GAO 

United States General Accounting CMfke 

Testimony 

For Release The Future of DOE's Uranium Enrichment 

on Delivery 

Expected at 

lo:00 a.m. EST 

Wednesday 

August lo, 1988 

Program 

Statement of 

Keith 0. Fultz, Senior Associate Director 

Resources, Community, and Economic 

Development Division 

Before the 

Subcommittee on Energy and Power 

Committee on Energy and Commerce 

House of Representatives 

c 

GAO/T-RCED-88-59 / GAO Form 160 (12/87) 
Mr. Chairman and Members of the Subcommittee: 

We appreciate the opportunity to present our views on the 

future of the Department of Energy's (DOE) uranium enrichment 

program, which was established to promote national energy security 

goals while recovering government costs. My testimony today will 

focus on H.R.4489, H.R.4934, and H.R.4975. All three are titled 

the Uranium Revitalization, Tailings Reclamation and Enrichment Act 

of 1988 and would restructure the enrichment program as a 

government corporation while providing different means of financial 

support for the domestic uranium mining industry. Since H.R.4934 

and H.R.4975 are nearly identical, hereafter in this testimony we 

will refer only to H.R.4975. 

In summary, we have pointed out in reports and testimonies 

over the last several years that the Congress needs to reevaluate 

the enrichment program in light of"its cu'rrent business 

environment, establish clear objectives for it, and address its 

many problems. Both H.R.4489 and H.R.4975 would restructure the 

enrichment program as a government corporation subject to the 

Government Corporation Control Act. In general, we see merit to 

these proposals because they would enable the corporation to 

operate in a business-like manner with clear objectives. 

However, we do have some concerns about both H.R.4489 and 

H.R.4975. As you know, Mr. Chairman, the Atomic Energy Act 

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requires that the government's costs associated with producing 

enriched uranium be recovered over a reasonable period of time. At 

the end of fiscal year 1987, DOE had not recovered about $9 

billion. Both proposals would limit the recovery of past costs to 

the repayment of $364 million a:ld the receipt of stock issued by 

the corporation. Most of the amount repaid would be channeled into 

a fund that would be used to clean up uranium mill tailings and, in 

the case of H.R.4975, purchase domestic uranium ore. DOE 

officials told us in 1986 that they could operate competitively and 

price their services to recover about $3.4 billion. We believe 

that setting a low repayment amount ignores DOE's pricing strategy 

and the productive capability of the existing enrichment 

facilities. Therefore, we oppose setting the amount at only $364 

million. 

Also, both proposals would establish a fund to decontaminate 

and decommission the corporation's property. We should point out, 

however, that the proposals do not address the costs--estimated to 

be about $1 billion-- to decommission DOE's Oak Ridge plant nor do 

they specify how DOE will pay for these costs. 

Although we have not analyzed the impact of the proposals on 

the domestic uranium market, we have some observations to offer. 

Both H.R.4489 and H.R.4975 would establish a fund to clean up mine 

sites. In addition, H.R.4489 would impose fees on utilities based 

on the amount of foreign ore used in their nuclear power plants, 

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and H.R.4975 would provide for the purchase of at least $750 

million of uranium ore from domestic producers. However, DOE 

already has a substantial stockpile of ore that it does not expect 

to deplete for at least 10 years. 

Before we provide a more detailed discussion of our views on 

these proposals, I will briefly describe DOE's enrichment 

activities and highlight the principal features of the proposals. 

OVERVIEW OF THE URANIUM ENRICHMENT PROGRAM 

The federal government has enriched uranium for national 

defense purposes and commercial nuclear power plants for over 30 

years. Throughout the 197Os, the expected growth of nuclear power 

led DOE to expand enriched uranium production capacity at its three 

gaseous diffusion plants, begin construction of a large-scale gas 

centrifuge enrichment plant, and accumulate a stockpile of 

enriched uranium. 

However, the anticipated demand for U.S. enrichment services 

did not materialize, and foreign suppliers cut into DOE's domestic 

and foreign markets. By 1986 the program was beset by many 

problems that left it facing a bleak financial future. The 

problems included (1) multibillion dollar payments for electricity 

not used under long-term contracts with the Tennessee Valley 

Authority (TVA), (2) market uncertainties due to ongoing litigation 

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with domestic uranium miners over possible restrictions on DOE's 

enrichment of foreign uranium ore, (3) potentially large 

decommissioning and environmental costs for the aging plants, and 

(4) billions of dollars in unrecovered costs. 

Some of these problems have been resolved. For example, on 

December 31, 1987, TVA and DOE agreed to set the costs for unused 

power at about $1.8 billion through 1994 when the contracts expire. 

In addition, recently the U.S. Supreme Court rendered a decision on 

the domestic uranium miners lawsuit. In effect, the ruling 

provides that DOE has to restrict the enrichment of foreign 

uranium ore only if the restriction would make the domestic uranium 

industry viable. 

PRINCIPAL FEATURES OF THE 

PROPOSED LEGISLATION 

Today we will discuss some of the principal features of 

H.R.4489 and H.R.4975. Both are similar to S.2097, the Uranium 

Revitalization, Tailings Reclamation and Enrichment Act of 1987, 

passed by the Senate on March 30, 1988. H.R.4489 proposes, among 

other things, to: 

-- Restructure DOE's enrichment program as a government 

corporation subject to most provisions of the Government 

Corporation Control Act. 

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-- Require the corporation to issue capital stock to the 

United States based on the 1987 book value of the 

program's assets. The United States cannot sell, transfer, 

or convey the stock until authorized by law. 

-- Require the corporation to repay $364 million within 20 

years. The $364 million, called the initial debt, and the 

stock issued by the corporation would represent the 

recovery of all past costs. 

-- Authorize the corporation to borrow up to $2.5 billion from 

the private sector by issuing bonds that would not be 

government obligations or explicitly guaranteed by the 

government. 

-- Establish a decontamination and decommissioning fund for 

the corporation's property. 

-- Exempt the corporation from licensing by the Nuclear 

Regulatory Commission. 

H.R.4489 would also establish a uranium mill tailings fund to 

clean up specified sites. The fund would be administered by the 

Secretary of Energy. Contributions to the fund would be made by 

states, mine owners, and utilities with licensed nuclear power 

plants. In addition, the federal government would contribute $300 

5 
million, primarily funded by the corporation's repayment of the 

initial debt. H.R.4489 would also impose fees on domestic 

utilities based on the amount of foreign uranium ore used in their 

nuclear power plants. 

Although H.R.4975 has many similarities to H.R.4489, it also 

contains a number of differences. For example, it would establish 

a uranium revitalization fund made up of contributions from states, 

mine owners, fees from utilities to total $1 billion, and $450 

million from the new corporation ($300 million from the repayment 

of the initial debt and $150 million from sales). The fund would 

be used to clean up mining sites and purchase at least $750 million 

of domestic ore through 1994. In addition, the proposal would 

require the Nuclear Regulatory Commisssion to promulgate licensing 

regulations within 4 years from the date of enactment and would 

require the new corporation to seek a license as soon as possible 

after the new regulations take effect. However, the proposal would 

not impose a fee on utilities that use foreign ore. 

GAO'S VIEWS ON THE 

PROPOSED LEGISLATION 

We believe that the Congress must answer three key questions 

in deciding the future of the enrichment program. 
1. 

2. 

3. 

What is the appropriate organizational structure for the 

program? 

What amount of past costs should be recovered? 

What should DOE (or the new corporation) do for the 

domestic uranium mining industry? 

Let me briefly discuss our views on both proposals as they relate 

to these three questions and suggest some modifications for your 

consideration. 

Future Structure of the Enrichment Program 

Both the administration and DOE believe that the enrichment 

program should be restructured as a governmnt corporation. 00th 

contend that this structure would allow the enterprise to operate 

in a competitive, business-like manner with clearer objectives, 

free it from government budgetary and other limitations, and permit 

more flexible relations with its customers. 

Because of government budgetary restrictions, DOE has taken 

cost-cutting actions that may threaten its ability to be 

competitive in the future. For example, DOE cut fiscal year 1987 

production costs by meeting demand from enriched uranium 

inventories. After the inventory is depleted, DOE may be forced to 

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produce at uneconomic levels to meet demand by operating at higher 

production levels that use large amounts of electricity. If this 

occurs, DOE estimates that costs could increase by about $80 

million over the next 4 to 5 years. In another attempt to cut 

costs, DOE did not request fiscal year 1988 funds for research on 

an energy-efficient laser technology, although research and 

development is 3 to 5 years ahead of foreign competitors and offers 

the best long-term hope for the enrichment program to be 

competitive. The Congress, however, restored funds for this 

program. 

Although we generally oppose new government corporations, we 

recognize that under certain conditions they are justified. The 

enrichment program meets many of the criteria generally believed to 

be conducive to corporate management, such as performance of a 

business function requiring many transactions with the private 

. sector. ', However, if a uranium enrichment corporation is formed, we 

believe it should be subject to the Government Corporation Control 

Act. The act requires the corporation's finances to be part of the 

federal budget and sets forth, in part, audit and budget oversight 

provisions that may not apply to other federally chartered 

corporations. H.R.4489 and H.R.4975 would establish a government 

corporation. 

In addition, both proposals would require an independent 

accounting firm to audit the financial statements of the 

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corporation in those years that we do not conduct a financial 

audit. The proposals would also require us to review each of the 

accounting firms' audits. Although we strongly support the use of 

independent audits, we would prefer to review them at our 

discretion rather than being required to do so. 

Past Unrecovered Costs 

Although present legislation requires the recovery of all 

government costs, we recognize that the existing program cannot 

expect to generate revenues sufficient to pay past costs that 

totaled about $9 billion at the end of fiscal year 1987. According 

to DOE, no price for its enrichment services would generate sales 

over the next 10 years sufficient to recover this amount, unless 

domestic utilities were required to purchase from DOE. 

Because we recognize that full cost recovery is not feasible, 

we recommended in our October 1987 report, Uranium Enrichment: 

Congressional Action Needed to Revitalize the Program (GAO/RCED-88- 

181, that the Congress allow DOE to write off the costs associated 

with unproductive program assets. This action, although requiring 

a change in existing legislation, would follow generally accepted 

accounting principles and would provide a practical approach for 

helping to resolve the problem of unrecovered costs. By writing 

off unproductive assets in 1984 and 1985 (without legal authority), 

DOE reduced the unrecovered costs at that time to about $3.4 

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billion. DOE officials told us that the write-off allows the 

program to operate competitively and generate revenues to recover 

the $3.4 billion. By setting a much lower repayment amount, 

H.R.4489 and H.R.4975 ignore DOE's pricing strategy and the 

productive capability of the existing enrichment facilities. 

Therefore, we oppose setting the repayment amount at only $364 

million. We also note that a substantial portion of the $364 

million--$300 million under both proposals--would be directed to 

the clean up of mine sites and/or the purchase of domestic ore. 

We would like to make one other point concerning program 

costs. We believe that DOE needs to act now on its responsibility 

to decontaminate and decommission the enrichment plants. We have 

long supported the concept that decommissioning costs should be 

paid by the current beneficiaries of the service received. 

However, DOE has not collected even $1 to decommission its three 

diffusion plants, although the Oak Ridge plant is shut down. In 

our 1987 report, we recommended that the Congress require DOE to 

recover decommissioning costs. Both proposals would require the 

corporation to establish a fund for future decommissioning 

activities and to assess the costs and needed revenues every 2 

years. However, the proposals would not transfer the Oak Ridge 

plant to the new corporation. Its decommissioning costs-- 

estimated to be over $1 billion (1987 dollars)--will remain DOE's 

responsibility. In addition, neither proposal specifies how DOE 

will pay these costs. 

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Uranium Miners 

Section 161(v) of the Atomic Energy Act requires DOE to 

restrict the enrichment of foreign uranium to the extent necessary 

to ensure a viable U.S. uranium mining industry. Since 1984, DOE 

has concluded that the industry is not viable but has not taken any 

action to revive it, such as restricting the enrichment of foreign 

uranium ore. DOE has stated that such action would not be 

sufficient to revive the industry and could cause its customers to 

turn to foreign enrichment suppliers, The uranium miners argue 

that DOE's concerns are not valid because foreign enrichment 

suppliers do not have excess capacity to meet the needs of DOE's 

customers and would not add new capacity because of their concerns 

that the Congress might limit the importation of foreign enriched 

uranium. 

In December 1984, several uranium producers filed suit asking 

the U.S. District Court in Colorado to order DOE to, among other 

things, limit imports of foreign uranium to ensure the U.S. uranium 

industry's viability. The court ruled in favor of the miners, but 

on June 15, 1988, the U.S. Suprem Court ruled in effect that DOE 

has to restrict the enrichment of foreign uranium ore only if such . 

restrictions would make the domestic uranium industry viable. 

Both H.R.4489 and H.R.4975 would provide support to the U.S. 

uranium mining industry. The method of support, however, differs 

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between the proposals. H.R.4489 would impose a fee on utilities 

based on the amount of foreign uranium ore used in their nuclear 

power plants through the year 2000. On the other hand, H.R.4975 

would require the new corporation to purchase at least $750 million 

of domestic ore through a competitive bid process. 

We have not assessed the impact of either proposal on the 

uranium market. However, we would like to point out that DOE 

already has a uranium ore inventory that it uses to meet defense 

production needs and optimize production costs. DOE expects to use 

some of the inventory-- from about 1,500 to 5,000 metric tons per 

year --to reduce production costs. As of December 1987, DOE's 

inventory totaled about 53,000 metric tons. Thus, the 

administration's proposal will substantially increase an already 

sizable inventory that will not be depleted for at least 10 years. 

In summary, we believe that both proposals provide a 

mechanism to establish clear objectives for the enrichment program 

and address some of its problems. However, we strongly suggest, 

Mr. Chairman, that you and the Subcommittee establish a higher cost 

repayment goal. In addition, we are concerned that the potentially 

high cost to decommission the Oak Ridge plant is not addressed by 

these proposals and that a stockpile of uranium ore already exists 

to meet defense and other needs. 

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We hope our views and suggestions are useful to you in the 

legislative process. We would be pleased to respond to any 

questions you or the Members of the Subcommittee may have. 

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