. Charlie --

21 Ken comes from a commercial reactor standpoint and as

22 we've clearly expressed a number of times, we view

23 that we're on a fuel cycle -- we're a fuel cycle

24 company, which is a little different. But at least

25 the rigor, the technical rigor and the cultural rigor

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1 that comes from a commercial facility has been an

2 important input into the plant at Paducah and I think

3 also will be at Portsmouth as well.

4 They have provided an insight as to some

5 of the thinking of the NRC to help us prepare for

6 this. You have to appreciate that these are plants

7 that either on DOE or under their predecessor

8 organizations never really had an outside oversight.

9 So, there is a cultural change that is very important

10 and I think that it's interesting. I think, in

11 hindsight, it has turned out to be a fairly good idea

12 because you can see that there needs to be some change

13 on our part, some learning on our part about how, both

14 from a regulatory requirement and an enforcement

15 process what the NRC is looking for and this has

16 provided us, I think, an important interim period for

17 us to get ready for this, and so that it's not a black

18 and white but it has gone from a segue into a

19 regulatory process that is foreign to these plants

20 after 40 years.

21 COMMISSIONER de PLANQUE: Would you have

22 suggested any different way of doing it?

23 MR. TIMBERS: I don't think so at this

24 point. I am the person who basically is the manager

25 of this business. Doesn't necessarily look to hear

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1 all the good news, but I want to hear the bad news or

2 things that need to be improved. I find that that's

3 been an effective role that Charlie Cox and Ken

4 O'Brien have served in doing that.

5 I think that without having that interim

6 segue would have made the regulatory period that would

7 begin somewhat of a shock. I think that also the

8 process with DOE serving in it's regulatory function

9 now has helped that process as well. There's a

10 cultural change that I've described and it is taking

11 some time to do that. I can clearly say to you that

12 the USEC management and the GDP personnel have learned

13 from this process. I think from the oversight

14 process, I think DOE has learned from it as well.

15 So, I think by the time we get to a point

16 where we're under NRC regulation, certification has

17 been put into place, we'll be much better prepared

18 because we have had that kind of due diligence input

19 that NRC has provided in the past couple of months.

20 COMMISSIONER de PLANQUE: Okay. Thank

21 you.

22 CHAIRMAN SELIN: We've heard over the last

23 few years probably two or three dozen people

24 discussing their cost cutting plans in different

25 organizations. I have the impression that this is the

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1 first one where you didn't really concentrate on

2 reducing personnel, or is it a wrong impression?

3 Everything you've talked about, Mr.

4 Bennett, had to do with material condition and --

5 MR. TIMBERS: No. Actually that personnel

6 labor is a component of it.

7 CHAIRMAN SELIN: It is a component?

8 MR. TIMBERS: Yes.

9 MR. BENNETT: But we're not going after

10 personnel, we're going after functions that we don't

11 need to do. As those functions are eliminated, we

12 size the organization to match it.

13 CHAIRMAN SELIN: Sure. Yes.

14 MR. BENNETT: But the big gains have been

15 equipment.

16 CHAIRMAN SELIN: As people get laid off,

17 you know, you end up with more safety problems than

18 otherwise. You have disgruntled employees. You have,

19 you know, a tougher relationship, et cetera. In fact,

20 anything that changes the relationship that workers

21 are used to is always a potential source. I wonder if

22 you'd talk a little bit about what kind of numbers

23 you're talking about and how you're going to handle

24 that, and then maybe talk a little bit about

25 privatization because in the United States inevitably

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1 privatization also leads to reduced operating costs,

2 from our point of view, from a safety point of view.

3 MR. TIMBERS: From the standpoint of the

4 cost reduction program, we really are embarking on a

5 five year program here of reducing the operating

6 costs, which have a number of different components to

7 it, power costs, as much as we can, labor, materials,

8 things of that nature.

9 Bill, I don't know if you've identified

10 the specific labor amounts. I think that we probably

11 want to discuss that with our unions and organizations

12 first before we go public with that.

13 CHAIRMAN SELIN: Sure. But the real

14 question is, are they within attrition amounts or are

15 you talking about eventually ending up --

16 MR. TIMBERS: It would be a combination of

17 both attrition and layoffs as well over a five year

18 period, but I put it in the context -- you know, you

19 mentioned about privatization. I don't view

20 privatization of this corporation when it would occur

21 would be all of a sudden a black and white situation.

22 CHAIRMAN SELIN: Right.

23 MR. TIMBERS: I view this now as that we

24 are embarking upon those commercial activities of

25 restructuring a business, making it more efficient and

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1 more productive. We're doing that right now. We

2 started that in March of '93 so that by the time that

3 if privatization does occur it is more of an ownership

4 change than a philosophy, cultural or procedural

5 changes. We're putting those things into place now to

6 create value in this corporation and we're doing it,

7 I think, in a pretty careful way.

8 I have to emphasize too that we are very,

9 very concerned, and I personally have expressed this

10 to a number of different audiences and to the plant

11 itself about the importance of public safety and

12 health. I think it's short-sighted to make shortcuts

13 in that, because we're going to have to pay for it

14 later on in the future, so that whatever we do is

15 going to be done with a great deal of care, a great

16 deal of recognition of what is important, not only to

17 run the plants carefully, but we're in a business.

18 We're enriching uranium. We have cylinders of uranium

19 hexafluoride out in the fields and we're in the

20 nuclear environment here.

21 We are establishing our reputation today,

22 and, like anybody who is new on the block, it's best

23 to have a good reputation up front as opposed to

24 trying to fix it in the future, and that's one of the

25 basic principles that this management has put into

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1 this corporation. You can only lose your reputation

2 once and we're very, very conscious of running a sound

3 operation but one that is predicated on the good

4 principles of running it safely in terms of the public

5 health and safety. This is not just something I say

6 here, but it's something that I've been saying myself

7 for the past 20 months.

8 CHAIRMAN SELIN: Would you see the

9 privatization as a Conrail kind of privatization where

10 you really slim things down before you go public?

11 MR. TIMBERS: Yes.

12 CHAIRMAN SELIN: Not a savings and loan

13 bail-out where you turn the mess over to somebody

14 else?

15 MR. TIMBERS: No, because I think my --

16 what I have been asked to do as running this

17 corporation is to increase value to this corporation

18 and its operations, and that's so as to maximize the

19 value of the corporation to the Treasury, which is the

20 shareholder today. In order to do that, I think the

21 best way to do that is to have an efficient well-run

22 organization so that the time that privatization

23 occurs that all the benefits have been realized and

24 can be realized in terms of the value of the

25 corporation and the price that could be realized from

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1 it. Otherwise, I would think that that would be

2 leaving value on the table that could be realized by

3 shareholders in the future and I think that that would

4 not be giving the best kind of work and effort into

5 what basically the Congress and the Administration has

6 asked us to do.

7 CHAIRMAN SELIN: Well, you must be a great

8 public servant, Mr. Timbers, because most people who

9 take on that job have a lot more compensation that

10 goes with doing it. It's a very, very tough job that

11 you've taken on. It's always hard to do just what you

12 describe.

13 MR. TIMBERS: But I will say that the

14 rewards are from a standpoint of taking a business

15 that has been operating within the government gamut

16 for 40 years and having been given the authority by

17 the President and by the Congress to turn this thing

18 around, run it as an efficient operating business and

19 see if the assets of the government can be maximized

20 for a sale. That's a unique situation that comes

21 around in this government and I think that it's an

22 opportunity. If it's done right, it can be a

23 precedent for many other activities within the

24 government so that we're running not just this

25 government entity here, but I think that it has a lot

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1 of repercussions in the future as well.

2 CHAIRMAN SELIN: I'd like to make just one

3 other remark. We operate in the private sector in a

4 very complex environment. Cause and effect is pretty

5 hard to ascertain, so correlation is usually the best

6 that we can do.

7 Before you came on board, there seemed to

8 be just hundreds of problems that were going to come

9 up in doing the certification process. I have to say

10 that once you became putative and then actual CEO of

11 the USEC, not only have relations been smooth, but the

12 work has been very smooth, so it's almost certain that

13 you're due this credit and we're happy to acknowledge

14 this.

15 Thank you for coming. We look forward to

16 keeping in touch with you regularly. Maybe next time

17 you'll have some numbers to go with some of these

18 discussions about, you know, demand and manpower and

19 things like that. So, thank you for appearing,

20 especially on such short notice.

21 MR. TIMBERS: Thank you.

22 COMMISSIONER ROGERS: Thank you very much.

23 (Whereupon, at 10:58 a.m., the above-

24 entitled matter was adjourned.)

25

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 CERTIFICATE OF TRANSCRIBER

This is to certify that the attached events of a meeting

of the United States Nuclear Regulatory Commission entitled:

TITLE OF MEETING: BRIEFING BY U.S. ENRICHMENT CORPORATION

PLACE OF MEETING: ROCKVILLE, MARYLAND

DATE OF MEETING: AUGUST 31, 1994

were transcribed by me. I further certify that said transcription

is accurate and complete, to the best of my ability, and that the

transcript is a true and accurate record of the foregoing events.

Reporter's name: Peter Lynch

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