    U.S. Enrichment Corporation Privatization: USEC's Delays in
    Providing Data Hinder DOE's Oversight of the Uranium
    Decontamination Agreement (16-JUN-06, GAO-06-723).

    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.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-723
        ACCNO:   A55600
      TITLE:     U.S. Enrichment Corporation Privatization: USEC's Delays
    in Providing Data Hinder DOE's Oversight of the Uranium
    Decontamination Agreement
         DATE:   06/16/2006
      SUBJECT:   Decontamination
    	     Financial analysis
    	     Radioactive materials
    	     Uranium
    	     Interagency relations
    	     Performance measures
    	     Government agency oversight

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    GAO-06-723

         * Results in Brief
         * Background
         * USEC Reported About 10 Percent of the Contaminated Uranium D
         * DOE's Oversight of USEC's Uranium Decontamination Activities
              * DOE Oversees USEC's Activities by Reviewing Monthly Reports
              * USEC's Delays in Responding to Inquiries and Providing Finan
         * Conclusions
         * Recommendations for Executive Action
         * Agency Comments and Our Evaluation
         * GAO Contact
         * Staff Acknowledgments
         * GAO's Mission
         * Obtaining Copies of GAO Reports and Testimony
              * Order by Mail or Phone
         * To Report Fraud, Waste, and Abuse in Federal Programs
         * Congressional Relations
         * Public Affairs

    Report to the Chairman, Committee on Energy and Natural Resources, U.S.
    Senate

    United States Government Accountability Office

    GAO

    June 2006

    U.S. ENRICHMENT CORPORATION PRIVATIZATION

    USEC's Delays in Providing Data Hinder DOE's Oversight of the Uranium
    Decontamination Agreement

    GAO-06-723

    Contents

    Letter 1

    Results in Brief 6
    Background 9
    USEC Reported About 10 Percent of the Contaminated Uranium DOE Transferred
    to the Corporation before Privatization Remains to Be Decontaminated 14
    DOE's Oversight of USEC's Uranium Decontamination Activities Has Been
    Hindered by Delays in Obtaining Key Information from USEC 19
    Conclusions 24
    Recommendations for Executive Action 24
    Agency Comments and Our Evaluation 25
    Appendix I Objectives, Scope, and Methodology 28
    Appendix II Comments from the Department of Energy 30
    Appendix III Comments from USEC, Inc. 31
    Appendix IV GAO Contact and Staff Acknowledgments 36

    Tables

    Table 1: USEC's Invoiced Decontamination Costs 18
    Table 2: USEC's Schedule for Submitting Decontamination Cost Data to DCAA
    23

    Figures

    Figure 1: USEC's Uranium Decontamination Process 12
    Figure 2: USEC's Inventory of Technetium-Contaminated Uranium, June 2002
    through February 2006 16
    Figure 3: DOE's Inventory of Technetium-Contaminated Uranium, October 2004
    through February 2006 17

    Abbreviations

    ASTM American Society for Testing and Materials DCAA Defense Contract
    Audit Agency

    DOE Department of Energy

    HEU highly enriched uranium

    ppb parts per billion

    USEC U.S. Enrichment Corporation

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    United States Government Accountability Office

    Washington, DC 20548

    June 16, 2006

    The Honorable Pete V. Domenici Chairman Committee on Energy and Natural
    Resources United States Senate

    Dear Mr. Chairman:

    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.1 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.2

    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.3
    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.4

    1Natural uranium, the raw material required for the uranium enrichment
    process, comprises a mixture of several isotopes-forms of the same element
    with different atomic weights. Less than 1 percent of natural uranium is
    the isotope uranium-235-the fissile isotope used in nuclear reactors and
    in nuclear weapons. Natural uranium is enriched to a concentration of from
    3 to 5 percent uranium-235 to produce fuel for nuclear power reactors.
    Natural uranium that is enriched to a concentration of over 90 percent
    uranium-235 is highly enriched and is weapons-grade material.

    2DOE closed the K-25 uranium enrichment plant in Oak Ridge, Tennessee, in
    1985. In addition, the Portsmouth Gaseous Diffusion Plant in Piketon,
    Ohio, ceased enriching uranium in 2001. DOE was maintaining the plant in a
    "cold standby" status to be restarted in the event of significant
    disruptions in the supply of enriched uranium until it was determined this
    condition was no longer required. DOE is currently transitioning the plant
    from cold standby to cold shutdown status. DOE expects to complete the
    transition to cold shutdown by September 30, 2006.

    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.5 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.6 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.7 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.

    3USEC also acts as executive agent in the implementation of a February
    1993 agreement between the United States and the Russian Federation under
    which highly enriched uranium (HEU) from Russian nuclear weapons is
    diluted, or blended-down, and sold as nuclear fuel. This agreement, known
    as the HEU agreement, supports U.S. nonproliferation goals by eliminating
    material that could potentially be used in a nuclear weapon. See GAO,
    Nuclear Nonproliferation: Implications of the U.S. Purchase of Russian
    Highly Enriched Uranium, GAO-01-148 (Dec. 15, 2000).

    4Of the $3.1 billion gross proceeds to the government, $1.9 billion was
    the result of the initial public offering, and the remaining $1.2 billion
    resulted from the United States retaining cash from accounts held by USEC
    in the U.S. Treasury.

    5Commercial specifications for nuclear fuel are established by the
    American Society for Testing and Materials (ASTM). ASTM's commercial
    specification, established in 1990, states that uranium should not contain
    more technetium than 1 part per billion prior to enrichment. Samples taken
    from 13 of the 1,255 storage cylinders that contain the uranium that DOE
    transferred to USEC indicated technetium contamination ranging from 11 to
    148 parts per billion, all in excess of ASTM's commercial specification.

    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:

               o  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.

               o  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.
               o  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.
               o  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.8 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.9 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.10

               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.11 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.12

               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.

               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 metric tons transferred. USEC estimates
               it will finish decontaminating this uranium by the end of December
               2006. Through the end of February 2006, USEC has invoiced DOE
               about $152 million for its decontamination costs. About $62
               million of USEC's compensation was from the proceeds generated
               from the commercial sale of clean uranium that DOE transferred as
               compensation under the December 2004 agreement. DOE has also paid
               USEC about $62 million from appropriations to compensate the
               corporation for its decontamination services. In addition, DOE has
               compensated USEC for its decontamination services by taking title
               to approximately 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.

               DOE takes several steps to oversee USEC's uranium decontamination
               activities; however, DOE has been unable to complete some of its
               oversight because it has not obtained some financial and other
               data from USEC. For example, DOE reviews monthly USEC reports that
               detail, among other things, the corporation's decontamination
               progress and costs, remaining contaminated uranium inventories to
               be processed, and technetium contamination levels in uranium
               cylinders before and after processing. In addition, DOE, through
               DCAA, audits USEC to verify USEC's actual decontamination costs.
               Finally, DOE tracks the proceeds USEC generates from selling clean
               uranium that DOE transferred to the corporation under the December
               2004 agreement.

               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. For example, when DOE questioned USEC about
               its worker training and overtime charges, DOE officials told us
               that USEC often only selectively responded to these questions.
               USEC officials told us that they attempt to provide answers in a
               timely way, but that delays sometimes occur when personnel from
               both DOE and DCAA were asking similar questions. USEC officials
               told us 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. In
               addition, USEC officials told us that DOE often requests very
               detailed data that are difficult to provide quickly. 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
               inquiries were more detailed, this certainly would not have
               justified the delays in USEC's responses to the department. DCAA
               has also experienced significant delays obtaining the detailed
               financial data from USEC that it requires for its annual audit of
               USEC's costs, which DOE uses to verify that USEC's actual
               decontamination costs match what DOE paid USEC. A Federal
               Acquisition Regulation contract clause, included in DOE's
               agreements with USEC, requires USEC to provide financial data
               detailing its indirect costs within 6 months of the end of each of
               USEC's fiscal years.13 DCAA requires this information to complete
               its audit. However, USEC has not submitted these data to DOE or
               DCAA for its uranium decontamination costs covering any period
               since July 2002, and DCAA has yet to complete an annual audit of
               these costs. USEC officials told us the delays are due to a number
               of factors, including limited internal accounting resources that
               are familiar with federal requirements and extended 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 this information to DCAA. 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, upon completion of these
               audits, USEC may need to pay money to the government, or DOE may
               owe additional money to USEC. USEC asserts that its
               decontamination costs have exceeded DOE's compensation of the
               corporation by about $3 million. However, DOE has refused to pay
               this difference until USEC supplies DCAA with the required
               financial data to complete DCAA's audits.

               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 aid the Congress's continuing
               oversight of DOE's activities, we are further recommending that
               the Secretary provide information in DOE's annual budget request
               on, among other things, the remaining amount of uranium to be
               decontaminated, the total expected costs of the decontamination,
               and DCAA's progress in auditing USEC's costs.

               We provided a draft of this report to DOE and USEC for comment.
               DOE and USEC agreed with the recommendations, but commented that
               the report would be more accurate if it acknowledged the value and
               successful performance of the program. We believe our draft report
               clearly described what DOE and USEC officials told us were the
               benefits of the uranium decontamination agreements.

               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.14 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.15 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.

               This page intentionally left blank

               Figure 1: USEC's Uranium Decontamination Process

               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:

               o  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.16 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.17
               o  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.18 DOE compensated USEC
               for its decontamination costs using appropriated funds.19
               o  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.20 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.21 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.

    6After USEC notified DOE that up to 9,550 metric tons of its uranium was
    contaminated, DOE determined that about 5,517 metric tons of uranium in
    DOE's inventory was also contaminated with technetium. In addition, DOE
    took title to 2,116 metric tons of contaminated uranium from USEC in
    October 2004 in exchange for clean uranium from DOE's inventory. This
    exchange resulted in a total of about 7,633 metric tons of contaminated
    uranium in DOE's inventory. All of the contaminated uranium would
    eventually need to be decontaminated before DOE could make it commercially
    available.

    7The Portsmouth plant was available to perform the uranium decontamination
    because USEC had ceased uranium enrichment operations there in 2001 due to
    the high costs of operating the plant in an increasingly competitive
    uranium enrichment market.

    8Between June 2002 and September 2003, the 15-month period of the
    agreement, USEC actually decontaminated about 2,900 metric tons of
    uranium.

    9DOE and USEC signed two agreements in September 2003 and November 2003
    that extended decontamination work through December 2003. In addition, the
    April 2004 agreement retroactively included decontamination work conducted
    from December 2003 through April 2004.

    10USEC's allowable decontamination costs under the April 2004 agreement
    included direct and indirect costs, plant overhead costs incurred in
    operating the facilities for processing the contaminated uranium, costs
    related to uranium storage cylinders, audit support costs, and other
    expenses of processing the contaminated uranium. USEC was not entitled to
    earn a profit.

    11USEC's allowable costs under the December 2004 agreement were
    essentially the same as under the April 2004 agreement; again, USEC was
    not entitled to earn a profit.

    12Energy and Water Development Appropriations Act, 2006, Pub. L. No.
    109-103, S: 314, 119 Stat. 2247, 2281 (Nov. 19, 2005).

                                    Results in Brief

    13Federal Acquisition Regulation  S: 52.216-7.

                                       Background

    14DOE requested this information to assist in the characterization of
    potential contaminants in its depleted uranium inventories in support of
    its planned depleted uranium conversion program, which will convert the
    depleted uranium to a more stable form for reuse or disposal.

    15DOE closed the contaminated production lines at Paducah in 1977. Any
    uranium processed at Paducah after that date was therefore not technetium
    contaminated.

     USEC Reported About 10 Percent of the Contaminated Uranium DOE Transferred to
           the Corporation before Privatization Remains to Be Decontaminated

    16Decontamination of USEC's contaminated uranium under the June 2002
    agreement was intended to last for 15 months. However, DOE and USEC also
    signed two agreements in September 2003 and November 2003 that extended
    decontamination work through December 2003.

    17DOE agreed in the June 2002 agreement to pay USEC's site infrastructure
    costs (e.g., indirect costs such as utilities and other plant overhead
    costs) using appropriations, subject to availability.

    18Although DOE and USEC did not sign this agreement until April 2004, it
    retroactively included decontamination work beginning in December 2003.

    19The April 2004 agreement also provided a performance incentive to USEC.
    If USEC successfully decontaminated more than 1,750 metric tons of uranium
    before October 2004, DOE would take title to some depleted uranium in
    addition to compensating USEC for its decontamination costs.

    20Specifically, the June 2002 agreement stated that DOE would, at its
    option, "exchange, replace, or reimburse" USEC to decontaminate an amount
    of uranium equal to 3,293 metric tons of contaminated uranium less the
    amount USEC actually decontaminated between June 2002 and March 2003. USEC
    decontaminated 1,177 metric tons of uranium between June 2002 and March
    2003. Therefore, DOE transferred 2,116 metric tons of clean uranium from
    its inventory to USEC in October 2004 in exchange for an equal amount of
    contaminated uranium from USEC's inventory.

    21USEC's costs for decontaminating DOE's uranium have also been paid using
    proceeds from the sale of the clean uranium transferred to USEC under the
    December 2004 agreement.

    Figure 2: USEC's Inventory of Technetium-Contaminated Uranium, June 2002
    through February 2006

    Note: The large drop in USEC's inventory of contaminated uranium in
    October 2004 is the result of DOE's transfer of 2,116 metric tons of clean
    uranium to USEC in exchange for an equal amount of USEC's contaminated
    uranium.

    Figure 3: DOE's Inventory of Technetium-Contaminated Uranium, October 2004
    through February 2006

    Note: DOE's inventory includes 2,116 metric tons of contaminated uranium
    USEC transferred to the department in October 2004 in exchange for 2,116
    metric tons of clean uranium and the 5,500 metric tons of contaminated
    uranium that were already in DOE's inventory.

    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.

    Table 1: USEC's Invoiced Decontamination Costs

    Nominal dollars in thousands, unadjusted for inflation
                                             Other direct
    Fiscal year                Labor             costs Indirect costs    Total
    2002                      $2,260              $633         $3,411   $6,304
    2003                      13,409             3,116         21,146   37,672
    2004                      13,331             3,112         21,719   38,162
    2005                      16,612             3,854         26,002   46,469
    2006 (through February
    2006)                      7,940             2,366         12,983   23,289
    Total                    $53,552           $13,082        $85,262 $151,896

    Source: GAO presentation of USEC data.

    Note: Totals may not add because of rounding.

    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.

     DOE's Oversight of USEC's Uranium Decontamination Activities Has Been Hindered
                    by Delays in Obtaining Key Information from USEC

    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.

    DOE Oversees USEC's Activities by Reviewing Monthly Reports and DCAA Audits and
    Conducting On-Site Verification

    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:

               o  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.
               o  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.
               o  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.22 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.

               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.23

               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.24 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.25 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

               o  limited internal accounting resources that are familiar with
               Federal Acquisition Regulations and government cost accounting
               standards
               o  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.)

               Table 2: USEC's Schedule for Submitting Decontamination Cost Data
               to DCAA

               Source: USEC.

               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.

                Conclusions

    			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.

               Recommendations for Executive Action

    		   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:

               o  the remaining quantities of uranium in USEC's and DOE's
               inventories that need to be decontaminated,
               o  the estimated costs of completing this decontamination work,
               o  the source of funds necessary to compensate USEC, and
               o  the progress DCAA has made completing the annual audits of
               USEC's decontamination costs.

               Agency Comments and Our Evaluation

    		   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 S: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.

               Sincerely yours,

               Gene Aloise Director, Natural Resources and Environment

               Appendix I: Objectives, Scope, and Methodology

    		   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.

    		   Appendix II: Comments from the Department of Energy

               Appendix III: Comments from USEC, Inc.

               Appendix IV: GAO Contact and Staff Acknowledgments

                                      GAO Contact

               Gene Aloise, (202) 512-3841 or aloisee@gao.gov

    		   Staff Acknowledgments

               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.

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    USEC's Delays in Responding to Inquiries and Providing Financial Data Have
    Affected DOE's Oversight

    22DCAA's audits compare USEC's claimed incurred costs with USEC's internal
    records and determines whether the costs are reasonable and in accordance
    with applicable laws, regulations, and the provisions of the December 2004
    agreement. At DOE's request, DCAA has also conducted internal control
    reviews of USEC's accounting systems as well as several other reporting
    systems.

    23In its comments on a draft version of this report, USEC also stated that
    DOE submitted a total of 342 inquiries between January 2004 and November
    2005.

    24A Federal Acquisition Regulation contract clause, "Allowable Cost and
    Payment," is included in DOE's agreements with USEC. The clause  requires
    a contractor to submit its final incurred cost rates to the cognizant
    federal agency within 6 months of the end of each of the contractor's
    fiscal years. Federal Acquisition Regulation  S: 52.216-7.

                                         Date on which USEC estimates incurred
    Decontamination work completed in cost data will be submitted to DCAA
    July through December 2002        August 31, 2006
    Calendar year 2003                December 31, 2006
    Calendar year 2004                June 30, 2007
    Calendar year 2005                December 31, 2007

    25DCAA's audit of USEC's December 2004 costs found that about $108,000
    that DOE had paid USEC under the terms of the April 2004 agreement should
    have been paid instead under the terms of the December 2004 agreement.
    Similarly, DCAA's audit of USEC's January 2005 costs found that about
    $220,000 of USEC's claimed costs were actually incurred prior to the
    December 2004 agreement and should have been paid by DOE under the terms
    of the April 2004 agreement. DCAA's audit of USEC's January 2005 costs
    also questioned about $3,600 in USEC's direct labor and other procurement
    costs. USEC agreed that the $3,600 had been overstated and subsequently
    offset these costs. Overall, DCAA officials with whom we spoke did not
    believe that these issues were significant.

    (360610)

    www.gao.gov/cgi-bin/getrpt? GAO-06-723 .

    To view the full product, including the scope

    and methodology, click on the link above.

    For more information, contact Gene Aloise at (202) 512-3841 or
    aloisee@gao.gov.

    Highlights of GAO-06-723 , a report to the Chairman, Committee on Energy
    and Natural Resources, U.S. Senate

    June 2006

    U.S. ENRICHMENT CORPORATION PRIVATIZATION

    USEC's Delays in Providing Data Hinder DOE's Oversight of the Uranium
    Decontamination Agreement

    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.

    What GAO Recommends

    GAO recommends that DOE (1) clarify with USEC the department's oversight
    role in the uranium decontamination agreement and (2) report to the
    Congress on, among other things, USEC's progress in decontaminating
    uranium and its costs. DOE agreed with our recommendations.

    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.

    USEC's Inventory of Technetium-Contaminated Uranium, June 2002 through
    February 2006
    *** End of document. ***