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

Letter

Background

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.

DOE Has Taken Several Actions to Reduce Cleanup Costs

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.

DOE Has Taken Actions That Address the National Academy of Sciences’ Cost Reduction Recommendations

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.

DOE Is Pursuing an Accelerated, Risk-Based Cleanup Strategy at the Plants to Reduce Costs

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.

Based on Current Projected Costs and Revenues, the Fund Will Not Be Sufficient to Complete Cleanup at the Three Plants

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.

Conclusions

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.

Matters for Congressional Consideration

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.

Recommendations for Executive Action

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.

Agency Comments and Our Evaluation

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.

Scope and Methodology

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.

Fund Modeling Methodology, Assumptions, and Results

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.

Baseline Model Data, Assumptions, and Uncertainties

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.

Alternative Models

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.

Accelerated and Deferred Models

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.

Revenue Added Models

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.

Results

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.

DOE Actions Taken That Addressed the National Academy of Sciences’ Cost Reduction Recommendations

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.

Comments from the Department of Energy

GAO Contacts and Staff Acknowledgments

GAO Contacts

Staff Acknowledgments

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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