Before uranium can become nuclear fuel to produce energy or be used in weapons, it must be mined from the earth. Mining firms in the United States extract uranium by conventional means, such as open-pit and underground mining, as well as by means of a liquid that leaches uranium from the ground. The product from these techniques is a substance called yellowcake. Yellowcake on its own cannot fuel nuclear reactors and weapons. Rather, it is shipped to a conversion facility, where the yellowcake is converted to uranium hexafluoride (a gas when heated) for the enrichment process. Uranium comprises a mix of several isotopes, or forms of the same element with different atomic weights. Less than 1 percent of natural uranium found in yellowcake is the isotope uranium- 235—the fissile isotope used in nuclear reactors and nuclear weapons. After conversion, enrichment firms use one of several processes to increase the amount of uranium-235 to concentrations suitable for generating nuclear power or for nuclear weapons. To be suitable as fuel for nuclear reactors, natural uranium must be enriched to a concentration of from 3 to 5 percent uranium-235. This fuel is referred to as low- enriched uranium. Natural uranium enriched to a concentration of over 90 percent uranium-235 is highly enriched uranium, which is considered weapons-grade material. For more detailed information about the nuclear fuel cycle, see appendix II. Initially, the federal government was the only entity providing domestic enrichment services in the United States. More recently, however, domestic uranium enrichment activities have been performed by private industry. USEC is one of several firms that provide enrichment services to utilities operating nuclear power plants. It has provided enrichment services using DOE-owned facilities since 1993, when it began functioning as a government-owned corporation. In 1998, USEC began functioning as a private corporation, which today runs the Paducah Gaseous Diffusion Plant in Kentucky. USEC ran the Portsmouth Gaseous Diffusion Plant in Piketon, Ohio, until 2001, when DOE contracted the firm to maintain the plant in cold-standby status for a number of years until the department was ready to decontaminate and decommission it. USEC is currently seeking funding to open a new enrichment facility, the American Centrifuge Plant, at the Portsmouth site. The market for uranium works somewhat differently from other commodity markets. In one of two ways, uranium buyers, such as utilities, purchase uranium and the services to convert it into nuclear fuel. First, buyers can obtain uranium under long-term contracts with sellers in the “term” market. Second, sellers can make their uranium available for immediate sale in a forum called the “spot” market. Transaction details about sales through both long-term contracts and the spot market are ordinarily considered business proprietary information. Uranium typically changes ownership through a process called a book transfer. Book transfers do not usually involve the physical movement of uranium, generally occurring at conversion and enrichment facilities, which tend to maintain large quantities of yellowcake or uranium hexafluoride on site for their customers. Uranium transactions are conducted directly between buyers and sellers, but brokers also match buyers with sellers for a fee. In addition, speculators may hold and sell uranium strategically to profit from swings in the price of the material. Since 2008, DOE has engaged in transactions involving excess uranium to pay two contractors for cleanup services at the Portsmouth Gaseous Diffusion Plant. Most of the uranium went to USEC to prepare the Portsmouth facility for decontamination and decommissioning. DOE plans additional transactions involving excess uranium. From December 2009 through June 2011, DOE used 1,873 metric tons of its excess natural uranium to pay for $256 million in cleanup services at its Portsmouth facility (see table 1). During this period, the department completed seven transactions with two firms. DOE’s first six transactions took place with USEC. In these transactions, DOE released in total about 1,473 metric tons of uranium valued at about $194.3 million. In return, USEC provided accelerated cleanup services to prepare the Portsmouth facility for eventual decontamination and decommissioning. For example, USEC removed and disposed of chemical and hazardous materials, including electrical equipment containing polychlorinated biphenyls, toxic chemicals that the Environmental Protection Agency states have been demonstrated to cause cancer. Other work USEC performed included relocating a cooling water line and identifying excess equipment suitable for recycling. One uranium transaction to date has also occurred between DOE and Fluor-B&W Portsmouth. This firm began activities to decontaminate and decommission the Portsmouth facility in March 2011, according to a DOE official. In June 2011, DOE released 400 metric tons of uranium valued at nearly $62 million to Fluor-B&W Portsmouth as payment for additional cleanup services at the Portsmouth facility. In these transactions, the value DOE received for each lot of natural uranium was reduced by the transaction costs both USEC and Fluor- B&W Portsmouth expected to incur to carry out the seven transactions (see table 2). These costs, which included charges for such things as storage cylinder handling and inspections, record keeping, and sales management, totaled almost $4 million. To account for these costs in the first six transactions, USEC reduced the value of the uranium transactions by 1 percent. Fluor-B&W Portsmouth reduced the value of its June 2011 transaction by substantially more—almost 2.8 percent—to account for sales costs. Fluor-B&W Portsmouth expects to discount all future transactions by a similar percentage as well, according to company representatives. In addition, under its contract with the department, Fluor- B&W Portsmouth also sought cost reimbursement from DOE for expenses associated with uranium handling and inspection and setting up what the parties referred to as a “uranium transfer management program.” According to Fluor-B&W Portsmouth representatives, Fluor- B&W Portsmouth was not a participant in the uranium market before it entered into its contract with DOE, which required the company to establish processes and procedures to manage 10 anticipated transactions over two and a half years. DOE plans nine additional transactions of natural uranium with Fluor-B&W Portsmouth through 2013, according to agency documents. In addition to the natural uranium that DOE anticipates it will release to Fluor-B&W Portsmouth for cleanup services through 2013, DOE also maintains other inventories of natural uranium. In 2008, DOE stored approximately 4,500 metric tons of uranium that does not currently meet commercial specifications for manufacturing nuclear fuel. According to DOE’s December 2008 uranium management plan, this uranium would require considerable processing before it could meet commercial standards. The plan states that some of this material would eventually be processed and offered for use in the commercial market over a number of years. According to DOE, however, some of the material is so contaminated that it is no longer under consideration for processing, and DOE is uncertain what its ultimate disposition will be. In addition to natural uranium, DOE maintains inventories of enriched and depleted uranium that are in excess of the department’s needs. For example, at the end of fiscal year 2010, DOE had 89 metric tons of excess highly enriched uranium in its inventories. To dispose of highly enriched uranium, DOE’s National Nuclear Security Administration (NNSA), a semiautonomous agency within DOE that is responsible for the management of the nation’s nuclear weapons program, has reduced the enrichment level of some of this uranium so it is potentially usable as nuclear fuel in the Tennessee Valley Authority’s nuclear power reactors. Some of the down-blended material has also gone to support DOE’s American Assured Fuel Supply Program, which ensures, among other things, access to nuclear fuel for civilian reactors in foreign countries that have good nonproliferation credentials. According to agency officials, DOE also has approximately 750,000 metric tons of depleted uranium tails that it stores in about 63,000 metal cylinders in storage yards at its Paducah and Portsmouth enrichment plants. A product of the enrichment process, this depleted uranium has historically been considered of limited use, but increases in uranium prices have potentially made it profitable to re-enrich some of the tails to further extract uranium-235. We reported in June 2011 that at May 2011 uranium prices and enrichment costs, DOE’s tails have a net value of $4.2 billion. This estimate is very sensitive, however, to changing uranium prices, which have been extremely volatile, as well as to the availability of sufficient enrichment capacity. USEC has publicly announced an interest in re-enriching some of DOE’s tails beginning in 2012. USEC plans to shut down operations at DOE’s Paducah facility, depending on market conditions, and also plans to replace some of the Paducah facility’s production capacity with the new centrifuge-based uranium enrichment plant it is constructing. USEC is considering continued operation of the Paducah facility beyond May 2012. According to USEC, processing depleted uranium could contribute toward maintaining operations at Paducah and retaining 1,200 employees the company might otherwise have to lay off. DOE officials, however, said that the department has no current plans to sell or re-enrich depleted uranium tails. DOE’ s excess uranium transactions have been consistent with parts of its uranium management plan but not with others. Specifically, the amount of uranium the department sold or transferred is less than the target of 10 percent of annual domestic fuel requirements that DOE established under the 2008 plan. With regard to other provisions, however, DOE has departed somewhat from the plan. For example, DOE has deviated from the schedule of uranium transfers articulated by the plan, resulting in more uranium entering the market much sooner than cited.