Managing Critical Isotopes:

DOE's Isotope Program Needs Better Planning for Setting Prices and Managing Production Risks

GAO-12-591: Published: May 23, 2012. Publicly Released: Jun 22, 2012.

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What GAO Found

The Department of Energy’s (DOE) Isotope Development and Production for Research and Applications program (Isotope Program) provides over 300 different isotopes for commercial and research applications. The Isotope Program is responsible for 243 stable isotopes that are no longer produced in the United States but are sold from the program’s existing inventory and for 55 radioactive isotopes, called radioisotopes, that the program is able to produce at DOE facilities. An additional 10 isotopes sold by the Isotope Program are provided by the National Nuclear Security Administration (NNSA), a separate agency within DOE, as by-products of its nuclear weapons program.

The Isotope Program may be forgoing revenue that could further its mission because of the manner in which it sets prices for commercial isotopes. The Isotope Program determines demand, coordinates production, and sets prices for commercial isotopes. To set prices for radioisotopes, the program considers the full cost of production, including direct costs (e.g., labor costs) and indirect costs (e.g., infrastructure costs). For research applications, isotope prices are set to recover direct costs to reduce prices and encourage research. For commercial applications, prices are set at full cost recovery—of both direct and indirect costs—or at an isotope’s market price when a market price higher than full cost recovery already exists. The program, however, has not fully assessed the pricing of most of these isotopes, as required by its 1990 pricing policy. This policy provides latitude for setting prices and states that prices should be assessed annually. Factors that may be considered when establishing prices include the value of an isotope to the customer, demand, and the number of suppliers. The program, however, has not assessed the value of isotopes to customers or defined what factors it will consider when it sets prices for commercial isotopes, including defining under what circumstances it will set prices at or above full cost recovery. As a result, the program does not know if its full-cost-recovery prices are set at appropriate levels so as not to distort the market, and it may be forgoing revenue that could further support its mission.

The Isotope Program has begun taking some actions to identify and manage risks to achieving its mission of producing isotopes, but because it has not established clear, consistent program objectives, the program’s risk assessment efforts are not comprehensive. Actions the Isotope Program is taking include, among other things, identifying high-priority isotopes and using its revolving fund to mitigate risks from unforeseen events. For example, the Isotope Program has identified five lists of high-priority isotopes—those at risk of supply problems because they are already in short supply or are important to users. Isotope Program officials reported using these lists to set program priorities. The Isotope Program is taking these actions, however, without first establishing clear, consistent objectives. The federal standards for internal control state that a precondition to risk assessment is the establishment of clear objectives. Without clearly defined objectives, the program cannot be assured that it is assessing risks from all sources or that its efforts are focusing on the most significant risks to achieving its mission. Furthermore, without consolidating the multiple high-priority lists, Isotope Program managers may not be directing limited resources to the most important isotopes.

Why GAO Did This Study

DOE is the only domestic supplier for many of the over 300 different isotopes it sells that are critical to medical, commercial, research, and national security applications. Previous shortages of some isotopes, such as helium-3, an isotope used to detect radiation at seaports and border crossings, highlight the importance of managing supplies of and demand for critical isotopes. Prior reports by GAO and others highlighted risks and challenges faced by the Isotope Program, such as assessing demand for certain isotopes. GAO was asked to determine (1) which isotopes are produced, sold, or distributed either by the Isotope Program or NNSA and how the two agencies make isotopes available for commercial and research applications; (2) what steps the Isotope Program takes to provide isotopes for commercial and research applications; and (3) the extent to which DOE is assessing and mitigating risks facing the Isotope Program. GAO reviewed DOE and NNSA documents, visited Oak Ridge National Laboratory, and interviewed cognizant agency officials.

What GAO Recommends

GAO recommends, among other actions, that DOE’s Isotope Program define what factors it considers when setting isotope prices, create clear objectives as a basis for risk assessment, and consolidate the lists of high-priority isotopes. DOE stated that it will address GAO’s recommendations through the Isotope Program’s current efforts to update its pricing policy and develop a strategic plan.

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

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department of Energy's Isotope Development and Production for Research and Applications program (Isotope Program) sells isotopes for commercial and research applications. GAO found that the program was not using thorough assessments to establish prices for commercial isotopes. The Isotope Program had not assessed the value of isotopes to customers or defined what factors it would consider when it sets prices for commercial isotopes, including defining under what circumstances it will set prices at or above full cost recovery. GAO's review also found that program officials gain a sense of the value customers place on commercial isotopes through informal interactions with the customers themselves. Such interactions, in GAO's view, do not provide a rigorous approach to determining a customer's value for commercial isotopes as customers generally strive to obtain needed materials, including isotopes, at the lowest possible cost. GAO recommended that the program clearly define the factors to be considered when setting prices for isotopes sold commercially, including defining under what circumstances it will set prices at or above full cost recovery. Furthermore, this should include assessing, when appropriate, current information on the value of isotopes to customers and the prices of similar products. Based in part on GAO's work, the Isotope Program has taken several actions that address the recommendation. Specifically, the program updated its pricing policy in 2012 to define the circumstances under which it sets prices at or above full cost recovery. Additionally, the program is utilizing a market study that was conducted by an independent marketing group in 2012 to define and measure the global radioisotope and stable isotope markets through 2016. The Isotope Program also conducted an assessment in 2013 of the global production and distribution of enriched stable isotopes. These two market assessment were used in developing the program's 2016 strategic plan that, among other things, identifies isotope markets it is monitoring for growth and decline, which may influence prices.

    Recommendation: To improve the Isotope Program's transparency in setting prices and efficiency in managing isotopes, the Secretary of Energy should direct the Isotope Program to clearly define the factors to be considered when the program sets prices for isotopes sold commercially, including defining under what circumstances it will set prices at or above full cost recovery. This should include assessing, when appropriate, current information on the value of isotopes to customers and the prices of similar products.

    Agency Affected: Department of Energy

  2. Status: Closed - Implemented

    Comments: The Department of Energy's Isotope Program is taking risk assessment actions without first establishing clear, consistent objectives to serve as a basis for its risk assessment. Without clearly defined objectives that lay out what the program is to accomplish, the Isotope Program cannot be assured that its current risk assessment and mitigation efforts focus on the most significant issues that could impede achievement of its mission. GAO recommended in its report, issued May 2012, that the Isotope Program, in conjunction with strategic planning efforts already under way, create clear goals and objectives to serve as a basis for risk assessment, identify risks to achieving its goals and objectives, and determine what actions to take to manage the risks. The Isotope Program developed a strategic plan for its internal use and, based in part on our work, identified some areas of risk and actions to address or mitigate risks. The Isotope Program's 2012-2016 strategic plan was finalized in August 2012 and, according to program officials, is updated annually for each fiscal year. The annual update for fiscal year 2016 identifies goals and objectives and an explanation of the greatest risks to the program. The strategic plan also lays out specific actions to achieve its objectives and identifies risks to some objectives and what actions will be taken to mitigate the risks.

    Recommendation: To improve the Isotope Program's transparency in setting prices and efficiency in managing isotopes, the Secretary of Energy should direct the Isotope Program to, in conjunction with strategic planning efforts already under way, create clear goals and objectives to serve as a basis for risk assessment, identify risks to achieving its goals and objectives, and determine what actions to take to manage the risks.

    Agency Affected: Department of Energy

  3. Status: Closed - Not Implemented

    Comments: Officials of the Isotope Program said that they do not agree with the recommendation to provide an even greater prioritization methodology by developing a consolidated list of priority isotopes. As a result, Program officials are not planning to take additional action.

    Recommendation: To improve the Isotope Program's transparency in setting prices and efficiency in managing isotopes, the Secretary of Energy should direct the Isotope Program to consolidate the lists of high-priority isotopes so the program can ensure that its resources are focused on the most important isotopes.

    Agency Affected: Department of Energy

  4. Status: Closed - Implemented

    Comments: The Department of Energy's Isotope Development and Production for Research and Applications program (Isotope Program) sells isotopes for commercial and research applications and relies on a revolving fund to prepare for and mitigate unexpected events, such as losses in revenue. GAO found that there was no guidance for how the revolving fund should be managed. Without guidance on how to manage the revolving fund in a way that helps mitigate risk, the program cannot be assured that it will be able to continue using the fund to both advance program missions and mitigate risks. GAO recommended that the Isotope Program establish clear guidance for managing the revolving fund to ensure that the fund is sufficient to use as a contingency for unexpected losses in revenue. Based in part on GAO's work, the Isotope Program updated key documents to define how the revolving fund is to be used for managing risks. Specifically, the program's 2016 strategic plan describes how the fund is to be managed for mitigating unforeseen risks. Additionally, annual summaries of the revolving fund's balance now include a summary of how the fund is managed.

    Recommendation: To improve the Isotope Program's transparency in setting prices and efficiency in managing isotopes, the Secretary of Energy should direct the Isotope Program to establish clear guidance for managing the revolving fund to ensure that the fund is sufficient to use as a contingency for unexpected losses in revenue.

    Agency Affected: Department of Energy

 

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