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

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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 [email protected]. 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 [email protected]
		   
		   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.

                                 


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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
[email protected].

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. ***