Department of Energy: Savings from Deactivating Facilities Can Be Better
Estimated (Letter Report, 07/07/95, GAO/RCED-95-183).

Pursuant to a congressional request, GAO provided information on the
Department of Energy's (DOE) plans to deactivate surplus facilities,
focusing on the: (1) proportion of the Nuclear Material and Facility
Stabilization (NMFS) Program's fiscal year (FY) 1995 budget that is
allocated to projects that could reduce the program's future costs; (2)
difference between the savings that the deactivation projects could
generate and the costs DOE could incur to obtain these savings; and (3)
reliability of DOE savings estimates from major deactivation projects.

GAO found that DOE: (1) has allocated about 31 percent, of the NMFS
program's available FY 1995 funding to 24 deactivation projects at three
key sites to reduce future program costs; (2) could realize a combined
net savings of $458 million from 11 projects over 10 to 30 years; (3)
has not developed a process for consistently estimating the net savings
from deactivation projects, resulting in its inability to develop
reliable or complete estimates of potential net savings from these
projects; and (4) must be able to target funds more effectively, since
it expects that the number of facilities managed by the NMFS program may
increase from 1,560 to about 5,900 facilities by 1997.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-95-183
     TITLE:  Department of Energy: Savings from Deactivating Facilities 
             Can Be Better Estimated
      DATE:  07/07/95
   SUBJECT:  Appropriated funds
             Budget administration
             Hazardous substances
             Environmental monitoring
             Nuclear facilities
             Facility management
             Facility maintenance
             Risk management
             Cost control
IDENTIFIER:  Idaho Falls (ID)
             DOE Nuclear Material and Facility Stabilization Program
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Military Procurement,
Committee on National Security, House of Representatives

July 1995

DEPARTMENT OF ENERGY - SAVINGS
FROM DEACTIVATING FACILITIES CAN
BE BETTER ESTIMATED

GAO/RCED-95-183

Savings From Deactivating Facilities


Abbreviations
=============================================================== ABBREV

  ADS - Activity Data Sheet
  DOE - Department of Energy
  EM - Office of Environmental Management
  FFTF - Fast Flux Test Facility
  GAO - General Accounting Office
  NMFS - Nuclear Material and Facility Stabilization (program)
  PUREX/UO3 - Plutonium-Uranium Extraction/Uranium Trioxide Plants

Letter
=============================================================== LETTER


B-260267

July 7, 1995

The Honorable Duncan Hunter
Chairman, Subcommittee on
 Military Procurement
Committee on National Security
House of Representatives

Dear Mr.  Chairman: 

The Department of Energy (DOE) created the Nuclear Material and
Facility Stabilization (NMFS) program within the Office of
Environmental Management (EM) in July 1992.  Since then, the program
has grown to become a major part of DOE's environmental management
efforts.  At the beginning of fiscal year 1995, DOE was planning to
spend about $813 million on managing surplus facilities that are
waiting for decontamination and decommissioning and on providing
electrical, transportation, and other landlord-type services at key
environmental management sites near Hanford, Washington; Idaho Falls,
Idaho; and Rocky Flats, Colorado. 

DOE officials have repeatedly said they can reduce the NMFS program's
future costs by deactivating surplus facilities--which involves
removing radioactive and hazardous materials that DOE must otherwise
safeguard and monitor until the facilities are decontaminated and
decommissioned--and by upgrading inefficient utilities and other
services at sites managed by the program.  Interested in assuring
that the program achieves these goals, the former Chairman of the
Committee's Military Application of Nuclear Energy Panel asked us to
(1) determine the proportion of the program's fiscal year 1995 budget
that is allocated to projects that could reduce the program's future
costs,\1 (2) estimate the difference between the savings that these
projects could generate and the costs DOE could incur to obtain these
savings (i.e., net savings), and (3) determine the reliability of
DOE's estimates for net savings that could accrue from major
deactivation projects.  As agreed with the Committee, we are sending
the results of our work to you because your Subcommittee now has
jurisdiction over the program. 


--------------------
\1 We defined an NMFS project as any activity or collection of
activities that the program manages by using a single EM Activity
Data Sheet (ADS).  ADSs are the office's primary system for managing
projects. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

DOE is allocating about 31 percent, or $249 million, of the NMFS
program's available fiscal year 1995 funding to projects that it
expects will reduce the program's future costs.  The $249 million
allocation supports 24 deactivation, surveillance and maintenance,
and landlord-type projects at the program's three key sites. 

We estimated the net savings that DOE could realize for the 11
projects for which sufficient data were available.  These 11 projects
could yield a combined net savings of $458 million over their
expected lives of 10 to 30 years.\2 The net savings from individual
projects vary widely--two deactivation projects could save several
hundred million dollars in surveillance and maintenance costs, while
other projects may save considerably less.  We could not estimate
savings for the remaining 13 projects because, while DOE expects
savings to occur, it did not have sufficient data available on the
costs and potential savings associated with the projects. 

Despite the significant savings that some deactivation projects could
generate, DOE has not developed a process for consistently estimating
the net savings from deactivation projects.  Consequently, DOE is not
able to develop reliable or complete estimates of the potential net
savings from these projects.  DOE officials expect that the number of
facilities managed by the program may increase from 1,560 to an
estimated 5,900 facilities--an increase of 278 percent--by October
1997 and that budget constraints will tighten.  As this occurs, using
a reliable process to estimate and compare net savings from
deactivation projects, coupled with an assessment of other factors,
such as health and safety risks, would help DOE target funds more
effectively to those projects that will produce the greatest
reduction in future costs. 


--------------------
\2 Unless indicated otherwise, this report presents the projects'
cost and savings estimates in 1994 discounted dollars.  App.  IV
explains how we estimated the projects' costs and savings. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The NMFS program is becoming an increasingly important part of DOE's
environmental management effort. 

  Once EM accepts ownership of a surplus facility, the NMFS program
     becomes responsible for surveillance and maintenance activities. 
     These activities include monitoring the nuclear and hazardous
     materials within many surplus DOE buildings and other efforts
     needed to protect the health and safety of workers, the public,
     and the environment.  Surveillance and maintenance costs are
     high for a facility that contains large inventories of nuclear
     and hazardous materials. 

  The program is also responsible for deactivating surplus
     facilities, which is the first phase of stabilizing and cleaning
     up contaminated facilities.  Deactivation includes removing
     nuclear and hazardous materials and making structural repairs to
     a surplus facility so that DOE can minimize health and safety
     risks and reduce surveillance and maintenance costs until DOE
     starts final decontamination and decommissioning. 

  The program's landlord activities fulfill a critical support role
     for DOE's other environmental programs.  Landlord services
     include maintaining roads, providing medical and fire services,
     and operating electricity and other utilities at the Hanford,
     Idaho Falls, and Rocky Flats sites where EM has designated the
     NMFS program as the sites' "landlord."

As shown in figure 1, surveillance and maintenance costs account for
the largest portion of the program's costs.  Appendix I provides
additional details on the program's projected spending at key sites
and EM headquarters. 

   Figure 1:  NMFS Program's
   Available Fiscal Year 1995
   Budget by Type of Activity

   (See figure in printed
   edition.)

The NMFS program's available fiscal year 1995 budget totaled $812.8
million. 

Source:  GAO's analysis of DOE's data. 


   DOE IS SPENDING ABOUT ONE-THIRD
   OF THE PROGRAM'S AVAILABLE
   FUNDS ON COST-SAVING PROJECTS
------------------------------------------------------------ Letter :3

For fiscal year 1995, we estimate that the NMFS program is allocating
about 31 percent ($249 million) of the program's available funding to
24 projects that program officials expect will reduce future costs at
Hanford, Idaho Falls, and Rocky Flats.  Some of these same projects
may also address health and safety concerns at surplus facilities by
reducing workers' potential exposures to radiation and hazardous
chemicals and by eliminating conditions that could cause accidents
and injuries. 

The 24 cost-saving projects fall into two categories.  The first
category includes 11 projects for which DOE has estimated
deactivation, surveillance and maintenance, or landlord costs from
which we could derive estimated savings.  These projects include
DOE's deactivation efforts at Hanford's Plutonium-Uranium
Extraction/Uranium Trioxide Plants (PUREX/UO3) and Fast Flux Test
Facility (FFTF) and landlord projects at Idaho Falls and Rocky Flats. 
The second category includes deactivation activities that are still
in the early planning stages at Idaho Falls and Rocky Flats and
projects to upgrade landlord services at Idaho Falls and Hanford
that, in some cases, were started before DOE transferred landlord
responsibilities to EM.  We could not estimate savings for these
projects either because DOE had not determined the costs needed to
complete a project or had not estimated the savings that might
result. 

As shown in figure 2, DOE is allocating the largest proportion of the
program's available fiscal year 1995 funds to projects that DOE
generally does not expect will reduce surveillance and maintenance or
landlord costs.  These include projects to (1) conduct surveillance
and maintenance at facilities that are not currently being
deactivated, (2) provide general landlord services at the program's
three key sites, and (3) manage activities at these major sites. 
Some of these projects also address health and safety risks at the
sites.  (App.  II gives the percentage of funding for deactivation,
surveillance and maintenance, and landlord projects in each
category.)

   Figure 2:  Distribution of NMFS
   Program's Available Fiscal Year
   1995 Funding by Savings
   Potential and Number of
   Projects

   (See figure in printed
   edition.)

Note 1:  The NMFS program's available fiscal year 1995 budget totaled
$812.8 million. 

Note 2:  The 3 percent of the available fiscal year 1995 budget that
we did not review supports activities at DOE headquarters and sites
in California, Florida, Ohio, South Carolina, and Tennessee. 

Source:  GAO's analysis of DOE's data. 

The Director of the NMFS program's Office of Integration and
Assessment stated that the program is actively seeking opportunities
to reduce future costs.  However, he indicated that during fiscal
years 1993 and 1994, the program had just become responsible for the
Idaho Falls and Rocky Flats sites, had completed deactivation plans
and was ready to start deactivation at only a few facilities, and had
limited staff to reshape budget priorities.  He believes that a major
reason why more of the available funding has not been directed to
cost-saving projects is that 1995 was the first fiscal year in which
the NMFS program could effectively redirect funds to deactivation and
landlord projects with potential savings. 


   POTENTIAL NET SAVINGS FROM
   FISCAL YEAR 1995 ACTIVITIES
   COULD BE SIGNIFICANT
------------------------------------------------------------ Letter :4

We estimate that the 11 fiscal year 1995 deactivation, surveillance
and maintenance, and landlord projects for which there was
information on cost savings could save a combined amount of $764
million over the projects' expected lives of 10 to 30 years.  With
the estimated costs to complete all necessary work subtracted, the
projects could save a net amount of $458 million over this period. 
However, the actual savings from these projects could vary depending
on the projects' final costs, DOE's decisions on when to
decontaminate and decommission specific surplus facilities, and other
factors.  Appendix III provides cost and savings estimates and other
information for the 11 individual projects. 

DOE's deactivation of PUREX/UO3 and FFTF accounts for about 86
percent of the potential net savings from the 11 fiscal year 1995
projects.  At PUREX/UO3, DOE intends to almost eliminate the need to
perform safety checks and operate safety systems by removing
chemicals and nuclear fuel left at the facilities when DOE stopped
fuel reprocessing.  We estimate that these efforts could reduce total
surveillance and maintenance costs at PUREX/UO3 by about $244 million
during deactivation and the 10-year holding period that NMFS program
officials expect before DOE starts decontamination and
decommissioning.  Subtracting DOE's estimated deactivation costs
produces an expected net savings of about $199 million.  At FFTF, DOE
could reduce surveillance and maintenance costs by $297 million
during a comparable deactivation and 10-year holding period. 
Subtracting the projected costs for removing nuclear fuel, draining
coolant from the reactor, and completing other deactivation work
produces an estimated net savings of $193 million. 

Other fiscal year 1995 projects could generate smaller net savings. 
For example, at Idaho Falls' Separations and Fuel Dissolution Process
Facilities, DOE could receive $58 million in net savings from
deactivating parts of several buildings.  Surveillance and
maintenance costs for the buildings can be reduced by only a fraction
of the total costs because DOE will continue to use other parts of
the buildings for environmental work.  Consolidating security systems
at Idaho Falls, upgrading utilities at Rocky Flats, and conducting
other landlord projects could generate from $800,000 to $6.6 million
in net savings over the projects' 10- to 30-year design lives. 

Two of the 11 projects could cost more than they could save.  At
Idaho Falls, DOE's electrical upgrades could cost a net $44 million. 
However, according to DOE officials, the project is needed to reduce
electrical outages at facilities that store nuclear materials and to
eliminate the threat of electrocution and electrical overload at some
facilities.  At Hanford, DOE's project to deactivate a group of
related nuclear fuel supply facilities could cost $6 million more
than the project's expected savings in surveillance and maintenance
costs.  By deactivating this group of facilities, DOE will eliminate
structural hazards at one building and prevent accidental releases of
hazardous materials to the environment at other buildings. 

Our savings estimates are sensitive to program officials' assumption
that DOE will not start decontamination for at least 10 years after
deactivation.  At PUREX/UO3, program officials are using a 10-year
period to identify the repairs needed to keep these facilities
structurally sound until DOE starts decontamination.  However, DOE
officials do not have a firm schedule for starting decontamination of
surplus facilities.  If DOE starts decontamination more than 10 years
after completing deactivation, the net savings from deactivating a
facility could increase because DOE would benefit from additional
years of minimal surveillance and maintenance costs.  The additional
surveillance and maintenance cost savings would be reduced by the
added cost of any unanticipated repairs to keep a facility
structurally sound for these additional years. 

Our estimates also assume that DOE will complete the 11 projects on
schedule.  If DOE completes projects earlier than expected, the
projects' discounted net savings could increase.  For example, we
estimate that DOE's discounted net savings from deactivating
PUREX/UO3 could be higher now than when DOE started planning the
facility's deactivation because DOE has recently decided to pursue
selling the nitric acid that remains at the facility.  By selling the
nitric acid, DOE could deactivate the facility 1 year sooner than
anticipated.  If DOE does not start decontamination and
decommissioning 1 year earlier than originally planned, completing
deactivation sooner increases the project's discounted net savings by
about $7 million. 


   DOE CAN BETTER ESTIMATE
   POTENTIAL SAVINGS FOR MAJOR
   DEACTIVATION PROJECTS
------------------------------------------------------------ Letter :5

Since preparing the fiscal year 1995 budget, program officials have
become increasingly aware of the importance of considering net
savings estimates during the budget process.  However, partly because
DOE's internal orders for managing projects do not require NMFS
program officials to prepare overall cost savings estimates for
deactivation projects, NMFS program officials have not developed a
process for consistently estimating discounted net savings from
deactivation projects.  For deactivation projects, estimating
discounted net savings can involve the following: 

  Calculating annual net savings during each year that DOE is
     deactivating a facility and waiting to start decontamination and
     decommissioning.  Annual net savings are the difference between
     each year's deactivation costs and the resulting reductions in
     surveillance and maintenance costs. 

  Discounting the annual net savings and computing a total estimate
     of discounted net savings both during deactivation and during
     the period until decontamination and decommissioning begins. 

For the fiscal year 1995 budget, NMFS program officials did not
prepare complete estimates of savings for specific deactivation
projects because they believed that they could effectively allocate
funds among a limited number of deactivation projects without such
information.  Program officials determined fiscal year 1995
deactivation priorities after considering such factors as (1) the
health and safety risks that a facility posed if DOE did not start
deactivation, (2) DOE's readiness to start deactivation work at
specific facilities, and (3) the potential difference between a
facility's surveillance and maintenance costs during a deactivation
project's first and last years. 

Defining the general parameters of how the program can prepare and
compare savings estimates for deactivation projects is important
because DOE's methodology for comparing projects can affect future
budget priorities.  To illustrate the effect of using alternative
approaches for preparing savings estimates, we used two approaches to
rank the potential savings that DOE could receive from the five
deactivation projects for which DOE had sufficient data to estimate
savings.  Our first method approximated DOE's approach for estimating
savings by (1) computing the drop in surveillance and maintenance
costs between a project's first and last years and (2) ranking the
five projects according to the resulting savings in surveillance and
maintenance costs.\3 As table 1 indicates, the result of the first
approach was that the FFTF, PUREX/UO3, and Separations and Fuel
Dissolution Process Facilities projects had the highest rankings. 
Our second approach estimated each project's savings by computing
surveillance and maintenance cost savings during deactivation and
during a 10-year waiting period and discounting each year's costs and
savings to derive the total net savings.  Using a ratio of discounted
total costs to discounted total savings to compare projects yields
the following:  Hanford's Building 308 project replaces the FFTF
project as one of the program's top three projects. 



                           Table 1
           
                Results of Two Approaches for
            Determining and Comparing Savings From
                    Deactivation Projects

                  \First-year to    \Ratio of discounted
                  last-year         costs-to-savings
Project's Rank    approach          approach
----------------  ----------------  ------------------------
1                 FFTF              Building 308

2                 PUREX/UO3         Separations and Fuel
                                    Dissolution Process
                                    Facilities

3                 Separations and   PUREX/UO3
                  Fuel Dissolution
                  Process
                  Facilities

4                 Building 308      FFTF

5                 Fuel Supply       Fuel Supply Facilities
                  Facilities
------------------------------------------------------------
If DOE received sufficient funds to support all five deactivation
projects in this example until they were completed, it would not
matter what approach DOE used to estimate and compare projects'
future savings.  However, if program managers have sufficient funds
to support only a limited number of projects, DOE's approach for
estimating and comparing projects' savings could alter DOE's funding
decisions. 

As DOE continues to convert activities from weapons production and
other missions, the number of surplus DOE facilities will increase,
placing additional pressure on NMFS to effectively allocate funds
among facilities.  At the beginning of fiscal year 1995, the program
managed 1,560 facilities.  However, during early 1995, the program
accepted responsibility for managing more than 3,000 facilities,
including buildings at DOE's Rocky Flats and Savannah River, South
Carolina, sites.  Program officials expect to accept responsibility
for additional facilities at smaller sites in Florida and Ohio before
the end of the fiscal year and for as many as 940 additional surplus
facilities during fiscal years 1996 and 1997.  If these facilities
are transferred as expected, the program will be responsible for
managing 5,900 facilities by October 1997--a 278-percent increase
over the number managed by the program in October 1994. 

For fiscal year 1996, the program's budget request will increase to
about $1.68 billion.  However, the request includes an almost
constant level of funding for the 1,560 facilities in the program
before January 1995 and an $826 million increase for newly
transferred facilities at Savannah River and other sites.  Program
officials expect that the program's budget will decrease over the
next few years and that a relatively small amount of resources will
be transferred with surplus facilities to partially offset increases
in the program's costs. 

As budget constraints tighten and the NMFS inventory of surplus
facilities grows, program officials will begin to face difficult
decisions about which deactivation projects to fund.  The projects'
potential savings, in addition to the risks that are reduced, can
become important factors in making these decisions.  In some cases,
the benefits from reducing risks at a facility may be sufficiently
large to make the deactivation of the facility crucial regardless of
the monetary savings.  However, when the risks associated with
several projects are approximately equal, reliable information about
these projects' potential savings can enable DOE managers to target
funds to projects that will produce the greatest reduction in future
costs. 

DOE has taken several steps to develop more complete cost information
for deactivation projects that DOE could use to estimate a project's
net savings.  For example, during June 1994, DOE released a project
management plan for PUREX/UO3 that contained detailed estimates of
surveillance and maintenance and deactivation costs for the project. 
Using the PUREX/UO3 as a model, DOE issued a similar plan in November
1994 with detailed cost estimates for the deactivation of FFTF.  NMFS
program officials are also preparing guidance for headquarters and
field staff that defines key decision points and information needed
for managing other large deactivation projects and encourages DOE
officials to compare cost estimates with potential savings. 

NMFS program officials have also started to discuss with EM
management general information on and strategies for reducing costs. 
For example, during the fiscal year 1996 budget process, NMFS program
managers for the first time compared projects by assigning points to
them on the basis of, among other things, the projects' potential for
reducing the program's future costs.  The program's fiscal year 1996
effort to consider potential savings in budget decisions did not
require that program managers use discounted net savings estimates to
compare projects and assigned 1 out of a maximum of 25 points to each
project that might reduce future costs. 

During March 1995, NMFS program officials also briefed EM's Assistant
Secretary on a strategy for reducing future surveillance and
maintenance costs by quickly deactivating large surplus facilities. 
As a part of this effort, program officials have determined the
approximate net savings and return on investment for several ongoing
and planned deactivation projects at EM sites.  However, program
officials acknowledged that EM sites do not consistently report data
for deactivation projects.  Without consistent cost information,
savings calculations for projects are not always comparable. 

NMFS program officials also acknowledge that they have not developed
a process to ensure that project managers consistently estimate the
complete savings from each deactivation project.  In his February
1995 guidelines for developing EM's fiscal year 1997 program, EM's
Assistant Secretary emphasized the importance of achieving cost
savings and stated that one of EM's guiding principles should be to
fund projects that significantly reduce future costs.  Despite this,
the program's new guidance on project management does not (1) define
how program officials are to estimate net savings during deactivation
and the years between deactivation and decontamination and
decommissioning or (2) require that program officials use net savings
estimates during the budget process. 


--------------------
\3 We used DOE's estimates of surveillance and maintenance costs from
the projects' original implementation plans to compute the potential
drop in costs.  These plans expressed costs in current dollars. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

If the NMFS program completes them on schedule, the 11 fiscal year
1995 projects that we analyzed could reduce the program's net costs
by $458 million over the next 10 to 30 years.  However, the potential
savings from individual projects vary widely.  The range of savings
reflects inherent differences in the size and condition of facilities
and the cost for surveillance and maintenance at these facilities
before and after deactivation. 

Partly because the program is relatively new, DOE does not have a
process in place to consistently determine the relative savings among
projects.  However, as the program grows, DOE is likely to face
future budget constraints that will make it necessary to choose
between competing deactivation projects.  Knowledge of the potential
savings that may accrue from each deactivation project, coupled with
an assessment of other factors such as health and safety risks, would
help the Department target its funds more effectively in deactivating
surplus facilities. 

The Assistant Secretary's guidelines and the program's recent efforts
to improve its awareness of cost-saving opportunities are steps in
the right direction.  However, these efforts do not specifically
address, for deactivation projects, the development of reliable net
savings estimates that will help managers compare the relative
benefits of alternative projects.  Because different methods of
estimating savings can produce different results, issuing guidance
that explains how to consistently prepare and compare net savings
estimates for future deactivation projects would improve the quality
of information available to help NMFS program managers allocate funds
among competing projects. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

To improve the reliability of DOE's estimates of potential net
savings from deactivation projects and the quality of information
that DOE managers consider when setting priorities for these
projects, we recommend that the Secretary of Energy

  issue guidance that defines how to prepare reliable and complete
     estimates of potential net savings from deactivation projects
     and

  require EM officials to use estimates of projects' potential net
     savings, in addition to other information such as health and
     safety risks, to determine priorities for deactivating
     facilities. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

In written comments on a draft of this report, DOE stated that the
report was comprehensive and accurately described the status of the
NMFS program's cost estimating for deactivation projects.  DOE also
commented that the report's conclusions and recommendations will
enhance its ability to estimate and document the program's potential
cost savings.  The Department's comments and suggestions to clarify
technical matters discussed in the report are presented in appendix
V.  We have incorporated these suggested changes into the report. 


---------------------------------------------------------- Letter :8.1

We performed our work from June 1994 through June 1995 in accordance
with generally accepted government auditing standards.  Appendix IV
provides detailed information on our scope and methodology. 

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from the date of this letter.  At that time, we will send copies of
this report to the appropriate congressional committees; the
Secretary of Energy; and the Director, Office of Management and
Budget.  We will also make copies available to others upon request. 

Please call me at (202) 512-3841 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
VI. 

Sincerely yours,

Victor S.  Rezendes,
Director, Energy and
 Science Issues


FUNDING FOR NMFS PROGRAM, FISCAL
YEAR 1995
=========================================================== Appendix I



                          Table I.1
           
               NMFS Program's Fiscal Year 1995
             Available Funding by Site and Budget
                           Function

                    (Dollars in millions)

