Uranium Enrichment: Process to Privatize the U.S. Enrichment Corporation
Needs to Be Strengthened (Letter Report, 09/14/95, GAO/RCED-95-245).

Pursuant to a legislative requirement, GAO provided information on the
proposed privatization of the U.S. Enrichment Corporation (USEC),
focusing on: (1) the net present value of the corporation; and (2)
whether the privatization plan would result in any ongoing obligation or
undue cost to the government.

GAO found that: (1) USEC privatization plan predicts that USEC stock
could sell for up to $1.8 billion and USEC would take up to $600 million
out of its Treasury account after privatization; (2) after
privatization, USEC could pay taxes valued up to $1.1 billion annually,
although it could have options to minimize taxes; (3) the current net
present value analysis needs revision, since it does not reflect the
value of excess inventory and current market conditions; (4) although
USEC will play the lead role in determining how and when key
privatization decisions are made, the Department of the Treasury will
also play an active role and concur in key decisions; (5) safeguards may
need to be implemented to protect taxpayers if USEC is undervalued when
sold; (6) whether or not USEC is privatized, the U.S. government has
ongoing obligations related to the uranium enrichment program and could
pay $17.8 billion or more to meet requirements; and (7) the
privatization plan assumes that most of USEC liabilities would remain
with the government.

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

 REPORTNUM:  RCED-95-245
     TITLE:  Uranium Enrichment: Process to Privatize the U.S. 
             Enrichment Corporation Needs to Be Strengthened
      DATE:  09/14/95
   SUBJECT:  Federal corporations
             Proposed legislation
             Uranium
             Waste disposal
             Energy industry
             Economic analysis
             Government liability (legal)
             Taxpayers
             Profits
             Nuclear energy
IDENTIFIER:  Russia
             Great Britain
             Tax Fairness and Deficit Reduction Act of 1995
             DOE Uranium Enrichment Program
             
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Cover
================================================================ COVER


Report to Congressional Committees

September 1995

URANIUM ENRICHMENT - PROCESS TO
PRIVATIZE THE U.S.  ENRICHMENT
CORPORATION NEEDS TO BE
STRENGTHENED

GAO/RCED-95-245

Privatizing the U.S.  Enrichment Corporation

(302146)


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

  AVLIS - atomic vapor laser isotope separation
  DOE - Department of Energy
  GATT - General Agreement on Tariffs and Trade
  HEU - highly enriched uranium
  ITA - International Trade Administration
  ITC - International Trade Commission
  LEU - low enriched uranium
  NAFTA - North American Free Trade Agreement
  NEI - Nuclear Energy Institute
  NRC - Nuclear Regulatory Commission
  OSHA - Occupational Safety and Health Administration
  SWU - separative work unit
  UPA - Uranium Producers of America
  USEC - United States Enrichment Corporation
  USSR - Union of Soviet Socialist Republics

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


B-261284

September 14, 1995

Congressional Recipients

The Energy Policy Act of 1992 created the United States Enrichment
Corporation (USEC or the corporation), a wholly owned government
corporation, to take over the Department of Energy's (DOE) uranium
enrichment program.  The act required USEC, which began providing
enrichment services on July 1, 1993, to develop by July 1995 a plan
to privatize the corporation.  On June 30, 1995, USEC issued its
privatization plan and formally notified the Congress of its intent
to implement the plan.  Implementation could result in the sale of
USEC's stock in early 1996.  If and when this sale takes place, it
will represent the largest and most important privatization
transaction involving the U.S.  government since the government sold
its equity interest in Conrail for over $1.6 billion through a public
stock offering in 1987. 

Under the act, before the plan can be implemented, (1) the Congress
must have at least 60 days to review the plan, (2) the President must
approve it, and (3) USEC must consult with the appropriate federal
agencies and make several statutory findings.  For example, USEC must
determine that privatization will (1) result in a return to the
United States at least equal to the net present value\1 of the
corporation and (2) not result in control or ownership by a foreign
corporation or government. 

The act also requires the Comptroller General to report to the
Congress on the extent to which (1) the revenues gained by the
government under the plan would represent at least the net present
value of the corporation and (2) the plan would result in any ongoing
obligation or undue cost to the federal government.  In this report,
we evaluate the net present value of a privatized corporation. 
However, the act does not state whether the net present value is
intended to be (1) the net present value of the expected cash flows
for a privatized corporation or (2) the net present value of the
expected cash flows for the corporation if it stays in the
government.  Therefore, in appendix II, we also develop an estimate
of the net present value of USEC as a government corporation. 
Similarly, because the act does not define "ongoing obligation or
undue cost," this report will identify the government's major costs
and liabilities.\2

Because the act required us to issue our report shortly after USEC
gave its notice of intent to implement the plan, much of our report
is based on data and assumptions that could change before the planned
sale occurs next year.  Also, we note that calculating the net
present value of estimated future cash flows is only one method of
determining the value of a company; therefore, the net present value
numbers discussed in this report do not represent estimates of the
corporation's value.  Because no specific transaction (i.e., stock
sale, merger, or acquisition) has provided a basis for comparison
with an estimate of the corporation's net present value, we focused
our review on the plan's estimated sale price, the net present value
analyses used in part to develop the price, and the process that will
be used to review and approve the final sale.  We plan to continue
assisting the Congress as it reviews the privatization of USEC and
considers the sale of other federal assets and programs. 


--------------------
\1 A net present value analysis, sometimes called a discounted cash
flow, is one approach to estimating the value of a business by
forecasting the business's cash flows and discounting these cash
flows to their present value at an appropriate discount rate or cost
of capital. 

\2 In this report, the term "obligation" is not used as a federal
budget term.  Rather, the term "ongoing obligation" refers to
liabilities associated with the uranium enrichment program.  Some of
these liabilities are well defined, while others, such as future
cleanup costs, will depend upon future circumstances. 


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

USEC's privatization plan forecasts that the corporation's stock
could be sold for between $1.5 billion and $1.8 billion (less about
$100 million in expected transaction fees).\3 The plan also assumes
that the corporation will take with it up to $600 million out of its
Treasury account.  After privatization, USEC could annually pay taxes
presently valued at up to $1.1 billion, although, as a private
corporation, it could have options for minimizing taxes.  Thus, the
return to the U.S.  Treasury from privatizing USEC could be between
$1.7 billion and $2.2 billion. 

We believe, however, that the net present value analysis on which the
plan's forecasted sale price is partly based, needs revision.  For
example, it does not reflect, among other things, current market
conditions and recent administration decisions.  Because the plan's
estimate of the corporation's sale price depends, in part, on other
analyses and expert judgment, we cannot determine what effect these
needed adjustments would have on the plan's forecasted sale price
range.  Furthermore, the plan's analyses do not consider the value of
excess inventory, which we estimate could be worth over $300 million. 
Valuation experts told us that the presence or absence of excess
inventory, within reason, would not significantly affect the market
price.  Therefore, the government may not be compensated for all of
this inventory if it is included in the privatization transaction. 
However, the government could keep an interest in the inventory so
that it could benefit from any future sales of USEC's excess
inventory. 

Although valuation analyses may provide a useful perspective for
evaluating the privatization, many factors other than financial
considerations could influence the government's final decision to
sell or not to sell USEC.  For example, federal decisionmakers need
to consider the national security implications of the sale and
decide, in light of the program's past problems, whether the
government should be in the uranium enrichment business.  Ultimately,
deciding whether USEC should or should not be sold requires weighing
many factors, and the decision should not rest solely on these
analyses. 

The privatization plan describes how the sale will be accomplished
under the act's requirements and makes it clear that USEC and its
board of directors will play the lead role in determining how and
when key decisions will be made.  USEC and the Department of the
Treasury recognize that the Secretary of the Treasury plays a unique
role in the privatization.  Under the privatization plan and as
further agreed in a subsequent letter, the Department will play an
active role in the privatization and will concur in key decisions. 
However, we believe that because the sale of USEC has national
security implications, involves billions of dollars, and may set a
precedent for the contemplated sales of several other federal assets,
careful scrutiny must be given to the privatization process. 

For these reasons, it is important that the privatization process
protect the American taxpayers' interests as fully as possible.  This
protection can best be ensured by placing in the lead role a
government official whose position will not be affected by the
privatization and whose mission will be clearly defined as protecting
the taxpayers' interests.  Moreover, because the privatization of a
government corporation is a complex financial undertaking, safeguards
may need to be implemented to protect the taxpayers if USEC is
undervalued when sold. 

Whether or not USEC is privatized, the U.S.  government has ongoing
obligations related to the uranium enrichment program and could pay
$17.8 billion or more to clean up DOE's uranium enrichment plants and
meet other requirements.  Furthermore, since USEC was formed in July
1993, it has, through normal business practices, created additional
liabilities that could cost between $258 million and $540 million. 
The privatization plan assumes the enactment of proposed legislation
requiring that most of USEC's liabilities remain with the government,
and the plan's estimates are based on this assumption. 


--------------------
\3 USEC could also be merged with or acquired by another buyer or
buyers.  Depending on the offer, the return from this option could be
higher or lower than from a public stock offering. 


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

In the 1940s and 1950s, the federal government built three large
uranium enrichment plants for national defense purposes.  In 1969, it
began enriching uranium at these plants for the emerging commercial
nuclear power industry.  Until the mid-1970s, the U.S.  government
supplied nearly 100 percent of the free world's enrichment
requirements.  By the early 1980s, however, foreign competitors began
eroding the program's market share, and DOE found it more and more
difficult to recover costs in an increasingly competitive market. 

The Energy Policy Act of 1992 (the act) restructured the uranium
enrichment program to make it more competitive with foreign
enterprises.  The act created USEC and exempted it from many of the
operating restrictions imposed on the former DOE program.  For
example, USEC does not derive its spending authority from annual
appropriations and is exempt from some federal procurement
requirements.  Under the act, DOE leases the two operating enrichment
plants to USEC at cost excluding depreciation and imputed interest. 
DOE also manages two long-term power purchase contracts that provide
low-cost electricity for which USEC pays.\4 The act also required
USEC to issue 100 percent of its common stock to the U.S.  Treasury
and required the Secretary of the Treasury to annually assess the
value of the stock.  In response to the Department of the Treasury's
request that USEC provide an estimate of the value of the stock, the
corporation engaged J.P.  Morgan Securities, Inc.  (Morgan). 

At the end of fiscal year 1994, its first full year of operations,
USEC reported gross revenues of about $1.4 billion and a net income
of about $377 million after accruing funds to pay for waste disposal
and other liabilities.  It supplied about 88 percent of the domestic
market and 40 percent of the world market, making USEC the world's
largest supplier of enrichment services. 


--------------------
\4 Under the act, if the Secretary of Energy determined that a power
contract executed by the Department prior to July 1, 1993, could not
be transferred under the contract's terms, the Secretary could
continue to receive power under the contract and resell such power to
the corporation at cost.  The Secretary made the determination that
the two power contracts connected with the operating plants were not
transferrable under their terms.  The lease and a memorandum of
agreement provide for the power received by the Department to be
resold to the corporation at cost. 


   USEC'S PRIVATIZATION PLAN
------------------------------------------------------------ Letter :3

On June 30, 1995, USEC issued its privatization plan, which
recommends that a "dual path" process be followed to help ensure the
sale of the corporation in early 1996 by either (1) a public offering
of its stock or (2) a merger with or an acquisition by a single buyer
or group of buyers.  According to the plan, USEC's preliminary
assessment of the merger and acquisition market indicates that
relatively few companies have both the strategic interest and the
resources necessary for a transaction of this size.  The final
approach will depend upon which option is determined to better meet
the act's requirements. 

The plan, citing analyses performed by Morgan, USEC's financial
adviser, projects that USEC's stock could be sold for $1.5 billion to
$1.8 billion (less about $100 million in expected transaction
fees).\5 The plan also projects that the government will retain $600
million to $800 million of the approximately $1.2 billion that USEC
expects will be in its Treasury account at the time of privatization. 
(USEC's plan calls the amount to be left with the government an "exit
dividend."\6 We note, however, that because USEC is a government
corporation, these funds already belong to the government.  In
addition, USEC's plan assumes that $400 million to $600 million will
be transferred out of the Treasury when USEC is sold.  This cash must
be subtracted from the sale price to determine the net proceeds to
the government.) Furthermore, after privatization, USEC would be a
taxable entity that might produce additional tax revenue to the
government. 

The privatization plan assumes that, to help realize these returns,
the Congress will pass legislation that will, among other things, (1)
assign to the government most of the known liabilities that USEC
incurred as a government corporation, (2) transfer government
contracts to a privatized USEC, and (3) ensure USEC's ability to
dispose of low-level radioactive waste.  The plan also assumes that
new legislation will clarify USEC's ability to sell the natural
uranium component of enriched uranium purchased under a 20-year
contract with the Russians and that the Russian contract will
continue to be implemented at current prices.  This contract was
signed in January 1994, after Russia agreed to sell the United States
enriched uranium obtained from processing approximately 500 metric
tons of bomb-grade uranium removed from Russian nuclear weapons. 

According to USEC, if all of the material is purchased at the prices
currently specified in the contract, USEC will pay about $8 billion
for Russian enrichment services and another $4 billion for the
natural uranium contained in the enriched uranium purchased.  After
USEC takes title to the enriched uranium, the contract calls for
prompt payment for the enrichment services upon delivery; however,
payment to the Russians for the uranium component is made only when
it is sold and/or used, or at the end of the contract.  Because of
existing trade restrictions, USEC cannot currently sell Russian
natural uranium in the United States, and little, if any, market
exists for it overseas.  Moreover, according to USEC officials, it is
not economically feasible to use the uranium in USEC's production
processes.  Since the Russians will not receive immediate payment for
the natural uranium, they have threatened to terminate the contract. 

A number of solutions have been suggested.  For example, the
administration announced in early July 1995 that USEC had agreed, in
a joint protocol with its Russian counterpart, to pursue steps that
would eventually allow Russia to receive full and simultaneous
payment for both natural uranium and enrichment services under the
contract.  These steps include pursuing administrative and
legislative actions that would allow the introduction into the U.S. 
market of uranium purchased under the Russian contract.\7

Another approach is proposed in Senate legislation, S.  755, which
provides for a delayed and restricted entry of the uranium into the
U.S.  market.  (For more information on the Russian contract, see
app.  I.)


--------------------
\5 The plan did not predict the return from a merger and/or
acquisition because this return would depend on the specific
transaction. 

\6 Under the act, until privatization the corporation shall pay as
dividends to the U.S.  Treasury all net revenues remaining at the end
of each fiscal year not required for operating expenses or for
deposit into a working capital account. 

\7 The protocol also provides for a $100 million advance payment to
facilitate the dismantlement of Ukrainian nuclear weapons.  Earlier,
USEC had provided the Russians with a $60 million advance payment. 


   DETERMINING THE VALUE OF USEC
------------------------------------------------------------ Letter :4

In developing its privatization plan, USEC relied on Morgan to
determine the value of the corporation if it were privatized. 
According to an April 1995 presentation to USEC's board of directors,
Morgan employed three valuation methodologies, one of which analyzed
the net present value of projected cash flows, to estimate the value
of USEC as a private corporation and forecast the proceeds resulting
from a public sale.  After considering the results of these analyses,
Morgan used its judgment of investors' perceptions and management's
credibility to project that the sale price of USEC's common stock
would be in the range of $1.5 billion to $1.8 billion, less
transaction fees of about $100 million.  (See app.  II for a more
detailed explanation.)

We did not independently value USEC as either a private or a
government corporation.  Rather, as we describe in the following
section, we evaluated Morgan's model of a private USEC.  In addition,
as we describe in appendix II, we adjusted Morgan's net present value
analysis to reflect our view of the activities of a government
corporation.  Because Morgan's analysis is subject to significant
business, economic, and competitive uncertainties, our results are
subject to the same uncertainties. 


      NEEDED REVISIONS TO MORGAN'S
      NET PRESENT VALUE ANALYSIS
      OF A PRIVATE USEC
---------------------------------------------------------- Letter :4.1

At this time, no specific transaction (i.e., stock sale, merger, or
acquisition) has provided a benchmark for evaluating estimates of the
net present value of the corporation; therefore, we focused our
review on the plan's estimated sale price.  In an April 1995 report
provided to USEC's board of directors, Morgan calculated a range of
net present values for USEC under two scenarios--one that used only
the existing enrichment plants and the other that assumed a plant
using the atomic vapor laser isotope separation (AVLIS) process would
be built.\8 We believe, however, that Morgan's net present value
analysis needs revision because it (1) assumes that the current price
of the Russian enriched uranium to be purchased by USEC under the
long-term contract will not change, (2) may include more working
capital than USEC will actually need, and (3) does not reflect, among
other things, current market conditions and the administration's
current estimate of the amount of cash USEC will take with it if it
is privatized.  Also, Morgan's analysis does not consider the value
of USEC's excess inventory, which we estimate could be worth over
$300 million.  Furthermore, DOE may transfer additional uranium
inventory to the corporation before it is privatized; this inventory
could be worth up to $400 million.  (See app.  II for a more detailed
explanation.)

Finally, we note that any estimate of earnings from uranium
enrichment operations is subject to major uncertainties because of
the inherent difficulty in determining the amount and the selling
price of uranium enrichment services.  Important and unforeseen
market developments, such as a change in existing trade restrictions,
could cause significant changes in the estimates.  Also, if USEC is
sold, its final value will be determined by the merger and/or
acquisition purchaser(s) or the market for the initial public stock
offering at the time of privatization. 


--------------------
\8 AVLIS is a new uranium enrichment technology that uses lasers to
enrich uranium.  DOE developed the technology and transferred it to
USEC in an April 1995 memorandum of agreement.  Over the next several
years, USEC may decide to build the world's first AVLIS plant. 


   EXPECTED IMPACT ON THE U.S. 
   TREASURY
------------------------------------------------------------ Letter :5

The total impact on the U.S.  Treasury of privatization will depend
on the proceeds from the sale, projected by Morgan to be between $1.5
billion and $1.8 billion (less transaction fees), plus any additional
tax revenues that a private USEC may pay in the future to the
government, less the cash that USEC will take with it from its
Treasury account when it is sold. 

Although future tax payments may increase the returns to the U.S. 
Treasury under the privatization scenario, the Treasury's cash will
be reduced by the $400 million to $600 million that USEC will take
with it when it is privatized.  Thus, as shown in table 1, the total
increase to the Treasury from privatizing USEC could be between $1.7
billion and $2.2 billion. 



                                Table 1
                
                     Impact on the U.S. Treasury of
                            Privatizing USEC

                         (Dollars in billions)

                                            Case A              Case B
------------------------------  ------------------  ------------------
Sale proceeds                                 $1.8                $1.5
Less transaction fees                          0.1                 0.1
======================================================================
Subtotal                                       1.7                 1.4
Less cash from the Treasury                    0.6                 0.4
======================================================================
Subtotal                                       1.1                 1.0
Plus possible future tax                       1.1                 0.7
 revenues
======================================================================
Total                                         $2.2                $1.7
----------------------------------------------------------------------
Using the government's borrowing rate as the discount rate, we
developed two estimates of the net present value of the taxes that a
privatized USEC could pay to the Treasury.  Under case A, which
applies the maximum effective corporate federal tax rate of 35
percent to all of USEC's projected earnings under the existing plants
scenario, USEC's taxes could be as high as $1.1 billion.  Under case
B, which applies an average effective federal tax rate of 20 percent
to USEC's earnings under the AVLIS scenario for the period from 1996
to 2008--the same period that Morgan used in its analysis of future
taxes--USEC's taxes would be $700 million.  (According to Morgan
officials, estimating taxes beyond 2008 is difficult because of
potential changes in tax policy and other uncertainties.) However,
projecting USEC's future taxes is very uncertain, and USEC's payments
could be much lower than estimated in either case.  For example, if
the corporation were to merge with or be acquired by a private firm,
rather than be sold through a stock offering, its taxes could be much
lower, depending on the tax position of the acquiring company.\9


--------------------
\9 To discount tax estimates under each scenario--existing plants and
AVLIS--we used the government's cost of borrowing.  We assumed a tax
rate of 35 percent for the existing plants case and of 20
percent--the alternative minimum rate--for the AVLIS case because,
under this scenario, USEC would have more options for reducing taxes. 
The narrow range, as shown in table 1, should not be interpreted to
suggest that the actual tax payments to the Treasury will be nearly
$1 billion.  In fact, the actual payments could be substantially
higher or lower.  Furthermore, in this instance using the lower
discount rate (rather than the higher private-sector rate) increases
the government's return under privatization. 


   THE PRIVATIZATION PROCESS
------------------------------------------------------------ Letter :6

The process used to privatize USEC may lay the groundwork for future
federal privatizations.  Therefore, it is important that the process
followed for privatizing USEC protect the American taxpayers'
interests as fully as possible.  In addition, the privatization of
USEC carries with it important national security interests that must
be addressed.  Furthermore, it is a complex financial undertaking
that may result in large future profits.  For these reasons, the
privatization process should be highly scrutinized and the taxpayers'
financial interests protected.  These goals can be accomplished by
designating the Department of the Treasury as the lead agency in the
privatization process.  Moreover, safeguards will need to be
considered to ensure that the taxpayers' interests are protected if,
because of the complexity of the privatization effort, the
corporation is undervalued when sold. 

Under the act, the Secretary of the Treasury and USEC are assigned
different roles in the privatization.  The Secretary is designated to
hold the stock of the corporation for the United States; the stock
cannot be sold except to carry out the purposes of privatization. 
The act also makes it clear that the role of the Secretary as sole
shareholder does not impinge on the management responsibilities of
the corporation--all of the rights and duties pertaining to the
corporation's management remain vested in the corporation's board of
directors.  Furthermore, the act makes the corporation responsible
for preparing a strategic plan for transferring the ownership of the
corporation to private investors and revising the plan, as needed. 
In addition, the act specifies that, subject to the necessary
congressional review and presidential approval, the plan can be
implemented if the corporation, in consultation with the appropriate
federal agencies, makes certain statutory findings.\10

The corporation's board of directors submitted the privatization plan
to the Congress and the President on June 30, 1995.  The board
recommended that USEC follow a dual path to privatization by
simultaneously pursuing an initial public stock offering and a
negotiated sale, selecting the approach that better meets the act's
statutory requirements.  The board unanimously recommended that the
President approve the plan and direct USEC, in consultation with the
appropriate federal agencies, to act to fulfill all statutory
requirements necessary for implementing the plan. 

Given USEC's statutory authority and the Treasury's shareholder
responsibilities, the plan provides that USEC will consult on a
regular basis with the Department of the Treasury and other
appropriate federal agencies.  After completing the plan, USEC and
the Treasury acted to formalize their understanding of the unique
role of the Secretary as the sole shareholder in the privatization
process.  According to corporation officials, the consummation of a
public stock offering requires that the Secretary of the Treasury, as
the sole shareholder, execute the underwriting agreement by which the
price is set for the sale.  Similarly, according to USEC, under state
law the Secretary must approve any acquisition of USEC in a
negotiated transaction.\11

Because the Secretary of the Treasury is the sole shareholder of the
corporation, the corporation's president and chief executive officer
sent a letter to the Under Secretary of the Treasury for Domestic
Finance specifying that the corporation will take certain key actions
only with the concurrence of the Department of the Treasury.  These
actions include (1) deciding whether to finalize a public stock
offering or merger and/or acquisition, (2) concurring on the terms
contained in the underwriting agreement concerning a public stock
offering, and (3) concurring on the terms contained in the sale
agreement concerning a merger and/or acquisition.\12 The letter was
written with the concurrence of USEC's directors. 

Although the corporation recognizes the unique role of the Treasury
in the privatization process, the corporation, not the Treasury,
still maintains the lead role in the privatization effort.  Moreover,
the act requires the corporation, not the Treasury, to make the
definitive statutory findings that will allow the privatization plan
to be implemented.  The plan anticipates that these statutory
findings will be made by December 1995, several months after the
congressional review period has passed and the President's approval
is expected. 

We believe that to fully protect the American taxpayers, the
Treasury, not USEC and its board, should be in charge of the
privatization process.  Not only is the Secretary of the Treasury the
sole shareholder but also, more importantly, the Treasury's
fundamental mission is to establish appropriate government financial
policy.  Furthermore, Treasury officials, unlike USEC's managers and
its board, will not be affected by the privatization.  While we do
not find fault with the manner in which USEC is fulfilling its
statutory role, the Treasury can better ensure that the highest
degree of impartiality is brought to the privatization process. 

Thus, we believe that to protect the American taxpayers' interests as
fully as possible, the Treasury should be in charge of the
privatization and make the necessary statutory findings in
consultation with the corporation.  While the corporation would play
a key role in the privatization, the Treasury would take the lead. 
In so doing, the Treasury would make the key decisions about when and
how to sell the corporation.  It might also consider other sales
strategies, such as selling portions of the corporation's stock at
intervals if it is determined that the market could not absorb such a
large stock offering at one time.  Such a phased, or "tranche," sale
is allowed under the act but would raise questions about how the
corporation would be managed while it had both government and private
owners. 

We also believe that safeguards should be established to ensure the
taxpayers' share in any large profits that may accrue to the
corporation within a reasonable time after privatization.  Large
profits may accrue, for example, from using the AVLIS technology or
from selling excess inventory.  We are aware of at least two
mechanisms that have been used to ensure that a government shares in
the profits resulting from its past investments.  First, a "clawback"
provision in a sales agreement gives the seller the right to share in
the gains (or excess profits) made after the initial sale, thereby
protecting the seller from an understated valuation.  In Great
Britain, such provisions were incorporated in government property
sale agreements and could require payments to the government for up
to 10 years after the sale. 

Second, to help accomplish the same objective, warrants issued to the
government might be attached to the final sale agreement.  Warrants
represent options to purchase stock for a specified time and price. 
These instruments were used to give the government a share in
Chrysler's future profits in return for the risks the government
incurred in offering guaranteed loans as part of the Chrysler
"bailout." Similarly, warrants could be used to try to ensure a
future return to the government from any large profits that might
accrue from a privatized USEC's development of the AVLIS technology
or from the sale of excess inventory. 


--------------------
\10 Specifically, the corporation must determine, in consultation
with the appropriate federal agencies, that privatization will "(1)
result in a return to the United States at least equal to the net
present value of the Corporation; (2) not result in the Corporation
being owned, controlled, or dominated by an alien, a foreign
corporation, or a foreign government; (3) not be inimical to the
health and safety of the public or the common defense and security;
and (4) provide reasonable assurance that adequate enrichment
capacity will remain available to meet the domestic electric utility
industry." 42 U.S.C.  2297d-1. 

\11 The plan noted that USEC should be privatized as a
state-chartered corporation.  Currently, USEC's charter exists under
federal law and can be changed only by an act of Congress.  The
proposed administration bill would provide USEC with the authority to
establish a state-chartered corporation and to transfer USEC's
business into it in order to implement privatization. 

\12 According to USEC officials, although the letter only highlighted
key actions, concurrence would be sought throughout the process. 


   THE GOVERNMENT'S ONGOING
   OBLIGATIONS AND COSTS
------------------------------------------------------------ Letter :7

The government will pay billions of dollars for ongoing obligations
whether or not USEC is privatized.  The privatization plan also
assumes that liabilities of between $258 million and $540 million,
incurred by USEC since it began operations in July 1993, will remain
with the government after USEC is privatized.  Under the act, DOE
generally retains responsibility for liabilities resulting from its
enrichment operations before they were transferred to USEC on July 1,
1993.  These "preexisting" liabilities, which DOE must pay regardless
of whether USEC is privatized, were further clarified, initially by a
July 1993 lease agreement between USEC and DOE, and later by a
December 1994 memorandum of agreement between USEC and DOE.  Many of
these preexisting liabilities are undefined, but they could
eventually cost the government $17.8 billion or more, depending on,
among other things, how, when, and to what degree the aging
enrichment plants are cleaned up.\13

In addition, DOE retains certain responsibilities associated with the
enrichment program's activities after July 1, 1993.  For example,
under the provisions of an April 1995 memorandum of agreement, DOE
retains some liabilities associated with the AVLIS research and
development facilities at the Lawrence Livermore National Laboratory. 
DOE has not yet quantified these liabilities.  DOE also manages the
plants under a lease with USEC and continues to receive power under
two favorable electricity supply contracts.  DOE resells that power
to USEC at cost.  (The benefits of these contracts are included in
the projected cash flows we and Morgan used; hence, their value is
considered in the net present value analyses.)

Furthermore, since July 1993, USEC has incurred liabilities that
could cost between $258 million and $540 million.  As long as USEC
remains a government corporation, its costs and liabilities are the
government's responsibility, although the act generally requires USEC
to pay all of its costs without additional federal assistance. 
Nevertheless, it is not clear how these costs and liabilities would
be apportioned between the government and USEC if USEC were
privatized without new legislation specifically defining the
responsibility for these costs and liabilities.  According to USEC
officials, legislation is needed to define these liabilities and
thereby achieve the maximum return to taxpayers and ensure the
corporation's viability.  The officials believe that without a clear
delineation of the government's costs and liabilities, private
investors considering the purchase of USEC's stock would assume the
worst and lower the price paid for USEC. 

The plan's valuation analyses assume that the Congress will pass
legislation that will require the government to retain responsibility
for the liabilities that USEC incurs before it is privatized. 
Currently, the Congress is considering several bills that would
facilitate the privatization of USEC by clarifying certain issues,
such as how enrichment contracts would be transferred, how the
proceeds from the sale would be counted towards reducing the federal
deficit,\14 and how USEC's liabilities would be assigned.  For
example, on April 5, 1995, the House passed H.R.  1215, the Tax
Fairness and Deficit Reduction Act of 1995.  Title III of that bill,
the USEC Privatization Act, would assign to the government the
liabilities incurred by USEC from the time it took over the DOE
program (July 1993) up to the date of privatization.\15 On the Senate
side, the Committee on Energy and Natural Resources is also
considering a bill (S.  755) to privatize the corporation.  However,
this bill would not change the language in the act requiring the
corporation to be responsible for any judgment resulting from its
operations after July 1993.\16

In addition, the corporation has provided the Congress with the
administration's proposed bill on privatization.  Under this
proposal, the costs associated with the operation of the enrichment
program up to the date of privatization would remain with the
government except for those liabilities identified in a memorandum of
agreement between the corporation and the Office of Management and
Budget, to be entered into before privatization.  According to USEC
officials, the Senate Committee on Energy and Natural Resources may
consider the administration's bill when it marks up S.  755. 

Table 2, which was prepared from the best available estimates,
generally summarizes, in 1995 dollars, the government's preexisting
liabilities associated with the enrichment program and the
liabilities the government would retain under H.R.  1215 and the
administration's bill.  USEC's privatization plan assumes that most
of the government corporation's liabilities will remain with the
government. 



                                     Table 2
                     
                        The Government's Estimated Ongoing
                     Obligations Associated With the Uranium
                                Enrichment Program

                            (1995 dollars in millions)

                                                         USEC's preprivatization
                                                          liabilities that could
                          Government's preexisting    remain with the government
                         liabilities as of July 1,     under various legislative
Cost category                                 1993                     proposals
--------------------  ----------------------------  ----------------------------
Cleanup:
--------------------------------------------------------------------------------
Decontamination and               $12,000-26,000\a                             0
 decommissioning
Remedial action                            3,200\b                             0
Tails disposal                             1,330\c                         258\d
Waste management                             521\e                     14 or 0\f
Nuclear and                              115-135\g                             0
 occupational safety
Postretirement and                           620\h                     44 or 0\i
 employee benefits
Power contracts
Postretirement                                  31                      3 or 0\j
Shutdown costs                                  15                      6 or 0\k
Unamortized debts                                0                  70-80 or 0\l
AVLIS                                    Unknown\m                             0

Other potential liabilities
--------------------------------------------------------------------------------
Lawsuits                                 Unknown\n                     Unknown\o
Contingencies                                    0                    135 or 0\p
Other                                    Unknown\q                     Unknown\q
================================================================================
Total                              $17,832-$31,852                     $258-$540
--------------------------------------------------------------------------------

Note:  Privatization is assumed to take place at the beginning of
1996. 

\a The government's preexisting liability for decontaminating and
decommissioning the plants is based on a contractor's September 1991
study, which identified a range of potential costs of $11.25 billion
to $24.25 billion ($12 billion to $26 billion in 1995 dollars) to
remove radioactive and hazardous materials and decontaminate the
facility buildings of the three plants. 

\b The expected cost of remedial actions for existing
contamination--cleaning up the soil and water surrounding the
facilities--is $3.0 billion in 1992 dollars ($3.2 billion in 1995
dollars) for the three plants, according to a contractor's September
1991 draft study. 

\c According to its most recent study, DOE estimates that disposing
of its 560,000-metric-ton inventory of depleted uranium generated
before July l, 1993, could cost $1.33 billion in 1995 dollars. 
However, a DOE official told us that this estimate was low and that
final disposition costs for the depleted uranium would probably be
much higher. 

\d USEC estimates on the basis of its generation of depleted uranium
from July 1, 1993, to December 31, 1995, that the final disposition
costs could amount to $258 million. 

\e As of July 1995, DOE estimates that its substantial ongoing
liability for the cost of treating and disposing of low-level
radioactive, hazardous, and mixed waste generated from enrichment
operations at the two operating plants, primarily before July 1993,
could cost about $521 million. 

\f For low-level radioactive, hazardous, and mixed waste generated
from its operations between July 1, 1993, and December 31, 1995, USEC
has identified a liability of $14 million in disposition costs,
according to a projected waste inventory.  According to USEC
officials, under the memorandum of agreement that, according to the
administration's bill, is to be entered into before privatization,
USEC more than likely would take responsibility for the liabilities
it incurred as a government corporation. 

\g Under the terms of the lease, DOE agreed to reimburse USEC for the
costs of bringing the enrichment plants into compliance with DOE's
internal safety requirements and the Nuclear Regulatory Commission's
certification standards.  According to USEC's and DOE's estimates,
respectively, these costs could run from $80 million to over $100
million.  DOE also agreed to pay $35 million to bring facilities into
compliance with existing Occupational Safety and Health
Administration requirements. 

\h DOE's existing liability of $614 million in 1993 dollars ($620
million in 1995 dollars) represents actuarial estimates of
obligations for pension and postretirement health and life insurance
benefits for (1) contractor employees at the two active plants who
retired before July 1, 1993, and (2) active employees for their years
of service accumulated before July 1, 1993. 

\i USEC estimates on the basis of actuarial studies for contractor
benefits accrued from July 1, 1993, to a privatization date of
December 31, 1995, that pension and postretirement benefits for
contractor employees could cost a total of $41 million.  USEC
estimates, on the basis of the years of service accumulated between
July 1, 1993, and December 31, 1995, that an additional $3 million in
severance benefits could be owed to contractor employees.  According
to USEC officials, under the memorandum of agreement to be entered
into before privatization, specified in the administration's bill,
USEC would more than likely take responsibility for the liabilities
it incurred as a government corporation. 

\j According to DOE, it has paid its share ($16 million) of the cost
for postretirement health and life insurance benefits for employees
of one of the two power companies holding agreements with the
government.  However, benefits for the other company's employees are
still unpaid.  Postretirement benefit costs for this company's
employees are based on actuarial estimates made for the power
company.  The actuary estimated that the government would owe about
$34 million up to January 31, 1996.  USEC estimates that the
outstanding liability for the time it is a government corporation
will be about $3 million.  Discussions with DOE, the actuary, and
USEC indicate that DOE's outstanding liability for the period before
July 1, 1993, is expected to be about $31 million, including accrued
interest.  According to USEC officials, under the memorandum of
agreement to be entered into before privatization, specified in the
administration's bill, USEC would more than likely take
responsibility for the liabilities it incurred as a government
corporation. 

\k Although agreements have been in effect with each of the two power
companies since 1955, only one of the power agreements included a
clause obligating the government for its pro rata share of the
plant's shutdown and cleanup costs since 1955.  The other power
company added such a clause effective as of October 1992.  (This
power company is expected to incur higher lifetime shutdown costs
because it has two power plants.) Thus, for this power company, DOE
is obligated only for its pro rata share represented by the period
from October 1992 until July 1, 1993, when USEC was established. 
USEC expects that power plant shutdown and cleanup costs attributable
to the time that it is a government corporation will be about $10
million ($6 million in 1995 dollars) when these costs actually become
due at some future date.  According to USEC officials, under the
memorandum of agreement to be entered into before privatization,
specified in the administration's bill, USEC would more than likely
take responsibility for this liability that it incurred as a
government corporation. 

\l According to DOE, USEC may contend that the responsibility for
projects undertaken before privatization, such as the $80 million
upgrade to meet the Clean Air Act's requirements, would remain with
the government.  However, USEC has stated that it will continue to
pay down the debt through its power payments after privatization. 
Moreover, it has stated that, should it decide to terminate a power
contract, it will be financially liable for any remaining unamortized
debt to the extent that the debt is not mitigated by the power
company. 

\m According to the terms of an April 1995 memorandum of agreement,
DOE retains certain liabilities associated with AVLIS, such as some
cleanup costs.  DOE has not calculated these costs. 

\n DOE continues to be responsible for actions that it took while
managing the enrichment program.  Several filed claims have not been
fully resolved. 

\o Under the act and proposed bills, judgments from lawsuits filed
against USEC before the date of privatization would be a direct
liability of the government.  To date, no lawsuits have been settled
or have resulted in a monetary award. 

\p According to USEC, under the terms of reimbursement agreements
entered into to support the 1994 contract to purchase enriched
uranium from the Russians, DOE is potentially liable to USEC for up
to $160 million in advance payments until the payments are offset by
deliveries made under the contract.  Some deliveries have been made,
and USEC estimates the contingent liability currently at $135
million. 

\q A number of other potential liabilities, such as those associated
with the enrichment contracts and Price-Anderson indemnification,
cannot be defined at this time.  (See app.  IV for a more complete
discussion of these potential liabilities.)

For more information on the government's costs and ongoing
obligations associated with the enrichment program, see appendix IV. 


--------------------
\13 The act established a fund to pay for the cost of decontaminating
and decommissioning the three enrichment plants.  The fund is
supported by required payments from domestic utilities and by
government appropriations.  However, a recent audit of the fund found
that funding levels may be inadequate to address DOE's
multibillion-dollar cleanup liability.  Furthermore, a recent court
decision has the potential to affect utilities' annual payments into
the fund.  Yankee Atomic Electric Co.  v.  United States, No. 
94-555C, filed June 22, 1995 (Cl.  Ct.  1995). 

\14 Current budget law does not allow the proceeds from asset sales
to be offset against spending.  (The amount of cash going with USEC,
however, would count as an outlay.) However, all versions of the USEC
privatization legislation would change the treatment of the proceeds
from the privatization so they can be counted as an offset. 
Furthermore, the joint budget resolution passed on June 26, 1995,
recommends that "the asset sale scoring prohibition should be
repealed and consideration should be given to replacing it with a
methodology that takes into account the long-term budgetary impact of
asset sales."

\15 Recently, H.R.  1923, which contains similar language, was
introduced. 

\16 USEC officials believe that the best interpretation of the act
makes the federal government responsible for the liabilities incurred
by the corporation during the transition period.  DOE disagrees.  The
legislation passed by the House and the administration's bill would
clarify how these liabilities would be allocated. 


   CONCLUSIONS
------------------------------------------------------------ Letter :8

At this point, there are no defined revenues associated with the sale
of USEC that can be compared with estimates of the net present value
of the corporation; therefore, we focused our review on the plan's
estimated sale price and the process that will be followed to
privatize USEC.  USEC's privatization plan states that a public sale
of the corporation's stock would probably return between $1.5 billion
and $1.8 billion to the government before estimated transaction fees
are considered.  This range was derived by Morgan after it conducted
various analyses, including net present value calculations of several
possible USEC cash flow scenarios.  After future taxes and the cash
USEC expects to take with it from the Treasury are considered, the
total return to the Treasury from privatizing USEC could be between
$1.7 billion and $2.2 billion. 

However, we believe that Morgan's net present value analysis on which
the plan's expected sale price is partly based needs revision for
several reasons.  For example, the analysis needs to be updated to
reflect current market conditions and recent administration
decisions.  Because Morgan relied, in part, on other analyses and its
expert judgment in determining the plan's estimated sale price, we
cannot estimate the effect that these needed adjustments would have
on the range of sale prices forecasted in the plan.  In addition,
Morgan's analysis does not consider the excess uranium inventory
owned by USEC.  If the privatization process will not provide a fair
return for this inventory, DOE could retain an interest in the
inventory until it is sold. 

We believe that Morgan's analysis should be revised to reflect needed
updates and adjustments so that the Congress and key officials in the
executive branch who are involved in making decisions about USEC's
privatization will have the best available information.  We also
recognize that federal decisionmakers will not evaluate USEC's
privatization on the basis of financial considerations alone; rather
they will also consider other factors, including the national
security implications of the sale and the desirability, given the
program's past problems, of the government's staying in the uranium
enrichment business. 

Because USEC's privatization may set a precedent for future
privatizations, it needs to be accomplished in a manner that will set
the standard for assuring federal taxpayers that their interests will
be protected in such sales.  Moreover, because of the national
security implications and the financial complexity of the sale,
scrutiny should be given to the process.  While we do not find fault
with USEC's performance, we believe that, to fully ensure the
integrity of the process, the Secretary of the Treasury, not USEC's
board of directors, should have the lead role. 

According to our estimates, the government could eventually pay $17.8
billion or more in costs associated with the former DOE program
whether or not USEC is privatized.  In addition, some of the proposed
bills the Congress is considering to facilitate the privatization
would have the government retain all or most of the liabilities that
USEC has incurred since it began operating.  These liabilities could
total between $258 million and $540 million, depending on unknowns
and contingencies.  If the government does not retain responsibility
for these liabilities, USEC's sale price could decrease. 


   RECOMMENDATION TO THE CONGRESS
------------------------------------------------------------ Letter :9

To ensure that the taxpayers' interests are fully protected
throughout the privatization process, we recommend that the Congress,
as it considers proposed legislation affecting USEC's privatization,
require the President to approve the final sale agreement.  To assist
the President, we recommend that the Congress require the Secretary
of the Treasury to lead the privatization process and, in so doing,
make the necessary statutory findings.  The Secretary should also
take responsibility for determining the sale price, obtaining, if
necessary, the advice of investment bankers or other valuation
experts.  In determining the sale price, the Secretary should (1)
consider the total impact of the Russian contract on the price and
(2) incorporate needed updates, such as the administration's final
decision on how much cash USEC should retain when it is privatized. 
The Secretary should also consider (1) ways to obtain value for
USEC's excess inventory and (2) the use of a clawback mechanism or
warrants in the sale agreement to protect the government from the
possibility of an undervalued sale. 


   AGENCY COMMENTS AND OUR
   EVALUATION
----------------------------------------------------------- Letter :10

We provided a draft of this report to USEC, the Department of the
Treasury, and the Office of Management and Budget for comments.  We
also provided portions of the report discussing costs and liabilities
to DOE for comment.  DOE stated overall that the parts of the report
it commented on were fair, complete, and accurate, and it provided
specific technical comments that we incorporated throughout the
report.  USEC and Treasury provided written comments that are
reproduced in appendixes VI and VII.  A summary of our response to
these comments follows. 

USEC and Treasury\17 generally support the need for the Department of
the Treasury's active participation in and oversight of USEC's
privatization.  Consequently, USEC says that our recommendation
deserves further consideration, and Treasury does not object to the
enactment of legislation that would give the Department the lead role
in the privatization.  However, Treasury indicated that the report
should not give the incorrect impression that the Department has not
undertaken a prominent role in the process to date.  In addition,
USEC and Treasury support a continuing evaluation of privatization
issues, which could include considering the use of warrants to ensure
against windfall profits at the taxpayers' expense. 

As discussed in our report, we recognize that under the privatization
plan and a subsequent letter, the Department of the Treasury will
play an active role in the privatization and will concur in key
decisions.  However, under current law, USEC's managers and board of
directors have assumed the lead role in the process and will make the
statutory findings required for privatization.  The plan anticipates
that these statutory findings will be made several months after the
congressional review period has passed and the President's approval
is expected.  We believe that to fully protect the taxpayers, the
Department, not USEC, should be in charge of the privatization
process and should make the necessary statutory findings in
consultation with the corporation.  As Treasury notes in its
comments, its fundamental mission is to establish appropriate
government financial policy.  Moreover, Treasury officials, unlike
USEC's managers or board, will not be affected by the privatization. 

According to USEC and Treasury, our analysis of the value of USEC as
a private corporation is flawed because future taxes are understated. 
As we point out in our report, projecting USEC's future taxes is very
uncertain and there is no one correct way to estimate the amount of
these taxes.  We further note that USEC provided no estimate of taxes
in its privatization plan and, in fact, indicated that the payment of
any taxes by the private entity is not certain.  However, we believe
it reasonable to assume that some taxes will be paid by a privatized
USEC, and we wanted to recognize that probability in our analysis. 
Therefore, for both of the cases we developed to project a privatized
USEC's future taxes, we initially used the same methodology that
Morgan used in its April 1995 presentation to USEC's board of
directors.  However, in response to Treasury's and USEC's comments,
we extended our projection for one of the cases to include the taxes
to be paid on revenues earned by the corporation throughout its
expected operating life. 

USEC also commented that our analysis is flawed because it grossly
understates the costs that USEC would incur if it remained in the
government.  We disagree and believe our estimate to be reasonable,
although we recognize that the long-term cost and revenue projections
for any scenario for USEC are subject to many uncertainties. 
However, in response to USEC's and Treasury's concern about the
implications of comparing these numbers with Morgan's analysis of a
privatized USEC's value, we moved our analysis of a government
corporation's value to appendix II. 

Furthermore, we note that for our government corporation scenario, we
started with the same cost estimates that Morgan used in its April
1995 net present value analysis of an "existing plants" or non-AVLIS
scenario, which was used, in part, to develop the privatization
plan's valuation estimates.  This net present value analysis
incorporated cost projections provided by USEC's management plus tens
of millions of dollars in additional costs that Morgan believed were
needed to better reflect the true cost of maintaining the aging
enrichment plants.  Our model for a government corporation contains
projections reflecting pessimistic assumptions that increase Morgan's
cost estimates by hundreds of millions of dollars.  Therefore, we
believe that the costs included in our government corporation
scenario are reasonable when compared with the projections Morgan
used to develop the valuation estimates included in the privatization
plan. 

Treasury also criticized our report for not reaching any preliminary
conclusions about the privatization and implying that the net present
value of the revenues from a government corporation would be greater
than the return to the Treasury from a privatized USEC.  Treasury
also suggested that because our net present value estimates are based
on the cash flow model developed by Morgan, they may be based on
assumptions that may not be appropriate for calculations required
under the act.  In conclusion, Treasury noted that our report appears
incomplete and that a fuller analysis and clearer explanation of our
work is needed.  Treasury also made several specific points,
including the following: 

  In our report, we identified several adjustments that are needed in
     Morgan's net present value analysis.  Treasury believes that we
     applied these adjustments to our analysis of a government
     corporation, but not to our analysis of a private USEC, and that
     our analyses are therefore inconsistent. 

  Treasury believes that we did not adequately consider the existing
     contracts that provide electricity to the existing enrichment
     plants at favorable rates. 

In response to these comments, we first note that we used the best
available information to address the act's requirements that we
evaluate the extent to which (1) the revenues gained by the federal
government under the privatization plan would represent at least the
net present value of the corporation and (2) the privatization plan
would result in any ongoing obligations or undue costs to the federal
government.  Most of the information we used, by necessity, came from
USEC and Morgan.  Second, because the proposed sale of USEC is many
months away, we could not determine whether the actual proceeds from
the sale of USEC would at least equal the net present value of the
corporation.  Consequently, we had to start with Morgan's estimate of
the gross proceeds from the sale to project the effect of the
proposed sale on the Treasury. 

To estimate the net present value of the corporation, we first
reviewed Morgan's calculation of the net present value of a
privatized USEC.  In doing so, we identified several weaknesses in
Morgan's analysis.  However, we did not identify the dollar effect of
the needed adjustments to Morgan's analysis because (1) USEC raised
concerns that doing so would involve sensitive proprietary issues and
information and (2) a change in Morgan's net present value estimates
would not necessarily affect Morgan's final estimate of the sale
proceeds, which is based, in part, on other analyses and professional
judgment.  It is also important to note that most of the adjustments
are not applicable to the government corporation scenario and would
not necessarily affect the final estimate of the sale proceeds. 

To further aid the Congress as it considers the privatization plan we
also looked at the net present value of a government USEC, and, for
illustrative purposes, applied a wide range of potential
private-sector discount rates to the government corporation's cash
flows to show the sensitivity of the different rates.  However, we
know of no assumptions used in any of our work that are, as Treasury
suggested, inappropriate to the calculations required by the act, nor
did Treasury specifically identify any. 

Thus, we believe that we objectively and completely accomplished our
legislative mandate, although we clearly recognize that the current,
available information is subject to much uncertainty.  Furthermore,
we believe that our report presents the results of these analyses
impartially, for informational purposes, and notes that other factors
should be considered by federal decisionmakers when evaluating the
privatization of USEC.  We did not take a position on the
privatization because there is no specific transaction to evaluate. 

When comparing our analysis of the impact on the U.S.  Treasury of
privatizing USEC with our estimate of the net present value of
retaining USEC as a government corporation, one needs to consider the
financial impact of the initial public offering discount, the fees
paid to the underwriter(s), and the cash USEC will take with it. 
These factors associated with the privatization will likely cost the
government several hundred million dollars; thus, any future taxes
and the actual sale proceeds may not necessarily increase the total
return to the Treasury to the same level as the net present value of
a government corporation's estimated revenue stream.  We would also
point out that there are only three key differences between our net
present value analysis of a government corporation and Morgan's
analysis of a private USEC:  (1) the government corporation scenario
does not assume the building of an AVLIS plant, (2) the government
corporation does not pay taxes, and (3) the discount rate for the
government corporation scenario is lower than the discount rate for
the private-sector scenario.  Furthermore, it is also possible that,
because of the weaknesses we identified in Morgan's model, the
privatization plan's estimate of the sale proceeds should be raised. 

Finally, it appears that Treasury and some others may be unaware that
the Secretary of Energy has determined that certain power purchase
agreements related to the operation of the plants cannot be
transferred from DOE to USEC under the agreements' terms.  As
authorized under the act, DOE continues to receive power under these
contracts, and, through the lease and a memorandum of agreement,
resells such power to USEC at cost.  Thus, the effect of these
favorable rates is already included in our (and Morgan's) net present
value calculations for USEC. 

In conclusion, we believe our report fully and objectively responds
to our legislative mandate, given the constraints mentioned above. 
However, we recognize that the privatization of USEC is an evolving
process and that better and more complete information may become
available.  Therefore, we plan to continue to assist the Congress as
it participates in the process and Treasury conducts it own analysis
of the privatization. 


--------------------
\17 Treasury's letter contained comments it obtained from the Office
of Management and Budget, the National Economic Council, and the
Council of Economic Advisors. 


--------------------------------------------------------- Letter :10.1

We performed a number of steps to obtain and analyze information for
this report.  To determine the government's costs and ongoing
obligations associated with the uranium enrichment program and the
proposed privatization of USEC, we interviewed DOE, Commerce,
Treasury, USEC, and Office of Management and Budget officials and
reviewed pertinent documents, such as the USEC privatization plan,
the lease agreement for the enrichment plants, the uranium enrichment
power contracts, and proposed legislation.  To estimate the net
present value of USEC's cash flows, we interviewed USEC and Morgan
officials, reviewed Morgan's model and USEC's strategic planning
documents, and spoke to DOE officials who formerly managed the
program.  Using available data from USEC and Morgan, we also
constructed our own cash flow model for USEC if it remained a
government corporation.  Appendix V contains a more detailed
discussion of our objectives, scope, and methodology.  We conducted
our review between March 1995 and August 1995 in accordance with
generally accepted government auditing standards. 

We are sending copies of this report to the Secretary of the
Treasury, the Secretary of Energy, the President and Chief Executive
Officer of USEC, and the Director of the Office of Management and
Budget.  We will make copies available to others upon request. 

If you have any questions or need additional information, please
contact me at (202) 512-3841.  Major contributors to this report are
listed in appendix VIII. 

Victor S.  Rezendes
Director, Energy and
 Science Issues

List of Recipients

The Honorable Frank H.  Murkowski
Chairman
The Honorable J.  Bennett Johnston
Ranking Minority Member
Committee on Energy and
 Natural Resources
United States Senate

The Honorable Pete V.  Domenici
Chairman
The Honorable Wendell H.  Ford
Ranking Minority Member
Subcommittee on Energy
 Research and Development
Committee on Energy and
 Natural Resources
United States Senate

The Honorable Thomas J.  Bliley, Jr.
Chairman
The Honorable John D.  Dingell
Ranking Minority Member
Committee on Commerce
House of Representatives

The Honorable Dan Schaefer
Chairman
The Honorable Frank Pallone, Jr.
Ranking Minority Member
Subcommittee on Energy and Power
Committee on Commerce
House of Representatives


RUSSIAN ENRICHED URANIUM CONTRACT
=========================================================== Appendix I

One of the most complicated issues surrounding the privatization of
the United States Enrichment Corporation (USEC) concerns the
disposition of Russian highly enriched uranium (HEU).  The complexity
of this issue arises from the need to balance concerns about
nonproliferation with a host of commercial interests. 

In February 1993, Russia agreed to sell approximately 500 metric tons
of HEU extracted from dismantled Russian nuclear weapons to the
United States.  The HEU is to be converted to low enriched uranium
(LEU) suitable for use as fuel in commercial nuclear power reactors. 
The agreement, financed through the commercial sale of the converted
uranium, is not expected to cost the U.S.  taxpayers any money. 
Under the contract implementing the agreement, USEC, the designated
U.S.  executive agent, pays for approximately two-thirds of the LEU's
value within 60 days of receipt; it pays for the remaining third
after it resells or uses the natural uranium component.\18 Based on
the initial price established under the contract, the estimated value
of the LEU is $12 billion. 

Existing trade restrictions limit the commercial sale in the United
States of uranium imported from the Russian Federation (Russia).\19
USEC officials state that from a business standpoint, it would be
imprudent to pay for the natural uranium component upon delivery
without a resale market for the uranium.  If the corporation did so,
the uranium would appear as an impaired asset on its balance sheet,
compromising its attempt to privatize.  The Russians, however, want
to be paid upon delivery for the natural uranium component and have
threatened to pull out of the agreement unless a satisfactory
solution can be found. 

A number of possible solutions have been suggested.  For example, the
Senate legislative proposal, S.  755, introduces a framework to allow
the introduction of Russian natural uranium into the U.S.  market. 
Under this proposal, title to the natural uranium displaced under the
HEU contract would be given to the Russians.  Russia could sell the
uranium now, but only for delivery in the United States after 2002. 

The administration made another suggestion.  Recently, the U.S.  Vice
President met with the Russian Prime Minister to discuss the HEU
agreement.  Recognizing the importance of the agreement, both sides
reaffirmed their commitment to the accord in a protocol signed at the
meeting.\20 The protocol specifies that the United States will (1)
take the necessary actions to allow the corporation to implement a
tiered sales approach for the entry into the U.S.  marketplace of the
natural uranium component and (2) enact the legislation necessary to
authorize the President to waive antidumping duties and other trade
restrictions against LEU under the HEU contract. 

The Nuclear Energy Institute (NEI), a trade group representing the
nuclear industry, has also proposed a solution to the HEU problem. 
NEI proposes, in a "talking points" paper, that a government entity
be named as the executive agent under the government-to-government
agreement.\21 USEC would have the right of first refusal to purchase
the value of the enrichment services, measured in separative work
units (SWU), at cost.  The uranium component would be sold to the
highest bidder(s) at some agreed-upon future date.  Deliveries would
begin in 1998. 


--------------------
\18 The Russian HEU was created from natural uranium that was
originally enriched to bomb-grade material.  Under the HEU agreement,
this material is blended down to LEU, which is the product being sold
under the contract.  The price for the LEU includes charges for two
components.  First, there is a charge for the service of enrichment,
which is measured in separative work units (SWU).  SWU is the
standard U.S.  measure of enrichment services that represents the
effort expended to separate uranium into a stream containing a higher
concentration of the fissionable U-235 isotope and a stream
containing a lower concentration of U-235.  Second, there is a charge
for the natural uranium (or feed) that is actually enriched. 

\19 According to USEC officials, it is not efficient to use the
uranium to overfeed the corporation's plants.  Overfeeding introduces
more natural uranium into the enrichment process to lower the energy
costs--the more feed used, the less energy needed for enrichment. 
USEC officials also state that because of existing trade barriers
overseas, it is unlikely that the uranium could be sold outside the
United States. 

\20 Protocol:  In Furtherance of the Initial Implementing Contract
for the Agreement Between the Government of the United States of
America and the Government of the Russian Federation Concerning the
Disposition of Highly Enriched Uranium Extracted from Nuclear Weapons
(June 30, 1995).  The protocol was signed by the president and chief
executive officer of USEC and by the minister of the Russian Ministry
of Atomic Energy. 

\21 According to an NEI official, NEI's position is still evolving. 


   THE GOVERNMENT-TO-GOVERNMENT
   AGREEMENT
--------------------------------------------------------- Appendix I:1

The government-to-government agreement was signed on February 18,
1993.\22 One of the objectives of the agreement was the conversion,
as soon as practicable, of the HEU resulting from the dismantlement
of nuclear weapons in Russia into LEU for use as a commercial fuel. 
The agreement committed the parties, through their executive agents,
to enter into an implementing contract establishing the terms of the
purchase. 

USEC has been designated as the executive agent for the United
States.  The agreement provides that the U.S.  executive agent will
use the LEU converted from HEU so as to minimize disruptions in the
market and maximize the overall economic benefit for both parties. 
Tenex is the executive agent of the Ministry of the Russian
Federation of Atomic Energy (Minatom); Minatom is the executive agent
of the Russian Federation.\23


--------------------
\22 Agreement Between the Government of the United States of America
and the Government of the Russian Federation Concerning the
Disposition of Highly Enriched Uranium Extracted from Nuclear Weapons
(the agreement). 

\23 Either party has the right to change its executive agent upon 30
days' written notice to the other party. 


   THE IMPLEMENTING CONTRACT
--------------------------------------------------------- Appendix I:2

The initial implementing contract was signed by USEC and Tenex on
January 14, 1994.\24 Based on the initial price for the LEU delivered
under the contract, the total value of payments by the United States
would be approximately $12 billion over 20 years, the life of the
contract.\25 According to corporation officials, the enrichment
services represented approximately two-thirds of the contract's total
price (about $8 billion) and the feed about one-third (about $4
billion). 

Under the implementing contract, the Russians are to be paid within
60 days of USEC's receiving a properly submitted invoice.  The 60-day
period generally will begin upon notification by the corporation's
contracting officer's representative that the transfer of title to
the LEU at St.  Petersburg has been accomplished.  However, payment
for the feed component is not required until USEC has used or resold
the corresponding natural uranium.\26

USEC may order up to the amount of LEU contained in 10 metric tons of
HEU per year for the first 5 years.  For the following 15 years, USEC
may order the amount of LEU contained in 30 metric tons of HEU
annually.  Additional annual amounts may be ordered, subject to
mutual agreement in annual reviews. 

Although, the agreement contemplated that the initial delivery of
converted HEU would be made by October 1993 if possible,
implementation has been delayed.  Three deliveries arrived just
recently in Ohio.  According to USEC officials, the delay was caused
by technical problems encountered by the Russians in meeting
commercial nuclear fuel specifications; these problems have
apparently been resolved.  Attention is now being given to the
concerns expressed by the Russians over their inability, under the
implementing contract, to be paid for the natural uranium component
upon delivery.  As previously noted, current U.S.  trade restrictions
limit the commercial sale in the United States of Russian uranium. 


--------------------
\24 Initial Implementing Contract for the Agreement Between the
Government of the United States of America and the Government of the
Russian Federation Concerning the Disposition of Highly Enriched
Uranium Extracted from Nuclear Weapons (the contract). 

\25 The $12 billion figure assumes a constant price over the life of
the contract.  However, prices for future years may be adjusted as
part of an annual review to account for U.S.  inflation and changes
in international market conditions.  If an agreement is not reached
during the annual review, the price for the previous year is to apply
in the following year.  If agreement is not reached at the next
annual review, Tenex is not obligated to deliver LEU in the absence
of an agreement on price. 

\26 The implementing contract specifies an understanding that by the
end of the contract's term, USEC will have purchased and paid for all
quantities of the natural uranium component of the LEU delivered by
Tenex during this period.  Tenex has the option, at the annual
review, to request the return of all or part of the natural uranium
that is delivered in the LEU but was not ordered by the corporation. 


   TRADE RESTRICTIONS
--------------------------------------------------------- Appendix I:3

Under U.S.  trade laws, the United States may impose and collect
antidumping duties on products after administrative determinations
have been made that foreign merchandise is being sold in the U.S. 
market at less than fair value and that such imports materially
injure or threaten to materially injure a U.S.  industry.  Dumping is
generally considered to be the sale of an exported product at a price
lower than that charged for the same or a like product in the
exporter's "home" market.  U.S.  antidumping laws seek to combat this
practice, which is recognized as a form of unfair price
discrimination that potentially harms the importing nation's
competing industries.  Antidumping duties are special customs duties
imposed to offset the price difference between the U.S.  price and
the foreign market value of imported merchandise that is materially
injuring U.S.  industry. 

In an antidumping investigation, the International Trade
Administration (ITA), an agency within the Department of Commerce, is
to determine whether sales are at "less than fair value" by
calculating the difference between the foreign market value of the
product and the U.S.  price.  Depending on the circumstances, the
foreign market value is derived from sales in the exporting country,
sales in a third country, or a constructed value based on a formula,
set forth in the statute, that uses production costs and profit
margins. 

In a parallel process, the International Trade Commission (ITC), an
independent, quasi-judicial federal agency with broad investigatory
powers in matters of trade, decides whether a U.S.  industry is
materially injured or threatened with material injury by reason of
criteria specified in 19 U.S.C.  1677.  If ITA determines that
dumping exists, it can impose duties on each importer, provided that
ITC finds that a U.S.  industry was materially injured or threatened
with material injury. 

In November 1991, an antidumping petition was filed by the Ad Hoc
Committee of Domestic Uranium Producers and the Oil, Chemical, and
Atomic Workers International Union.  The petition alleged that
uranium imports from the former Union of Soviet Socialist Republics
(USSR) were being sold at less than fair value and were causing
material injury to U.S.  uranium producers. 

ITC issued an affirmative preliminary injury determination on
December 23, 1991.  On June 3, 1992, ITA published its preliminary
determination.  It found that six republics of the newly independent
states of the former USSR (Kazakhstan, Kyrgyzstan, Russia,
Tajikistan, Ukraine, and Uzbekistan) had imported and sold uranium in
the United States at less than fair value.\27 A preliminary duty of
approximately 116 percent was imposed on imports of uranium from
these republics into the United States. 

On October 30, 1992, ITA published a notice suspending the
antidumping investigation.  The suspension was based on agreements by
the governments of the six independent republics to restrict the
volume of direct or indirect uranium exports to the United States in
order to avoid suppressing or undercutting the price levels of U.S. 
domestic uranium.  Under the suspension agreements, imports from the
six republics were prohibited if the market price for uranium was
below $13 per pound.  At the same time, ITA also amended its
preliminary determinations to include HEU within the scope of the
investigation.\28

The Russian Federation's notice of suspension provided that the
agreement would

     "in no way prevent[] the Russian Federation from selling
     directly or indirectly any or all of the HEU in existence at the
     time of the signing of this Agreement and/or low enriched
     uranium ('LEU') produced in Russia from this HEU to the DOE, its
     governmental successor, its contractors, assigns, or U.S. 
     private parties acting in association with DOE or the U.S. 
     Enrichment Corporation and in a manner not inconsistent with the
     Agreement between the United States of America and the Russian
     Federation concerning the disposition of HEU resulting from the
     dismantlement of nuclear weapons in Russia." (article IV(M.1)). 

The notice stated that DOE's disposition of the HEU was in the public
interest because, among other things,

     ".  .  .  (2) any utility-owned uranium products delivered
     pursuant to enrichment contracts affected by purchase of HEU or
     HEU products are not resold in the United States, either as
     natural uranium or as LEU produced in excess of the
     contractually-specified amount." (article IV(M.2)). 

According to USEC officials, article IV(M) may prohibit the
corporation from reselling the Russian natural uranium in the United
States.\29

ITA and the Government of the Russian Federation signed an amendment
to the suspension agreement on March 11, 1994.\30 The amendment
recognized that the agreement had not generated the anticipated
increase in the price of U.S.-origin natural uranium that would have
permitted renewed sales of Russian uranium under the price-tied quota
mechanism; neither had the agreement increased sales of U.S.-origin
natural uranium or employment in the U.S.  uranium industry.  The
amendment incorporated a "matched sales" program, allowing certain
annual specified quantities of lower-cost Russian imports to be
paired with U.S.-origin natural uranium on a pound-for-pound basis. 
Quotas were also established on matched sales for enrichment services
(SWU), extending through March 1996. 

Questions have arisen about the interplay between the amended Russian
suspension agreement, specifically article IV(M), and the HEU
purchase contract.  For example, in response to concerns raised under
the North American Free Trade Agreement (NAFTA), chapter 20, the
State Department has provided the Canadian government with assurances
that "the natural uranium component imported under the [Russian HEU
contract] is subject to the restrictions of Section IV.M of the
suspension agreement." On the basis of these assurances, the Canadian
government agreed to suspend its NAFTA consultations on uranium
without prejudice to its right to reactivate them should
circumstances warrant. 


--------------------
\27 On December 25, 1991, the USSR dissolved, and the United States
subsequently recognized the 12 newly formed independent states that
emerged.  ITC continued its investigation against the 12 independent
states.  On September 25, 1992, the U.S.  Court of International
Trade sustained the Department of Commerce's decision to continue the
investigation against the independent states.  802 F.  Supp.  469
(CIT 1992). 

\28 The suspension agreements were published in the Federal Register
on October 30, 1992.  57 Fed.  Reg.  49220 (1992). 

\29 USEC officials noted that differing interpretations of article
IV(M) were possible.  However, according to USEC, Commerce has
interpreted the provision as prohibiting the corporation from
reselling the Russian natural uranium in the United States. 

\30 The amendment to the Russian suspension agreement was published
in the Federal Register on April 1, 1994.  59 Fed.  Reg.  15373
(1994).  The amended suspension agreement is being appealed in the
United States Court of International Trade by the Ad Hoc Committee of
Domestic Uranium Producers and the Oil, Chemical, and Atomic Workers
International Union.  (Ct.  No.  94-05-00268). 


   USEC'S ROLE UNDER THE HEU
   AGREEMENT
--------------------------------------------------------- Appendix I:4

Under the Energy Policy Act of 1992 (the act), the corporation is
authorized to negotiate the purchase of all HEU made available by any
state of the former Soviet Union under a government-to-government
agreement or must assume the obligations of DOE under any contractual
agreement reached prior to July 1, 1993.  The act also requires that
the corporation seek to minimize the impact on domestic industries
(including uranium mining) of the sale of LEU derived from HEU.\31

The act established USEC to operate as a business enterprise on a
profitable and efficient basis.  At the same time, USEC was to
continue to meet the objectives of ensuring the nation's common
defense and security.\32 The act contemplated that after being
restructured, the corporation would be in a position for transfer to
private ownership.  Thus, the act provided for the transmittal of a
privatization plan by July 1, 1995, to the Congress and the President
and allowed for the plan's implementation upon certain conditions.\33
Accordingly, in carrying out its role as the executive agent, USEC
has been guided not only by the nonproliferation goals of the HEU
agreement but also by the contract's impact on the corporation's
eventual sale.\34

USEC recognizes the economic value of being the executive agent under
the HEU agreement.  The global uranium enrichment industry has four
major producers:  USEC, Tenex, Eurodif (a
French-Belgian-Spanish-Italian-Iranian consortium), and URENCO (a
British-Dutch-German consortium).  According to USEC, the market for
enrichment services has become highly competitive because the nuclear
power industry has been growing slowly while the world's uranium
enrichment capacity has been expanding.  The implementing contract
enables USEC to control a large volume of material while, at the same
time, giving Tenex the opportunity to take advantage of USEC's
marketing ability.  Without this opportunity, Tenex might be tempted
to compete directly with the corporation by developing its own
marketing ability. 

USEC officials believe that privatization will require no changes to
the implementing contract.  Nor does the corporation contemplate any
changes in the government's oversight of the contract.  USEC
officials informed us that an interagency group--including
representatives of the National Security Council and the Departments
of State, Defense, and Energy (and other agencies as appropriate,
such as the Department of Commerce or the Office of the U.S.  Trade
Representative)--oversees the contract.  This group generally meets
quarterly (more often when necessary) and receives periodic briefings
by the corporation on its activities.  According to USEC, the
corporation would need to seek the approval of this group before it
could enter into any new implementing contracts.\35 USEC does not
envision the need to enter into any agreement specifying the agency
relationship between itself and the government after the corporation
is privatized. 


--------------------
\31 The act also provided that uranium purchased for the purpose of
overfeeding shall be of domestic origin and purchased from domestic
producers to the extent permitted under the General Agreement on
Tariffs and Trade (GATT) and the U.S.-Canada Free Trade Agreement. 
42 U.S.C.  2296b.  USEC officials note that this provision would not,
in their view, apply to the Russian uranium. 

\32 Under proposed legislation, the corporation's national security
purpose would be repealed upon privatization.  According to USEC
officials, the Department of Energy is responsible for the national
security aspects of the agreement, under a transparency agreement
with Russia.  DOE administers the transparency agreement to ensure
that the LEU is derived from the dismantled weapons themselves. 

\33 USEC may implement the privatization plan after a mandated
congressional review period of at least 60 days has elapsed, the
President has approved the plan, and the corporation has determined
that privatization will meet certain statutory requirements. 

\34 In the past, USEC officials have stated that the corporation
should be compensated for what it termed the "national security
premium," or the difference between its marginal price and the price
it pays for enrichment services under the implementing contract. 
(USEC's marginal cost of production is well below the initial
contract price for the enrichment services.  This difference is
reflected in the net present value of the corporation calculated by
Morgan.) USEC officials strongly state that this is no longer their
position and that they are not currently advocating that the
government reimburse the corporation for the difference between its
marginal cost and the contract price. 

\35 The HEU agreement provides that "For any purchase, the Executive
Agent shall negotiate terms (including price), which shall be subject
to approval by the Parties." USEC officials contend that "purchase"
refers to the entire 500 metric tons of HEU.  Further contracts for
additional amounts would require approval.  According to USEC,
subsequent modifications may be subject to approval.  However, USEC
officials note that changes in price are not contract modifications,
since the price may be adjusted annually under the terms of the
contract. 


   FINDING A SOLUTION
--------------------------------------------------------- Appendix I:5

Both the United States and Russia recognize the important
nonproliferation goals of the HEU agreement.  However, the Russians
have recently raised strong concerns about not being paid upon
delivery for the value of the feed contained in the LEU it delivers
under the HEU contract.  The corporation would like to be able to pay
the Russians for the value of the feed component upon delivery. 
However, current trade restrictions limit the resale of Russian
uranium in the U.S.  market.  These trade restrictions stem from the
suspension agreement in the antidumping case against Russian uranium
imports; assurances provided to Canada also play a role. 

S.  755 proposes a legislative solution to the HEU controversy.\36
Under this bill, natural uranium displaced by LEU imported under the
HEU agreement with the Russians would be deemed to be of Russian
origin and title to such material would be given to the Russians. 
The uranium component could be sold immediately, but only for
delivery after 2002 (i.e., as futures contracts).  The Russians would
be free to dispose of the uranium in one of four ways:  (1) sell it
for delivery in the United States as a matched sale, (2) sell/deliver
it outside the United States as Russian uranium, (3) sell it to USEC
for overfeed, or (4) sell it for delivery in the United States under
futures contracts for delivery after 2002.\37

For this provision to be workable, several issues would need to be
addressed.  The Russians would have to agree to it, since it would,
more than likely, result in a modification of the implementing
contract.  Under the implementing contract, the Russians have the
option of taking title to any uranium component that the corporation
does not order.  In addition, deliveries would have to be ensured to
provide certainty in the futures market. 

Moreover, according to an analysis performed by J.P.  Morgan
Securities, Inc.  (Morgan), USEC's financial adviser, Russia could
have difficulty receiving up-front cash payment from utilities for
uranium that could not be delivered until 2002.  Morgan suggests that
prepayments could be structured with other entities under certain
terms and conditions.  Banks or other financial investors would be
interested in providing cash up front in the form of debt financing
for uranium inventory, but, according to Morgan, they would have to
be compensated (in the form of higher returns) for the substantial
risk inherent in any prepayment structure.  Because of the extended
period when uranium cannot be sold, these risks, as well as the
"normal" discounting for the time value of money, could result in an
estimated up-front cash payment that is significantly less than the
current market price in any forward sales scenario. 

In testimony on the bill, the Uranium Producers of America (UPA), a
trade association of domestic uranium mining and milling companies,
as well as NEI, which represents more than 350 companies and
organizations worldwide involved in the nuclear industry, gave
support to the framework suggested in S.  755.  UPA stated that the
bill represents "a balanced and sensible approach to address the
various complex issues." According to NEI, the Senate legislation
"eliminates the potential liability that USEC faced; it provides a
means to allow the Russians to receive payments earlier than would
otherwise be possible; it makes uranium available to utilities sooner
than otherwise; and it supports the revitalization of the uranium
mining industry."

The administration has also given thought to the HEU controversy. 
The Vice President of the United States and the Prime Minister of
Russia met recently to try to resolve some of the confusion
surrounding the implementation of the HEU agreement.  Their meeting
led to the signing of a protocol under which the corporation agreed
to seek administrative and legislative action that would allow the
Russians to be paid for the natural uranium upon delivery.\38

The protocol contemplates the use of a tiered sales approach for
introducing the Russian uranium into the U.S.  marketplace, coupled
with the enactment of legislation in the United States necessary to
authorize the President to waive antidumping duties and other trade
restrictions against LEU under the HEU contract.  According to USEC
officials, the sales approach envisions four basic tiers.  Under the
first tier, USEC would attempt to sell the uranium in foreign
countries.  Under the second tier, the corporation could accept
futures contracts for delivery of the uranium after 2002.  USEC
officials state that since these options are not currently prohibited
under the current suspension agreement, no further administrative
action would be needed.  Under the third tier, U.S.  miners could
purchase the natural uranium at cost from the corporation.  This
option would necessitate administrative action to modify the
suspension agreement.  The fourth tier would also require a change to
the suspension agreement.  Under this tier, the corporation would be
allowed to sell any remaining uranium that is not sold in the first
three tiers but not below spot market prices.  The option under the
fourth tier could be executed only after efforts had been made for 9
months to execute sales under the first three tiers. 

Aside from the administrative actions needed to implement the tiered
sales approach, legislation would be required, corporation officials
say, to ensure the continued operation of the Russian HEU contract. 
For example, USEC noted that if the suspension agreement fails (for
reasons that may have nothing to do with the HEU agreement), the
President must be able to waive the antidumping duties that would
apply to Russian natural uranium and SWU. 

The corporation indicated that the tiered sales approach represents a
compromise that would help the Russians by providing a market
mechanism for the sale of the natural uranium component and,
therefore, the payment upon delivery for the natural uranium
component contained in the LEU.  At the same time, according to USEC,
it is responsive to domestic uranium mining companies' concerns that
prices not be suppressed, and it is responsive to the maximum extent
possible, in light of the national security interests served by
implementing the Russian HEU contract, to concerns expressed by
Canada. 

USEC officials informed us that the Department of Commerce is
currently considering the administrative action necessary to
implement the tiered sales approach.  According to USEC officials,
ITA can modify the suspension agreement if doing so is in the public
interest.  The corporation has also drafted legislation for the
administration to consider.  The drafted legislation is currently
being reviewed by the appropriate federal agencies. 

In a recent talking points paper, NEI took issue with the
administration's four-tiered approach from both a national security
and a commercial perspective.  NEI stated that the commercial
interests of USEC are not identical to the national security
objectives of the United States.  Moreover, NEI suggested that the
four-tiered approach vests undue market power in the corporation. 

According to NEI, nonproliferation and national security are
government responsibilities and therefore a U.S.  government entity,
not a privatized USEC, should be the executive agent under the
government-to-government agreement with Russia.  NEI has proposed
that a U.S.  government executive agent negotiate the purchase of the
Russian LEU at a price tied by a market indicator to a market price. 
Under this approach, the U.S.  executive agent would pay the Russians
for both components of the LEU (the natural uranium and the SWU) upon
delivery to the United States.  Payment for the LEU would be made
from the "exit dividend" left to the United States after USEC was
privatized.\39 This "exit dividend" would be placed in a revolving
fund set up to cover the HEU agreement.  Revenues from the
government's sales of natural uranium and SWU would be funneled back
into the fund.  USEC would have the right of first refusal to
purchase the SWU component at cost.  The uranium component would be
sold to the highest bidder(s) at some agreed-upon future date, much
as it would be under the S.  755 futures approach.  However, NEI
suggests that deliveries begin in 1998. 

During the markup of S.  755, the Committee will review possible
strategies for resolving the HEU controversy.  The corporation
anticipates that the administration's proposal may be considered at
that time, along with other possible solutions.  USEC plans on
working closely with the Congress in reaching a final solution. 


--------------------
\36 The legislation passed by the House did not address the HEU
problem. 

\37 The Russians would be able to sell futures for as much as 10
million pounds of natural uranium per year between 2002 and 2011. 
After 2011, the limit would increase to 20 million pounds. 

\38 Under the protocol, USEC also agreed to provide the Russians with
an advance payment of $100 million.  On January 14, 1994, Ukraine,
Russia, and the United States agreed to the Trilateral Statement
allowing the removal of all nuclear warheads from Ukraine.  Under the
statement, Ukraine is transferring all nuclear weapons to Russia in
return for fair compensation in the form of nuclear reactor fuel. 
This $100 million advance payment by USEC will supplement an earlier
$60 million advance payment made by USEC in 1994; both payments will
facilitate the delivery of nuclear fuel to Ukraine. 

\39 USEC's privatization plan projects that the government will
retain $600 million to $800 million of the approximately $1.2 billion
USEC expects will be in its Treasury account at the time of
privatization.  USEC's plan refers to this amount as an "exit
dividend."


THE VALUE OF USEC
========================================================== Appendix II

The act set forth a process for privatizing USEC.  After the period
for congressional review of a privatization plan expires and the
President approves the plan, USEC's sale will proceed as described in
the plan if certain legislative requirements are met.  In developing
the plan, USEC hired Morgan as its financial adviser to determine the
value of the corporation if it were privatized. 

According to an April 1995 presentation to USEC's board of directors,
Morgan employed three valuation methodologies to estimate the value
of USEC as a private corporation and forecast the proceeds resulting
from a public sale:  dividend yield,\40

comparable price/earnings multiples,\41 and the net present value of
projected cash flows.  Morgan officials said that public equity
market investors would probably analyze dividend yield or comparable
price/earnings multiples to estimate USEC's value while interested
merger and acquisition buyers would probably analyze the net present
value of cash flows. 

After considering the results of these analyses, Morgan used its
judgment of investors' perceptions and management's credibility to
project that the sale price of USEC's common stock in an initial
public offering would range from $1.5 billion to $1.8 billion (less
transaction fees of about $100 million).\42

Figure II.1 shows the ranges estimated for the various analyses
Morgan performed in April 1995 to forecast the sale proceeds and
demonstrates that no single analysis led to Morgan's estimate of the
proceeds.  We also note that Morgan's estimate of the gross proceeds
does not appear to give much weight to the net present value
computations for the scenario that assumes the building of a plant
using the atomic vapor laser isotope separation (AVLIS) process. 

Morgan officials said that, under their valuation methodologies, they
used the years 1996 through 1999 to estimate the market value of a
privatized USEC using the comparable price/earnings multiples. 
However, during these years, the costs of developing the AVLIS
technology reduce net income, lowering the corporation's market value
below the value that would be expected without these costs.  In
projections for later years, Morgan shows improvements in net income
resulting from AVLIS benefits.  However, these improvements do not
increase the expected market value because they occur after 1999. 
Nevertheless, according to Morgan and USEC officials, AVLIS is an
important part of the USEC investment "story" that will be told to
public equity investors.  As a new technology, AVLIS offers an
important potential source of earnings growth, but, in Morgan's
judgment, its promise should not be emphasized too strongly with
investors because its benefits are, as yet, unproven.  Ultimately,
the value of a privatized USEC will be determined by investors' own
assessment of the investment story that they hear. 

   Figure II.1:  Morgan's Estimate
   of the Gross Proceeds From an
   Initial Public Offering of
   USEC's Stock

   (See figure in printed
   edition.)

   Source:  GAO's presentation of
   estimates developed by J.P. 
   Morgan Securities, Inc. 
   Proprietary data have been
   removed.

   (See figure in printed
   edition.)

Each of Morgan's valuation methodologies is based on an analysis of
USEC's future earnings.  The first two methods--dividend yield and
price/earnings multiples--are usually used when the "inside"
information needed to calculate a company's long-range future cash
flows is not known and an alternative valuation method is sought. 
However, the act requires us to focus on the third of these
methodologies by evaluating the extent to which the revenues gained
by the federal government under the privatization plan would
represent at least the net present value of USEC. 

Because Morgan had already generated cash flow projections and net
present value analyses for the private corporation scenario, we did
not independently project cash flows for a privatized corporation. 
Instead, we (1) evaluated Morgan's model for a private USEC and (2)
calculated a net present value for a government corporation's cash
flows.  We adjusted or updated the analysis that Morgan used in the
privatization plan to reflect our view of the activities of a
government corporation.  Because we relied on the analysis used in
the plan's valuation, which is subject to significant business,
economic, and competitive uncertainties, our results are subject to
the same uncertainties. 

We also note that at the request of the Department of the Treasury,
USEC hired Ernst & Young, LLP, a valuation consultant, to conduct an
independent review of Morgan's valuation of USEC, including the
results of the net present value analyses.  Ernst & Young, in a June
9, 1995, briefing to USEC stated that the valuation results appear
reasonable, given current market conditions and the passage of
pending legislation assumed under Morgan's analysis.  Ernst & Young
also stated that it did not find any cause to refute the range of
values for the gross proceeds for the sale of USEC. 


--------------------
\40 Dividend yield is the percentage of the purchase price returned
through dividends each year.  Dividends are the portion of a
company's profits paid out to the company's shareholders. 

\41 Comparable price/earnings multiples are calculated by taking the
market price per share for stocks of similar businesses and dividing
that price by the earnings per share.  Because USEC would be the only
publicly traded uranium enrichment company in the world, no true
comparables exist.  However, Morgan identified several peer groups
that it judged to have similar investment profiles. 

\42 The actual terms of a merger and/or acquisition transaction,
including the price, are negotiated and buyer-specific.  As a result,
Morgan believes it is not possible at this early date to accurately
estimate the gross proceeds resulting from such a transaction. 


   NEEDED REVISIONS TO MORGAN'S
   NET PRESENT VALUE ANALYSIS FOR
   A PRIVATE USEC
-------------------------------------------------------- Appendix II:1

At this time, there is no specific transaction (i.e.  stock sale,
merger, or acquisition) with which to compare Morgan's estimate of
the corporation's net present value; therefore, we focused our review
on the plan's estimated sale price.  In an April 1995 report, Morgan
calculated a range of net present values for USEC under two
scenarios--one that used only the existing plants and the other that
assumed an AVLIS plant would be built.  The net present value
analyses used discount rates ranging from 10.4 to 20.0 percent,
depending on Morgan's judgment of which rate best reflected
private-sector investors' concerns about the risk and rate of return
for each scenario.  Morgan included all of the money deposited in
USEC's Treasury account in its net present value analyses of USEC. 
Then it subtracted the amount ($484 million) from USEC's Treasury
account that it projected would be left with the government. 
Finally, it reduced the resulting net present value ranges by 10 to
15 percent to reflect investors' uncertainty about investing in a
new, unproven stock, such as USEC's.  (Morgan and Ernst & Young told
us that such an "initial public offering discount" is commonly
offered to stimulate the purchase of a new stock). 

We reviewed Morgan's net present value model to understand the
sources of the data, the internal flow of the data through the model,
the key estimates and assumptions applied, and the valuation
conclusions.  We also analyzed the integrity of the model using
nonrandom sampling to ensure that the calculations and numerical
results were internally consistent, given the underlying assumptions
and estimates, and independently verified a number of key
calculations used in the model to determine whether the model was
performing the calculations correctly. 

Generally, Morgan's model was internally consistent and worked as
purported.  Furthermore, except as noted below, the model's
assumptions about revenues and costs and the enrichment market were
generally consistent with the information and data we were able to
collect.  Almost all of the data, including key revenue and cost
assumptions used in the model, were obtained directly from USEC or
derived by Morgan after consulting with USEC. 

However, we believe that the net present value analysis needs
revision because it (1) assumes that the current price of the Russian
enriched uranium to be purchased by USEC under the long-term contract
will not change, (2) may include more working capital than USEC will
actually need, and (3) does not reflect, among other things, current
market conditions and the administration's current estimate of the
amount of cash USEC will take with it if it is privatized.  (For a
complete list of the adjustments and updates we believed should be
made to Morgan's analysis, see app.  III.) Also, Morgan's analysis
does not consider the value of USEC's excess inventory, which we
estimate could be worth about $303 million. 


      CONTINUED PAYMENT OF CURRENT
      PRICE FOR RUSSIAN URANIUM
      NOT CERTAIN
------------------------------------------------------ Appendix II:1.1

Morgan assumed that the price of Russian enriched uranium will remain
constant; however, the price may change.  Under the terms of its
contract with Russia, USEC has agreed to purchase the low enriched
uranium derived from 500 metric tons of highly enriched uranium over
the next 20 years.  The initial price set under the contract can be
reviewed and adjusted every year to reflect U.S.  inflation and/or
changes in the international uranium market.  It is likely that a
for-profit corporation, such as a privatized USEC, would try to lower
the price, since the initial contract price for enrichment services
exceeds USEC's current production costs.  Moreover, USEC's production
costs may drop significantly if an AVLIS facility is built. 
Conversely, the Russians may attempt to raise the price.  For these
reasons, we believe the price is subject to change. 


      ALLOWANCE FOR WORKING
      CAPITAL TOO LARGE
------------------------------------------------------ Appendix II:1.2

Morgan assumed that $200 million in cash would be held at all times
for working capital requirements and therefore excluded this amount
from its estimate of USEC's net present value.  Our conversations
with a DOE official who managed the program for DOE and our analysis
of Morgan's determination of USEC's working capital requirements
suggest that Morgan may have exceeded the actual requirements by $50
million or more.  If so, this "excess" cash would increase USEC's net
present value by the same amount. 


      RECENT CHANGES NOT REFLECTED
------------------------------------------------------ Appendix II:1.3

Some recent changes have overtaken Morgan's April 1995 analysis. 
Morgan estimated the net present value and expected gross proceeds
from privatizing USEC on the basis of then-current market conditions. 
So that decisionmakers can have the best information available,
changes in market conditions and other circumstances should be
reflected in the analysis before the privatization date.  For
example, interest rates have declined by about 1 percent since Morgan
determined its discount rate.  Using Morgan's formula for determining
the appropriate private-sector discount rate, we determined that this
decline should lower the average discount rate used in Morgan's
analysis of the existing plants case by about the same percentage and
thereby increase the net present value computation. 

In addition, legislative and administrative actions already and soon
to be taken could significantly affect the validity of Morgan's
analysis.  For example, Morgan's analysis assumes a royalty payment
rate that was not reflected in the recent DOE--USEC agreement
transferring AVLIS to USEC.  The difference increases the net present
value of USEC's cash flows. 

Finally, Morgan's April 1995 analysis assumes that USEC will take
with it about $725 million in federal funds from its Treasury account
when it is privatized.  However, the plan assumes that the
corporation will take only between $400 million and $600 million. 
The actual amount taken will be determined by Treasury and other
administration officials, who will try to balance the need to create
confidence among potential investors and the need to maximize the
return to the government.  Morgan's evaluation should reflect the
actual cash amount so that officials deciding on the final sale will
have an up-to-date analysis of the present value of USEC's cash
flows.  We note that Ernst & Young, in its review of Morgan's
valuation analyses, expressed its view that the lower end of this
range ($400 million) more adequately balances the government's need
to protect the taxpayers' interests while still maintaining the
corporation's viability. 


      EXCESS INVENTORY NOT
      CONSIDERED
------------------------------------------------------ Appendix II:1.4

Morgan's analysis does not consider excess inventory, which we
estimate is worth about $303 million.  In our view, this excess
inventory could be sold to generate additional profit that is not
considered in Morgan's analysis.  According to USEC officials, as of
June 1, 1995, USEC owned about 11,000 metric tons of natural uranium
worth about $403 million at current market prices.  In addition, USEC
says that it owns enriched uranium containing enrichment services
worth about $609 million at current market prices.  While some of the
natural and enriched uranium is needed during normal operations in
the production cycle and some may be needed as a "buffer" to ensure
against production delays, we estimate conservatively, on the basis
of our review of USEC's inventory records and past DOE records and
our interviews with DOE officials, that at least $122 million of the
natural uranium and about $181 million of the enriched uranium--or
$303 million of inventory--is excess.\43

Furthermore, DOE plans to transfer additional uranium inventory to
the corporation before it is privatized; this inventory could be
worth up to $400 million.\44

However, valuation experts told us that the presence or absence of
excess inventory, within reason, would not significantly affect the
market price.  Therefore, the market may not compensate the
government for all of this inventory if it becomes part of the
privatization transaction.  We believe that USEC's final valuation
should include the net present value of the corporation's excess
inventory.  Alternatively, as part of the sales agreement, the
government could retain an interest in future sales of the excess
inventory. 


--------------------
\43 We believe that the fair market value of the excess inventory can
be approximated by current market prices, although a one-time sale of
the inventory may depress current market prices. 

\44 Morgan's analysis assumed that this inventory would be worth
about $100 million. 


   CALCULATING THE NET PRESENT
   VALUE OF CASH FLOWS FOR USEC AS
   A GOVERNMENT CORPORATION
-------------------------------------------------------- Appendix II:2

Because the act did not state whether we should calculate the net
present value of the cash flows of a private or a government
corporation, to further aid the Congress as it considers the
privatization plan, we developed a model to calculate the net present
value of the corporation's estimated cash flows if USEC remains in
the government.  This model required a different set of assumptions
from Morgan's model and resulted in a different net present value
estimate.  For example, we assumed that a government corporation
would probably not build a plant using the AVLIS technology, whereas
a private corporation might do so.  In addition, we incorporated a
lower discount rate\45 (the government's cost of borrowing) than
Morgan to calculate the net present value of a government
corporation's estimated cash flows.  This discount rate is inversely
related to the net present value--as the discount rate is lowered,
the net present value increases. 

To determine the net present value of USEC's cash flows if USEC
remains a wholly owned government corporation, we adjusted Morgan's
cash flow projections to reflect (1) the fact that a government
corporation would not pay future federal, state, and local income
taxes and (2) the likelihood that a government corporation would not
take on new technology investments, such as constructing new uranium
enrichment facilities using the AVLIS technology or invest in related
businesses.  We then discounted the cash flows projected for a
government corporation using, as a base case, an average government
borrowing rate of 6.6 percent, rather than a rate appropriate for a
private corporation.  This methodology is consistent with the
methodology we used in our past evaluations of federal asset sale
proposals.\46

Since estimates of a government corporation's future cash flows are
not certain, our model contains a range of projections to account for
pessimistic and optimistic assumptions.  Computing the present value
of the government corporation's cash flows results in a net present
value of these cash flows in a range of $2.8 billion to $3.5 billion. 
(See app.  III for a discussion of the assumptions used to generate
the range of possible cash flows for a government corporation and a
complete list of the adjustments made to Morgan's model to reflect
the cash flows of a government corporation.)

This range represents our estimate of the present value of the future
cash flows that the government would have available to reduce
borrowing to meet federal expenditures.  However, it does not
represent an estimate of USEC's market value because it (1) is
calculated using a discount rate that is based on the government's
low cost of borrowing rather than a private corporation's rate of
return, (2) assumes that USEC would operate with less flexibility as
a government corporation than it would in the private sector, and (3)
does not consider other kinds of market analyses that typically are
used to value a private corporation. 

Because the government's cost of borrowing is usually lower than the
private sector's, the use of a discount rate based on the
government's cost of borrowing will generally yield a greater net
present value of future returns from an asset than would the use of a
higher private-sector rate.  Furthermore, the range of values we
developed for a government corporation using a discount rate based on
the government's cost of borrowing does not recognize the business
risk to a government corporation of some unknown significant adverse
development on the corporation's operations.  Consequently, we
recognize that our analysis of a government corporation's value could
imply that government ownership is preferable to private ownership
even when government ownership produces no real gains in efficiency. 
Therefore, for illustrative purposes only, as shown in table II.1, we
arbitrarily selected potential private-sector discount rates ranging
from 17 to 7 percent and calculated the corresponding net present
values using our base government corporation scenario. 



                               Table II.1
                
                Effect of Using Private-Sector Discount
                Rates to Calculate the Net Present Value
                      of a Government Corporation

                         (Dollars in billions)

Discount rate (percent)                              Net present value
----------------------------------------  ----------------------------
17                                                                $2.0
15                                                                 2.2
13                                                                 2.4
11                                                                 2.6
9                                                                  2.9
7                                                                  3.3
----------------------------------------------------------------------
Finally, we note that any estimate of earnings from uranium
enrichment operations, whether performed by a wholly owned government
corporation or a private corporation, is subject to major
uncertainties because of the inherent difficulty in determining the
amount and selling price of uranium enrichment services.  Important
and unforeseen market developments, such as a change in existing
trade restrictions, could cause significant changes in the estimates. 
Also, if USEC is sold, the final value of USEC will be determined by
the merger and/or acquisition purchaser(s) or the initial public
stock offering market at the time of privatization. 


--------------------
\45 The choice of a discount rate is a key determinant of the net
present value of USEC.  The discount rate adjusts future cash flows
to their value today by recognizing that money has earning power over
time.  The discount rates used by the private sector and the
government can differ substantially.  In the private sector, discount
rates tend to be high because investors must be compensated for
bearing the risk of undertaking an activity.  Alternatively, the
government can finance these same activities at the government
borrowing rate, which is generally much lower than private-sector
borrowing rates.  The government borrowing rate is relatively low
because the government guarantees the repayment of its debt even if
specific activities prove unsuccessful.  Thus, the government, and by
implication the taxpayers, bears the risk of the activity without
being fully compensated for bearing that risk. 

\46 See Lessons Learned About Evaluation of Federal Asset Sale
Proposals (GAO/T-RCED-89-70, Sept.  26, 1989) for a more detailed
discussion. 


CALCULATING USEC'S NET PRESENT
VALUE
========================================================= Appendix III

The Energy Policy Act of 1992 (the act) requires us to evaluate the
extent to which the revenues gained by the federal government under
the privatization plan would represent at least the net present value
of USEC.  However, the act does not define whether the net present
value should be calculated for USEC as a wholly owned government
corporation or as a private corporation.  In other words, the act
does not state whether the net present value is intended to be used
to determine whether the sale price of the corporation (1) is "fair"
in terms of the net present value of a private corporation's expected
future cash flows or (2) is at least equal to the net present value
of the cash flows expected to be generated by the corporation if it
remains in the government.  Since each scenario--private or
government--would require a different set of assumptions that would
result in a different net present value, we evaluated Morgan's net
present value analysis for USEC's cash flows under a private scenario
and developed a model to calculate the net present value for a
government scenario.  We note that a net present value analysis is
only one method used to determine an estimated sale price. 
Therefore, these values should not be used to determine whether or
not USEC should be sold. 


   ADJUSTMENTS TO MORGAN'S NET
   PRESENT VALUE ANALYSIS OF CASH
   FLOWS FOR USEC AS A PRIVATE
   CORPORATION
------------------------------------------------------- Appendix III:1

In April 1995, Morgan updated its 1994 valuation of USEC and provided
the results to USEC's board of directors.  Because Morgan--USEC's
financial adviser--had already generated cash flow projections and
net present value analyses of these cash flows for USEC as a private
corporation, we used Morgan's April estimate and asked Morgan to
rerun its model with our adjustments.  We did not independently value
USEC as a private corporation.  Our adjustments revised Morgan's
analysis to account for current market conditions and different
assumptions about costs, assets, and income. 

To account for current market conditions, we asked Morgan

  to recalculate the base discount rate to reflect the interest rate
     on June 30, 1995--the day USEC issued its privatization plan and
     gave notice of its intent to implement the plan.\47

We believe that Morgan's analysis of the net present value of USEC's
cash flows should be adjusted to reflect (1) possible changes in the
price for Russian enriched uranium, (2) the current estimate of how
much cash USEC will retain after privatization, (3) a lower allowance
for working capital, and (4) the current estimate of how much money
is needed to dispose of depleted uranium. 

To account for these items we

  adjusted Morgan's assumption of the price to be paid under the
     Russian purchase agreement to reflect possible changes in the
     price;

  lowered Morgan's assumption of how much cash USEC will retain after
     privatization from $725 million to $500 million to better
     reflect the amount stated in USEC's privatization plan,
     understanding that a further adjustment should be made to
     reflect the actual amount indicated by an up-to-date analysis of
     USEC's cash flows before a final sale decision is made (since,
     according to Morgan officials, financial markets tend to value
     excess cash left with a company at less than 100 cents on the
     dollar);

  reduced Morgan's assumption of how much working capital is needed
     to operate the business from $200 million to $150 million (the
     amount of money needed to pay future bills); and

  used USEC's estimate of the actual cost to dispose of depleted
     uranium. 

Morgan's analysis of the net present value of USEC's cash flows did
not reflect (1) the effect of a subsequent agreement between DOE and
USEC concerning the use of AVLIS technology and (2) the additional
interest income earned on cash holdings. 

To account for income not included in Morgan's analysis, we

  increased the revenues generated by AVLIS enrichment operations to
     reflect the agreement between DOE and USEC on the transfer and
     funding of AVLIS technology and

  included revenue from interest income after subtracting interest
     expenses earned on cash holdings. 


--------------------
\47 Morgan calculated a range of net present values for USEC under
two scenarios--one that used only the existing plants and the other
that assumed an AVLIS plant would be built.  To determine the
discount rate for the existing plants case, Morgan adjusted the
30-year Treasury bond rate to reflect the risk associated with an
investment in the stock market in general and the specific risk
associated with USEC itself.  Morgan also determined a discount rate
for the AVLIS case.  However, since this rate was based primarily on
judgment and not on market interest rates, we did not adjust it. 


   DETERMINATION OF THE NET
   PRESENT VALUE OF CASH FLOWS FOR
   USEC AS A GOVERNMENT
   CORPORATION
------------------------------------------------------- Appendix III:2

To estimate the net present value of USEC as a government
corporation, we adjusted Morgan's model, as noted, to reflect
assumptions and activities appropriate for a government corporation. 
Because estimates of a government corporation's future cash flows are
not certain, our model for a government corporation contains a range
of projections to account for pessimistic and optimistic
assumptions.\48 We adjusted Morgan's analysis to account for (1)
current market conditions, (2) costs not incurred by a government
corporation, and (3) more conservative investment decisions.  We also
adjusted Morgan's analysis to account for reductions in operating
efficiency and any adjustments made to the private corporation that
would apply to a government corporation. 

To account for current market conditions, the government corporation
model

  used the government's cost of borrowing on 30-year government bonds
     on June 30, 1995--the day USEC issued its privatization plan and
     gave notice of its intent to implement the plan--as our base
     discount rate, which we then adjusted plus and minus 0.5 percent
     for two different scenarios. 

To account for costs not related to a government corporation, the
government corporation model

  subtracted privatization costs included in Morgan's analysis for
     (1) expanded insurance coverage and other industry-related
     costs, (2) USEC headquarters' labor and benefits, and (3) labor
     and consultant fees, because these costs would not be incurred
     by a government corporation and

  subtracted costs included in Morgan's analysis for future federal,
     state, and local income taxes, since the government corporation
     would not pay these amounts.\49

To account for less operating flexibility, the government corporation
model

  assumed that a government corporation would not take on risky
     investments, such as constructing new uranium enrichment
     facilities using the AVLIS technology or investing in related
     businesses. 

To account for reductions in operating efficiency, the government
corporation model

  reduced revenues by 10 percent for all new sales from 1996 to 2008
     and further reduced all sales after 2008 by 10 percent;\50

  increased the costs associated with power--USEC's largest operating
     cost--by the amount specified by USEC's management, since a
     government corporation would have less flexibility to implement
     innovative strategies for saving power costs; and

  decreased the operating margin by 5 percent after 2008 to reflect
     possible increases in operating expenses related to maintaining
     the enrichment facilities. 

To account for adjustments made to the private corporation model that
would also be applicable to a government corporation, the government
corporation model

  used USEC's estimate of the actual cost to dispose of depleted
     uranium. 

In summary, after we made these adjustments, our calculation of the
net present value of the cash flows for USEC as a government
corporation ranged between $2.8 billion and $3.5 billion.  Since
estimates of a government corporation's future cash flows are not
certain, we developed two cash flow projections to account for
differences in possible outcomes.  One projection relied on
optimistic assumptions, the other on pessimistic assumptions.  For
the optimistic case, we (1) assumed that USEC as a government
corporation would operate no better than USEC as a private
corporation under Morgan's existing plants case, (2) made the
adjustments that would apply to a government corporation, and (3)
used a lower discount rate (6.1 percent) to adjust future cash flows. 
For the pessimistic case, we adjusted the cash flows generated for a
government corporation to account for reductions in operating
efficiency--lower revenues and increased power costs--and used a
higher discount rate (7.1 percent) to adjust future cash flows. 

We did not do an independent valuation of USEC either as a private
corporation or as a government entity.  Rather, we adjusted Morgan's
estimates for the items in Morgan's net present value analysis that
we identified as (1) needing update or correction or (2) not applying
to USEC as a government corporation.  Because we relied on Morgan's
valuation, which is subject to significant business, financial
market, economic, and competitive uncertainties, our results are
subject to the same uncertainties. 


--------------------
\48 Optimistic and pessimistic scenarios are intended to provide a
range of possible outcomes based on reasonable assumptions about
future operations.  They are not intended to show the very best case
and the very worse case.  For example, the optimistic scenario
assumes, among other things, that USEC as a government corporation
would operate no more efficiently than USEC as a private corporation. 
The pessimistic scenario assumes, among other things, that USEC would
operate less efficiently--reduce new sales by 10 percent and increase
power costs by the amount USEC's management said would result for the
government corporation. 

\49 Beginning in fiscal year 1998, the act provides for the
corporation to make payments in lieu of any and all state and local
taxes on the real and personal property of the corporation. 
Therefore, estimates of these costs of about $50,000 per year were
added back in. 

\50 The 10-percent reductions are based on judgment, including an
analytical review of information provided by USEC's managers
supporting what they believe to be a reasonable reduction in sales
revenue for USEC as a government corporation. 


THE GOVERNMENT'S COSTS AND ONGOING
OBLIGATIONS ASSOCIATED WITH THE
URANIUM ENRICHMENT PROGRAM
========================================================== Appendix IV

Generally, the government is responsible for all costs incurred by
the uranium enrichment program before July 1, 1993, when USEC began
operating.  We estimate that these costs could total $18 billion or
more depending on many factors, including how, when, and to what
degree the enrichment plants will be cleaned up.  Between July 1993
and early next year, when USEC is expected to be sold to the private
sector, we estimate that the corporation will have created
liabilities resulting from its operations that could obligate the
government to pay anywhere between $258 million and $540 million. 
Some pending legislation would have the government retain all or most
of these liabilities when USEC is privatized. 

The government's costs and ongoing obligations associated with the
uranium enrichment program can be categorized as

  cleanup costs,

  nuclear and occupational safety compliance costs,

  pension and postretirement health and life insurance benefits,

  power contract liabilities,

  AVLIS technology development costs, and

  other potential liabilities. 


   CLEANUP COSTS
-------------------------------------------------------- Appendix IV:1

In accordance with the Energy Policy Act of 1992 and other
agreements, such as the lease between DOE and USEC, DOE is
responsible for decontaminating and decommissioning the enrichment
plants.  According to a 1991 DOE contractor's report, decontamination
and decommissioning activities at the enrichment plants could cost
$17.4 billion in 1994 dollars.\51 Completing needed remedial actions
at the plants by 2010 could cost another $3.0 billion, according to a
DOE contractor's draft report dated September 1991.  DOE also retains
responsibility for substantial costs associated with the treatment
and disposal of all low-level radioactive, mixed, and hazardous
wastes generated before July 1, 1993, and for the wastes that it
generates at the plants.  Under the lease, DOE is also responsible
for reimbursing the corporation for the costs related to claims,
orders, judgments, and other decisions involving certain wastes, such
as polychlorinated biphenyls and asbestos, at the plants, regardless
of the time at which the existence or presence of the materials
becomes known to the corporation.  (DOE is not, however, responsible
for any such material introduced by USEC.) DOE estimates that these
costs could be as high as $230.9 million for the waste at its
Portsmouth, Ohio, plant and $290 million for the waste at its
Paducah, Kentucky, plant.  In addition, DOE is just starting to study
final strategies for disposing of the depleted uranium it generated
through enrichment activities before July 1, 1993.  DOE now
estimates, on the basis of a 1991 contractor's study, that the
disposal of this depleted uranium could cost $1.3 billion in 1994
dollars, or $2.32 per kilogram. 

H.R.  1215 would make the government liable for the costs of
disposing of the depleted uranium generated by USEC between the dates
of transition (July 1, 1993) and privatization.  Likewise, the
administration's bill specifies that the Department is directly
liable for the costs of disposing of the depleted uranium generated
by the government corporation during this period.  According to DOE,
depleted uranium is being generated at a rate of 20,000 metric tons a
year.  On the basis of a projected inventory, USEC estimates that its
accrued liability for disposing of depleted uranium, from the
transition date to December 31, 1995, would be approximately $258
million.  The House bill would also transfer to the government
responsibility for treating, storing, and disposing of the low-level
radioactive, mixed, and hazardous wastes generated by USEC through
enrichment operations before privatization.  Responsibility for these
wastes under the administration's bill would be addressed by the
proposed memorandum of agreement.  For this responsibility, USEC
projects a liability of $14 million from July 1, 1993, through
December 31, 1995. 

H.R.  1215 would require DOE, after USEC's privatization, to accept
for storage (to the extent that treatment and disposal technologies
or capacities do not exist), treatment, and disposal, low-level
radioactive and mixed wastes generated by the corporation through its
uranium enrichment operations.  Moreover, under the House bill, DOE
is deemed the generator of any waste it takes from the corporation
and must obtain all required permits.  The administration's proposal
would require DOE to accept for disposal low-level radioactive waste
(including depleted uranium if it is later determined to be low-level
radioactive waste) generated by the corporation through enrichment
operations after privatization.  Effective on the date of enactment,
S.  755 would require DOE to accept low-level radioactive waste for
treatment and disposal from USEC and other operators of uranium
enrichment facilities licensed by the Nuclear Regulatory Commission
(NRC). 

H.R.  1215 and the administration's proposal would require USEC to
reimburse DOE in an amount equal to the Department's costs in dealing
with these wastes.  The administration's proposal specifies that this
responsibility includes a pro rata share of any capital costs.  S. 
755 would allow DOE to recoup only the additional costs that the
Department incurs in dealing with USEC's waste.  All three bills cap
DOE's recovery at the commercial rate.\52 In addition, all three
bills allow USEC to seek commercial disposal options.  USEC officials
informed us that they have contracted for the private commercial
disposal of all of the corporation's low-level waste and most of its
mixed waste. 


--------------------
\51 Some cleanup costs will be paid from a decontamination and
decommissioning fund established by the act to address facility
contamination.  The fund is supported by required payments from
domestic utilities and government appropriations.  As of September
30, 1994, the fund had a balance of about $304 million in cash and
investments.  However, an audit that assessed the financial condition
of the fund as of September 30, 1994, found that the expected cleanup
liability far exceeds the expected payments from utilities and
authorized appropriations.  According to the audit, the shortfall in
the fund could be made worse by present and future spending on
remedial actions and other waste disposal activities that are not
recognized in DOE's decontamination and decommissioning liability. 
Furthermore, a recent court of claims decision has the potential to
affect utilities' annual payments into the fund. 

\52 Under the administration's bill, there is no commercial cap on
the Department's recovery of costs for the disposal of the
corporation's depleted uranium (to the extent that it is later
determined to be low-level radioactive waste). 


   NUCLEAR, DOE, AND OCCUPATIONAL
   SAFETY COMPLIANCE COSTS
-------------------------------------------------------- Appendix IV:2

The USEC-DOE lease agreement requires DOE to reimburse USEC for work
that would bring the two operating enrichment plants into initial
compliance with NRC's standards and meet DOE's internal safety
standards except to the extent that such work is required by
conditions attributable to USEC's operations.  USEC currently
estimates that the costs of meeting the requirements for obtaining an
initial NRC certification and of meeting DOE's internal safety
standards could total about $80 million.  However, a March 1995 DOE
cost analysis, which also considers NRC requirements that may be
imposed during the approval process, projects potential compliance
costs of over $100 million, and DOE advised us in August 1995 that
these costs may exceed $120 million.  In addition, the lease and a
clarifying December 1994 memorandum of agreement also require DOE to
pay USEC $35 million to satisfy existing Occupational Safety and
Health Administration (OSHA) obligations and to bring the two plants
into compliance with OSHA safety requirements in effect on and after
July 1, 1993. 

To date, DOE has paid about $6 million (of the $35 million) to comply
with OSHA requirements.  DOE will pay for a major portion of the
needed nuclear safety compliance upgrades and related work by
transferring to USEC low enriched uranium obtained from blending down
about 13 metric tons of excess highly enriched uranium at the
Portsmouth plant, according to a December 1994 memorandum of
agreement. 


   PENSION AND POSTRETIREMENT
   HEALTH AND LIFE INSURANCE
   BENEFITS FOR CONTRACTOR
   PERSONNEL
-------------------------------------------------------- Appendix IV:3

Under the terms of the act and lease, DOE retains responsibility for
the pension and postretirement health and life insurance benefits for
contractor employees retired before July 1, 1993.  It also retains
responsibility for a share of these benefits for active USEC
contractor employees; this share is based on the years of service
accumulated by the employees before July 1993.  Actuarial studies
completed in 1993 and 1994 for employees at the two plants indicate
that DOE's pension liability for these employees is an estimated
$403.8 million.  A 1993 actuarial study places DOE's accrued
liability for postretirement health and life insurance benefits for
contractor employees at the two plants as of June 30, 1993, at $210.1
million.  DOE officials told us that DOE has funded $403.8 million of
these potential liabilities. 

Under H.R.  1215, the government would have to pay the pension and
postretirement benefit liabilities incurred between July 1, 1993, and
the date of privatization for contractor employees at the two plants. 
USEC's liability for these earned benefits, projected from the
corporation's assessment of actuarial studies, is $41 million.  Of
these costs, $26 million is allocated to pension benefits and $15
million is allocated to postretirement health benefits.  Also, USEC
notes that under H.R.  1215, DOE could assume $3 million in severance
costs for contractor employees; this estimate is based on the
employees' vested years of service between July 1, 1993, and December
31, 1995.  The administration's proposal would also extend DOE's
liability from July 1, 1993, to the date of privatization.  However,
according to USEC officials, the liabilities for these pension and
postretirement health and life insurance benefits are likely to
remain with the corporation under a memorandum of agreement,
referenced under the administration's bill, that is to be entered
into before privatization.  USEC also said that it plans to make a
payment to DOE to satisfy the $26 million pension liability. 


   POWER CONTRACT LIABILITIES
-------------------------------------------------------- Appendix IV:4

Under the act, DOE remains responsible for managing agreements with
two companies that provide electricity to the enrichment facilities. 
Under the DOE-USEC lease agreement, the total cost of the power used
at the plants, including any power agreement termination costs, is
passed, together with a DOE administrative cost, to USEC starting
July 1, 1993.  DOE, however, is responsible for its accrued share
(i.e., for the period before July 1, 1993) of the postretirement
health and life insurance benefits for eligible power plant employees
and a share of the eventual costs to shut down and clean up the three
power plants that service the enrichment facilities.  DOE's
outstanding liability for the postretirement benefits attributable to
the period when it operated the facilities is expected to be about
$31 million (including interest) at the time that USEC is
privatized.\53 DOE's share of the shutdown and cleanup costs is
expected to be about $15 million. 

Under H.R.  1215 and the administration's proposal, certain costs
associated with the power contracts, incurred between July 1, 1993,
and the date of privatization, would remain with the government
(except for those liabilities that USEC agrees to retain under a
memorandum of agreement to be entered into before privatization under
the administration's proposal).  These are to include employee
postretirement health and life insurance benefits and power plant
shutdown and cleanup costs; they may also include unamortized debt
and termination costs. 

  Postretirement benefits:  The government could be responsible not
     only for the costs of employee postretirement benefits
     attributable to the period before July 1, 1993, but also for the
     costs of such benefits attributable to the government
     corporation's tenure.  USEC estimates the government
     corporation's share to be about $3 million. 

  Shutdown and cleanup costs:  The government could become
     responsible for the share of this cost incurred by USEC before
     privatization--approximately $6 million, according to DOE. 
     DOE's share of the power plant cleanup costs plus this $6
     million would bring the government's total obligation to about
     $21 million. 

  Unamortized debt:  According to DOE, USEC may contend that
     responsibility for projects undertaken at the power plant on
     USEC's behalf while USEC was a government corporation should
     remain with the government.  For example, as part of its payment
     for power, USEC is amortizing the debt associated with an $80
     million improvement needed to comply with the Clean Air Act
     Amendments of 1990.  USEC officials state that they will pay
     down this debt after privatization. 

  Termination costs:  If, before it is privatized, USEC cancels one
     or both agreements with the companies that supply power to the
     enrichment facilities, the government may have to pay the
     termination costs.  According to DOE and USEC officials,
     termination costs (including unpaid debt) could amount to nearly
     $500 million.  USEC says that it has no intention of canceling
     either of these agreements before privatization or in the near
     future.  If USEC cancels the power agreements after
     privatization, then it is responsible for any termination costs. 


--------------------
\53 DOE has already paid its share of the cost for postretirement
benefits for the employees of one of the power companies by placing
$16 million in a trust fund established by the power suppliers
specifically for this purpose.  However, the liability to the other
company has not been paid, and interest is accumulating on this
liability because a planned trust fund to accept payments has yet to
be set up and may not be set up before USEC is privatized.  An
actuary for this company estimates that the total accrued government
liability for postretirement benefits will be about $34 million as of
the end of January 1996. 


   AVLIS
-------------------------------------------------------- Appendix IV:5

DOE retains the liability associated with the AVLIS facilities at the
Lawrence Livermore National Laboratory, including decontamination and
decommissioning costs and certain termination costs.  However, USEC
is also responsible for certain cleanup costs and some termination
charges.  DOE has not calculated its costs for these liabilities. 


   OTHER POTENTIAL LIABILITIES
-------------------------------------------------------- Appendix IV:6

In addition to these "known" liabilities, a number of other potential
liabilities are associated with the enrichment program.  These
potential costs are related to (1) the government's enrichment
contracts, (2) Price-Anderson coverage for the uranium enrichment
plants, (3) payment in lieu of taxes, (4) pending litigation and
potential claims, and (5) other potential liabilities. 


      ENRICHMENT CONTRACTS
------------------------------------------------------ Appendix IV:6.1

Under the proposed legislation, the government would remain obligated
to the parties to the enrichment contracts transferred to the
corporation under the act until such contracts were amended, revised,
or otherwise modified.  (This liability would also extend to any
other contracts, agreements, and leases transferred under the act.)
This provision is to assure potential investors that the obligations
and benefits of the parties are not changed by privatization.  The
corporation would be responsible for reimbursing claims paid by the
government under the transferred contracts.  Both corporation and DOE
officials consider it unlikely that the corporation would be unable
to fulfill the terms of these contracts. 


      PRICE-ANDERSON COVERAGE
------------------------------------------------------ Appendix IV:6.2

Under the act and in accordance with the lease, DOE must indemnify
the corporation for any public liability that may arise out of the
operation of the plants under section 170d of the Atomic Energy Act,
as amended (Price-Anderson).  According to DOE, the public liability
limit under Price-Anderson is currently approximately $8.9
billion.\54 Similarly, activities connected with the research and
development of the AVLIS technology that were performed by DOE's
management and operating contractor at the Lawrence Livermore
National Laboratory would be covered under DOE's Price-Anderson
indemnification responsibilities.  However, under the Atomic Energy
Act, as amended, a new uranium enrichment facility, including an
AVLIS facility, would not be eligible for Price-Anderson coverage. 


--------------------
\54 The Atomic Energy Act, as amended, permits DOE to require
contractors to maintain financial protection.  The amount of a
contractor's financial protection is subtracted from the public
liability limit.  Under the lease, the Department must reimburse the
corporation for the cost of obtaining this financial protection. 
However, we understand that DOE does not require the corporation to
maintain such protection. 


      PAYMENTS IN LIEU OF TAXES
------------------------------------------------------ Appendix IV:6.3

Under section 168 of the Atomic Energy Act, as amended, DOE was
granted discretionary payment authority for payments in lieu of taxes
and special burdens to eligible taxing jurisdictions.  Under the act,
DOE retained ownership of the property at the Portsmouth and Paducah
enrichment plants.  In the recent past, DOE's annual payments to the
appropriate taxing jurisdictions for these enrichment plants have
been based on the value of the property at the time the government
acquired it and have been relatively small ($20,000 to $30,000
annually per site).  In fiscal year 1994, the Secretary of Energy
established a task force to review the Department's treatment of the
discretionary payment authority.  According to DOE officials, the
Department was concerned about the apparent inequity in the treatment
of DOE sites across the country.  The task force made several
recommendations about the valuation of the property and the tax rate
to be applied.  Department officials state that, depending on the
outcome of these recommendations, the calculated payments connected
with the enrichment plants could change. 


      PENDING LITIGATION AND
      POTENTIAL CLAIMS
------------------------------------------------------ Appendix IV:6.4

Under H.R.  1215 and the administration's proposal, the United States
would be responsible not only for claims brought against the
Department for its operation of the uranium enrichment program before
the transition but also for claims brought against the corporation
between the transition and privatization.  The only litigation
brought during this period involving USEC that we are currently aware
of is a suit filed by a number of the corporation's electric utility
customers.  The suit alleges that the government has been
overcharging for enrichment services provided under contracts with
such customers.  The customers seek a refund from the United States
for enrichment services purchased between July 1, 1993, and September
30, 1994, as well as a determination that the government's price for
services after that date should be lower.  According to the
corporation, the amount of damages sought in the litigation could
range from approximately $160 million downward to approximately $80
million for enrichment services projected to be sold to these
customers through December 31, 1995. 

A number of other potential claims relating to the period between the
transition and privatization could subsequently arise.  These include
workmen's compensation claims or claims involving labor practices
filed against the corporation.  The Department informs us that there
are several ongoing legal actions, including one class action suit
against DOE, involving such claims and that similar suits could be
brought against the corporation for actions taken before
privatization.  According to the corporation, the lack of claims
currently pending before USEC indicates that there is no basis for
anticipating significant liabilities in this respect. 


      ADDITIONAL LIABILITIES
------------------------------------------------------ Appendix IV:6.5

As the executive agent under a government-to-government agreement
between the United States and Russia, USEC entered into a contract
concerning the transfer of low enriched uranium derived from Russian
highly enriched uranium extracted from nuclear weapons.  According to
DOE, the United States might be liable for any breaches by the
corporation under this agreement.  If a breach were to occur before
privatization, the Department contends that under the House bill or
the administration's proposal, the government might have no recourse
against the corporation.  Corporation officials consider it unlikely
that the corporation would be unable to fulfill the terms of the
contract. 

To support this contract, the corporation agreed to provide two
advance payments to the Russian Federation, one in 1994 for $60
million and another recently for $100 million.  According to USEC
officials, these advance payments are secured by reimbursement
agreements with the Department.  Under these agreements, the
Department assumes a contingent liability for the reimbursement of
losses, through the transfer of uranium inventories.  According to
the corporation, deliveries made under the contract have already
reduced the Department's contingent liability by $19 million.  Under
current delivery schedules, the remaining liability is scheduled to
be reduced to zero by the end of 1997. 


OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix V

The Energy Policy Act of 1992 requires GAO to report to the Congress
on the extent to which (1) USEC's privatization plan would result in
any undue cost or ongoing obligation to the government and (2) the
revenues gained by the government under the plan would represent at
least the net present value of the corporation.  Because the act does
not define "undue cost or ongoing obligation" or "net present value
of the corporation," our report identifies the government's major
costs and ongoing obligations associated with the enrichment program
and the net present value of USEC under two scenarios:  (1) if it
were to remain a government corporation and (2) if it were to be sold
to the private sector. 

To determine the government's costs and ongoing obligations
associated with the uranium enrichment program, we obtained and
reviewed pertinent legislation defining the government's liability
for past costs and other documents that further define the
government's costs and liabilities, such as the current lease
agreement between DOE and USEC for the two operating enrichment
plants, the power contracts for the two plants that DOE administers,
and interagency memorandums of agreement that further define these
costs.  We also interviewed DOE and USEC officials, including
officials at DOE's Oak Ridge operations office, which currently
administers the USEC lease and the power contracts.  In addition, we
reviewed and analyzed proposed legislation that would facilitate the
privatization of USEC to determine the legislation's potential effect
on the government's costs.  We also solicited and obtained the views
of DOE's and USEC's general counsels on the proposed legislation and
future costs and liabilities.  To the extent practical, we obtained
reports and other documents projecting future costs we identified. 

To evaluate the value of the cash flows for USEC as a private
corporation, we obtained the cash flow model developed by J.P. 
Morgan Securities, Inc., USEC's financial adviser, and interviewed
key Morgan and USEC officials to gain an understanding of the model. 
Using available information, including USEC's most current strategic
planning documents, we reviewed the model and then tested the model
to determine the effect of needed adjustments we identified.  To
determine the net present value of the cash flows for USEC as a
government corporation, we adjusted Morgan's cash flow projections to
reflect a government corporation's cash flows.  We also consulted
with tax and financial experts to obtain their views on our work. 




(See figure in printed edition.)Appendix VI
COMMENTS FROM THE U.S.  ENRICHMENT
CORPORATION
=========================================================== Appendix V




(See figure in printed edition.)Appendix VII
COMMENTS FROM THE DEPARTMENT OF
THE TREASURY
=========================================================== Appendix V



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
======================================================== Appendix VIII

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON
D.C. 

Robert E.  Allen, Jr., Assistant Director
Ronald E.  Stouffer, Evaluator-in-Charge
Michael S.  Sagalow, Senior Evaluator
Jack H.  Paul, Senior Evaluator
Gregory D.  Mills, Evaluator
Mehrzad Nadji, Senior Economist

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION

Lisa G.  Jacobson, Director
John C.  Fretwell, Assistant Director
Glenn A.  Thomas, Financial Analyst

OFFICE OF GENERAL COUNSEL

Doreen S.  Feldman, Assistant General Counsel
Mindi G.  Weisenbloom, Senior Attorney

OFFICE OF THE CHIEF ECONOMIST

Joseph D.  Kile, Senior Economist

