USEC Portsmouth Gaseous Diffusion Plant "Cold Standby" Plan, B-286661, January 19, 2001

B-286661 Jan 19, 2001 Jump To VIEW DECISION DOWNLOADS RELATED PAGES GAO CONTACTS Highlights GAO reviewed the availability of funds for a reported plan of the Department of Energy (DOE) to (1) keep the Portsmouth gaseous diffusion plant, leased and operated by the United States Enrichment Corporation (USEC), in a "cold standby" status and (2) build an advanced centrifuge technology demonstration plant for gas centrifuge uranium enrichment. DOE intends to cover the cost of this plan from $725 million transferred from the USEC Fund to miscellaneous receipts of the Treasury. DOE maintains that the USEC Privatization Act of 1996 allows DOE to pay the costs of implementing its plan from the USEC Fund. GAO concluded that the $725 million was properly credited back to the USEC Fund and remains available for obligation. GAO further concluded, however, that "expenses of privatization" authorized by the USEC Privatization Act do not include costs such as those associated with the DOE plan and, accordingly, the USEC Fund is not available to cover such costs. View Decision Subject: USEC Portsmouth Gaseous Diffusion Plant "Cold Standby" Plan File: B-286661 Date: January 19, 2001 The Honorable Pete Domenici United States Senate Dear Senator Domenici: You asked us to review the availability of funds for a reported plan of the Department of Energy (DOE) to (1) keep the Portsmouth gaseous diffusion plant, leased and operated by the United States Enrichment Corporation (USEC or Corporation), in a "cold standby" status and (2) build an advanced centrifuge technology demonstration plant for gas centrifuge uranium enrichment. DOE intends to cover the cost of this plan from $725 million transferred from the USEC Fund to miscellaneous receipts of the Treasury on September 30, 1998, and subsequently transferred back to the USEC Fund on October 20, 2000. The USEC Privatization Act of 1996 authorized use of the USEC Fund to pay expenses of USEC privatization. DOE has taken the position that it may pay the costs of implementing its plan from the USEC Fund. DOE views the costs of implementing its plan as expenses of privatization and hence allowable charges to the USEC Fund. As set forth below, we conclude that the $725 million was properly credited back to the USEC Fund and remains available for obligation. We further conclude, however, that "expenses of privatization" authorized by the USEC Privatization Act do not include costs such as those associated with the DOE plan and, accordingly, the USEC Fund is not available to cover such costs. BACKGROUND USEC leases and operates DOE uranium enrichment plants in Piketon, Ohio and Paducah, Kentucky, but has not been able to operate both uranium enrichment plans at an economically efficient level. Under a July 1998 agreement with the Department of the Treasury, USEC is not allowed to close either plant before January 2005, except under specified circumstances. This agreement included exceptions that would allow USEC to close a plant if a "significant event" occurred, including the downgrading of USEC's corporate credit rating below investment grade or a reasonable expectation of such downgrading within 12 months. In February 2000, Standard and Poor's and Moody's Investors Service revised their credit ratings of USEC's long term debt to below investment grade. In June 2000, USEC announced that it intended to close the Portsmouth gaseous diffusion plant, located in Piketon, Ohio, by June 2001, leaving the Corporation operating only its Paducah, Kentucky plant. See generally Nuclear Nonproliferation, Implications of the U.S. Purchase of Russian Highly Enriched Uranium, GAO-01-148, December 2000. On October 6, 2000, DOE announced that it intended to implement a plan to keep the Portsmouth plant in "cold standby" /1/ for 5 years for possible restart in the event of a significant disruption in the nation's supply of enriched uranium. Under the plan, DOE would retain many of the Portsmouth plant operations, maintenance, utilities, and support personnel to maintain a portion of the facility in a standby status, until an advanced enrichment technology is demonstrated in about 5 years. DOE also plans to build an advanced centrifuge technology demonstration plant for uranium enrichment in Piketon. The centrifuge project would be managed by DOE's Oak Ridge National Laboratory and projected for completion in 5 years. Initial work would be done in Oak Ridge, Tennessee, shifting later to Piketon, where existing facilities would be refurbished to house the demonstration project. The resulting centrifuge technology developed in the project would be available to the gaseous diffusion plants in Piketon and Paducah to help ensure the continued competitiveness of the domestic uranium enrichment industry. The role of USEC in the DOE plan is unclear.