Uranium Enrichment: Decontamination and Decommissioning Fund Is Insufficient to Cover Cleanup Costs
Published: 2004-07-02T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Decontaminating and decommissioning the nation's uranium enrichment plants, which are contaminated with hazardous materials, will cost billions of dollars and could span decades. In 1992, the Energy Policy Act created the Uranium Enrichment Decontamination and Decommissioning Fund (Fund) to pay for the plants' cleanup and to reimburse licensees of active uranium and thorium processing sites for part of their cleanup costs. This report discusses (1) what DOE has done to reduce the cleanup costs authorized by the Fund, and (2) the extent to which the Fund is sufficient to cover authorized activities.
section_title: What GAO Found
paragraphs: The Department of Energy (DOE) has taken steps to reduce cleanup costs by taking actions that address recommendations made by the National Academy of Sciences and by pursuing an accelerated, risk-based cleanup strategy at the plants. In some cases, however, DOE has only partially addressed the Academy's recommendations. For example, one recommendation suggested that DOE develop three plans--namely, headquarters level, plant-complex level, and site level--that address and integrate the decontamination and decommissioning of the facilities. Only one plant has developed a plan, however. Additionally, DOE is pursuing an accelerated, risk-based cleanup strategy at the plants that it believes will reduce cleanup costs. According to DOE officials, an accelerated, risk-based strategy will accelerate time frames for cleanup, and establish "realistic cleanup criteria" in DOE's regulatory cleanup agreements. Despite DOE efforts to reduce costs, we found that based on current projected costs and revenues, the Fund will be insufficient to cover the cleanup activities at the three plants. Specifically, our Baseline model demonstrated that by 2044, the most likely time frame for completing cleanup of the plants, costs will have exceeded revenues by $3.5 billion to $5.7 billion (in 2004 dollars). Importantly, we also found that the Fund would be insufficient irrespective of which model we used, including models that estimated the final decommissioning at the plants under (1) accelerated time frames, (2) deferred time frames, or (3) baseline time frames, and with additional revenues from federal government contributions as authorized under current law. Because the Paducah and Portsmouth plants are now estimated to cease operations by 2010 and 2006, respectively, extending the Fund by an additional 3 years would give DOE an opportunity to develop plans, including more precise cost estimates, for the cleanup of these plants and to better determine if further Fund extensions will be necessary.

section_title: Letter
paragraphs: Decontaminating and decommissioning the Department of Energy’s three  uranium enrichment plants—located near Oak Ridge, Tennessee; Paducah,  Kentucky; and Portsmouth, Ohio—will cost billions of dollars and could  span several decades. These plants, which encompass more than 30 million  square feet of floor space, miles of interconnecting pipes, and thousands of  acres of land, are contaminated with radioactive and hazardous materials.  The Department of Energy’s (DOE) Office of Environmental Management  is responsible for cleanup of the three plants. Cleanup activities include  assessing, treating, and disposing of the contamination found at the plants  and the decontamination and decommissioning (D&D) of inactive facilities.  DOE conducts its cleanup activities under the requirements of several  federal environmental laws and compliance agreements with relevant  regulatory authorities, including the Environmental Protection Agency and  state regulatory agencies. While DOE estimates that all cleanup work at the  Oak Ridge plant will be complete by 2008, the Paducah and Portsmouth  plants may continue operations for the next several years, and DOE has  not determined when the final decontamination and decommissioning of  these two plants will begin.
In 1992, the Energy Policy Act, as amended, established the Uranium  Enrichment Decontamination and Decommissioning Fund (Fund) to pay  for the cleanup of the three plants. The Fund also covers the  reimbursement of a portion of the cleanup costs to licensees of active  uranium and thorium processing sites that previously sold these materials  to the federal government. The Congress authorized annual contributions  to the Fund for 15 years (ending in 2007), to be made by government  appropriations and payments from domestic utility companies that utilized  the enriched uranium produced by these plants for nuclear power  generation. The Congress specified that any unused balances in the Fund  be invested in Treasury securities and any interest earned be made  available to pay for activities covered under the Fund. In creating the Fund,  the Congress also required the National Academy of Sciences (Academy) to  undertake a study to assess the opportunities for cost reduction in carrying  out the D&D work at the three plants. In response, the Academy issued a  report in 1996 that included 13 major recommendations to reduce D&D  costs at the three plants.
As directed by Public Law 107-222, we conducted a review of the  sufficiency of the Fund. This report discusses (1) what actions DOE has  taken to reduce the cleanup costs the Fund is authorized to support, and  (2) the extent to which the Fund is sufficient to cover authorized activities.
To determine what actions DOE has taken to reduce the cleanup costs the  Fund is authorized to support, we reviewed the National Academy of  Sciences’ report that identified major cost reduction recommendations for  the nation’s three uranium enrichment plants. We met with Academy  officials to gain further information about the study, and with DOE and its  contractor officials at each of the plants to determine the extent to which  DOE has taken actions to address the recommendations. While we were  able to obtain information on actions taken to date, DOE could not  determine whether the actions were taken as a result of the Academy’s  recommendations. DOE was also generally unable to provide information  regarding the cost savings, if any, achieved by implementing these actions.  To determine other steps DOE has taken to reduce cleanup costs, we  visited all three plants and interviewed DOE and contractor officials from  DOE headquarters, the Oak Ridge Operations Office, the Lexington Office,  and the site offices at each of the three plants. Additionally, we obtained  and analyzed documentation regarding DOE’s accelerated cleanup strategy  at the Oak Ridge and Paducah plants, as well as each of the three plants’  draft risk-based end state vision documents, to better understand DOE’s  proposed options for consideration. We also interviewed regulatory  authorities responsible for overseeing cleanup activities at the plants,  including officials at the Environmental Protection Agency and state  regulatory agencies in Kentucky, Ohio, and Tennessee.
To assess the sufficiency of the Fund to pay for the total projected costs of  the Fund’s authorized activities, we interviewed DOE and contractor  officials responsible for the Fund’s financial data and obtained DOE’s  current estimates for uranium and thorium reimbursement costs, the  cleanup costs at the three plants, and the current and likely revenue  projections. We assessed the reliability of this data and determined that the  data were sufficient for the purposes of our report. We used the data to  develop a number of simulation models that factored in the cost and  revenue projections on an annual basis and uncertainties surrounding  inflation rates, interest rates, costs, revenues, and the timing of the final  D&D work at the Paducah and Portsmouth plants. See appendix I for a  detailed description of our modeling methodology, assumptions, and  results. We interviewed DOE and contractor officials from DOE  Headquarters, the Oak Ridge Operations Office, the Lexington Office, and  the site offices at each of the three plants, as well as officials from the  federal and state regulatory offices party to the plants’ cleanup agreements.  We also toured the Oak Ridge plant to identify the major uncertainties that  could impact future cleanup costs at the plants. Our scope and  methodology are presented at the end of this report. We performed our  work between September 2003 and March 2004 in accordance with  generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: The federal government has enriched uranium for use by commercial  nuclear power plants and for defense-related purposes for more than 40  years at three plants located near Oak Ridge, Tennessee; Paducah,  Kentucky; and Portsmouth, Ohio (see fig. 1). These uranium enrichment  plants are largely obsolete, however, due to the emergence of newer, more  efficient technologies and the globalization of the uranium enrichment  market. DOE now faces the task of decontaminating, decommissioning,  and undertaking other remedial actions at these large and complex plants  that are contaminated with hazardous industrial, chemical, nuclear, or  radiological materials.
In 1991, at the request of the House Subcommittee on Energy and Power,  GAO analyzed the adequacy of a $500 million annual deposit into a fund to  pay for the cost of cleanup at DOE’s three uranium enrichment plants. We  reported that a $500 million deposit indexed to an inflation rate would  likely be adequate, assuming that deposits would be made annually into the  fund as long as cleanup costs were expected to be incurred, which at the  time of the study was until 2040. Additionally, in a related report we  concluded that the decommissioning costs at the plants should be paid by  the beneficiaries of the services provided—in this case, DOE’s commercial  and governmental customers.
In 1992, the Congress passed the Energy Policy Act, which established the  Uranium Enrichment Decontamination and Decommissioning Fund (Fund)  to pay for the costs of decontaminating and decommissioning the nation’s  three uranium enrichment plants. The Energy Policy Act also authorized  the Fund to pay remedial action costs associated with the operation of the  plants to the extent funds are available and to reimburse uranium and  thorium licensees for the portion of their cleanup costs associated with the  sale of these materials to the federal government. The Energy Policy Act  authorized the collection of revenues for 15 years to pay for authorized  cleanup costs. The revenues are derived from: (1) an assessment on  domestic utilities of up to $150 million annually, based on a ratio of their  purchases of enriched uranium to the total purchases from DOE, including  those for defense; and (2) federal government appropriations for the  difference between the authorized funding under the Energy Policy Act and  the assessment on utilities. In addition, the Energy Policy Act provided  that balances in the Fund be invested in Treasury securities and any  interest earned be made available to pay for activities covered under the  Fund.
DOE’s Office of Environmental Management is responsible for  management of the Fund and cleanup activities at the three plants, which,  through fiscal year 2003, were mostly carried out by its contractor, Bechtel  Jacobs. The department’s Oak Ridge Operations Office in Oak Ridge,  Tennessee, had historically provided the day-to-day management of the  Fund and oversight of the cleanup activities at all three uranium  enrichment plants. However, in October 2003, DOE established a new  office in Lexington, Kentucky, to directly manage the cleanup activities at  the Paducah and Portsmouth plants. The Oak Ridge Operations Office  continues to manage the Fund and the cleanup activities at the Oak Ridge  plant.
Currently, the Fund is used to pay for the following activities:  Reimbursements to uranium and thorium licensees. The Energy  Policy Act provides that the Fund be used to reimburse licensees of  active uranium and thorium processing sites for the portion of their  decontamination and decommissioning activities, reclamation efforts,  and other cleanup costs attributable to the uranium and thorium  materials they sold to the federal government.
Cleanup activities at the three uranium enrichment plants. Cleanup  activities at the plants include remedial actions, such as assessing and  treating groundwater or soil contamination; waste management  activities, such as disposing of contaminated materials; the surveillance  and maintenance of the plants, such as providing security and making  general repairs to keep the plants in a safe condition; the  decontamination and decommissioning (D&D) of inactive facilities by  either cleaning up the facilities so they could be reused or demolishing  them; and other activities, such as litigation costs at the three plants and  funding to support site-specific advisory boards. See figure 2 for an  example of the D&D process, including before, during, and after D&D  work is complete at a facility.
From fiscal year 1994, when the Fund began incurring costs, through fiscal  year 2003, a total of $3.2 billion (in 2004 dollars) from the Fund has been  spent on the uranium and thorium reimbursement program and cleanup  activities—remedial actions, waste management, surveillance and  maintenance, decontaminating and decommissioning, and other  activities—at the three uranium enrichment plants (see fig. 3).
Surveillance and maintenance ($500 million)
Decontamination and decommissioning ($591 million)
Remedial actions ($1.3 billion)
The Oak Ridge uranium enrichment plant, known as the East Tennessee  Technology Park, is located on 1,500 acres of land just outside of Oak  Ridge, Tennessee. It is the oldest of the three plants and has not produced  enriched uranium since 1985. According to DOE officials, while most of the  remedial actions and D&D work remain, the majority of the key regulatory  decision documents are in place and the agency is now positioned to begin  implementing the cleanup work. DOE currently plans to complete all  cleanup at the plant and close the site by the end of fiscal year 2008.
The Paducah plant, located on about 3,500 acres of land west of Paducah,  Kentucky, continues to enrich uranium for commercial nuclear power  plants under a lease to a private company, the United States Enrichment  Corporation (USEC). According to USEC’s director of communications, for  planning purposes USEC assumes that the plant will continue operations  until about 2010. Because the plant is still operating, DOE has initiated a  limited amount of D&D. However, it is currently undertaking studies and  implementing a series of remedial actions while the plant is in operation,  and estimates that it will complete these actions by 2019. DOE has not yet  determined when it will begin D&D of the facilities currently in use (final  D&D).
The Portsmouth plant, a 3,700-acre site located north of Portsmouth, Ohio,  ceased enriching uranium in May 2001, due to reductions in the commercial  market for enriched uranium. Later that year, the plant was placed on cold  standby, so that production at the facility could be restarted in the event of  a significant disruption in the nation’s supply of enriched uranium.   Current plans call for maintaining the plant in cold standby until September  2006, though a recent DOE Inspector General’s report found that DOE has  not established a well-defined endpoint for the cold standby program and  extensions to the program may be possible. While D&D of the facilities  currently on cold standby (final D&D) has not yet been initiated, DOE has  been working on remedial actions at several contaminated areas. DOE has  not yet determined when final D&D will begin at the Portsmouth plant.
section_title: DOE Has Taken Several Actions to Reduce Cleanup Costs
paragraphs: DOE has taken several steps to reduce cleanup costs by taking actions  consistent with the National Academy of Sciences’ (Academy) cost  reduction recommendations and by pursuing an accelerated, risk-based  cleanup strategy at the uranium enrichment plants. DOE has adopted  measures that address most of the Academy’s major cost  recommendations, such as conducting focused technology demonstrations  to improve the decontamination and decommissioning process. DOE is  also pursuing an accelerated cleanup strategy at the Oak Ridge and  Paducah plants to accelerate the time frames for conducting cleanup,  which it expects will reduce operational costs. In addition, DOE is  revisiting each plant’s envisioned end state—the anticipated land use after  the completion of cleanup efforts—to determine if cleanup at each of the  plants is based on a technical risk assessment appropriate for the sites’  future land use.  According to DOE, this risk-based end state approach  focuses DOE’s environmental cleanup efforts in a way that is both cost  effective and protective of human health and the environment. However,  state and federal regulators have voiced concerns that if cleanup  agreements must be renegotiated, the cleanup could be delayed and result  in increased costs.
subsections: section_title: DOE Has Taken Actions That Address the National Academy of Sciences’ Cost Reduction Recommendations
paragraphs: DOE has taken actions consistent with most of the 13 major cost reduction  recommendations made by the Academy in its 1996 report on opportunities  for D&D cost reductions at the three plants. These recommendations  suggested a variety of cost reduction measures, including developing  specific technologies and suggestions for planning, management, and  regulatory coordination. Table 1 shows the focus and status of the  Academy’s recommendations.
As table 1 shows, DOE took actions that address 6, or almost half, of the  Academy’s 13 recommendations. For example, the Academy recommended  that DOE convert depleted uranium hexafluoride—a byproduct of the  uranium enrichment process—to a more stable chemical form for storage  or disposal. DOE recently awarded a contract to construct and operate  conversion facilities at both Paducah and Portsmouth. In March 2004, DOE  began shipping the cylinders of depleted uranium hexafluoride stored at  Oak Ridge to Portsmouth for conversion.
For another 6 recommendations, DOE took actions that partially  implemented the recommendations—either initially taking actions that  implemented the recommendation and then later modifying its approach,  or taking actions that addressed only a portion of the recommendation or  only one of the three plants. For example, the Academy recommended that  DOE develop three plans—namely, headquarters level, plant-complex level,  and site level—that address and integrate the D&D of the facilities,  environmental remediation activities, and the management of depleted  uranium hexafluoride. DOE has not developed a headquarters-level or  plant complex-level D&D plan that addresses and integrates D&D of all  three plants with other DOE activities. Oak Ridge is the only plant with an  agreed-upon D&D plan that incorporates D&D, other cleanup activities,  and the management of depleted uranium hexafluoride. The Paducah plant  currently has a plan that lays out DOE’s approach for a portion of its  cleanup, but the plan does not address final D&D. DOE does not have a  D&D plan for the Portsmouth plant. However, the DOE site manager said  the agency is currently working to develop a Portsmouth strategic plan that  will address final D&D, other cleanup activities, and management of  depleted uranium hexafluoride.
DOE officials told us they have achieved cost savings as a result of the  actions they have taken that address the Academy’s recommendations.  However, in most cases they were not able to quantify the cost savings  achieved because the actions taken were either improvements to processes  or procedures already in place or because they have not quantitatively  evaluated the savings. For example, the Academy recommended that DOE  consider the technical and management approaches successfully used for  the D&D of the Capenhurst uranium enrichment plant in the United  Kingdom. According to DOE officials, they considered the technical and  management approaches used at both the Capenhurst plant and other U.S.  D&D projects before beginning D&D efforts at Oak Ridge and have, in  several cases, contracted with experienced environmental management  contractors (who have participated in decommissioning activities at these  sites) to take advantage of their expertise and knowledge. However, DOE  has not quantitatively evaluated the financial savings from these efforts.
In one instance, DOE has not taken action to implement the Academy’s  recommendation because the recommendation made by the Academy is no  longer applicable. The Academy recommended that DOE establish a  modest research program to develop methods to decontaminate diffusion  barrier material effectively. According to DOE officials, such research is  no longer needed because the material is placed into an on-site disposal  facility, eliminating the need for decontamination. DOE has constructed an  on-site disposal facility at Oak Ridge, and similar facilities are being  considered for both Paducah and Portsmouth. Appendix II provides  additional details on the Academy’s recommendations and the actions that  DOE has taken to address them.
section_title: DOE Is Pursuing an Accelerated, Risk-Based Cleanup Strategy at the Plants to Reduce Costs
paragraphs: DOE is pursuing an accelerated cleanup strategy at the Oak Ridge and  Paducah plants. Adopted after a 2002 review of DOE’s environmental  management program found that only about one-third of the program’s  budget went to actual cleanup work, this accelerated cleanup strategy is  intended to reduce the time needed to complete the cleanup of sites.   DOE says that by implementing cleanup actions more quickly, it can reduce  the amount it spends on maintenance, fixed costs, and other activities  required to support safety and security. At the Oak Ridge plant, DOE plans  to accelerate the plant’s cleanup and closure time frame from 2016 to 2008.  DOE estimates that this acceleration in cleanup and closure could achieve  cost savings of $465 million. DOE has also proposed an accelerated  cleanup plan for the Paducah plant. This plan, submitted to state and  federal regulatory authorities for approval in November 2003 and approved  in April 2004, establishes (1) a series of prioritized response actions, (2)  ongoing site characterizations to support future response action decisions,  and (3) decontamination and decommissioning of the currently operating  gaseous diffusion plant once it ceases operations. DOE’s plan reduces the  time frame for completing the prioritized response actions from 2030 to  2019 and could, according to DOE estimates, save about $288 million. DOE  is continuing negotiations with state and federal regulatory authorities in  hopes of further reducing the time frame for completion of the prioritized  response actions. However, as we reported in April 2004, the total scope of  the cleanup at Paducah is unclear.  Furthermore, DOE has not yet  determined when D&D of the plant facilities currently in use will begin.
DOE is also revisiting each plant’s envisioned end state to determine if  cleanup at each plant is based on a technical risk assessment appropriate  for the sites’ future land use. The 2002 environmental management review  found that the current cleanup approach and, in some cases,  interpretations of DOE’s policy orders and requirements, as well as laws,  regulations, and cleanup agreements, were too conservative and created  obstacles to achieving the timely cleanup of the plants. As a result, DOE  required each of its environmental management sites, including the three  plants, to develop a risk-based “vision” to identify acceptable risk levels  consistent with the site’s future land use, including an analysis that  identified the differences between the current end state and one that is  based on a risk assessment. Each of the uranium enrichment plants has  developed a draft risk-based end state vision that is currently under review  by DOE headquarters, state and federal regulatory officials, and local  stakeholders. Once these visions are approved, the plants will re-evaluate  their strategic approaches and cleanup activities to determine if  renegotiating cleanup agreements is appropriate. According to DOE  officials, if it is determined that changes are necessary, any changes would  be made in accordance with all applicable requirements and procedures,  including public involvement and regulatory approval. However, state and  federal regulators with whom we spoke are concerned that if the plants are  required to renegotiate cleanup agreements as a result of proposed  changes, the cleanup process could be delayed, in turn resulting in  increased costs. For instance, federal and state regulatory officials at Oak  Ridge are concerned that, given the amount of work remaining and the  short time frame for the plant’s closure, DOE might be unable to meet its  projected 2008 closure date if respective parties have to renegotiate already  agreed-upon cleanup standards.
section_title: Based on Current Projected Costs and Revenues, the Fund Will Not Be Sufficient to Complete Cleanup at the Three Plants
paragraphs: Despite DOE efforts to reduce costs, we found that based on current  projected costs and revenues, the Fund will be insufficient to cover  authorized activities. We determined that the Fund will be sufficient to  cover the reimbursements to the uranium and thorium licensees. However,  our Baseline model demonstrated that by 2044, the most likely time frame  for completion of cleanup at the three plants, cleanup costs will have  exceeded revenues by $3.5 billion to $5.7 billion (in 2004 dollars).  Importantly, we found that the Fund would be insufficient irrespective of  which estimates we used, including models that estimated the final cleanup  work at the plants under (1) accelerated time frames, (2) deferred time  frames, or (3) baseline time frames, and with additional contributions to  the Fund equaling the difference between the amounts that have been  appropriated to date and the total amount authorized under the Energy  Policy Act. Given the numerous uncertainties surrounding the cleanup  work at the nation’s three uranium enrichment plants, it is not possible to  more precisely determine the total resources needed to cover the Fund’s  authorized activities until DOE has better information about such factors  as the dates for beginning and completing the decommissioning work at the  Paducah and Portsmouth plants.
Our Baseline model demonstrated that by the time all cleanup at the plants  is completed, costs will have exceeded revenues by $3.5 billion to $5.7  billion (in 2004 dollars). The Baseline model was developed using cost  estimates that assumed cleanup, including the decontamination and  decommissioning of all facilities (final D&D), would occur by 2044. This  time frame was developed in consultation with DOE officials about what  the most likely cleanup time frames would be. It is important to note,  however, that DOE has not yet made a decision about when the final D&D  will occur at the Paducah and Portsmouth plants.
Because DOE has not determined when final D&D will begin at the  Paducah and Portsmouth plants, we also developed two alternative  models—Accelerated and Deferred—to assess whether the timing of the  final D&D work at these plants would have a significant impact on the total  costs. Total cleanup time was reduced by 20 years in the Accelerated model  and increased by 8 years in the Deferred model. The timing of D&D can  affect total cleanup costs because, among other things, each plant must pay  significant annual security and maintenance costs that will be incurred as  long as DOE maintains facilities on the sites. For example, at the Paducah  plant, the safeguarding and security costs after the plant is shut down are  projected to be more than $26 million annually (in 2004 dollars).
We found that irrespective of what model we used—Accelerated or  Deferred—the Fund will be insufficient to cover the projected cleanup  costs at the uranium enrichment plants. In present value, the Fund  deficiency would range from a high of $3.8 billion in the Accelerated model  to a low of $0.63 billion in the Deferred model. Thus, while accelerating or  deferring the cleanup at the Paducah and Portsmouth plants could affect  overall costs, the Fund would still be insufficient to cover the total cleanup  costs irrespective of the time frames of final D&D at the Paducah and  Portsmouth plants.
Because federal contributions to the Fund have been less than the  authorized amount, we also developed two models to assess the affect of  additional contributions from government appropriations. First, we  developed a model—Revenue Added—that continued government  contributions to the Fund until they equaled the total amount authorized  under the Energy Policy Act. Building on this model, we developed an  additional Revenue Added Plus Interest model that calculated and added to  the Fund the interest that would have been earned if all authorized  government contributions had been made. We found that under both  models, despite additional revenues, the Fund would still be insufficient to  cover all cleanup costs. In present value, the Fund deficiency would range  from a high of $2.6 billion in the Revenue Added model to a low of $0.09  billion in the Revenue Added Plus Interest model. Even if the full amount of  funds authorized by law were appropriated, and interest accrued on this  additional amount, cleanup costs would still exceed revenues.
While our analysis was able to capture several uncertainties surrounding  the Fund—including interest rates, inflation rates, cost and revenue  variances, and the timing of final D&D—there are additional uncertainties  we were unable to capture, including uncertainties due to possible changes  in the scope of the cleanup; whether the Fund will be required to pay for  additional activities, such as long-term groundwater monitoring once the  plants are closed; as well as potential litigation costs the Fund would have  to support. Significant changes in the scope of the cleanup work could  impact the costs of cleanup activities at the plants. For example, a recent  risk analysis exercise completed by DOE for the Paducah plant indicated  that such changes could increase cleanup costs by more than $3 billion and  extend the time frame for cleanup to more than 30 years past the original  scheduled end date of 2019. Additionally, uncertainties surrounding waste  disposal at the Paducah and Portsmouth plants could significantly impact  cleanup costs. Current DOE cost estimates assume that on-site disposal  facilities will be built, which would minimize waste transportation costs.
These facilities have yet to be constructed at the plants or agreed upon by  regulatory authorities. However, if DOE is not able to build these on-site  facilities, waste disposal costs could increase substantially. For example, at  the Portsmouth plant, contractor officials estimated that if they have to  ship all of the waste off site, disposal would cost at least $515 million (in  2002 dollars) more than the projected cost of disposing of the waste in an  on-site facility.
Further, there may be additional activities the Fund is required to support  that are not currently included in DOE’s cost projections. For example,  after each site has completed all of the necessary cleanup work, there will  be long-term stewardship costs at the plants, such as continual  groundwater monitoring. Currently, DOE officials assume these long-term  stewardship costs will be covered by a separate funding source. Similarly,  the costs to store and dispose of each plant’s depleted uranium  hexafluoride are currently covered by a separate appropriation. However,  DOE officials acknowledge that if another funding source is not available  for these costs, they may be required to use resources from the Fund.
Finally, litigation costs supported by the Fund are another source of  uncertainty. Future litigation costs could vary depending on the extent to  which lawsuits are pursued and whether the actions are decided in favor of  the federal government. Various legal claims related to domestic utility  company assessments have been made against the Fund. All of the actions  decided to date have been in favor of the federal government. However,  additional claims may be filed. Additionally, there have been litigation costs  associated with lawsuits against DOE by workers and adjoining  landowners at the Paducah and Portsmouth plants, often concerning  allegations of property or human health damages.
section_title: Conclusions
paragraphs: Based on DOE’s current estimates, and the most likely time frame for  completing cleanup, costs will exceed revenues in the Fund by $3.5 billion  to $5.7 billion (in 2004 dollars). However, DOE has yet to make a number of  decisions that will impact the costs of cleanup, including when  decontamination and decommissioning at the Paducah and Portsmouth  plants will occur. Until DOE resolves some of these uncertainties and has  more specific information, it is impossible to more precisely determine the  total funds necessary to cover the authorized cleanup activities. While the  precise amount of additional revenue needed cannot be determined, our  analysis shows that additional contributions to the Fund beyond its current  2007 expiration date will be necessary to cover the costs of authorized  activities irrespective of when DOE decides to undertake D&D of the  Paducah and Portsmouth plants. Because the Paducah and Portsmouth  plants are now estimated to cease operations by 2010 and 2006,  respectively, DOE should be able to develop plans, including more precise  cost estimates, for D&D of these plants. Extending the Fund by an  additional 3 years would give DOE an opportunity to develop these plans  and a better estimate of the costs to clean up the plants. With this  information, DOE could better determine if further extensions to the Fund  will be necessary.
section_title: Matters for Congressional Consideration
paragraphs: In order to better ensure that the Fund will be sufficient to cover the  projected costs for authorized activities, the Congress should consider  reauthorizing the Fund for an additional three years to 2010, and   requiring DOE to reassess the sufficiency of the Fund before the  expiration date to determine if extensions beyond 2010 will be  necessary.
section_title: Recommendations for Executive Action
paragraphs: To help reduce uncertainty regarding the sufficiency of the Fund, we are  recommending that the Secretary of Energy take the following two actions:    develop a decontamination and decommissioning plan for the Paducah  plant that would identify the most probable time frames and costs for  completing final D&D, and  develop a decontamination and decommissioning plan for the  Portsmouth plant that would identify the most probable time frames and  costs for completing final D&D.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOE for review and comment. DOE  generally agreed that our report accurately presents the current status of  the Fund and concurred with the report’s matters for congressional  consideration. DOE also stated that it would develop decontamination and  decommissioning plans for the remainder of the facilities at Paducah and  Portsmouth “at the appropriate time,” but did not indicate when would be  an “appropriate time.” We recognize that the decontamination and  decommissioning of the Paducah and Portsmouth plants may not occur for  years and that any plans developed by DOE would have to be periodically  updated. However, many of the uncertainties that currently exist and could  have significant impact on the costs of DOE efforts will not be resolved  until DOE develops D&D plans for the Paducah and Portsmouth plants that  identify the most probable time frames and costs for completing final D&D.  We recommended that the Congress consider extending the Fund for 3  years, in part, to provide DOE with an opportunity to develop these plans.  Until DOE does so, it will not be able to develop a more precise estimate of  the total funds necessary to cover the authorized cleanup activities or to  reassess the sufficiency of the Fund and determine if further extensions are  necessary.
DOE also provided technical comments that we incorporated, as  appropriate. DOE’s written comments on our report are included in  appendix III.
section_title: Scope and Methodology
paragraphs: To determine what actions DOE has taken to reduce the cleanup costs the  Fund is authorized to support, we reviewed the National Academy of  Sciences’ 1996 report that identified 13 major cost reduction  recommendations for the nation’s three uranium enrichment plants. We  met with Academy officials to gain further information about the study and  with DOE and its contractor officials at each of the plants to determine the  extent to which DOE has taken actions to address the recommendations.  While we were able to obtain information on actions taken to date, DOE  could not determine whether the actions were taken as a result of the  Academy’s recommendations. DOE was also generally unable to provide  information regarding the cost savings, if any, achieved by implementing  these actions. To determine other steps DOE has taken to reduce cleanup  costs, we visited all three plants and interviewed DOE and contractor  officials from DOE headquarters, the Oak Ridge Operations Office, the  Lexington Office, and the site offices at each of the three plants.  Additionally, we obtained and analyzed documentation regarding DOE’s  accelerated cleanup strategy at the Oak Ridge and Paducah plants,  including the plants’ planning documents and other DOE management  reports. We also obtained and reviewed each of the three plants’ draft risk- based end state vision documents, to understand DOE’s proposed options  for consideration. Additionally, we attended a public meeting in Paducah,  where DOE presented a draft risk-based end state vision to the community,  to better understand the proposal. We also interviewed regulatory  authorities responsible for overseeing cleanup activities at the plants,  including officials at the Environmental Protection Agency’s Region IV and  Region V, the Commonwealth of Kentucky’s Department for Environmental  Protection, the Tennessee Department of Environment and Conservation,  and the Ohio Environmental Protection Agency.
To assess the sufficiency of the Fund to pay for the total projected costs of  the Fund’s authorized activities, we interviewed DOE and contractor  officials responsible for the Fund’s financial data and obtained DOE’s  current estimates for uranium and thorium reimbursement costs, the  cleanup costs at the three plants, and the current and likely revenue  projections. We used these data to develop a number of simulation models  that factored in the cost and revenue projections on an annual basis and  uncertainties surrounding inflation rates, interest rates, costs, revenues,  and the timing of the final D&D work at the Paducah and Portsmouth  plants. See appendix I for a detailed description of our modeling  methodology, assumptions, and results. We interviewed DOE and  contractor officials from DOE Headquarters, the Oak Ridge Operations  Office, the Lexington Office, and the site offices at each of the three plants,  as well as officials from the federal and state regulatory offices party to the  plants’ cleanup agreements. We also toured the Oak Ridge plant to identify  the major uncertainties that could impact future cleanup costs at the  plants.
In addition, we assessed the reliability of the data used to develop our  simulation models. We obtained, from key DOE and contractor database  officials, responses to a series of data reliability questions covering issues  such as data entry access, quality control procedures, and the accuracy and  completeness of the data. Follow-up questions were added whenever  necessary. We also interviewed DOE and contractor officials and reviewed  relevant documentation to determine how cost estimates for future  cleanup, including the final D&D work, were developed at each of the  plants. We obtained historical cost estimates for several D&D projects  completed at the Oak Ridge plant and compared them with updated or  actual costs. We also interviewed and obtained relevant work papers from  KPMG, a private accounting firm hired by the DOE Inspector General’s  Office to conduct annual financial audits of the Fund, to understand and  incorporate their audit findings. KPMG’s annual financial audits have  concluded that the cost and revenue data related to the Fund appear to be  complete and accurate, that internal controls are operating effectively, and  that Fund managers have complied with all significant provisions of laws,  regulations, and compliance agreements. Based on our own work, in  conjunction with that of KPMG, we determined that the financial data  provided were sufficiently reliable for the purposes of our report.
We are sending copies of this report to the Secretary of Energy. We will also  make copies available to others upon request. In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions on this report, please call me at  (202) 512-3841. Other staff contributing to this report are listed in appendix  IV.
section_title: Fund Modeling Methodology, Assumptions, and Results
paragraphs: This appendix describes the methodology, assumptions, and results of the  models we developed to evaluate the sufficiency of the Uranium  Enrichment Decontamination and Decommissioning Fund (Fund).  Specifically, this appendix contains information on the following:  the simulation technique and the Baseline model we developed to  estimate the balance of the Fund by the time all cleanup activities are  scheduled to be completed;  the data sources, assumptions, and uncertainties we used for the   the additional models—Accelerated, Deferred, Revenue Added, and  Revenue Added Plus Interest—that we developed to analyze the effects  of additional uncertainties associated with decontamination and  decommissioning time frames and revenues to the Fund;  our simulation results for individual models as well as a comparison of  results from the alternative models.
Modeling Methodology  To conduct our analysis, we first developed an Excel spreadsheet  simulation model that annually tracked all estimated contributions to and  payments from the Fund starting in fiscal year 2004 and extending out until  all cleanup activities are scheduled to be completed. We also estimated the  interest that could be earned by unused balances of the Fund each year,  and included these earnings in the annual Fund balance. Our analysis  began with the Fund balance at the end of fiscal year 2003 and continued  until all cleanup work at the three uranium enrichment plants was  projected to be completed. The completion date for the Baseline model and  Revenue models was set at fiscal year 2044—the most likely date for the  completion of all cleanup activities at the three plants. However, for the  Accelerated and Deferred models, the completion dates were set at fiscal  year 2024 and fiscal year 2052, respectively.
Building on the Excel spreadsheet model, we used a commercially  available forecasting and risk analysis software program called Crystal Ball  to model the uncertainties associated with cost and economic assumptions  used in the model. Using the Crystal Ball program in concert with the Excel  model, we were able to expand our capability to explore a wide range of  possible values, instead of one single value, for such variables as interest  rates, inflation rates, and cleanup costs. The Crystal Ball program uses a  process called Monte Carlo simulation. That is, it repeatedly and randomly  selects values for interest rates, inflation rates, and costs from distribution  ranges that we prespecified for these variables. Using these values for the  appropriate cells in the spreadsheet model, Crystal Ball then makes the  calculations and forecasts the results. Repeating the same process, Crystal  Ball can calculate the results based on hundreds or thousands of such  trials. Our simulation results were based on 1,500 different trials. The  Crystal Ball program produces the entire range of forecasts for the given  model and shows the confidence level for, or the likelihood associated  with, any specific forecast.
subsections: section_title: Baseline Model Data, Assumptions, and Uncertainties
paragraphs: The Department of Energy (DOE) and its contractor was our primary  source for all the cost data used to develop our Baseline model. For Fund  revenues, we generally assumed the Fund would receive contributions as  authorized by current legislation. DOE also provided us with the time  frames for completing the cleanup work at each of the plants and, when  possible, contingency estimates for the costs. Since DOE’s cost data were  provided in different dollar values, we converted all cost data to 2004  dollars using either the inflation rates used by DOE or the Consumer Price  Index. More specific sources of data and assumptions to the modeling  work were as follows: Revenues to the Fund. To construct the Baseline model, we assumed  contributions to the Fund would come from three sources: federal  government appropriations, payments from domestic utility companies,  and interest earned on investments of Fund balances. We assumed that  government contributions would continue from fiscal years 2004 through  2007, as authorized by the Energy Policy Act. However, for the federal  government contributions in fiscal years 2004 and 2005, we used actual  appropriations and the President’s budget request, respectively; for the  remaining years, we assumed contributions would be at the level  authorized in the current legislation. For payments from domestic utility  companies, we assumed the assessment would remain unchanged at the  fiscal year 2004 level, and assumed payments would continue through  fiscal year 2007, as authorized by the Energy Policy Act. Additionally, as  required by law, the Fund can accrue interest income from investing the  unused balance of the fund in government securities. Therefore, we  estimated the investment earnings of the Fund annually and included it in  the available Fund balances. To calculate investment earnings, we used a  range of different interest rates based on the Fund’s previous earnings. We  assumed that the real interest rate earned on the Fund investment has a  triangular distribution, with minimum and maximum values based on  historical performance of the Fund’s investments since 1994. Similarly, we  used the performance of the Consumer Price Index since 1994 to develop a  triangular distribution for price indices to adjust the data where necessary.
Costs of the Fund. DOE, in conjunction with its contractor officials  responsible for conducting the cleanup work at the three uranium  enrichment plants, provided cost estimates for all anticipated activities that  will be paid for from the Fund starting in fiscal year 2004, and that will  carry forward until all cleanup activities have been completed at each of  the three plants. Cost estimates included (1) reimbursements to uranium  and thorium licensees and (2) costs to complete the cleanup at the three  uranium enrichment plants.  1. Reimbursements to uranium and thorium licensees. The Energy  Policy Act authorized reimbursements to uranium licensees not to  exceed $350 million and reimbursements to the thorium licensee not to  exceed $365 million for the portion of their cleanup costs associated  with the sale of these materials to the federal government. The  remaining unused authorized amounts are adjusted annually based  upon the Consumer Price Index. We assumed that the annual  reimbursement amount will be fixed at the fiscal year 2004 level and  will carry forward until the total amount authorized by law has been  allocated. Based on the current balance of the Fund, anticipated  revenues, and the total available reimbursement amount remaining, we  determined that the Fund would be sufficient to cover the  reimbursements to the uranium and thorium licensees.   2. Cleanup costs at the three uranium enrichment plants. Cleanup costs  for decontamination and decommissioning (D&D) work were kept  separate from all other cleanup cost activities, which include remedial  actions, waste management, surveillance and maintenance, and other  (including all other activities the Fund supports such as litigation fees  and funds to support site-specific advisory boards). Cleanup costs were  broken out annually and by each plant. Due to the different  uncertainties surrounding these costs, D&D costs were then further  segregated for process buildings (the large buildings where uranium is  enriched) and all other remaining D&D costs. The Baseline model costs  for the cleanup activities at the three plants were developed under the  assumption that the final D&D (all D&D and other required cleanup  actions at the plants once the facilities cease operations) would occur  between 2004 and 2008 at the Oak Ridge plant; between 2018 and 2032  at the Paducah plant; and between 2010 and 2044 at the Portsmouth  plant. These are the most likely time frames for completing the final  D&D work, based on discussions with DOE and contractor officials.
Cost Uncertainties. To capture uncertainties inherent in the data, we used  the Crystal Ball program in concert with the Baseline model we developed.  With the Crystal Ball program, we could assign a range of values, rather  than a single value, to each cell of the spreadsheet model. We developed the  range of values for each cost category based on extensive discussions with  DOE and its contractor staff who provided the cost estimates. After  considering their recommendations and input, we assumed that all cleanup  costs at the three uranium enrichment plants, with the exception of D&D of  the process buildings at the Paducah and Portsmouth plants, could  increase by a uniform probability of up to 20 percent. Given the  considerable uncertainty associated with costs for D&D of the process  buildings and the experience to date at the Oak Ridge plant, we assumed,  based on the values provided by DOE, the costs for this work at Paducah  and Portsmouth could increase by a uniform probability of up to 85  percent.
section_title: Alternative Models
paragraphs: Because not all uncertainties could be incorporated into one model, we  developed several alternative models to our Baseline model. Specifically,  since DOE has not determined when final decontamination and  decommissioning of the Paducah and Portsmouth plants will begin, we  developed two alternative models—Accelerated and Deferred—to show  the effects of different timing assumptions on the sufficiency of the Fund.  Further, because federal contributions to the Fund have been less than the  authorized amount, we developed two additional models—Revenue Added  and Revenue Added Plus Interest—to include additional contributions to  the Fund based on revenues from federal government appropriations.  These alternative models were built using the same data, assumptions, and  uncertainties that were used for the Baseline model, except for specific  changes discussed below.
subsections: section_title: Accelerated and Deferred Models
paragraphs: Because DOE has not determined when the final decommissioning and  decontamination work for the Paducah and Portsmouth uranium plants  will begin and when it will be completed, DOE, in conjunction with its  contractor officials, developed two additional cost series for the Paducah  and Portsmouth plants that varied in the start and completion dates for the  final D&D work, which we then incorporated into our Accelerated and  Deferred models. The completion of all D&D activities in the Accelerated  model was reduced by 20 years from 2044 to 2024, and increased by 8 years  in the Deferred model to 2052.
The Accelerated cost series was developed under the assumption that final  D&D could be completed faster than under the Baseline model, given  unconstrained funding. For the Accelerated approach, Paducah’s final D&D  work would begin in 2010 and end by 2024; Portsmouth’s final D&D work  would begin in 2007 and be completed by 2024. These time frames were  determined in consultation with DOE and contractor officials. They  represent the soonest the D&D work would most likely start, according to  DOE and its contractor officials, and represent the earliest likely time  frame that the total D&D and other associated cleanup work could be  completed.
The Deferred cost series was developed under the assumption that given  current funding constraints, it may not be realistic for two major D&D  projects to be carried out concurrently. Thus, Deferred time frames were  determined by DOE, assuming that all work would be completed at the  Portsmouth plant first and then initiated at the Paducah plant. For the  Deferred model, Portsmouth’s final D&D work was estimated to be  completed from 2010 to 2037 and Paducah’s from 2038 to 2052.
section_title: Revenue Added Models
paragraphs: According to DOE’s records, by the start of fiscal year 2004, when our  analysis begins, the government’s actual contributions to the Fund were  $707 million less than authorized under the Energy Policy Act. To capture  the effect of the government meeting its total authorized annual  contributions on the balance of the Fund, we developed two additional  models—a Revenue Added and a Revenue Added Plus Interest model. For  the Revenue Added model, we assumed that government contributions to  the Fund would continue annually at the authorized level until the total  government contributions as authorized by law had been met, which would  occur in fiscal year 2009. For the Revenue Added Plus Interest model, we  built on the Revenue Added model to include the effect of forgone interest  that the Fund could have earned if the government had contributed the full  authorized amount. In other words, we continued government payments  into the Fund until the total amount authorized (regardless of amounts  actually appropriated), as well as interest on the unpaid portion of the  authorized amount, is paid to the Fund. We assumed these additional  payments would be made to the Fund in the same amounts as the 2004  annual authorized amount, which extended payments through fiscal year  2010.
section_title: Results
paragraphs: The balance of the Fund at the projected completion of all cleanup work  indicated whether the Fund will be sufficient to cover all costs identified by  DOE. We estimated the Fund balance in current (year of completion)  dollars and constant 2004 dollars. However, to compare the results of  various models with different completion dates, we also estimated the  present value of the Fund’s balance in 2004. For each model, the Crystal  Ball program produced not only a range of possible values, but also the  probability associated with that value, as well as the expected mean for the  range. Figures 4 through 8 provide an overall illustration of the results  produced by the models in constant 2004 dollars. In the figures, each bar  shows the value by which costs could exceed revenues in billions of 2004  dollars. The height of each bar is the probability that the costs would  exceed the revenues by that exact amount. Even though the probability of  one specific amount is low, there is a 100 percent probability that the actual  amount will fall somewhere within the range (e.g. for the Baseline model,  minus $3.5 billion to minus $5.7 billion). As shown in figures 4 through 8,  regardless of the model we used, the revenue going into the Fund will not  be sufficient to cover all of the projected cleanup costs at the uranium  enrichment plants.
The figures show the results for the individual models in constant 2004  dollars in the year DOE projected that all cleanup work will be completed.  Because of the difference in the completion dates, the comparison of the  Fund balances across the different models will not be meaningful. To make  the comparison of the balances possible, we also estimated the present  value of the Fund in 2004 dollars. Figure 9 shows in present value how the  Fund balance of the Baseline model compares with the Accelerated and  Deferred models; Figure 10 shows in present value how the Fund balance  of the Baseline model compares with the two Revenue Added models.
The specific values for which the Fund could be insufficient under the  various models are shown in table 2. Though the Deferred model showed  the greatest insufficiency in the year the cleanup work is projected to be  completed, once the timing of expenditures is considered as in the present  value analysis, the deficiency of the Deferred alternative was not  significantly different from other models. On the other hand, the deficiency  of the Fund, as measured in present value mean, was the lowest in the  Revenue Added Plus Interest model. In this model, cleanup costs would  exceed revenues by $0.09 billion to $2.3 billion.
section_title: DOE Actions Taken That Addressed the National Academy of Sciences’ Cost Reduction Recommendations
paragraphs: This appendix describes the actions taken by DOE that address the  National Academy of Sciences’ (Academy) cost reduction  recommendations. The Energy Policy Act directed the Academy to conduct  a study and to provide recommendations for reducing the decontamination  and decommissioning costs at the three uranium enrichment plants. In  1996, after convening a committee of academic and technical experts to  carry out the study, the Academy released a report highlighting 13 major  recommendations entitled Affordable Cleanup? Opportunities for Cost  Reduction in the Decontamination and Decommissioning of the Nation’s  Uranium Enrichment Facilities. The recommendations address a variety  of cost reduction approaches, including developing specific technologies  and suggestions for planning, management, and regulatory coordination.  While we were able to obtain information on actions DOE has taken that  are consistent with the recommendations, DOE could not determine  whether any actions to date were taken directly in response to the  Academy’s recommendations. Table 3 shows each of the Academy’s major  recommendations, the status of the recommendation, and an explanation  of the actions taken by DOE that addressed the recommendation.
section_title: Comments from the Department of Energy
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the individuals named above, John W. Delicath, Jason  Holsclaw, Alyssa M. Hundrup, Mehrzad Nadji, Judy Pagano, Michael  Sagalow, and Barbara Timmerman also made key contributions to this  report.
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section_title: To Report Fraud, Waste, and Abuse in Federal Programs
section_title: Public Affairs