U.S. Enrichment Corporation Privatization: USEC's Delays in Providing Data Hinder DOE's Oversight of the Uranium Decontamination Agreement
Published: 2006-06-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Prior to the 1998 privatization of the U.S. Enrichment Corporation (USEC), the Department of Energy (DOE) transferred about 45,000 metric tons of natural uranium to USEC to, among other things, be enriched to fulfill USEC's nuclear fuel contracts. About 9,550 metric tons were subsequently discovered to be contaminated with technetium, a radioactive metal, at levels exceeding the specification for nuclear fuel. Although DOE has not admitted liability, DOE and USEC have entered into agreements under which USEC is decontaminating the uranium. DOE has compensated USEC for its decontamination costs in several ways, including using proceeds from sales of government-owned clean uranium. GAO was asked to examine (1) USEC's progress in decontaminating uranium and (2) DOE's oversight of USEC's decontamination activities. A forthcoming GAO legal opinion will address DOE's legal authority to transfer clean uranium to USEC for sale and use the proceeds to compensate USEC for its decontamination services.
section_title: What GAO Found
paragraphs: As of February 28, 2006, USEC reported that about 10 percent of the contaminated uranium that DOE transferred to the corporation prior to privatization remains to be decontaminated, or about 960 metric tons of the 9,550 contaminated metric tons transferred. DOE estimates USEC will finish decontaminating this uranium by the end of December 2006. Through the end of February 2006, USEC has invoiced DOE for a total of about $152 million in decontamination costs. DOE takes several steps to oversee USEC's uranium decontamination activities. DOE reviews monthly USEC reports that detail, among other things, the corporation's decontamination progress and costs. In addition, DOE, through the Defense Contract Audit Agency (DCAA), audits USEC to verify that USEC's actual costs match the amount DOE paid to the corporation and are in accordance with the provisions of the uranium decontamination agreement. However, DOE has had difficulties completing some of its oversight because of USEC's delays in providing financial data and other information. DOE officials told us that USEC sometimes takes up to 6 months before responding to its inquiries about the corporation's monthly reports. As a result, DOE has some concerns about whether USEC consistently conducts decontamination work in a cost-effective manner. DCAA has also experienced significant delays obtaining USEC financial data that it requires for its annual audit of USEC's costs. DOE uses these data to verify that USEC's actual decontamination costs match what DOE paid USEC. Until DCAA's audits are complete, DOE cannot be certain whether the compensation it provided to USEC matches USEC's actual decontamination costs. As a result, USEC may need to repay money to the government or DOE may owe additional money to USEC upon completion of these audits. In addition, the Congress has not received information to assist in the appropriations process on the progress and costs of decontamination.

section_title: Letter
paragraphs: Nuclear power plants rely on nuclear fuel that complies with certain  quality standards to ensure its efficiency and to allow workers to handle it  safely. One of the critical processes in the production of nuclear fuel is  uranium enrichment—processing natural uranium to increase the  concentration of the fissile uranium-235 isotope. Prior to 1992, nuclear  power plants purchased uranium enrichment services directly from the  federal government and foreign suppliers. Specifically, the Department of  Energy (DOE) and its predecessors—the Energy Research and  Development Administration and the Atomic Energy Commission— operated uranium enrichment plants in Tennessee, Ohio, and Kentucky.  Currently, only one uranium enrichment plant in the United States remains  in operation—the Paducah Gaseous Diffusion Plant in Paducah,  Kentucky.
The Energy Policy Act of 1992 created the U.S. Enrichment Corporation  (USEC) as a wholly owned government corporation to conduct and  market uranium enrichment services to commercial nuclear power plants.
USEC leases DOE’s Paducah plant and is currently the sole domestic  producer of enriched uranium for use as fuel in commercial nuclear power  reactors. USEC also leases DOE’s Portsmouth Gaseous Diffusion Plant in  Piketon, Ohio, which ceased enriching uranium in 2001. In July 1998,  USEC was privatized through an initial public offering that resulted in a  payment of about $3.1 billion to the U.S. Treasury.
Between USEC’s creation in 1992 and its privatization in 1998, DOE  transferred about 45,000 metric tons of natural uranium to the corporation  for, among other things, fulfilling enrichment contracts with USEC’s  customers. In early 2001, USEC notified DOE that up to 9,550 metric tons  of this uranium was potentially contaminated with technetium, a  radioactive metal that is produced as a by-product of fission in a nuclear  reactor, at levels exceeding the commercial specification for nuclear fuel.  According to USEC, replacing this contaminated uranium would cost  USEC approximately $238 million in 2001. (With recent increases in the  market price of uranium, the 9,550 metric tons would now be worth  approximately $1.1 billion.) USEC requested that DOE replace USEC’s  contaminated uranium with uncontaminated (or clean) uranium from  DOE’s inventory.
DOE did not admit legal liability for compensating USEC for the  contaminated uranium, nor, according to DOE officials, did DOE have  enough available clean uranium in its inventory to replace all of USEC’s  contaminated uranium. However, for a variety of reasons, discussed  below, DOE and USEC agreed in June 2002 that, among other things,  USEC would process some of the contaminated uranium at the  Portsmouth plant for 15 months in order to remove the technetium. USEC  would initially pay about half of the costs associated with  decontamination, and DOE would compensate USEC by taking title to  some of USEC’s depleted uranium—a product that is generated by the  uranium enrichment process—reducing USEC’s costs for eventually  disposing of this material. As part of the June 2002 agreement, USEC  agreed to formally release the department from any potential claims of  liability as USEC decontaminated the uranium. In addition, the June 2002  agreement permitted DOE to replace some of USEC’s contaminated  uranium with clean uranium from its own inventory. Under these  circumstances, USEC also agreed to release DOE from any potential  claims of liability if the contaminated uranium was replaced.
According to DOE and USEC officials with whom we spoke and  documents we reviewed, the June 2002 agreement to compensate USEC  for decontaminating uranium provided the following benefits:    Maintaining a domestic uranium enrichment capability—USEC  committed to maintain a minimum production level at the Paducah plant,  which is now the sole domestic plant for producing enriched uranium  following USEC’s decision to cease uranium enrichment at Portsmouth.  Under the USEC Privatization Act of 1996, USEC has an exclusive option  to lease DOE’s uranium enrichment plants.
Deploying advanced uranium enrichment technology—The June 2002  agreement placed USEC on a clearly defined schedule to deploy a new,  more advanced uranium enrichment technology. USEC’s current  enrichment technology—gaseous diffusion—was developed during World  War II. Gaseous diffusion is very inefficient and costly, compared with the  technology USEC’s foreign competitors use, which is based on using  centrifuges to enrich uranium. For example, centrifuges require  approximately 5 percent of the energy required by gaseous diffusion  technology. In the June 2002 agreement, USEC committed to deploy an  advanced technology by 2009. DOE and USEC believe that enriching  uranium through centrifuges will increase USEC’s cost effectiveness and  competitiveness and will help ensure a continued domestic uranium  enrichment capability.
Employing workers at the Portsmouth plant—Decontamination facilities  at the Portsmouth plant would employ USEC employees who would  otherwise be laid off following USEC’s decision to close the plant. Under  the USEC Privatization Act of 1996, DOE is responsible for a portion of  severance and other worker transition costs incurred in connection with  persons who formerly worked for DOE or a DOE contractor and who now  work for USEC. Therefore, continuing the employment of these  individuals allows DOE to delay or avoid these costs.
Reducing uranium decontamination costs—Both DOE and USEC have  uranium inventories that need to be decontaminated before the uranium  can be sold commercially. DOE believed that having USEC conduct the  decontamination work would result in significant cost savings. This is  because USEC has the unique capability of using uranium at the Paducah  plant that does not need to be decontaminated as much as would be  required if the uranium were to be sold commercially. In addition, USEC  officials told us that the corporation developed an exclusive, cost-effective  technology for separating technetium from the contaminated uranium,  which these officials said gave USEC a unique capability to do the  decontamination work.
Decontamination of uranium under the June 2002 agreement between  DOE and USEC was intended, as a trial period, to last for 15 months. At  the conclusion of this period, USEC would release DOE from potential  claims of liability for at least 2,800 metric tons of contaminated uranium,  regardless of the amount actually decontaminated. Over the 15-month  period of the June 2002 agreement, DOE would attempt to find other  entities besides USEC that could either replace or remediate USEC’s  remaining contaminated uranium. DOE assessed various options and  concluded that USEC’s decontamination process and existing facilities  made the corporation uniquely qualified to decontaminate the uranium. As  a result, in April 2004, DOE agreed that USEC should continue  decontaminating uranium. DOE agreed to compensate USEC for these  decontamination costs using appropriated funds instead of taking title to  USEC’s depleted uranium as under the 2002 agreement.
In December 2004, DOE and USEC signed another agreement—which  DOE and others have referred to as a “barter arrangement”—that again  modified the way USEC was compensated. Instead of using appropriated  funds to compensate USEC for its decontamination costs, as done under  the April 2004 agreement, or taking title to USEC’s depleted uranium, as  done under the June 2002 agreement, DOE agreed to transfer clean  uranium from its inventory to USEC. USEC would then sell this clean  uranium on the commercial market and use the proceeds to pay its  decontamination costs for its remaining contaminated uranium. These  proceeds also would be used to compensate USEC for its costs of  decontaminating uranium in DOE’s inventory.
DOE did not request appropriations for uranium decontamination for  fiscal year 2005. Instead, DOE compensated USEC for its decontamination  work, as specified in the December 2004 agreement. In November 2005,  Congress expressly authorized DOE to “barter, transfer or sell uranium”  and to use any proceeds from such transactions to decontaminate uranium  held by DOE.
Questions have been raised about certain aspects of the December 2004  agreement, under which proceeds from the sale of government-owned  uranium are used to compensate USEC for its decontamination services.
Because DOE has decided not to seek appropriations to compensate  USEC, Congress has not received information on the decontamination  program’s progress and costs as part of the annual budget process. We will  be issuing a separate legal opinion regarding DOE’s legal authority to  transfer clean uranium to USEC for commercial sale and to use the  resulting proceeds to compensate USEC for its decontamination services  prior to November 2005.
In this context, we examined (1) USEC’s progress in decontaminating  uranium and (2) DOE’s oversight of USEC’s uranium decontamination  activities. To accomplish these objectives, we reviewed the  preprivatization agreements between DOE and USEC that transferred  uranium inventories to the corporation; memorandums of agreement and  memorandums of understanding between DOE and USEC on the  decontamination of technetium-contaminated uranium; DOE and USEC  memorandums concerning DOE’s potential liability to replace uranium or  compensate USEC; Federal Acquisition Regulations; and relevant statutes,  including the Energy Policy Act of 1992 and the USEC Privatization Act of  1996. We also examined USEC reports detailing its monthly progress in  decontaminating uranium and its commercial sales of uranium. We also  reviewed decontamination cost data USEC submitted to DOE. In addition,  we interviewed officials from DOE’s Office of Nuclear Energy; Office of  General Counsel; Office of Environmental Management; Office of the  Under Secretary for Energy, Science, and Environment; the Portsmouth  and Paducah Project Office; and the Oak Ridge Operations Office. We  interviewed officials with USEC and officials from the Defense Contract  Audit Agency (DCAA), which conducts audits of USEC’s decontamination  costs. Additional information on our scope and methodology can be found  in appendix I. We conducted our work between August 2005 and May 2006  in accordance with generally accepted government auditing standards,  which included an assessment of data reliability and internal controls that  determined that the data were sufficiently reliable for the purposes of this  report.
subsections: section_title: Background
paragraphs: Uranium undergoes a number of processing steps in the production of  nuclear fuel. To ensure its efficiency and ability to be used safely in  nuclear reactors, nuclear fuel must meet rigorous technical specifications.  For example, if certain contaminants are present in the material, they must  be at or below specified levels so as not to harm workers or the  environment or contaminate equipment.
Technetium, a radioactive metal that is produced as a by-product of fission  in a nuclear reactor, is considered a contaminant by commercial  specifications for nuclear fuel. Its presence in the nuclear fuel production  process can contaminate equipment, lead to increased worker radiation  doses, and raise environmental concerns. Therefore, specifications require  that uranium that is to be enriched should contain no more technetium  than one part per billion. USEC first discovered that some of the uranium  DOE previously transferred to the corporation may have been  contaminated with technetium in March 2000, when DOE requested that  USEC sample uranium storage cylinders for technetium content. DOE  believed that, during the 1970s, technetium-contaminated recycled  uranium that it processed through certain production lines at the Paducah  plant inadvertently left residual amounts of technetium in certain  equipment. Subsequent processing of uranium using that equipment  contaminated the material. USEC was able to determine that up to 9,550  metric tons of the 45,000 metric tons of uranium that DOE had transferred  to the corporation prior to privatization had been processed through the  contaminated production lines at Paducah and therefore was  contaminated with technetium. USEC’s initial sampling indicated  technetium contamination levels ranging from 11 to 148 parts per billion,  all in excess of the commercial specification of one part per billion. In  addition, DOE was able to determine that about 5,500 metric tons of  uranium in its inventory had also been processed through the  contaminated production lines at the Paducah plant and was also likely to  be contaminated with technetium.
USEC conducts uranium decontamination work using equipment at the  Portsmouth plant. Figure 1 illustrates the decontamination process.
section_title: USEC Reported About 10 Percent of the Contaminated Uranium DOE Transferred to the Corporation before Privatization Remains to Be Decontaminated
paragraphs: Through the end of February 2006, USEC reported that about 960 metric  tons, or 10 percent, of the 9,550 metric tons of technetium-contaminated  uranium transferred to it by DOE prior to privatization remains to be  decontaminated. DOE estimates USEC will finish decontaminating this  uranium by the end of December 2006. In total, USEC has decontaminated  about 6,500 metric tons of its contaminated uranium. Specifically:    USEC decontaminated nearly 3,600 metric tons of its inventory between  June 2002 and December 2003 under the terms of the June 2002 agreement  between USEC and DOE. Under this agreement, DOE compensated  USEC for its decontamination costs by taking title to some of USEC’s  depleted uranium, reducing USEC’s costs for eventually disposing of the  material.
About 2,050 metric tons of USEC’s uranium were decontaminated between  December 2003 and December 2004 under the terms of the April 2004  agreement between USEC and DOE. DOE compensated USEC for its  decontamination costs using appropriated funds.
USEC decontaminated approximately 842 metric tons of its uranium  between December 2004 and February 2006 under the December 2004  agreement, which provided that USEC cover its decontamination costs  using proceeds from the commercial sale of clean uranium transferred  from DOE’s inventory to USEC for sale.
The June 2002 agreement between DOE and USEC also provided for DOE  to replace some of USEC’s contaminated uranium with clean uranium  from DOE’s inventory. In October 2004, DOE exchanged 2,116 metric  tons of USEC’s contaminated uranium with an equal amount of clean  uranium from its inventory.
In addition to USEC’s inventory, since October 2004 USEC has been  decontaminating about 7,600 metric tons of contaminated uranium in  DOE’s inventory: 2,116 metric tons exchanged with USEC in October 2004  and 5,517 metric tons of contaminated uranium that were already in DOE’s  inventory. As of February 28, 2006, USEC had decontaminated 2,065 of the  2,116 metric tons it transferred to DOE in October 2004 and 248 of the  5,517 metric tons that was already in DOE’s inventory. DOE estimates  USEC will finish decontaminating the 5,327 metric tons of contaminated  uranium that remain in DOE’s inventory by the end of October 2008.  Figures 2 and 3 illustrate the amount of technetium-contaminated uranium  in USEC’s and DOE’s inventories.
From June 2002 through the end of February 2006, USEC had invoiced  DOE for decontamination costs totaling about $152 million. Of this  amount, about $67 million was spent for direct costs, such as labor and  decontamination equipment and supplies, and about $85 million was spent  for indirect costs. These indirect costs included utilities and other plant  overhead costs and administrative costs. Table 1 details USEC’s  decontamination costs.
DOE has compensated USEC for its decontamination services in three  ways. First, DOE has paid USEC about $62 million in appropriated funds.  Second, DOE officials told us that the department has taken title to about  30,000 metric tons of USEC’s depleted uranium, which DOE estimated in  2004 would cost the department about $27 million to convert to a more  stable form. Third, DOE compensated USEC for its remaining  decontamination services using the proceeds from the commercial sale of  clean uranium transferred from DOE to USEC pursuant to the December  2004 agreement between USEC and DOE.
In total, DOE has transferred about 1,100 metric tons of clean uranium to  USEC for commercial sale under the December 2004 agreement. DOE  transferred about 900 metric tons of clean uranium to USEC in December  2004, which USEC sold to four different buyers, resulting in total proceeds  of $62 million. DOE officials told us that increases in market prices for  uranium resulted in more money than DOE originally estimated. These  additional proceeds allowed USEC to decontaminate about 280 metric  tons more uranium than DOE originally believed the sale would fund. By  February 2006, however, USEC had completely spent the proceeds  generated from the sale of the 900 metric tons of clean uranium.  Therefore, DOE transferred an additional 200 metric tons of clean uranium  to generate additional funds for decontamination. USEC sold this uranium  in February 2006, resulting in total proceeds of $22.4 million, which USEC  expects will fund its decontamination services through June 2006. In  addition, instead of transferring clean uranium to USEC and having USEC  conduct additional uranium sales, DOE sold 200 metric tons of clean  uranium in April 2006 to obtain money to compensate USEC for its  decontamination services. These sales resulted in total proceeds of $23.4  million, which USEC expects will fund its decontamination services from  July 2006 through November 2006. According to DOE officials, the  department itself will likely conduct additional uranium sales to fund  USEC’s decontamination services, rather than transferring additional  uranium to USEC.
section_title: DOE’s Oversight of USEC’s Uranium Decontamination Activities Has Been Hindered by Delays in Obtaining Key Information from USEC
paragraphs: DOE takes several steps to oversee USEC’s uranium decontamination  activities, including reviewing monthly reports submitted by USEC  detailing decontamination progress and costs and tracking the proceeds  USEC generates from selling clean uranium that DOE has transferred to  the corporation under the December 2004 agreement. DOE has also  contracted with DCAA to audit USEC’s decontamination costs. However,  DOE and DCAA have been unable to complete some of their oversight  steps because they have been unable to obtain some financial and other  data from USEC in a timely manner. As a result, DOE has some concerns  about whether USEC consistently conducts decontamination work in a  cost-effective manner and is currently uncertain whether the  compensation the department provided the corporation matches USEC’s  actual decontamination costs.
subsections: section_title: DOE Oversees USEC’s Activities by Reviewing Monthly Reports and DCAA Audits and Conducting On-Site Verification
paragraphs: DOE takes several steps to oversee USEC’s uranium decontamination  activities. For example, DOE reviews a number of monthly reports that  USEC submits to the department. These monthly reports contain detailed  information on USEC’s uranium decontamination activities. Specifically,  these reports include the following:  Information on the amount of uranium decontaminated each month,  USEC’s estimate of the remaining contaminated uranium in USEC’s and  DOE’s inventories, and data on the level of technetium contamination for  uranium storage cylinders before and after processing. These data verify  whether the uranium in each cylinder meets commercial specification  after it has been through the decontamination process.
Summary data on USEC’s monthly decontamination costs as well as  USEC’s estimate of the project’s total cost when the decontamination is  completed. USEC also submits a breakdown of its costs into specific  categories, such as, among other things, labor, employee benefits,  materials, site security, and electricity.
Information on waste generated from the decontamination process.
DOE officials told us that they perform detailed analyses of these reports  to verify that USEC is consistently conducting decontamination work in a  cost-effective and efficient manner. If these officials identify  inconsistencies or trends in the data that generate concerns or questions,  they follow up with USEC each month through written inquiries to resolve  uncertainties and obtain adequate justification for costs such as overtime  and training. DOE officials at the Portsmouth and Paducah plants also  conduct on-site inspections of the uranium cylinders in order to verify that  USEC’s and DOE’s actual uranium inventories match what appear in  USEC’s monthly reports.
DOE also tracks the proceeds from USEC’s sale of clean uranium  transferred to the corporation under the December 2004 agreement. DOE  obtains copies of all sales contracts between USEC and the buyers of this  uranium. These contracts provide detailed information on the buyer, the  quantity sold, its sale price, and the date of the sale. In addition, USEC  provides DOE with a copy of the wire transfer between the buyer and  USEC to verify the receipt of funds. DOE requires that USEC segregate the  proceeds of the uranium sales into an account separate from USEC’s other  funds. USEC maintains these funds in a separate brokerage account that  invests in tax-exempt short-term securities. Each month, USEC submits a  cost invoice to DOE for the decontamination work it performed during the  preceding month. DOE then reviews and approves USEC’s invoice and  USEC withdraws money from the brokerage account equivalent to its  invoiced costs. DOE monitors the withdrawal rate to estimate when more  uranium will need to be sold to obtain additional funding for the account.
Finally, DOE has also contracted with DCAA to audit the annual costs  submitted by USEC, which DOE uses to verify that USEC’s  decontamination costs match what DOE paid the corporation. To receive  compensation for its indirect costs under the agreement, USEC provides  estimates of its costs to DOE annually. These estimates, called  “provisional billing rates,” are the basis of DOE’s compensation to USEC  for its costs for that year. USEC submits monthly invoices to DOE using  the provisional billing rates. DOE then compensates the corporation for its  invoiced costs. Following the end of each calendar year, USEC is to  submit financial data to DCAA that details the corporation’s actual  incurred indirect costs. DCAA uses these data in its audits to verify that  USEC’s incurred costs are reasonable. Any differences between USEC’s  provisional billing rates and USEC’s incurred decontamination costs  would mean either that DOE owes USEC additional money or that USEC  owes DOE for any compensation in excess of incurred costs.
section_title: USEC’s Delays in Responding to Inquiries and Providing Financial Data Have Affected DOE’s Oversight
paragraphs: DOE officials told us that they have had difficulties receiving complete and  timely responses to their inquiries on USEC’s monthly reports. Following  their detailed analyses of USEC’s monthly reports to verify that USEC is  conducting decontamination work in a cost-effective and efficient manner,  DOE often submits written inquiries to USEC to resolve inconsistencies or  other concerns. For example, DOE officials have submitted numerous  inquiries to USEC questioning the amount of overtime hours USEC has  billed to the project, which these officials think are unusually high. DOE  officials have also questioned the large amounts of worker training that  USEC has billed to the project. In addition, DOE officials have also  inquired about certain materials USEC has purchased. According to DOE  officials, DOE submits about five concerns per month to USEC. However,  in its comments on a draft version of this report, USEC told us that DOE  submits about 15 inquiries per month.
DOE officials told us that USEC sometimes takes up to 6 months before  responding to DOE’s inquiries and then often only selectively respond to  certain questions. In comments on a draft version of this report, USEC  disagreed with DOE and stated that it has responded completely to DOE’s  inquiries in an average of about 3 months. While USEC officials told us  they attempt to provide timely responses to DOE’s inquiries, they also  stated that the inquiries often request very specific data that are difficult to  provide quickly. In addition, USEC officials told us that delays sometimes  occurred when personnel from both DOE and DCAA were asking similar  questions. USEC officials stated that they were sometimes confused about  whether they should respond to DOE, DCAA, or both. Moreover, USEC  indicated that DOE’s inquiries were often poorly communicated and not  delivered to the appropriate personnel in a timely fashion. DOE officials  indicated that they believed that the inquiries were adequately  communicated and delivered to the appropriate USEC personnel in a  timely fashion. Further, DOE officials stated that although some of the  inquiries were more detailed, this would not justify the delays in USEC’s  responses to the department. USEC officials also told us that despite their  belief that DOE’s inquiries are often unnecessary and redundant, USEC is  working to improve the timeliness and completeness of their responses.  According to USEC officials, they met with DOE in March 2005 to try to  reduce the size and redundancy of these inquiries. However, DOE officials  stated that the reason for the apparent redundancy was USEC’s inability to  respond to the original inquiries in a timely manner.
DOE’s inquiries have resulted in some benefits to the government. For  example, USEC officials told us that, in response to DOE’s inquiries, USEC  has adjusted some monthly invoices to remove some charges USEC  incorrectly billed to the project because of administrative errors.  According to DOE officials, these errors were only discovered after DOE  submitted written inquiries to USEC after it had analyzed USEC’s monthly  reports.
DCAA has also experienced delays in obtaining the financial data from  USEC that are necessary to complete its annual audits of USEC’s  decontamination costs. At the end of each fiscal year, USEC has 6 months  to submit financial data to DCAA detailing the corporation’s indirect costs  for that year. DCAA then completes an audit of these costs, which allows  DOE to verify that USEC’s actual incurred costs for the year match what  DOE paid the corporation. However, USEC has not submitted incurred  cost data to DOE or DCAA for decontamination conducted during any  time period from July 2002 to the present. DCAA has not completed any of  its full annual audits of USEC’s incurred decontamination costs. DCAA has  completed five limited-scope audits of USEC’s incurred costs for the  individual months of December 2004 and January, March, May, and  November 2005 to verify that USEC’s incurred costs are in accordance  with applicable laws, regulations, and the provisions of the December 2004  agreement. According to DCAA officials, these limited audits of USEC’s  monthly incurred costs have not found significant problems. In addition,  DCAA has conducted other audits to examine, among other things, USEC’s  internal controls and accounting systems. According to USEC, these other  audits have not found significant deficiencies.
According to USEC officials, the delays in providing incurred cost data to  DCAA are caused by several factors including  limited internal accounting resources that are familiar with Federal  Acquisition Regulations and government cost accounting standards   protracted contract negotiations with DOE over how employee pension  and post-retirement benefits should be treated in USEC’s accounting  systems.
DOE officials with whom we spoke disagreed that these reasons should  cause such a significant delay in providing incurred cost data to DCAA.  USEC has submitted a revised schedule to DOE that estimates when it will  provide incurred cost data to DCAA. (See table 2.)
In the absence of DCAA audits of USEC’s annual decontamination costs,  DOE has taken steps to protect the government’s interests by limiting the  amount of compensation paid to USEC. For example, USEC has stated  that its actual decontamination costs in calendar year 2004 exceeded  DOE’s compensation for that year. However, because DCAA was unable to  complete its audit of USEC’s costs for that year, DOE refused to pay this  difference. In addition, provisional billing rates were not revised in 2005,  and USEC was compensated using 2004 provisional billing rates. USEC  officials told us that the failure to revise the provisional billing rates has  only increased the difference between USEC’s actual decontamination  costs and the amount the corporation is being compensated. According to  USEC officials, the difference between the corporation’s actual  decontamination costs and the amount it has been compensated is about  $3 million and will continue to grow until new billing rates are approved  by DOE. DOE officials told us that they plan to approve new billing rates  in June 2006. Furthermore, DOE officials said that the department will pay  USEC any difference between the corporation’s actual decontamination  costs and the amount already compensated once USEC submits its actual  incurred costs and DCAA has been able to complete its audits.
section_title: Conclusions
paragraphs: Almost 8 years after USEC’s privatization, USEC and DOE are still dealing  with the cleanup of technetium-contaminated uranium. According to DOE  officials, the department decided to compensate USEC for  decontaminating uranium to resolve potential legal liabilities and to help  achieve other policy goals, such as the continuation of a reliable domestic  source of uranium enrichment today and in the future. In our view,  however, DOE has left the Congress and the public largely uninformed  about these policy goals, as well as about the amount of progress USEC  has made decontaminating uranium and the costs incurred in doing so.  DOE deserves credit for attempting to protect the public interest by  limiting the amount of compensation paid to USEC until the corporation  provides the key financial data that are necessary for DOE’s oversight of  USEC’s activities. However, because of the complexity of the issues,  including the need to achieve multiple policy goals and the importance of  maintaining a reliable, domestic source of uranium enrichment, it is  important for DOE to provide the Congress with the information necessary  for congressional oversight of the department’s activities.
section_title: Recommendations for Executive Action
paragraphs: We are recommending that the Secretary of Energy clarify with USEC (1)  the specific oversight steps that DOE and DCAA conduct and (2)  procedures that USEC should follow in responding to the department’s  and DCAA’s questions on the corporation’s performance.
In addition, to assist the Congress in its continuing oversight of the  department, we further recommend that the Secretary of Energy report  the following information in DOE’s annual budget request to the Congress  until USEC has completed uranium decontamination:  the remaining quantities of uranium in USEC’s and DOE’s inventories that  need to be decontaminated, the estimated costs of completing this decontamination work,  the source of funds necessary to compensate USEC, and the progress DCAA has made completing the annual audits of USEC’s  decontamination costs.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft copy of this report to DOE and USEC for their review  and comment. DOE’s letter is presented as appendix II, and USEC’s letter  is presented as appendix III.
In its written comments, DOE agreed with our recommendations, but  requested that any report to the Congress be done on an annual basis, as  part of the annual budget process. We agree with DOE and have modified  our recommendation to provide for DOE reporting uranium  decontamination performance and cost information in its annual budget  requests rather than semiannually.
Both DOE and USEC commented that the report would be more accurate  if it acknowledged the value and the successful performance of the  program. DOE’s comments stated that the overall value of the program is  not stated clearly and is somewhat overshadowed by detailed issues  related to USEC’s cost reports. USEC believes that the report would be  more precise if it acknowledged the successful technical and financial  performance of the program. The objectives of our review were to provide  factual information on USEC’s progress in decontaminating uranium and  on DOE’s oversight of USEC’s uranium decontamination activities.  Contrary to DOE’s and USEC’s assertions, our draft report clearly  described what DOE and USEC officials told us were the benefits of the  uranium decontamination agreements, including the amounts of uranium  in USEC’s and DOE’s inventories that have been decontaminated, the  technology developed to decontaminate the uranium, the continued  employment of workers at the Portsmouth plant, and the maintenance of a  reliable, domestic source of uranium enrichment. However, it is also  important to note that these benefits did not come without significant cost.  Specifically, DOE has provided over $150 million in various forms of  compensation to USEC. To provide detailed information concerning the  overall value of the program was beyond the scope of this review.
USEC generally agreed with the draft report’s findings and supported our  recommendations to DOE. However, USEC commented that the report  contained shortcomings in the presentation of its supporting analysis.  Specifically, USEC said that the draft report does not acknowledge that  USEC provided detailed invoice data to DOE that conformed to DOE’s  rules on invoice review. On the contrary, our draft report contained  detailed information on the types of information provided to DOE  including reports on the amounts of uranium decontaminated each month,  the amounts of waste generated, and the decontamination costs incurred.  USEC states that DOE’s rules contain no requirements for incurred cost  submissions. However, as our draft report stated, the contract clause in  Federal Acquisition Regulation §52.216-7, which is specifically  incorporated in DOE’s agreements with USEC, requires contractors to  submit their final indirect cost rates, based on actual costs, to the  cognizant federal agency within 6 months of the end of the contractor’s  fiscal year. USEC has not complied with this requirement. In addition,  USEC stated in its comments that the draft report’s discussion of USEC’s  delays in responding to DOE’s follow-up questions is incomplete and  inaccurate. In response, we have modified our report to note USEC’s  disagreement with DOE officials’ statements regarding the number of DOE  inquiries each month and USEC’s responsiveness.
USEC also stated that the draft report’s title overstates the report’s  findings and implies a materiality to USEC’s delays that is not supported in  the body of the report. We disagree that the draft report’s title makes this  implication. USEC recommends that the title be changed to better reflect  the report’s recommendation that clarification of procedures would  improve DOE’s oversight of the uranium decontamination agreement. The  purpose of the recommendation is not for DOE to change its oversight of  USEC’s activities, as is implied by USEC’s suggested title. Rather, the  recommendation is intended to encourage DOE to better communicate its  existing oversight steps to USEC and instruct the corporation how to  properly respond to the department’s inquiries.
DOE and USEC also provided technical comments that we incorporated  into the report as appropriate.
We will send copies of this report to interested congressional committees,  the Secretary of Energy, and USEC, Inc. We will also make copies  available to others upon request. In addition, the report will be available at  no charge on GAO’s Web site at www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-3841 or aloisee@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: At the request of the Chairman, Committee on Energy and Natural  Resources, United States Senate, we examined (1) the United States  Enrichment Corporation’s (USEC) progress in decontaminating  technetium-contaminated uranium transferred to it by the Department of  Energy (DOE) prior to its privatization and (2) DOE’s oversight of USEC’s  decontamination activities.
To accomplish these objectives, we reviewed the preprivatization  agreements between DOE and USEC that transferred uranium inventories  to the corporation; memorandums of agreement and memorandums of  understanding between DOE and USEC on the decontamination of  technetium-contaminated uranium, signed in June 2002, April 2004,  October 2004, and December 2004; DOE and USEC legal memorandums  detailing DOE’s potential liability to replace uranium or compensate  USEC; Federal Acquisition Regulations; and appropriate statutes,  including the Energy Policy Act of 1992 and the USEC Privatization Act of  1996. We also interviewed officials from DOE’s Portsmouth and Paducah  Project Office; Oak Ridge Operations Office; Environmental Management  Consolidated Business Center; Office of Environmental Management;  Office of Nuclear Energy; Office of General Counsel; and Office of the  Under Secretary for Energy, Science, and Environment. In addition, we  interviewed USEC officials at the corporation’s headquarters in Bethesda,  Maryland, and at the Portsmouth Gaseous Diffusion Plant in Piketon,  Ohio. We also interviewed officials with the Defense Contract Audit  Agency (DCAA), which conducts audits of USEC’s decontamination costs.
To determine USEC’s progress in decontaminating uranium, we reviewed  USEC’s monthly reports detailing its monthly decontamination progress as  well as remaining uranium inventories to be decontaminated. We also  reviewed USEC data on uranium storage cylinders processed each month  and the specific amount of uranium in each cylinder. We also obtained  USEC’s monthly cost statements submitted to DOE, which detail USEC’s  monthly costs under a variety of categories, such as labor, plant overhead,  and materials. We examined the reliability of uranium decontamination  and cost data by obtaining responses from DOE to a series of data  reliability questions covering issues such as data entry access, internal  control procedures, and the accuracy and completeness of the data. We  asked follow-up questions whenever necessary. We determined that these  data were sufficiently reliable for the purposes of this report. Furthermore,  we reviewed USEC’s marketing strategy for selling clean uranium  transferred to the corporation by DOE under the December 2004  agreement and reviewed USEC’s sales reports submitted to DOE detailing  the amount of uranium USEC sold to each buyer, the contract price of the  uranium, its delivery date, and the date of payment. In addition, we  reviewed the sales contracts between USEC and buyers of the clean  uranium as well as invoices confirming receipt of funds from each  uranium sale. We also visited the Portsmouth Gaseous Diffusion Plant site  to inspect uranium decontamination facilities and to interview DOE and  USEC officials.
To assess DOE’s oversight of USEC’s uranium decontamination activities,  we interviewed DOE officials that conduct oversight of USEC’s  decontamination work at the Portsmouth and Paducah Project Office, Oak  Ridge Operations Office, and the Environmental Management  Consolidated Business Center. We discussed DOE’s processes for  conducting analyses of USEC’s monthly reports on decontamination  progress and costs and the steps DOE takes to oversee USEC’s sales of  clean uranium transferred by DOE under the December 2004 agreement.  We also discussed DOE’s oversight with USEC officials. In addition, we  obtained copies of five audits conducted by DCAA of USEC’s monthly  decontamination costs and interviewed DCAA auditors to discuss the  objectives, scope, and methodology of DCAA’s audit work.
We conducted our work between August 2005 and May 2006 in accordance  with generally accepted government auditing standards.
section_title: Appendix II: Comments from the Department of Energy
section_title: Appendix III: Comments from USEC, Inc.
paragraphs: Appendix III: Comments from USEC, Inc.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Diane B. Raynes (Assistant  Director), Ryan T. Coles, Jessica A. Evans, Doreen S. Feldman,  Christopher E. Ferencik, Neill W. Martin-Rolsky, Mehrzad Nadji, Omari A.  Norman, Susan A. Poling, Katherine M. Raheb, Keith A. Rhodes, Susan D.  Sawtelle, and Rebecca Shea made key contributions to this report.