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United States Government Accountability Office:
GAO:
Report to Congressional Committees:
September 2011:
Excess Uranium Inventories:
Clarifying DOE's Disposition Options Could Help Avoid Further Legal
Violations:
GAO-11-846:
GAO Highlights:
Highlights of GAO-11-846, a report to congressional committees.
Why GAO Did This Study:
Uranium is a key component in the production of nuclear energy and
nuclear weapons. The Department of Energy (DOE) manages the nation’s
surplus uranium, which is derived in part from former nuclear weapons
production. In 2008, DOE published a uranium management plan that set
a target for DOE uranium sales and transfers to avert harm to the
domestic uranium industry. In 2009, DOE began using natural uranium to
pay for cleanup work at a former uranium enrichment facility in Ohio,
without having identified such transactions in its 2008 plan.
As directed, GAO reviewed DOE’s uranium management program. This
report examines (1) DOE’s uranium transactions and plans for future
transactions, (2) the extent to which these transactions were
consistent with DOE’s uranium management plan, and (3) the extent to
which these transactions were consistent with federal law. GAO
reviewed transaction documents and contracts and interviewed
knowledgeable DOE, contractor, and uranium industry officials and
uranium market analysts.
What GAO Found:
In a series of seven transactions from December 2009 through June
2011, DOE used 1,873 metric tons of natural uranium to pay for $256
million in cleanup services provided by two contractors at the
Portsmouth, Ohio, enrichment facility, and additional transactions are
planned. Six out of seven of these transactions involved the United
States Enrichment Corporation (USEC), former operator of the
Portsmouth facility. DOE released 1,473 metric tons of uranium, and
USEC provided $194 million in cleanup services at the Portsmouth
facility. Among other activities, USEC’s services included removing
chemical and hazardous materials from the plant. The seventh
transaction involved a second contractor. In June 2011, DOE released
400 metric tons of uranium, and the contractor agreed to provide $62
million in decontamination and decommissioning services. DOE officials
said the department expects to continue transferring natural uranium
to this contractor for cleanup services through 2013.
DOE’s uranium transactions have been consistent with parts of its
uranium management plan but not with others. The plan states that DOE
would adhere to a target for uranium sales and transfers of no more
than 10 percent of annual domestic fuel requirements for uranium. DOE’
s releases of uranium into the commercial market did not exceed the
annual target specified in the plan, ranging from 5 percent of demand
in 2008 to 6 percent in 2010—well below the 2008 plan’s designated
target. With regard to other provisions, however, DOE has departed
somewhat from the plan. For example, the department has deviated from
the schedule of uranium transfers articulated by the plan, allowing
more uranium to enter the market sooner than cited.
DOE’s uranium transactions with USEC were sales authorized by the USEC
Privatization Act, but they did not comply with federal fiscal law.
The USEC Privatization Act requires that before a uranium sale, DOE
must determine that the materials are surplus to national security
needs; that the department is receiving fair market value; and that
the sales will not adversely affect the domestic uranium mining,
conversion, and enrichment industries. GAO found that DOE met these
requirements. Nevertheless, by not depositing the value of the net
proceeds from the sales of uranium into the Treasury, DOE violated the
miscellaneous receipts statute. This statute requires an official or
agent of the government receiving money from any source on the
government’s behalf to deposit the money in the Treasury. As GAO found
when it reviewed a similar series of transactions in 2006, DOE
provided the uranium to USEC for sale to a third party and allowed
USEC to keep the proceeds of the sales. Even with no money changing
hands, GAO concludes that an amount equivalent to the value that went
to USEC should have gone to the Treasury. By not depositing an amount
equal to the value of the uranium into the Treasury, DOE has
inappropriately circumvented the power of the purse granted to
Congress under the Constitution.
What GAO Recommends:
GAO recommends that DOE update its uranium management plan and
suggests that Congress consider authorizing DOE to, among other
things, retain the proceeds of future uranium transactions. DOE agreed
to update its uranium management plan but disagreed that its actions
did not comply with federal fiscal law. GAO maintains, however, that
DOE’s comments do not undermine the conclusion that the department
violated the miscellaneous receipts statute.
View [hyperlink, http://www.gao.gov/products/GAO-11-846] or key
components. For more information, contact Gene Aloise at (202) 512-
3841 or aloisee@gao.gov.
[End of section]
Contents:
Letter:
Background:
DOE Has Used Excess Uranium to Pay for Cleanup Services, and
Additional Transactions Are Planned:
DOE's Transactions Did Not Exceed Targets Set by Its Uranium
Management Plan, but DOE's Activities Were Not Consistent with the
Plan in Other Ways:
DOE's Uranium Transactions with USEC Were Consistent with Federal Law
Governing Uranium Transactions but Did Not Comply with Federal Fiscal
Law:
Conclusions:
Recommendation for Executive Action:
Matter for Congressional Consideration:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: The Nuclear Fuel Cycle:
Appendix III: Legal Analysis of DOE's Strategy to Finance USEC's
Cleanup Work at the Portsmouth Gaseous Diffusion Plant:
Appendix IV: Comments from the Department of Energy:
Appendix V: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Net Value of Natural Uranium DOE Used to Pay for Cleanup,
December 2009 through June 2011:
Table 2: Uranium Sales and Other Transaction Costs:
Table 3: Amount of Uranium DOE Released or Plans to Release to the
Market Annually, 2008-2013:
Figure:
Figure 1: Comparison of DOE's Planned Sales or Transfers, as Outlined
in the December 2008 Excess Uranium Management Plan, with Actual and
Expected Sales or Transfers, 2008-2013:
Abbreviations:
DOE: Department of Energy:
NNSA: National Nuclear Security Administration:
USEC: United States Enrichment Corporation:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
September 26, 2011:
The Honorable Dianne Feinstein:
Chairman:
The Honorable Lamar Alexander:
Ranking Member:
Subcommittee on Energy and Water Development:
Committee on Appropriations:
United States Senate:
The Honorable Rodney P. Frelinghuysen:
Chairman:
The Honorable Peter J. Visclosky:
Ranking Member:
Subcommittee on Energy and Water Development:
Committee on Appropriations:
House of Representatives:
Uranium--a naturally occurring radioactive element--is used in nuclear
weapons as well as in fuel for nuclear power plants. In the United
States, 20 percent of the nation's electricity comes from nuclear
power, and growing energy demand and concerns about carbon dioxide
emitted when fossil fuels are burned have sparked interest in
increasing the use of nuclear power. A healthy and reliable domestic
uranium industry is considered essential to ensuring that nuclear
power remains a viable option for supplying the nation's energy needs.
From the 1940s, the Department of Energy (DOE) and its predecessor
agencies have processed uranium as a source of nuclear material for
defense and commercial purposes. A key step in this process is the
enrichment of natural uranium, which raises its concentration of
uranium-235, the form, or isotope, that undergoes fission to release
enormous amounts of energy in nuclear reactors and weapons. The
enrichment process results in two principal products: (1) enriched
uranium hexafluoride, which can be further processed for specific
uses, such as nuclear weapons or fuel for power plants, and (2)
leftover "tails" of uranium hexafluoride, which are also called
depleted uranium because the material is depleted in uranium-235
compared with natural uranium. Since 1993, uranium enrichment
activities at DOE-owned uranium enrichment plants have been performed
by the United States Enrichment Corporation (USEC), a former
government-owned corporation that was privatized in 1998.
DOE maintains inventories of natural, enriched, and depleted uranium
in excess of its needs. This inventory comes from a variety of
sources, including the dismantling of some of the nation's nuclear
weapons or leftover material from before 1993. The department stores
most of its uranium at its Portsmouth Gaseous Diffusion Plant, a
uranium enrichment facility in Piketon, Ohio, that ceased operations
in 2001, and at its Paducah Gaseous Diffusion Plant, a similar
facility currently operated by USEC in Paducah, Kentucky.
In March 2008, we reported on DOE's options for its inventory of
depleted uranium.[Footnote 1] We recommended that the department
develop a comprehensive uranium management assessment containing
detailed information on the types and quantities of depleted, natural,
and enriched uranium managed by DOE and a comprehensive assessment of
the department's options for this material. In December 2008, with
input from the uranium industry, DOE published its "Excess Uranium
Inventory Management Plan" detailing the amount of uranium held by the
department and what plans it had at that time for selling or
transferring uranium to the commercial market. The purpose of DOE's
plan was to provide the general public and interested stakeholders
more specific information and enhanced transparency with respect to
DOE's preliminary plans for its excess uranium transactions.[Footnote
2] The plan detailed the amount and type of uranium in the
department's possession and DOE's disposition strategy at the time.
Among other details in the plan, DOE committed to generally
restricting its annual uranium sales and transfers to 10 percent of
domestic nuclear fuel requirements but also noted that it may exceed
10 percent in any given year for certain special purposes. Shortly
thereafter, in July 2009, DOE announced its intent to use some of its
natural uranium to compensate USEC--in lieu of cash payment--for
accelerated environmental cleanup work the company was conducting at
the Portsmouth facility. This work was intended to prepare the
facility for decontamination and decommissioning. In August 2010, DOE
entered into a new contract with the firm Fluor-B&W Portsmouth to
decontaminate and decommission the Portsmouth facility.[Footnote 3]
Subsequently, DOE announced a second round of uranium transactions--
this time with the new contractor instead of USEC--to similarly
compensate it for some of its services at Portsmouth.
The conference report accompanying the fiscal year 2010 Energy and
Water Development and Related Agencies Appropriations Act directed us
to review DOE's overall uranium management plan, including the
department's oversight and implementation strategy, and to assess
certain uranium transactions for consistency with federal law.
[Footnote 4] Accordingly, this report examines (1) DOE's transactions
using its excess uranium and its plans for such transactions in the
future, (2) the extent to which these transactions have been
consistent with DOE's excess uranium management plan, and (3) the
extent to which these transactions are consistent with federal law.
To examine DOE's uranium transactions for cleanup services, we
reviewed, among other things, DOE documents detailing the transactions
the department has engaged in involving its uranium, assessments of
the value of uranium in each transaction, and analyses of the impact
of DOE's activities on the uranium market. To examine the extent to
which DOE's activities have been consistent with its excess uranium
management plan, we analyzed the plan and compared the uranium
activities the plan projected against DOE's actual uranium
transactions. To determine the extent to which DOE's uranium
transactions are consistent with federal law, we reviewed statutes
governing DOE's uranium activities, including the USEC Privatization
Act, as well as relevant fiscal laws, such as the miscellaneous
receipts statute.[Footnote 5] For all of our objectives, we
interviewed officials at DOE's headquarters in Washington, D.C., and
at the Portsmouth/Paducah Project Office in Lexington, Kentucky. We
interviewed uranium industry representatives at selected mining,
milling, conversion, enrichment, and fabrication firms about DOE's
uranium management plan, the commercial uranium market, and the impact
of DOE's activities on the uranium industry. We selected firms in the
uranium industry to obtain information from each stage of the nuclear
fuel cycle. We also interviewed nuclear industry trade
representatives, market analysts, uranium brokers, and utilities.
Appendix I describes our scope and methodology in more detail.
We conducted this performance audit from November 2010 through
September 2011, in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
Background:
Before uranium can become nuclear fuel to produce energy or be used in
weapons, it must be mined from the earth. Mining firms in the United
States extract uranium by conventional means, such as open-pit and
underground mining, as well as by means of a liquid that leaches
uranium from the ground. The product from these techniques is a
substance called yellowcake. Yellowcake on its own cannot fuel nuclear
reactors and weapons. Rather, it is shipped to a conversion facility,
where the yellowcake is converted to uranium hexafluoride (a gas when
heated) for the enrichment process. Uranium comprises a mix of several
isotopes, or forms of the same element with different atomic weights.
Less than 1 percent of natural uranium found in yellowcake is the
isotope uranium-235--the fissile isotope used in nuclear reactors and
nuclear weapons. After conversion, enrichment firms use one of several
processes to increase the amount of uranium-235 to concentrations
suitable for generating nuclear power or for nuclear weapons. To be
suitable as fuel for nuclear reactors, natural uranium must be
enriched to a concentration of from 3 to 5 percent uranium-235. This
fuel is referred to as low-enriched uranium. Natural uranium enriched
to a concentration of over 90 percent uranium-235 is highly enriched
uranium, which is considered weapons-grade material. For more detailed
information about the nuclear fuel cycle, see appendix II.
Initially, the federal government was the only entity providing
domestic enrichment services in the United States. More recently,
however, domestic uranium enrichment activities have been performed by
private industry. USEC is one of several firms that provide enrichment
services to utilities operating nuclear power plants. It has provided
enrichment services using DOE-owned facilities since 1993, when it
began functioning as a government-owned corporation. In 1998, USEC
began functioning as a private corporation, which today runs the
Paducah Gaseous Diffusion Plant in Kentucky. USEC ran the Portsmouth
Gaseous Diffusion Plant in Piketon, Ohio, until 2001, when DOE
contracted the firm to maintain the plant in cold-standby status for a
number of years until the department was ready to decontaminate and
decommission it.[Footnote 6] USEC is currently seeking funding to open
a new enrichment facility, the American Centrifuge Plant, at the
Portsmouth site.[Footnote 7]
The market for uranium works somewhat differently from other commodity
markets. In one of two ways, uranium buyers, such as utilities,
purchase uranium and the services to convert it into nuclear fuel.
First, buyers can obtain uranium under long-term contracts with
sellers in the "term" market. Second, sellers can make their uranium
available for immediate sale in a forum called the "spot" market.
Transaction details about sales through both long-term contracts and
the spot market are ordinarily considered business proprietary
information. Uranium typically changes ownership through a process
called a book transfer. Book transfers do not usually involve the
physical movement of uranium, generally occurring at conversion and
enrichment facilities, which tend to maintain large quantities of
yellowcake or uranium hexafluoride on site for their customers.
Uranium transactions are conducted directly between buyers and
sellers, but brokers also match buyers with sellers for a fee. In
addition, speculators may hold and sell uranium strategically to
profit from swings in the price of the material.
DOE Has Used Excess Uranium to Pay for Cleanup Services, and
Additional Transactions Are Planned:
Since 2008, DOE has engaged in transactions involving excess uranium
to pay two contractors for cleanup services at the Portsmouth Gaseous
Diffusion Plant. Most of the uranium went to USEC to prepare the
Portsmouth facility for decontamination and decommissioning. DOE plans
additional transactions involving excess uranium.
DOE Has Used Nearly 1,900 Metric Tons of Excess Uranium to Pay for
More Than $250 Million in Cleanup Services:
From December 2009 through June 2011, DOE used 1,873 metric tons of
its excess natural uranium to pay for $256 million in cleanup services
at its Portsmouth facility (see table 1). During this period, the
department completed seven transactions with two firms.
Table 1: Net Value of Natural Uranium DOE Used to Pay for Cleanup,
December 2009 through June 2011:
Date: December 2009;
Recipient: USEC;
Dollars per kilogram: $112.63;
Metric tons of uranium: 201.90;
Value: $22,740,662.
Date: March 2010;
Recipient: USEC;
Dollars per kilogram: $109.27;
Metric tons of uranium: 201.52;
Value: $22,020,735.
Date: May 2010;
Recipient: USEC;
Dollars per kilogram: $111.55;
Metric tons of uranium: 226.32;
Value: $25,246,385.
Date: July 2010;
Recipient: USEC;
Dollars per kilogram: $111.51;
Metric tons of uranium: 250.82;
Value: $27,970,088.
Date: October 2010;
Recipient: USEC;
Dollars per kilogram: $132.89;
Metric tons of uranium: 242.74;
Value: $32,256,667.
Date: March 2011;
Recipient: USEC;
Dollars per kilogram: $182.95;
Metric tons of uranium: 349.99;
Value: $64,030,962.
Date: June 2011;
Recipient: Fluor-B&W Portsmouth;
Dollars per kilogram: $154.33;
Metric tons of uranium: 400.20;
Value: $61,763,235.
Date: Total;
Metric tons of uranium: $1,873.49;
Value: $256,028,734.
Source: GAO analysis of DOE data.
[End of table]
DOE's first six transactions took place with USEC. In these
transactions, DOE released in total about 1,473 metric tons of uranium
valued at about $194.3 million. In return, USEC provided accelerated
cleanup services to prepare the Portsmouth facility for eventual
decontamination and decommissioning. For example, USEC removed and
disposed of chemical and hazardous materials, including electrical
equipment containing polychlorinated biphenyls, toxic chemicals that
the Environmental Protection Agency states have been demonstrated to
cause cancer. Other work USEC performed included relocating a cooling
water line and identifying excess equipment suitable for recycling.
One uranium transaction to date has also occurred between DOE and
Fluor-B&W Portsmouth. This firm began activities to decontaminate and
decommission the Portsmouth facility in March 2011, according to a DOE
official. In June 2011, DOE released 400 metric tons of uranium valued
at nearly $62 million to Fluor-B&W Portsmouth as payment for
additional cleanup services at the Portsmouth facility.
In these transactions, the value DOE received for each lot of natural
uranium was reduced by the transaction costs both USEC and Fluor-B&W
Portsmouth expected to incur to carry out the seven transactions (see
table 2). These costs, which included charges for such things as
storage cylinder handling and inspections, record keeping, and sales
management, totaled almost $4 million. To account for these costs in
the first six transactions, USEC reduced the value of the uranium
transactions by 1 percent. Fluor-B&W Portsmouth reduced the value of
its June 2011 transaction by substantially more--almost 2.8 percent--
to account for sales costs. Fluor-B&W Portsmouth expects to discount
all future transactions by a similar percentage as well, according to
company representatives. In addition, under its contract with the
department, Fluor-B&W Portsmouth also sought cost reimbursement from
DOE for expenses associated with uranium handling and inspection and
setting up what the parties referred to as a "uranium transfer
management program." According to Fluor-B&W Portsmouth
representatives, Fluor-B&W Portsmouth was not a participant in the
uranium market before it entered into its contract with DOE, which
required the company to establish processes and procedures to manage
10 anticipated transactions over two and a half years. DOE plans nine
additional transactions of natural uranium with Fluor-B&W Portsmouth
through 2013, according to agency documents.
Table 2: Uranium Sales and Other Transaction Costs:
Date: December 2009;
Recipient: USEC;
Sales costs: $195,000;
Other transaction costs: $230,000;
Total costs: $425,000;
Percentage of value: 1.9%.
Date: March 2010;
Recipient: USEC;
Sales costs: $195,000;
Other transaction costs: $155,000;
Total costs: $350,000;
Percentage of value: 1.6%.
Date: May 2010;
Recipient: USEC;
Sales costs: $170,000;
Other transaction costs: $155,000;
Total costs: $325,000;
Percentage of value: 1.3%.
Date: July 2010;
Recipient: USEC;
Sales costs: $135,000;
Other transaction costs: $195,000;
Total costs: $330,000;
Percentage of value: 1.2%.
Date: October 2010;
Recipient: USEC;
Sales costs: $135,000;
Other transaction costs: $195,000;
Total costs: $330,000;
Percentage of value: 1.0%.
Date: March 2011;
Recipient: USEC;
Sales costs: $262,348;
Other transaction costs: 0;
Total costs: $262,348;
Percentage of value: 0.4%.
Date: Subtotal;
Sales costs: $1,092,348;
Other transaction costs: $930,000;
Total costs: $2,022,348;
Percentage of value: 1.0%.
Date: June 2011;
Recipient: Fluor-B&W Portsmouth;
Sales costs: $1,748,822;
Other transaction costs: $60,209;
Total costs: $1,809,031;
Percentage of value: 2.8%.
Date: Total;
Sales costs: $2,841,170;
Other transaction costs: $990,209;
Total costs: $3,831,379;
Percentage of value: 1.5%.
Source: GAO analysis of DOE data.
[End of table]
DOE Plans Additional Transactions Involving Excess Uranium but Has No
Plans to Transfer or Sell Depleted Uranium:
In addition to the natural uranium that DOE anticipates it will
release to Fluor-B&W Portsmouth for cleanup services through 2013, DOE
also maintains other inventories of natural uranium. In 2008, DOE
stored approximately 4,500 metric tons of uranium that does not
currently meet commercial specifications for manufacturing nuclear
fuel. According to DOE's December 2008 uranium management plan, this
uranium would require considerable processing before it could meet
commercial standards. The plan states that some of this material would
eventually be processed and offered for use in the commercial market
over a number of years. According to DOE, however, some of the
material is so contaminated that it is no longer under consideration
for processing, and DOE is uncertain what its ultimate disposition
will be.
In addition to natural uranium, DOE maintains inventories of enriched
and depleted uranium that are in excess of the department's needs. For
example, at the end of fiscal year 2010, DOE had 89 metric tons of
excess highly enriched uranium in its inventories. To dispose of
highly enriched uranium, DOE's National Nuclear Security
Administration (NNSA), a semiautonomous agency within DOE that is
responsible for the management of the nation's nuclear weapons
program, has reduced the enrichment level of some of this uranium so
it is potentially usable as nuclear fuel in the Tennessee Valley
Authority's nuclear power reactors. Some of the down-blended material
has also gone to support DOE's American Assured Fuel Supply Program,
which ensures, among other things, access to nuclear fuel for civilian
reactors in foreign countries that have good nonproliferation
credentials.
According to agency officials, DOE also has approximately 750,000
metric tons of depleted uranium tails that it stores in about 63,000
metal cylinders in storage yards at its Paducah and Portsmouth
enrichment plants. A product of the enrichment process, this depleted
uranium has historically been considered of limited use, but increases
in uranium prices have potentially made it profitable to re-enrich
some of the tails to further extract uranium-235. We reported in June
2011 that at May 2011 uranium prices and enrichment costs, DOE's tails
have a net value of $4.2 billion.[Footnote 8] This estimate is very
sensitive, however, to changing uranium prices, which have been
extremely volatile, as well as to the availability of sufficient
enrichment capacity.
USEC has publicly announced an interest in re-enriching some of DOE's
tails beginning in 2012. USEC plans to shut down operations at DOE's
Paducah facility, depending on market conditions, and also plans to
replace some of the Paducah facility's production capacity with the
new centrifuge-based uranium enrichment plant it is constructing. USEC
is considering continued operation of the Paducah facility beyond May
2012. According to USEC, processing depleted uranium could contribute
toward maintaining operations at Paducah and retaining 1,200 employees
the company might otherwise have to lay off. DOE officials, however,
said that the department has no current plans to sell or re-enrich
depleted uranium tails.
DOE's Transactions Did Not Exceed Targets Set by Its Uranium
Management Plan, but DOE's Activities Were Not Consistent with the
Plan in Other Ways:
DOE' s excess uranium transactions have been consistent with parts of
its uranium management plan but not with others. Specifically, the
amount of uranium the department sold or transferred is less than the
target of 10 percent of annual domestic fuel requirements that DOE
established under the 2008 plan. With regard to other provisions,
however, DOE has departed somewhat from the plan. For example, DOE has
deviated from the schedule of uranium transfers articulated by the
plan, resulting in more uranium entering the market much sooner than
cited.
DOE's Uranium Transactions Have Not Exceeded the Target of 10 Percent
of Domestic Uranium Demand Specified by the Plan:
The total amount of uranium that DOE sold or transferred from January
2008 to June 2011 has stayed below the target specified in the
department's December 2008 uranium management plan. The plan stated
that DOE would adhere to a target for uranium sales and transfers of
no more than 10 percent of the annual U.S. requirements for nuclear
fuel. The target was established in part to alleviate concerns raised
by uranium industry officials that sales of uranium by DOE could harm
the domestic uranium mining, conversion, and enrichment industries.
Such concerns included a fear that sudden marked increases in the
supply of uranium could depress prices. The targeted limit on uranium
sales and transfers reflects DOE and uranium industry officials'
concurrence that the industry could withstand, without adverse
material impact, the addition to the market from DOE's uranium
inventory of up to 10 percent of the U.S. demand for uranium in any
year.
DOE's December 2008 plan estimated that U.S. nuclear fuel requirements
would be about 19,250 metric tons of uranium annually from 2008
through 2010. According to industry analysts, requirements are likely
to increase gradually to about 20,000 metric tons by 2013.[Footnote 9]
As shown in table 3, the total uranium DOE released to the market
represented only about 5 percent of total U.S. demand in 2008 and 6
percent in 2009, significantly below the 10 percent target established
by the plan.
Table 3: Amount of Uranium DOE Released or Plans to Release to the
Market Annually, 2008-2013:
Estimated total U.S. commercial nuclear fuel requirements;
2008[A]: 19,250;
2009[A]: 19,250;
2010[A]: 19,250;
2011[B]: 19,450;
2012[B]: 19,590;
2013[B]: 20,430.
Uranium sold, transferred, or planned for sale or transfer: To
American Assured Fuel Supply Program;
2008[A]: 57;
2009[A]: 88;
2010[A]: 47;
2011[B]: 44;
2012[B]: 94;
2013[B]: 0.
Uranium sold, transferred, or planned for sale or transfer: To MOX
Backup Inventory Program[C];
2008[A]: 0;
2009[A]: 0;
2010[A]: 0;
2011[B]: 47;
2012[B]: 128;
2013[B]: 334.
Uranium sold, transferred, or planned for sale or transfer: To
Tennessee Valley Authority;
2008[A]: 982;
2009[A]: 828;
2010[A]: 126;
2011[B]: 127;
2012[B]: 0;
2013[B]: 0.
Uranium sold, transferred, or planned for sale or transfer: To
Portsmouth contractors for cleanup services;
2008[A]: 0;
2009[A]: 202;
2010[A]: 921;
2011[B]: 1,605;
2012[B]: 1605;
2013[B]: 1,350.
Total;
2008[A]: 1,039[D,E];
2009[A]: 1118[E];
2010[A]: 1,094[E];
2011[B]: 1,823;
2012[B]: 1,827;
2013[B]: 1,684.
Percentage of annual U.S. nuclear fuel requirements;
2008[A]: 5%;
2009[A]: 6%;
2010[A]: 6%;
2011[B]: 9%;
2012[B]: 9%;
2013[B]: 8%.
Source: GAO analysis of data from DOE and Energy Resources
International, Inc.
Note: Quantities are expressed as metric tons of natural uranium;
totals and percentages have been rounded.
[A] Numbers for 2008-2010 represent actual amounts of uranium released.
[B] Numbers for 2011-2013 represent the most recent DOE estimates.
[C] DOE's MOX [mixed oxide] Backup LEU [low-enriched uranium]
Inventory Program down-blends highly enriched uranium to low-enriched
uranium to be used as a backup fuel supply to utilities participating
in DOE's MOX program for surplus plutonium disposition.
[D] The 2008 total excludes the equivalent of 10.4 metric tons of
natural uranium that DOE released to a private firm for use as
commercial reactor fuel in Ukraine. This "off-specification" uranium
contained contaminants that made it unsuitable for use in U.S.
commercial nuclear power reactors.
[E] The 2008 to 2010 totals exclude the equivalent of 90 metric tons
of natural uranium that DOE transferred to research reactors.
Commercial uranium enrichment companies do not produce uranium at the
required enrichment level for use in these reactors; DOE therefore
supplies fuel at the appropriate enrichment level.
[End of table]
DOE Plans to Release More Uranium into the Market Sooner Than Detailed
in the Plan:
Consistent with its 2008 plan, DOE has successfully kept its sales or
transfers of uranium below the 10 percent target, but it has departed
from other key provisions in its 2008 plan. For example, the plan
scheduled uranium sales or transfers so that uranium would be released
into the market gradually from 2009 through 2013. As shown in figure
1, DOE originally intended to increase the amount of uranium released
year by year, from about 600 metric tons of uranium in 2008 to nearly
2,000 metric tons by 2013. But as a result of the uranium transactions
with USEC and Fluor-B&W Portsmouth, which were announced after DOE's
December 2008 plan, DOE is poised to release substantially more
uranium faster than the plan stated.
Figure 1: Comparison of DOE's Planned Sales or Transfers, as Outlined
in the December 2008 Excess Uranium Management Plan, with Actual and
Expected Sales or Transfers, 2008-2013:
[Refer to PDF for image: vertical bar graph]
Natural uranium equivalent (metric tons):
Year: 2008;
Uranium sales or transfers as outlined in DOE’s December 2008 plan:
584;
DOE’s actual uranium sales and transfers in 2008 to 2010: 1,039.
Year: 2009;
Uranium sales or transfers as outlined in DOE’s December 2008 plan:
954;
DOE’s actual uranium sales and transfers in 2008 to 2010: 1,118.
Year: 2010;
Uranium sales or transfers as outlined in DOE’s December 2008 plan:
1,147;
DOE’s actual uranium sales and transfers in 2008 to 2010: 1,094.
Year: 2011;
Uranium sales or transfers as outlined in DOE’s December 2008 plan:
1,266;
DOE’s revised uranium sales and transfer amounts for 2011 to 2013:
1,823.
Year: 2012;
Uranium sales or transfers as outlined in DOE’s December 2008 plan:
1,479;
DOE’s revised uranium sales and transfer amounts for 2011 to 2013:
1,827.
Year: 2013;
Uranium sales or transfers as outlined in DOE’s December 2008 plan:
1,909;
DOE’s revised uranium sales and transfer amounts for 2011 to 2013:
1,684.
Source: GAO analysis.
Note: Bars for 2008-2010 compare DOE's 2008 management plan with
actual amounts of uranium released to the commercial market. Bars for
2011 to 2013 compare amounts cited in DOE's 2008 management plan with
DOE's current plan to sell or transfer uranium, revised as of December
2010.
[End of figure]
DOE's plan also stated that the department may sell or re-enrich up to
7,000 metric tons of depleted uranium from 2008 to 2017. We learned
from DOE officials, however, that the department has no plans to
release any inventory of depleted uranium in the near term. According
to DOE officials, a key reason depleted uranium is not likely to be
sold or re-enriched is concern that doing so would push total DOE
uranium sales and transfers over the December 2008 plan's 10 percent
target.
According to domestic uranium industry officials we interviewed, DOE's
departure from its 2008 plan has created anxiety about how much
further DOE might deviate from its plan in the future. In particular,
industry officials were concerned that uncertainties about the
quantities of uranium DOE might suddenly decide to sell or transfer
could cause a fall in future uranium prices. Industry officials told
us that this fear of declining prices discouraged potential investment
in the industry, particularly in newer mining companies seeking to
start production. Industry officials also said they feared that
uncertainties about DOE's future plans would raise the costs of
borrowing and of insurance coverage.
In discussions, DOE officials stated that the December 2008 uranium
management plan was out of date soon after it was issued and that most
of the plan's projected transfers from 2011 forward no longer
reflected the department's present intentions. DOE officials told us
that the department has begun work on updating the uranium management
plan, but officials were unable to provide a date by which the update
will be completed.
DOE's Uranium Transactions with USEC Were Consistent with Federal Law
Governing Uranium Transactions but Did Not Comply with Federal Fiscal
Law:
We found that DOE's uranium transactions with USEC constituted sales
authorized under the USEC Privatization Act and that conditions the
act requires before a uranium sale can be made were met.[Footnote 10]
We found, however, that by not depositing an amount equivalent to the
proceeds from these transactions into the Treasury, DOE violated the
miscellaneous receipts statute.[Footnote 11]
DOE's Uranium Transactions with USEC Constituted Sales through an
Agent:
The Atomic Energy Act of 1954, as amended, gives DOE general authority
under certain conditions to sell, lease, distribute, or otherwise make
available source material,[Footnote 12] including natural uranium.
Congress, however, limited this authority in 1996 when it passed the
USEC Privatization Act. This act prohibits the Secretary of Energy
from transferring or selling any uranium except as consistent with the
act's specific terms and conditions. The specific provision governing
the material that DOE provided to USEC authorizes only sales of that
material.
We found that from December 2009 through March 2011, DOE sold natural
uranium into the market using USEC as its agent. DOE maintains that
these transactions constituted barters with USEC, rather than sales by
DOE using USEC as its agent, in that the transactions involved an
exchange of services (environmental cleanup work) for materials
(uranium). Our review of the substance of these transactions, however,
showed that they were sales. A sale typically involves an exchange of
goods or services for cash, and DOE in fact arranged for USEC to
receive cash from the sale of federal uranium assets as compensation
for services USEC provided to DOE. The transactions were thus sales
executed through an agent--USEC. (Appendix III contains a detailed
legal analysis of these issues.) Such sales are authorized by the USEC
Privatization Act.[Footnote 13] Because we found that the transactions
were sales, we did not consider and did not decide whether barters are
also authorized under the USEC Privatization Act.[Footnote 14]
Two key factors demonstrate that DOE's transactions with USEC were
sales through an agent, rather than barters: first, DOE had control
over USEC's sales of the uranium, which was the property of the
federal government, and second, and USEC sold the uranium for the
benefit of the government and assumed no financial risk in the
transaction. According to USEC officials, USEC finalized the sales of
uranium to third parties before it signed the contract modifications
under which it agreed to conduct cleanup in exchange for the uranium.
That is, USEC arranged for the sale of federal property; it did not
sell its own property. DOE has stated that it did not control the sale
of the uranium under the terms of the contract modifications with
USEC, but because the uranium was marketed and sold before those
contract modifications were made final, the terms of the contract
modification did not govern the sale. Instead, DOE and USEC officials
told us that they had an earlier, oral agreement for the valuation of
the material under which USEC solicited buyers for federal uranium
assets. During the term of this agreement, which led directly to sales
of the uranium, DOE had the right to exercise control over USEC's
actions as an agent.[Footnote 15] Moreover, USEC sold the uranium
primarily for DOE's benefit. USEC stated in its 2010 annual report to
the U.S. Securities and Exchange Commission[Footnote 16] that it never
considered itself the owner of the uranium because the company assumed
no risk in its sale and did not stand to earn a profit. USEC also
stated in the report that the amount of work USEC was to provide under
the cleanup contract depended on the net value of the uranium (minus
transaction costs). If USEC had secured less value for the material,
it would have done less work for DOE; it therefore did not stand to
gain or lose on the uranium sales. The primary beneficiary of the
transactions was DOE, which sought to structure the transactions to
avoid the receipt of cash it was not authorized to retain and use to
pay for cleanup at the Portsmouth facility.
That USEC acted as DOE's agent is also indicated by the value DOE
received for the uranium (in terms of work to be performed by USEC),
which was reduced by an amount equal to the transaction costs that
USEC incurred in the sale of the uranium. In other words, DOE did not
receive the gross value, or price, that USEC realized from the sale of
the uranium but instead received value equal to the net proceeds of
its sale. USEC deducted from its valuation of the natural uranium
transfer costs for such things as materials handling and a commission
covering its sales management activities. For example, USEC deducted
$825,000 in sales management fees, plus other transaction and transfer
costs, from the value of the uranium involved in the transaction. A
USEC official said that the sales management fees were for the time
and expertise to collect offers, value the material, negotiate sales
of the material, and execute book transfers of the material. In other
words, USEC charged a commission against the value of the material.
DOE officials stated that such transactional fees or costs are
routinely part of any commodity transaction. We agree that such costs
routinely figure into commodity transactions, but where those costs
are incurred by the recipient and charged back to the seller, and
where those costs include a commission, the transactions are most
accurately understood as ones involving an agent. DOE has
mischaracterized the transactions as barters, but it is not this
mischaracterization that makes the transactions illegal. The
transactions constituted sales, and sales--whether through an agent or
not--are authorized by the USEC Privatization Act. Rather, DOE's legal
violation occurred when it failed to deposit the value of the net
proceeds into the Treasury as required by the miscellaneous receipts
statute.
Conditions Required by the USEC Privatization Act Were Met, but
Analysis of the Market Impact of the Uranium Transactions Was
Inconclusive:
For DOE to carry out sales under the USEC Privatization Act, three
conditions must first be met.[Footnote 17] First, the President must
determine that the uranium intended for sale is not needed for
national security. The uranium involved in DOE's transactions with
USEC has been in DOE's inventory for over a decade. According to DOE,
in that time this uranium has never been included in a nuclear weapons
stockpile memorandum signed by the President, which identifies
inventories of uranium for national defense needs. Because the uranium
involved in DOE's transactions was not included in the most recent
memorandum, the Nuclear Weapons Council--a joint Department of Defense
and DOE organization established by Congress to manage the U.S.
nuclear weapons stockpile--approved the release of the material for
other purposes. Thus, the first condition was met.
Second, the USEC Privatization Act requires that the Secretary of
Energy receive no less than fair market value for uranium sold. To
ensure that this condition was met, DOE officials said they assessed
USEC's proposed valuation of the uranium and considered the most
recent average spot market prices and USEC's transfer costs. The
department then issued a determination that USEC's valuation
represented fair market value for the material. Although we did not
conduct our own analysis as to whether the Secretary in fact received
fair market value for the uranium, we do not dispute the department's
determination that it met this requirement of the USEC Privatization
Act.
Third, the act requires the Secretary of Energy to determine that
proposed transactions will have no adverse material impact on the
domestic uranium mining, conversion, and enrichment industries. To
meet this requirement, DOE contracted with an energy research firm,
Energy Resources International, which issued a market impact analysis
in November 2009 that projected the potential market effects of
planned uranium sales and transfers from the last quarter of calendar
year 2009 through 2013.[Footnote 18] The study took into consideration
the five planned transactions for environmental cleanup at Portsmouth,
as well as other planned transactions, including those between NNSA
and the Tennessee Valley Authority and the American Assured Fuel
Supply Program, among others.[Footnote 19] The authors of the study
stated that DOE's planned transactions would have no adverse material
impact on uranium producers, and DOE issued the required determination
on the basis of this study. Thus, the third condition under the USEC
Privatization Act was met.
Nevertheless, our review found the results of the market impact
analysis to be inconclusive. The economic model developed by Energy
Resources International analyzed market impact for the term market and
included assumptions about supply-and-demand characteristics that
represent the long-term, rather than the spot market, even though DOE,
industry experts, and Energy Resources International analysts
themselves agreed that DOE uranium transactions would have the
potential to affect the spot market most.[Footnote 20] Furthermore,
the study stated that long-term prices are more relevant to investment
decisions by the industry. In fact, in a subsequent study issued in
December 2010 to account for additional DOE transactions beginning in
2011, Energy Resources International expanded its analysis to include
the price impact of the transfers on the spot market, which it had
previously characterized as too difficult to assess.[Footnote 21]
The new study included an econometric model to evaluate the price
impact in the spot market, but we found that it too was inconclusive.
[Footnote 22] In particular, the econometric model used historic data
on price, quantity supplied, and quantity demanded and did not
identify and evaluate the effects of other factors that could also
affect the behavior of uranium spot prices. These factors could
include market participants' expectations about future uranium supply
and demand, as well as their expectations of future levels of uranium
inventories. In addition, because the details about uranium sales
through both long-term contracts and the spot market are typically
considered business proprietary information, data about expected
future uranium supply and demand are usually not available and thus
difficult or impossible to adequately model. A change in the price of
competing energy resources, such as oil and coal, could also affect
uranium spot prices. Changes in the prices of related minerals found
in tandem with uranium, such as gold, copper, and vanadium, can also
affect uranium spot prices. Specifically, a high market price for
gold, copper, vanadium may encourage uranium exploration and
production. Furthermore, domestic and international political and
economic events or natural disasters--such as the March 2011
earthquake, tsunami, and subsequent nuclear accident in Japan--can
affect uranium spot prices. Because the econometric model used was not
able to evaluate any of these factors, its estimate of the change in
the spot market price of uranium caused by an isolated event would be
inconclusive. We agree, as Energy Resources International noted in its
study, that it is difficult to predict a specific change in the spot
market price due to one particular future event, such as a DOE uranium
transaction.
DOE Violated the Miscellaneous Receipts Statute by Not Depositing the
Value of Net Proceeds from Uranium Transactions with USEC into the
Treasury:
DOE violated the miscellaneous receipts statute in handling the
proceeds of its sales of uranium through USEC. This statute requires
that "an official or agent of the Government receiving money for the
Government from any source shall deposit the money in the Treasury as
soon as practicable without deduction for any charge or claim."
[Footnote 23] Generally, a federal agency may not operate beyond the
level that it can finance with its annual appropriation without
specific congressional authorization. For an agency to keep money that
has not been appropriated is to undercut Congress's constitutional
power of the purse.[Footnote 24]
In providing uranium to USEC for sale to a third party and allowing
USEC to keep the proceeds, DOE constructively received money for the
government and improperly extended its reach beyond the operating
level that it was otherwise authorized to achieve through its
congressional appropriation. DOE officials readily acknowledged that
if the department had sold the uranium directly into the market and
received cash, it would have had to deposit that cash into the
Treasury. DOE officials also acknowledged that it structured its
transactions with USEC the way it did so as to avoid having to deposit
the proceeds of a sale into the Treasury. DOE said that without this
mechanism, it would not have been able to fund the accelerated cleanup
at Portsmouth. In DOE's view, however, because it received no cash in
these transactions, it was not required to deposit any proceeds into
the Treasury.
We disagree with DOE's conclusion--that, because it received no direct
cash for its uranium, it was not subject to the miscellaneous receipts
statute--for the same reasons that we found similar actions by DOE in
2006, also involving use of USEC as its sales agent, to violate this
law.[Footnote 25] It is a well-understood principle of law that what
cannot be done directly cannot be done indirectly.[Footnote 26] An
agency that lacks authority to retain and use amounts that it receives
directly cannot circumvent its lack of authority by engaging a
contractor or, as here, a sales agent to indirectly receive, retain,
and use the funds.[Footnote 27] To the extent that Congress sees merit
in the additional cleanup work that DOE states is needed at its
facilities, it could provide DOE with explicit authority to barter
uranium, as well as authority to receive and retain funding from the
department's barters, transfers, and sales of uranium.
Conclusions:
One purpose of DOE's December 2008 uranium management plan was to
reassure the domestic uranium industry that the department would
refrain from suddenly releasing unanticipated amounts of uranium into
the market. But by announcing, 8 months after issuing its plan,
uranium transactions that were not envisioned in the plan, DOE
introduced additional uncertainty into that market. Partly as a result
of the department's actions, the domestic uranium producers we
interviewed fear the consequences of future transactions in which the
department may engage. Without an accurate, updated plan that clearly
details DOE's future uranium activities and the circumstances under
which departmental plans could change, companies in the domestic
uranium industry cannot adequately anticipate the department's actions
and take steps to mitigate the consequences of those actions.
Federal law authorizes DOE to dispose of its excess uranium by selling
it directly on the open market and depositing the proceeds in the
Treasury. According to DOE officials with whom we spoke, however, DOE
has no incentive to do so because the department would be unable to
use the proceeds for its own cleanup priorities without specific
congressional authorization. Nevertheless, our review indicates that
DOE's uranium transactions with USEC constituted sales and that USEC
served as the department's sales agent. Even though DOE did not
directly receive cash for its uranium, in our view the transactions
constituted sales, and thus the department was required to deposit an
amount equal to the value of the uranium into the Treasury. By not
doing so, DOE has inappropriately circumvented the power of the purse
granted to Congress under the Constitution and violated the
miscellaneous receipts statute. We do not question the need to
decontaminate and decommission DOE's uranium enrichment facilities.
If, however, the department cannot finance these cleanup activities
without additional funding, it is the prerogative of Congress, not
DOE, to make the necessary funding available.
Recommendation for Executive Action:
To improve DOE's management of its excess uranium inventories, we
recommend that the Secretary of Energy update the December 2008
"Excess Uranium Inventory Management Plan" to more accurately reflect
DOE's plans for marketing its uranium.
Matter for Congressional Consideration:
If Congress sees merit in using proceeds from the barter, transfer, or
sale of federal uranium assets to pay for environmental cleanup of
uranium enrichment facilities, it should consider:
* providing DOE with explicit authority to barter excess uranium and
to retain the proceeds from barters, transfers, or sales or:
* directing DOE to sell federal uranium assets for cash and directing
that collected proceeds be made available for obligation only to the
extent and in the amount provided in advance in appropriations acts
for necessary expenses in decontaminating and decommissioning uranium
facilities and directing DOE to deposit into the Treasury any excess
over what is appropriated.
Agency Comments and Our Evaluation:
We provided a draft of this report to DOE for comment. In its written
comments, reproduced in appendix IV, DOE agreed with our
recommendation to update its excess uranium management plan but
disagreed that the department violated federal fiscal law.
In general, DOE's comments focused on our finding that DOE's uranium
transactions constituted sales through an agent. Specifically, DOE
commented that its transfer of uranium to USEC was a barter,
exchanging uranium assets for environmental cleanup, and that USEC was
not a sales agent for the department. Therefore, according to DOE, the
department did not violate the miscellaneous receipt statute. DOE
stated that no authorized official signed a written agreement with
USEC under which the company would sell uranium for DOE, nor could the
department be bound by an oral agreement. DOE stated that the contract
modifications under which USEC agreed to conduct cleanup in exchange
for uranium did not include any language indicating USEC should obtain
offers for DOE uranium or otherwise serve as DOE's sales agent. In
DOE's view, we should not have considered any evidence other than the
written contract modifications between DOE and USEC. DOE also
disagreed with our statement that USEC faced no risk of loss in its
sale of the uranium and that DOE paid a commission to USEC for its
sale of the uranium. In addition, DOE disagreed that it entered into
the transactions with USEC specifically to avoid receiving cash,
contrary to what USEC and DOE officials explicitly told us. Instead,
DOE stated the purpose of the transactions was to achieve accelerated
cleanup of the Portsmouth site, which would help create or retain jobs
at the site and save the federal government money in long-term
maintenance costs. DOE also disagreed with our estimate of the value
of the department's depleted uranium tails and provided updated data
on the department's actual and planned uranium sales and transfers.
DOE's comments do not undermine our conclusion that the department
violated the miscellaneous receipts statute. DOE arranged for USEC to
receive cash from the sales of federal uranium as compensation for
cleanup activities that DOE would otherwise have had to pay for out of
its appropriated funds. Rather than address this fact, DOE reasserts
its position that the transactions constituted barters, not sales
through an agent. DOE's argument is misplaced, however. Whether the
transactions were barters or sales goes mainly to the question of
whether DOE was authorized to engage in the transactions at all under
the USEC Privatization Act, and we found that the transactions were
authorized as sales.[Footnote 28] As we noted in our report, that the
transactions were sales and not barters is also significant to the
question of whether DOE complied with the miscellaneous receipts
statute, but only in that DOE did not deposit the net proceeds from
its sales into the Treasury. The department does not refute, however,
the central tenet behind our conclusion that it violated the
miscellaneous receipts statute. It asserts that because it did not
receive any actual cash in the transaction, it did not have to deposit
any money into the Treasury. As we noted in our draft report, GAO and
the courts have found in a number of instances that an entity does not
have to receive actual cash to trigger a responsibility to deposit
money into the Treasury.
DOE's comments also do not refute our finding that its transactions
with USEC were sales through an agent. DOE focuses on the lack of a
written agreement between the department and USEC that establishes the
company as DOE's agent. We agree that no written agreement exists
authorizing USEC to value DOE's uranium assets. Nevertheless, DOE has
acknowledged the existence of an oral agreement, and whether DOE could
be bound to act under such an agreement is not relevant to the present
analysis. The fact remains that DOE requested USEC's valuation of the
uranium, which it knew to be based on the solicitation of firm offers
for the material and which led directly to the uranium's sale.
Further, it was necessary and appropriate to look to evidence other
than the contract modifications because the contract modifications do
not cover valuation of the uranium.
Our review, therefore, appropriately examined the process USEC and DOE
used to establish the uranium's value before the contract
modifications were signed. Our review of this process also established
that USEC in fact faced no risk of loss in its sale of the uranium
because it sold the uranium before agreeing on how much work it would
do in exchange for the uranium. In addition, DOE did pay a commission
to USEC under the common definition of the term, that is, "a fee paid
to an agent or employee for transacting a piece of business or
performing a service."[Footnote 29] DOE acknowledges that it paid a
"sales management fee" to USEC. We see no distinction between such a
fee and a commission. Further, we do not dispute DOE's contention that
the overall purpose of accelerating the Portsmouth cleanup work may
have been to save on long-term site maintenance costs and protect
local employment, but DOE officials repeatedly told us that the
department chose to pay for this project in the manner it did
specifically to avoid the receipt of cash. DOE provided no other
reason why it would seek to barter uranium rather than sell it. We
therefore conclude that DOE manipulated the disposition of federal
assets to avoid the payment of proceeds for those assets into the
federal Treasury. Doing so violated the miscellaneous receipts statute.
With regard to our estimate of the value of DOE's depleted uranium
tails, DOE stated that the draft report did not include any source or
backup information for our $4.2 billion estimate of the tails' value.
DOE's statement is incorrect. The draft report cited our June 2011
report that explained in detail how we developed our estimate.
Specifically, our estimate is based on a model we previously developed
that uses standard formulas to estimate how much enriched uranium and
tails can be produced from a given amount of uranium and enrichment
services. The model employs price data obtained from nuclear industry
trade publications. Such data are commonly used to estimate the market
price for uranium. We agree with DOE that our estimate of the tails'
value does not include the additional costs that may be incurred
processing tails stored in deteriorating cylinders, addressing the
poor quality of some material, or packaging and transporting the
material. Our estimate omits these costs because they are unknown. DOE
is mistaken, however, in stating that our estimate does not include
the costs of production. Our model includes the cost of enrichment
services in its estimate of the tails' net value. Nevertheless, as our
June 2011 report and the draft report noted, our estimate is very
sensitive to changing uranium prices, as well as to the availability
of sufficient enrichment capacity. Uranium prices are volatile, and a
sharp rise or fall can greatly affect the value of uranium tails. Any
estimates of the value of DOE's tails are therefore subject to great
uncertainty.
Finally, after we received the department's comments on our draft
report, DOE officials provided additional updated data on the
department's actual and planned uranium sales and transfers. We
revised the report accordingly to reflect the most current data DOE
provided to us.
We are sending copies of this report to the appropriate congressional
committees, the Secretary of Energy, the Director of the Office of
Management and Budget, and other interested parties. In addition, the
report will be available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
If you or your staff members have any questions regarding this report,
please contact Gene Aloise at (202) 512-3841 or aloisee@gao.gov. You
may also contact Susan D. Sawtelle at (202) 512-6417 or
sawtelles@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. GAO staff who made major contributions to this report are
listed in appendix V.
Signed by:
Gene Aloise:
Director, Natural Resources and Environment:
Signed by:
Susan D. Sawtelle:
Managing Associate General Counsel:
[End of section]
Appendix I: Scope and Methodology:
To identify the Department of Energy's (DOE) transactions involving
excess uranium used to pay for accelerated cleanup work at the
Portsmouth Gaseous Diffusion Plant, we obtained department summary
data drawn from the Nuclear Materials Management and Safeguard System
regarding all sales and transfers of uranium from January 1, 2008,
through June 30, 2011. To identify specific transactions involving
natural uranium during this time frame, we also obtained and reviewed
individual nuclear materials transaction reports, which detailed the
change of uranium ownership from DOE to the United States Enrichment
Corporation (USEC) and to Fluor-B&W Portsmouth. We obtained
information on the value of these transactions and the services paid
for by these transactions by reviewing uranium valuation documents
from USEC and Fluor-B&W Portsmouth, as well as the relevant DOE
contracts or contract modifications related to the transactions. To
further our understanding of these transactions and to determine DOE's
future plans to sell or transfer uranium, we interviewed DOE nuclear
materials management officials from the National Nuclear Security
Administration (NNSA), the Office of Nuclear Energy, and the Office of
Environmental Management. We also met with or interviewed by phone
knowledgeable USEC officials at the Paducah Gaseous Diffusion Plant in
Kentucky and Fluor-B&W Portsmouth officials at the Portsmouth Gaseous
Diffusion Plant in Ohio. We did not determine the accuracy of DOE's
uranium inventory data or specifically verify the amount of uranium
physically transferred from DOE to other entities, including USEC and
Fluor-B&W Portsmouth. We instead reviewed extensive department
guidance regarding the Nuclear Materials Management and Safeguard
System, including the Nuclear Materials Control and Accountability
System, which tracks the character, location, and transfer of all
federal inventories of nuclear materials, including uranium.
Associated documentation indicates that an extensive program exists to
ensure the accuracy of information on the nuclear materials inventory,
but we nevertheless reviewed recent assessments of key databases that
make up the nuclear materials management system. No material
weaknesses were reported. We therefore determined that uranium
inventory data drawn from these systems were sufficiently reliable for
purposes of this report.
To determine the extent to which DOE's natural uranium transactions
were consistent with DOE's "Excess Uranium Inventory Management Plan"
issued in 2008, we compared key provisions of the plan to DOE's
specific activities to manage its uranium inventory. To develop an
understanding of DOE's uranium management activities, we interviewed
DOE officials at the Portsmouth/Paducah Project Office in Lexington,
Kentucky, which has managed the recent uranium transactions, as well
as the DOE contracting officers responsible for negotiating and
executing federal contracts for cleanup services. To develop an
understanding of the impact that DOE's uranium transactions might have
on the market for uranium products, we also interviewed a wide range
of uranium industry representatives. These representatives included
officials from uranium trade associations; startup and established
mining companies; ConverDyn's conversion facility in Metropolis,
Illinois; and USEC's gaseous diffusion enrichment plant in Paducah,
Kentucky. We also interviewed officials from selected utility
companies operating commercial nuclear power plants, commodities
brokers and traders, and market analysts. We visited two mining
operations, a Cameco corporation "in situ" uranium mine at Smith
Ranch, Wyoming, and the Denison Mines corporation underground mine and
uranium milling facility near Blanding, Utah.
Finally, to determine the extent to which DOE's uranium transactions
were consistent with applicable federal law, we reviewed requirements
of the Atomic Energy Act, [Footnote 30]the USEC Privatization Act
[Footnote 31] and the miscellaneous receipts statute.[Footnote 32] We
obtained and reviewed internal DOE documentation authorizing uranium
transactions and changing ownership of cylinders containing natural
uranium to USEC and to Fluor-B&W Portsmouth. We reviewed market impact
analyses prepared by Energy Resources International, Inc., under
contract with DOE; internal documents certifying that DOE would
receive fair market value for its natural uranium; and secretarial
determinations that uranium transactions would have no adverse impact
on the uranium market and that the uranium was not needed for national
security purposes. For information on how the uranium transactions
were documented for accounting purposes, we also reviewed USEC's
annual 10-K report to the Securities and Exchange Commission and
interviewed USEC and Fluor-B&W Portsmouth business and accounting
officials.
We conducted this performance audit from November 2010 through
September 2011, in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
[End of section]
Appendix II: The Nuclear Fuel Cycle:
1. Finding uranium deposits:
Unlike coal, which forms continuous seams in rock, uranium forms
discrete, concentrated deposits distributed like the specks in blue
cheese. Uranium can be found by detecting the presence of
radioactivity from the air, from the earth’s surface, or by excavation.
[Figure: photograph: Uranium ore. Source: U.S. Geological Survey]
2. Uranium mining regulation and startup:
The uranium mining industry is regulated by various federal and state
authorities. To bring a mine into production takes 8 to 10 years and
costs many millions of dollars. The cost to bring a conventional open-
pit or underground mine on line can be up to $400 million, while an
“in situ” mine, which extracts minerals from an underground aquifer,
costs about $100 million.
Federal regulators:
United States Nuclear Regulatory Commission;
Environmental Protection Agency;
U.S. Department of the Interior.
State regulators (map):
Arizona;
Colorado;
Nebraska;
New Mexico;
Texas;
Utah;
Wyoming.
Sources: GAO; Map Resources (map).
3. Conventional mining Conventional open-pit mining:
[Figure: photograph: Open-pit uranium mine. Source: U.S. Department of
Energy]
Conventional open-pit mining gains access to ore by using explosives
to remove surface material. If the uranium is too far below the surface,
tunnels and shafts are dug to reach and extract the ore. Broken ore is
then sent to a processing mill. At the mill, the ore is crushed,
ground, and then fed to a leaching system that uses resin and chemicals
to separate uranium from the ore. The resulting yellow slurry—-called
“yellowcake”*—-is washed, dried, and sold to utility customers.
Interactive features: Roll your mouse over * to see yellowcake.
4. Mining by in situ recovery:
[Figure: Refer to PDF for image: illustration: In situ mineral
recovery]
Source: World Information Service on Energy Uranium Project.
[End of figure]
In situ mineral recovery circulates naturally occurring groundwater
through uranium deposits in porous sandstone. At the surface, the
uranium is treated to separate it from the water and then dried. The
resulting yellowcake is sold to utility customers.
5. Converting uranium:
[Figure: photograph: Inside ConverDyn’s conversion plant. Source:
ConverDyn]
The uranium in yellowcake is heated and combined with other gases to
produce uranium hexafluoride, a gas. Once cooled, uranium hexafluoride
crystallizes * and becomes a solid, which can be easily shipped in
cylinders to a uranium enrichment plant.
Interactive features: Roll your mouse over * to see uranium
hexafluoride crystals.
6. Department of Energy inventory of uranium hexafluoride:
[Figure: photograph: The Department of Energy’s uranium hexafluoride
cylinders. Source: U.S. Department of Energy]
The Department of Energy oversees a substantial supply of uranium
hexafluoride cylinders left over from prior nuclear weapons programs
or received under U.S. nuclear nonproliferation agreements with the
Russian Federation. The department has occasionally sold or
transferred this uranium, most recently to accelerate cleanup of the
Portsmouth Gaseous Diffusion Plant near Piketon, Ohio.
7. Uranium enrichment:
[Figure: photograph: Nuclear power plant. Source: Nuclear Regulatory
Commission]
Commercial nuclear reactors in the United States require fuel
consisting of at least 3 percent concentration of uranium-235. Uranium
hexafluoride, the gaseous form of natural uranium, contains a
concentration of only 0.71 percent uranium-235 and therefore
requires enrichment before it can be used as fuel. In the United States,
enrichment is done primarily by means of gaseous diffusion and gas
centrifuge.
8. Enrichment by gaseous diffusion*:
[Figure: photograph: Gaseous diffusion equipment. Source: U.S.
Department of Energy]
Enriching uranium through gaseous diffusion repeatedly forces uranium
hexafluoride under pressure through porous membranes, separating the
isotope uranium-235 from uranium-238. The gas must be processed through
as many as 1,400 stages to achieve a concentration of 3 percent
uranium-235.
Interactive features: Roll your mouse over * to see the gaseous
diffusion stage.
9. Enrichment by gas centrifuge:
[Figure: photograph: Bank of centrifuges. Source: Urenco LTD]
Enriching uranium with a gas centrifuge involves spinning uranium
hexafluoride gas at high speed in a series of cylinders to separate
uranium-235 from uranium-238. Centrifuge technology requires only
10 to 20 stages and a fraction of the energy required for gaseous
diffusion.
10. Fuel fabrication:
[Figure: photograph: Fuel assemblies (bubble). Source: Nuclear
Regulatory Commission]
To fabricate fuel, enriched uranium hexafluoride gas is combined with
other elements to form a uranium dioxide powder, which is compressed,
formed into pellets, and then sealed into long metal tubes to form
fuel rods. These rods are bundled to create a fuel assembly. Depending
on the reactor type, about 179 to 264 fuel rods are required for each
fuel assembly; a typical reactor core holds 121 to 193 fuel assemblies.
Interactive features: Roll your mouse over bubble to see fuel pellet.
[End of figure]
[End of section]
Appendix III: Legal Analysis of DOE's Strategy to Finance USEC's
Cleanup Work at the Portsmouth Gaseous Diffusion Plant:
Introduction and Summary of Conclusions:
As part of GAO's review of DOE's overall uranium management plan, we
examined what DOE referred to as a series of "barter arrangements"
between DOE and USEC for accelerated cleanup services at the
Portsmouth Gaseous Diffusion Plant. Specifically, we examined the
consistency of these transactions with federal law governing uranium
transactions and the disposition of government assets.
We found that DOE's transactions constituted sales of uranium, which
were authorized under the USEC Privatization Act but violated the
miscellaneous receipts statute because DOE failed to deposit the value
of the net proceeds into the Treasury. We came to the same conclusion
in 2006 in analyzing a similar series of transactions between DOE and
USEC. In particular, although DOE has characterized its most recent
transactions with USEC as "barters," they are more accurately
characterized as sales of uranium into the market, with USEC acting as
DOE's sales agent. The miscellaneous receipts statute requires
government officials who receive money for the government to deposit
the money into the Treasury. Although DOE did not receive cash from
the sale of federal uranium assets, it allowed USEC to receive and
keep cash from the sales. Because DOE was not authorized to keep the
sale proceeds, the department also was not authorized to engage USEC
to receive them. The current transactions differ in some superficial
respects from the 2006 transactions, but the core substance is the
same, and, as DOE told us, in this case it intentionally structured
the disposition of federal assets to avoid payment of the proceeds for
those assets into the federal Treasury.
Analysis:
DOE's Uranium Transactions with USEC Were Sales Authorized by the USEC
Privatization Act:
Under the Atomic Energy Act of 1954, as amended,[Footnote 33] DOE has
general authority to sell, lease, distribute, or otherwise make
available source material, including natural uranium, under certain
conditions to licensed entities. Congress limited this general
authority in 1996, however, in the USEC Privatization Act.[Footnote
34] Section 3112(a) of this act explicitly prohibits DOE from selling
or transferring "any uranium" except as "consistent with" section
3112. The remaining provisions of section 3112 then specify the
conditions under which DOE may sell or transfer various types of
natural and enriched uranium. Section 3112(b) covers uranium
transferred to DOE under the US-Russia Highly Enriched Uranium
Purchase Agreement in 1995 and 1996. Section 3112(c) covers natural
and enriched uranium transferred before 1998 to USEC without charge as
part of its privatization. Section 3112(e) covers transfers of
enriched uranium to federal, state, and local agencies; nonprofit,
charitable, or educational institutions; and others. Section
3112(d)(1) covers natural and low-enriched uranium sold from DOE's
inventory that is not otherwise covered under sections 3112(b), (c),
or (e). According to DOE, the uranium subject to the 2009-2011
transactions with USEC was natural uranium from DOE's inventory. It
therefore does not fall into any of the categories covered by sections
3112(b), (c), or (e) and is thus covered by section 3112(d)(1).
[Footnote 35] Because section 3112(d)(1) only authorizes sales, DOE's
transactions with USEC must be sales or else be prohibited by the USEC
Privatization Act.
According to DOE, its transactions with USEC constituted barters--an
exchange of goods (natural uranium) for services (accelerated cleanup
services at the Portsmouth Gaseous Diffusion Plant) authorized by the
Atomic Energy Act--and are not "inconsistent with" the USEC
Privatization Act. DOE declined to explain to us whether and how
barters authorized under the Atomic Energy Act also constitute sales
authorized by the USEC Privatization Act. DOE instead stressed that
because it relies on its broad Atomic Energy Act authority to dispose
of source material, the distinction between barters and sales is not
relevant. Specifically, in DOE's view, the USEC Privatization Act does
not affect its authority under the Atomic Energy Act to engage in
transactions involving uranium but simply establishes additional
conditions that apply to the exercise of its authority under this act.
[Footnote 36] Because we found that the current transactions in
question were sales (through an agent) of uranium, and because all
such sales are governed by the USEC Privatization Act, we need not and
did not address whether barters are authorized under this act.
In this report we found, as we did in analyzing similar transactions
in 2006, that DOE's transactions with USEC constituted sales
authorized by section 3112(d)(1) of the USEC Privatization Act--but
through USEC as agent, rather than to USEC as buyer.[Footnote 37] DOE
and USEC had different views about the nature of their relationship
with respect to the most recent transactions. DOE told us that it
bartered federal uranium assets for cleanup services with USEC and did
not employ USEC as an agent to sell the uranium to third parties. By
contrast, a USEC official told us that USEC did act as DOE's sales
agent and in its 2010 annual report to the U.S. Securities and
Exchange Commission[Footnote 38] stated that USEC never owned the
material because it did not stand to make a profit or loss from the
uranium sale. Labels that parties ascribe to their roles are not
controlling as to whether a principal-agent relationship exists,
however. That relationship is determined by considering four key
characteristics and looking to the substance of the transaction as a
whole, with no single characteristic being determinative.[Footnote 39]
The four characteristics of a sales agency arrangement are (1) one
entity delivers goods to another; (2) the other entity is to sell the
goods not as his own property but as the property of and for the
benefit of another, with the first entity remaining the owner of the
goods; (3) the first entity has the right to control the sale, fix the
price and terms, and recall the goods; and (4) the first entity has
the right to demand and receive proceeds of the goods when sold, minus
the agent's commission.[Footnote 40] The series of transactions
between DOE and USEC exhibited the last three of these four
characteristics, and the first, delivery of the goods, is not
applicable to uranium.[Footnote 41] Thus, taken as a whole, the DOE-
USEC series of transactions indicates that the relationship was
functionally one of agency, with DOE as the principal and USEC as the
agent.
First, USEC sold uranium that was the property of the federal
government primarily for the benefit of the government. According to
USEC officials, USEC finalized the sales of the uranium to third
parties before it signed the contract modifications with DOE under
which it agreed to conduct cleanup in exchange for the uranium.
[Footnote 42] USEC arranged for the sale of federal property; it did
not sell its own property. This point is underscored by USEC's 10-K
report, in which it states that it did not consider itself to be the
owner of the material.[Footnote 43] USEC also sold the uranium
primarily for DOE's benefit: USEC's 10-K states that USEC assumed no
risk in the sale and did not stand to make any profit because the
amount of work USEC was to provide under the cleanup contract was
dependent on the net value of the uranium. USEC set the value of the
uranium on the basis of offers it received for the uranium, the
highest of which it subsequently accepted and translated into sales.
If USEC had secured less value for the material, it would have done
less work for DOE. The only benefit of the "barter" transaction
accrued to DOE: as DOE officials told us, by purportedly structuring
the transactions as barters, DOE sought to avoid receiving cash, which
it would have had to deposit into the Treasury. USEC kept the proceeds
of the sale and used them for the cleanup services it provided at the
Portsmouth facility but became entitled to the value of the uranium
only after it signed the contract modifications to furnish cleanup
services in exchange for that value. Those proceeds, therefore, cannot
be said to be a benefit of the transaction that resulted in the sale
of the uranium. The contract modifications purported to transfer title
to the uranium to USEC, but at the time the contract modifications
were signed, the uranium had already been sold. To the extent that
title did actually pass through USEC, it could only have been to
facilitate further transfers to the ultimate buyers.[Footnote 44]
Second, DOE had the right to control the sale of the uranium. DOE
stated that it did not control the sale of the uranium under the terms
of the contract modifications with USEC but, rather, bartered federal
uranium assets to USEC in exchange for cleanup services. DOE also
stated that USEC was subsequently free to sell the uranium at any time
it wished. The uranium was marketed and sold before the contract
modifications were executed, however, so the terms of those contract
modifications are not relevant in evaluating the control that DOE did
or did not exercise over the sale. Instead, DOE and USEC officials
told us that they had an oral agreement for the valuation of the
material before the contract modifications were signed. DOE stated
that it did not specifically authorize, require, or request USEC to
solicit offers for the uranium but acknowledged that it requested
USEC's valuation of the uranium, which it knew was to be based on the
solicitation of firm offers for the material. During the term of this
agreement, which led directly to sale of the uranium, DOE had the
right to exercise control over USEC's actions as agent.
Moreover, although DOE officials stated that they did not know whether
or when USEC in fact sold the material, a USEC official told us that a
DOE official knew that USEC was seeking to finalize sales contracts
with the highest bidders for the uranium and in fact encouraged USEC
to finalize the sales quickly so that the contract modifications could
be signed. In addition, two of the letters that USEC sent to DOE to
establish the value of the uranium on the basis of offers received
refer to the material as already sold.[Footnote 45] These facts
indicate that DOE was, or should have been, aware that the material
was being sold before finalization of its "barter" agreement, while
the material was still subject to DOE's control, and that DOE at least
assented to, and may have explicitly authorized, the sales.
That DOE controlled the price obtained from the sales is also evinced
by the fact that the valuation process, over which DOE had approval,
was tied up with the sales process. USEC submitted its valuation of
the uranium to DOE for approval for two reasons: (1) to determine the
amount of work that USEC would be required to perform in exchange for
that value and (2) to enable DOE to determine that it would receive
fair market value for the material. Receipt of no less than fair
market value is a condition required by the USEC Privatization Act
before the sale of uranium.[Footnote 46] As USEC stated in a series of
letters to DOE establishing the value of the uranium, USEC felt that
actual bids represented a more realistic value than mere consultation
of spot market prices at the time of the sale. Soliciting firm offers
for the material may have provided a realistic valuation of the
material, but the same process also constituted USEC's first step in
selling federally owned uranium on DOE's behalf. Further, this step
was taken with DOE's knowledge and approval, including its specific
approval of the price to be attained.[Footnote 47]
Third, the value that DOE received for the uranium, in terms of work
to be performed by USEC, was reduced by an amount equal to the
transaction costs that USEC incurred in the sale of the uranium. In
other words, DOE did not receive the gross value, or price, that USEC
realized from the sale of the uranium but instead received value equal
to the net proceeds of its sale. USEC deducted its transaction costs
from the value it attributed to the uranium, and DOE approved that net
value as the fair market value of the material. The value USEC
attributed to the uranium was also the price received from its buyers,
and the fact that costs were deducted from the value means that the
value DOE received equaled the net proceeds of the sale to a third
party from its agent, USEC, rather than the price of the sale from
USEC as buyer.
Furthermore, the value of the uranium was decreased to account for
USEC's "sales management fee" in addition to USEC's other transaction
costs. USEC clearly labeled these amounts as sales management fees in
its valuation letters for DOE approval, and DOE did in fact approve
the net valuations. A USEC official told us that the sales management
fee represented USEC's fee for brokering the material, USEC's fee for
negotiating the actual sales of the material, and USEC's costs
associated with arranging book transfers of the material. In other
words, USEC charged a commission against the value of the material.
DOE has stated that such transactional fees or costs are routinely
part of any commodity transaction. We agree that such costs routinely
figure into commodity transactions, but where those costs are incurred
by the recipient and charged back to the seller, and where those costs
include a commission, they indicate a transaction involving an agent.
In sum, DOE's uranium transactions with USEC, viewed as a whole,
constituted sales through an agent rather than barters. USEC arranged
for the sale of federal uranium assets while the uranium was still
federal property. The only party that benefited from the sale was DOE.
USEC deducted its transactions costs, as well as a commission, from
the value of the uranium. These are all characteristics of sales
agency rather than barter and resale. Even assuming some ambiguity in
how these facts and circumstances should be characterized--agency or
sale--courts have long found against the party whose mixed motives
created the ambiguity.[Footnote 48] In this case, any mixed motives
are attributable to DOE. DOE's acknowledged objectives were to
accomplish the cleanup work and avoid using appropriated funds to do
so. It was motivated to structure the uranium transactions as
purported barters so that it would not receive cash that it would have
to deposit into the Treasury. At the same time, it was motivated to
provide an arrangement acceptable to USEC so that the cleanup work
could be accomplished. USEC's sole motivation was to minimize the
risks inherent in the transaction. USEC officials told us they only
accepted uranium as payment for cleanup services because they did not
believe that DOE could finance the cleanup work with cash (i.e.,
appropriated funds), and they wanted the cleanup work to proceed to
keep the skilled employees at Portsmouth working until USEC could open
its new gas centrifuge enrichment facility there. Thus, USEC accepted
the arrangement DOE offered, but only after it had found buyers for
DOE's uranium, so the time USEC held the uranium and USEC's exposure
to swings in the uranium market would be minimized. USEC was willing
to take DOE's uranium only in a manner that made it DOE's sales agent.
Although DOE did not specifically ask USEC to deal with the uranium in
this way, DOE knew what actions USEC was taking and approved of the
steps USEC took along the way. The true nature and effect of this
arrangement was that USEC served as DOE's agent in selling federal
uranium assets into the market.
DOE Violated the Miscellaneous Receipts Statute by Not Depositing the
Value of Net Proceeds from Uranium Transactions with USEC into the
Treasury:
Our present review found, as did our analysis of similar transactions
in 2006, that DOE did not comply with the miscellaneous receipts
statute because it did not deposit the proceeds from sale of its
uranium into the Treasury. Under the miscellaneous receipts statute,
"an official or agent of the Government receiving money for the
Government from any source shall deposit the money in the Treasury as
soon as practicable without deduction for any charge or claim."
[Footnote 49] As a general proposition, a federal agency may not
augment its appropriations from Congress without specific statutory
authority.[Footnote 50] When Congress makes an annual appropriation to
an agency, it is also establishing an authorized program level. In
other words, Congress is telling the agency that it cannot operate
beyond the level it can finance under its appropriation. To permit an
agency to operate beyond this level, with funds derived from some
other source without specific congressional approval, would amount to
a usurpation of Congress's constitutional prerogative to appropriate
funds. Restated, the objective of the rule against augmentation of
appropriations is to prevent a government agency from undercutting
Congress's constitutional "power of the purse" by circuitously
exceeding the amount Congress has appropriated for that activity. For
an agency to keep money that has not been appropriated by Congress is
to augment its appropriation.
In providing uranium to USEC for sale to a third party and allowing
USEC to keep the proceeds, DOE constructively received money for the
government. DOE used the proceeds of the sale to fund activities that
the department would otherwise have had to pay for out of its
appropriation. By allowing USEC to retain the cash proceeds from the
sale of federal uranium, DOE improperly extended its reach beyond the
operating level that it was otherwise authorized to achieve through
its congressional appropriation. DOE readily acknowledged to us that
if it had sold its uranium directly into the market and received cash,
it would have had to deposit that cash into the Treasury. DOE
officials also told us that they structured the transactions with USEC
as they did to avoid having to deposit the proceeds of a sale into the
Treasury. DOE stated that because it received no cash in this
transaction, it was not required to deposit any proceeds into the
Treasury. We disagree with DOE's conclusion. It is a fundamental
principle of law that what cannot be done directly cannot be done
indirectly.[Footnote 51] An agency that lacks the authority to retain
and use amounts that it receives directly cannot circumvent its lack
of authority by engaging a contractor or, as here, a sales agent to
indirectly receive, retain, and use the funds.[Footnote 52] In similar
circumstances, the courts and we have recognized that a contractor
constructively receiving money for a federal agency is not free of the
requirement of the miscellaneous receipts statute: that funds received
for the use of the United States be deposited in the Treasury.
[Footnote 53] We have also found that a federal agency receives money
under the miscellaneous receipts statute if the receipts are to cover
the expenses of the government or to pay government obligations.
[Footnote 54] Here, USEC received money for DOE. The uranium belonged
to DOE when USEC arranged for its sale, but instead of passing the
cash proceeds back to DOE, USEC was allowed to keep the cash as
compensation for work under its cleanup contract--work for which it
was DOE's responsibility to pay.
Finally, we examined whether DOE's set of transactions with USEC could
be characterized as a no-cost contract. In a no-cost contract, a
contractor provides a service to the government, but the government
has no financial liability to the contractor and the contractor has no
expectation of payment from the government. For example, in a case in
which the General Services Administration contracted for real estate
brokerage services and brokers were compensated not by the agency but
through commissions received from landlords, we found that these
contracts were no-cost contracts that did not violate the
miscellaneous receipts statute.[Footnote 55] The General Services
Administration did not augment its appropriation by accepting services
without payment, however, because it had no financial liability to the
brokers; the common industry practice was for those brokers to receive
their compensation from third parties. But the transactions between
DOE and USEC were not comparable. In this case, DOE incurred a cost:
it paid a total of $194.3 million in federal uranium assets for
accelerated cleanup services. It allowed USEC to retain cash from the
sale of these assets as compensation for services USEC provided to
DOE, services for which DOE would otherwise have had to pay out of its
appropriated funds. Thus DOE, unlike the General Services
Administration, augmented its appropriation.[Footnote 56]
Conclusion:
Transactions that DOE characterized as "barters" between itself and
USEC, whereby federal uranium assets were used to compensate USEC for
cleanup services at the Portsmouth Gaseous Diffusion Plant, are more
accurately characterized as sales of uranium into the market with USEC
acting as DOE's sales agent. Such sales complied with the USEC
Privatization Act, but DOE violated the miscellaneous receipts statute
when it did not deposit the value of the net proceeds of these sales
into the Treasury. The fact that DOE did not receive any actual cash
from the sales is irrelevant. DOE arranged for USEC to receive cash
from the sales as compensation for cleanup activities that DOE would
otherwise have had to pay for out of its appropriated funds. DOE was
not itself authorized to keep the proceeds of the sale, nor was it
authorized to allow USEC to keep them. DOE may not manipulate the
disposition of federal assets to avoid the payment of proceeds for
those assets into the federal Treasury.
[End of section]
Appendix IV: Comments from the Department of Energy:
Department of Energy:
Washington, DC 20585:
September 12, 2011:
Mr. Gene Aloise:
Director, Natural Resources and Environment:
Ms. Susan Sawtelle:
Managing Associate General Counsel:
Government Accountability Office:
441 G St., NW:
Washington, D.C. 20548:
Dear Mr. Aloise and Ms. Sawtelle,
Thank you for providing a draft copy of the Government Accountability
Office (GAO) report, "Excess Uranium Inventories: Clarifying DOE's
Disposition Options Could Help Avoid Further Legal Violations" (the
GAO draft report). The GAO draft report explains the findings and
conclusions of the GAO's audit of the Department of Energy's (DOE or
the Department) uranium barters since 2009. Our response to GAO's
recommendations and clarification of certain factual representations
in the draft report are provided below.
I. Summary Response to GAO Recommendations:
The GAO draft report contains two recommendations. First, it
recommends that the Department update its Excess Uranium Inventory
Management Plan (Plan). As the Department is already in the process of
updating the Plan, it has no disagreement with this recommendation.
Second, the GAO draft report recommends that, if Congress agrees with
the Department's barter approach, it should either provide the
Department with express authority to barter uranium and retain the
proceeds from barters, transfers, or sales, or that it direct the
Department to sell uranium assets for cash and that the proceeds be
made available for specified purposes. As discussed below, the
Department currently has the authority to barter excess uranium in
exchange for services and is conducting its transactions in full
compliance with the law, but it will take GAO's concerns into account
when engaging in future transactions.
II. Response to GAO Legal Contentions:
The Department's uranium barter transactions referenced in the GAO
report did not violate the law. The transactions did not violate the
Miscellaneous Receipts Act, and, as affirmed by the GAO draft report,
the transactions complied with the USEC Privatization Act.
The GAO draft report focuses on a series of five transactions,
executed on a quarterly basis, whereby the Department provided uranium
hexafluoride (UF6) to USEC, Inc. (USEC) in exchange for accelerated
cleanup services at the Portsmouth Gaseous Diffusion Plant (PGDP) to
prepare the facility for decontamination and decommissioning.[Footnote
1] At the time of the transfers, USEC was already working under a
Cold Shutdown contract at PGDP, and USEC and the Department executed a
series of five contract modifications, each of which provided that the
Department would transfer a set quantity of UF6 in exchange for an
agreed-upon value of accelerated cleanup services to be performed by
USEC.
The GAO draft report places a great deal of import on the process DOE
and USEC used in determining the value of services to be provided in
exchange for the uranium, and incorrectly derives from that process a
principal and agent relationship between USEC and DOE. The GAO draft
report specifically focuses on USEC's decision to seek bids for the
anticipated transfer of material as its method of choice for
developing a proposed valuation for the material. The Department then
analyzed USEC's proposed valuation, which took into account discounts
for USEC's costs related to taking payment in the form of UF6, and
compared it to recent spot market index prices to determine if the
proposed value was fair market value, as required by the USEC
Privatization Act. For each quarterly transaction, after the value for
services was agreed upon by DOE and USEC, the parties executed the
contract modification for accelerated cleanup services for that value,
and the Department issued a document transferring title to the
designated quantity of UF6 from the Department to USEC, concluding the
Department's involvement with the material.
The GAO draft report contends that the transactions with USEC were
sales, rather than barters, and that USEC was acting as the
Department's agent in selling the material to third parties. The GAO
draft report further asserts that because the Department sold UF6 and
did not deposit the proceeds in the Treasury, DOE violated the
Miscellaneous Receipts Statute.
a. DOE's transfers to USEC were barter transactions pursuant to the
Department's barter authority:
The Department's transactions with USEC, and its ongoing transactions
with FBP, are consistent with the Department's authority to barter
uranium in exchange for goods or services. The Department's "GC
Guidance on Barter Transactions Involving DOE-Owned Uranium"[Footnote
2] provides a detailed analysis of the Department's broad authority
under the Atomic Energy Act to engage in these kinds of transactions.
b. There was no agency relationship between DOE and USEC:
The Department disagrees with the GAO draft report's position that
USEC and DOE had an agency agreement for a number of reasons. First,
an agency relationship is a legal arrangement, with reciprocal powers
and obligations, and the GAO draft report does not demonstrate that a
person with authority to bind the Department to such an agreement
participated in the creation of this alleged principal-agent
arrangement. Instead, the GAO draft report relies on its
interpretation of a portion of a 1914 treatise of pre-Uniform
Commercial Code common law on agency,[Footnote 3] but does not take
into account the additional requirements of authority to bind agencies
under federal law.[Footnote 4] Finally, the GAO draft report focuses
on USEC's statements, and does not analyze the actual contract
language agreed to and executed by both the Department and USEC.
To bind the federal government in contract, the agreement must be with
an individual with actual authority to enter such a contract.[Footnote
5] In this case, the only individual with actual authority to bind the
government was the Contracting Officer. The Contracting Officer signed
Modification M066, a modification to the pre-existing Cold Shutdown
Contract (DE-ACO5-010R22877) between DOE and USEC.
Modification M066, executed by DOE and USEC on December 19, 2009,
represents the agreement between the parties and is the foundation for
the four subsequent quarterly contract modifications. In this
case, USEC was the seller (supplying accelerated cleanup services) and
DOE was the buyer, paying for the accelerated cleanup services with
uranium through a barter transaction. Federal Acquisition Regulation
(FAR) 2.101, notes that, "except as otherwise authorized," contracts
"are in writing."[Footnote 6] Here, the relationship between USEC and
DOE, with respect to the uranium barter for accelerated cleanup
services, was specified in writing m bilateral Modification M066. That
document does not, in any manner, suggest that DOE intended to enter
into a principal-agent relationship with USEC.
DOE is aware that discussions occurred between DOE representatives and
USEC for the purpose of establishing a value for the uranium to be
bartered and transferred to USEC. DOE is not aware of even any oral
agreement between unnamed DOE employees and USEC wherein DOE agreed
that USEC would act as an agent of the federal government. DOE is also
not aware of even any oral statements by DOE officials that could have
reasonably led USEC to believe that DOE intended for USEC to act as
DOE's agent with respect to the disposition of the uranium. However,
even if any such discussions took place, they cannot function to make
the Department party to any principal-agent relationship.[Footnote 7]
Second, the GAO draft report focuses on a number of statements by USEC
in support of its contention that USEC was the Department's agent,
even when these statements run counter to the contract documents that
the Department and USEC agreed to and executed. Specifically, the GAO
draft report focuses on statements by USEC, both oral and in its
written filing to the Securities and Exchange Commission, that USEC
did not bear any risk of loss for the material, and that if it did not
realize the agreed-upon value for the material, that it would simply
perform less work or only work equivalent to the value it received for
sale of the material.
In reality, the contract language is clear and unambiguous:
DOE shall transfer title to, risk of loss and possession of an
estimated 875 Metric Tons of natural uranium and the cylinders in
which the uranium is contained to USEC in accordance with a quarterly
schedule as follows ...
Modification M0066, Item 1, paragraph 3 (emphasis added).
Indeed, the modification did not require the sale of the material, nor
did it impose any limitations on what USEC chose to do with it. It
only required that USEC obey applicable law in the event it did sell
the material:
Should the Contractor elect to sell the Uranium Transfer Material, any
such sale shall be consistent with all applicable laws and regulations.
Id. at Item 1, paragraph 5(a) (emphasis added).
The contract language further clearly provides that USEC, upon
executing the modification and receiving title to the UF6, became the
sole owner of the material and, in return, was obligated to perform
the agreed upon value of services. Indeed, the quarterly contract
modifications are each for a set value of services, not for the
quantity of material. The modifications, as set out initially in
Modification M066, provide that USEC must perform the agreed upon
value of services, and, if it fails to do so, must repay the
Department in UF6 for the value of services it did not perform under
the modification. Specifically, under Modification M066 clause H.44,
if DOE overpaid USEC (i.e., USEC did not perform all of the
anticipated work), USEC would need to refund the difference to DOE,
through "an equivalent amount of Natural Uranium based on the same
formula as it was provided as Uranium Transfer." Put another way,
if USEC had performed less work as a way to recoup any potential loss
it suffered if, subsequent to execution of the modification, it sold
the material for less than it anticipated in its valuation process, it
would have been obligated to repay the government for the difference
between the contracted value of services to be rendered and the value
of the services it actually performed.
Third, the GAO draft report contends, without support, that although
transactional fees or costs "routinely figure into commodity
transactions...where those costs are incurred by the recipient and
charged back to the seller, and where those costs include a
commission, the transaction looks like one involving an agent."
The GAO draft report does not explain why it deems the transactional
costs and fees taken into account in the Department's barters with
USEC to be "commissions" and not the types of fees or costs that
"routinely figure into commodity transactions." In addition, the GAO
draft report does not find that these costs were unreasonable, as it
does not question the Department's compliance with the requirement in
section 31I2(d) of the USEC Privatization Act that it receive fair
market value for the sale or transfer of the material.
In light of all of the above, it is unreasonable and erroneous to
conclude that the Department and USEC were in an agency relationship.
The purported relationship was not entered into by an authorized
official nor memorialized in writing. Indeed, the document that
memorializes the relationship — Modification M066 — does not
establish, or even suggest, that a principal-agent relationship was
intended by DOE. Furthermore, many of the USEC statements upon which
the GAO draft report relies to supports its position that such a
relationship existed are directly contravened by the contract
documents agreed to and signed by both the Department and USEC.
c. The Department did not violate the Miscellaneous Receipts Statute:
The GAO draft report's analysis of the miscellaneous receipts issue is
based entirely on its faulty conclusions about the purported agency
relationship between DOE and USEC; it contends that because the
transactions with USEC were sales, using USEC as an agent, the
Department violated the Miscellaneous Receipts Act by not depositing
the proceeds in the Treasury. As the Department has explained above,
the transactions with USEC were, in fact, barter transactions where
the Department transferred UF6 to USEC in exchange for accelerated
cleanup services, and therefore the miscellaneous receipts statute is
not called into question because no moneys were received, directly or
indirectly, by the Department.
III. Factual Clarifications:
The Department disagrees with a number of the factual statements or
assertions in the GAO draft report.
A representative list of material facts at issue is presented below.
* The GAO draft report states in several places that the Department
entered into the barter transactions with USEC and FBP with purpose of
avoiding the receipt of cash proceeds which would need to be deposited
into the Treasury. However, this is not consistent with DOE
documentation that the uranium barters with USEC were for the purpose
of accelerated cleanup at the Portsmouth site, with resulting cost
savings for the overall Portsmouth D&D project, and to "create jobs
and maintain a stable local workforce" at the site.
* Page 11 of the GAO draft report discusses the Department's inventory
of depleted uranium hexafluoride (DUF6). The GAO draft report
repeatedly refers to a net value for DUF6 ($4.2 billion), but gives no
source or backup information for this value. While the Department
agrees that the higher assay DUF6 (comprising about 15 percent of the
inventory of 750,000 MT DUF6) has potential value, it disagrees with
the GAO draft report's stated value, which appears to be tied to
market prices for clean and uncontaminated material. In addition, the
GAO draft report does not discuss the costs added to reprocessing the
DUF6 due to the age of the storage cylinders, the material condition,
packaging and transportation costs, or the cost of production (SWU),
all of which can reduce the net value of the material.
* Table 3 on page 13 inaccurately represents the Department's current
surplus highly enriched uranium (HEU) disposition plans. The MOX
Backup LEU Inventory Project is missing from the table, the Tennessee
Valley Authority (TVA) Project now ends in 2011, and other numbers are
incorrect. In addition, the totals shown by GAO for years 201 1-13 are
incorrect. The table should read as follows (this corrects only the
HEU disposition lines, the totals, and the percentages, shown in red):
Estimated total U.S. commercial nuclear fuel requirements:
2008: 19,250;
2008: 19,250;
2010: 19,250;
2011: 19,450;
2012: 19,590;
2013: 20,430.
Uranium sold, transferred, or planned for sale or transfer: To
American Assured Fuel Supply:
2008: 57;
2009: 88;
2010: 47;
2011: 44;
2012: 94;
2013: [Empty].
Uranium sold, transferred, or planned for sale or transfer: To MOX
Backup LEU Inventory:
2008: 0;
2009: 0;
2010: 0;
2011: 47;
2012: 128;
2013: 334.
Uranium sold, transferred, or planned for sale or transfer: To TVA:
2008: 905;
2009: 634;
2010: 24;
2011: 113;
2012: 0;
2013: 0.
Uranium sold, transferred, or planned for sale or transfer: To
Portsmouth:
2008: 0;
2009: 202;
2010: 921;
2011: 1,605;
2012: 1,605;
2013: 1,350.
Total:
2008: 1,039;
2009: 1,118;
2010: 1,094;
2011: 1,823;
2012: 1,827;
2013: 1,684.
Percent of U.S. Demand:
2008: 5%;
2009: 6%;
2010: 6%;
2011: 9%;
2012: 9%;
2013: 8%.
[End of table]
IV. Conclusion:
For all of the reasons discussed above, the Department agrees with the
GAO recommendation to update the Excess Uranium inventory Management
Plan. However, the Department disagrees with the GAO draft report's
contentions that it violated the law. The authoritative contract
documents speak for themselves, and do not create an agency
relationship. As no agency relationship was created and no money
otherwise was received by the Department, there was no violation of
the Miscellaneous Receipts Act.
Sincerely,
Signed by:
[Illegible] for:
Peter B. Lyons:
Assistant Secretary for Nuclear Energy:
Signed by:
Eric J. Fygi:
Deputy General Counsel:
Appendix IV Footnotes:
[1] The GAO draft report mentions, but does not analyze, the
Department's decontamination and decommissioning (D&D) contract with
Fluor B&W Portsmouth (FBP), which provides for partial payment with
UF6. At the time the GAO draft report was provided to the Department,
it had already completed one barter transaction with FBP, and the
Department anticipates nine additional quarterly transactions.
[2] Available at [hyperlink, http://energy.gov/gc/downloads/gc-
guidance-barter-transactions-involving-doe-owned-uranium]. While this
document was provided to GAO, and is publicly available, nowhere does
the GAO draft report refer to or refute any of the legal conclusions
found therein.
[3] The GAO draft report sets forth four characteristics of sales
agency apparently derived from 1 Mechem on the Law of Agency (2d ed.
1914). The GAO draft report does not explain how the contractual
arrangement between USEC and DOE embodies these characteristics, and
the Department does not believe the facts support the contention that
the "true nature and effect" of the relationship between DOE and USEC
satisfied these criteria. Id at § 48.
[4] Even if GAO's interpretation of the Mechem treatise is accurate,
the treatise and the three versions of the Restatement of Agency which
post-date it all recognize that where there is a requirement for
formalization of the agreement, the document so memorializing the
arrangement "must be produced or its absence accounted for." Id at
§ 257; see also Restatement (3d) of Agency § 3.03 (2006); Restatement
(2d) of Agency §26 (1958); Restatement of Agency § 26 (1933).
[5] See, e.g., Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384
(1947) ("Whatever the form in which the government functions, anyone
entering into an arrangement with the Government takes the risk of
having accurately ascertained that he who purports to act for the
Government stays within the bounds of his authority. The scope of this
authority may be explicitly defined by Congress or be limited by
delegated legislation, properly exercised through the rule-making
power.").
[6] Schweiker v. Hansen, 450 U.S. 785 (1981), advises that such
regulations are sufficient to prevent the application of estoppel to
the governMent. In Schweiker, a citizen who was eligible for certain
social security benefits followed the advice of an agency employee
that she did not meet eligibility requirements, and thus did not
comply with the regulatory requirement that an application for those
benefits must be in writing. The Court held that the petitioner could
not retroactively recover the benefits for which she had been eligible
because she had not followed the procedural requirements for receiving
them, stating that "a court is no more authorized to overlook the
valid regulation requiring that applications be in writing than it is
to overlook any other valid requirement for the receipt of benefits."
Id. at 790. Accordingly, here, absent authority to the contrary, the
GAO draft report cannot ignore the FAR requirement that contracts with
the federal government must be in writing.
[7] In addition, while recognizing that the GAO draft report is a
report of audit activities and not a court proceeding, the Department
notes that the GAO draft report's reliance on USEC's statements of its
interpretation of the agreement and of an alleged statement by an
unnamed Department official prior to execution of the contract
documents run counter to established legal principles. First, the
parol evidence rule, now considered by courts to be a substantive rule
of law, not a rule of evidence, "prohibits the admission of prior or
contemporaneous evidence seeking to add to or vary the terms of a
written agreement, when the parties have adopted the agreement as an
expression of their final understanding." Starflight Boats v. United
Stales, 48 Fed. Cl. 592, 595 (2001) (holding that parol evidence rule
precluded admission of an alleged secret oral agreement between a
government contractor and an agency official where the oral agreement
contradicted the terms of subsequent written contract modifications).
Accordingly, any statements or purported oral agreements USEC states
that it had with an unnamed Department official cannot vary the terms
of the contract modifications, which clearly contradict the GAO draft
report's interpretation of the relationship between DOE and USEC.
Second, "the existence of an agency relationship must
be established before an alleged agent's own statements demonstrating
such a relationship can be received as evidence," First Annapolis
Bancorp., Inc. v. United States, 72 Fed. Cl. 369, 370 n. 4 (2006)
(citing 4 Wigmore, Evidence § 1078 (Chadboum rev.' 972)), and the GAO
draft report relies in large part on USEC's statements as the basis
for this conclusion, likely because the contract documents forming the
actual relationship between DOE and USEC speak to the contrary.
[End of section]
Appendix V: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Gene Aloise, (202) 512-3841 or aloisee@gao.gov Susan D. Sawtelle,
(202) 512-6417 or sawtelles@gao.gov:
Staff Acknowledgments:
In addition to the individuals named above, Ryan T. Coles (Assistant
Director), Antoinette Capaccio, Ellen W. Chu, Cheron Green, Paul
Kazemersky, Karen Keegan, Mehrzad Nadji, Kathryn Pedalino, and Ginny
Vanderlinde, made key contributions to this report.
[End of section]
Footnotes:
[1] GAO, Nuclear Material: DOE Has Several Potential Options for
Dealing with Depleted Uranium Tails, Each of Which Could Benefit the
Government, [hyperlink, http://www.gao.gov/products/GAO-08-606R]
(Washington, D.C.: Mar. 31, 2008).
[2] According to DOE officials, the objectives of DOE's plan were to:
(1) enhance the value and usefulness of DOE's uranium; (2) reduce DOE
programmatic costs by decreasing uranium inventories; (3) meet key
nonproliferation objectives; and (4) dispose of unmarketable material
to facilitate the cleanup of DOE's uranium enrichment plants, in
addition to minimizing any material adverse impacts on the domestic
uranium industry.
[3] Fluor-B&W Portsmouth LLC is a partnership between Fluor Federal
Services, Inc., a subsidiary of Fluor Corporation, an engineering and
construction management firm, and Babcock & Wilcox Technical Services
Group, a subsidiary of the Babcock & Wilcox Company, a firm that owns
and operates large nuclear facilities. Both companies have experience
in the handling and disposal of nuclear waste and materials and have
worked with DOE to clean up other nuclear weapons facilities across
the United States.
[4] H.R. Rep. No. 111-278, at 121-22 (2009) (accompanying Energy and
Water Development and Related Agencies Appropriations Act, 2010, Pub.
L. No. 111-85, 123 Stat. 2845).
[5] USEC Privatization Act, 42 U.S.C. §§ 2297h-2297h-13 (2006);
miscellaneous receipts statute, 31 U.S.C. § 3302(b) (2006).
[6] Cold standby is an inactive status that maintains a plant in
usable condition so that production at the facility can be restarted
in the event of a significant disruption in the nation's supply of
enriched uranium.
[7] If constructed, this new plant would enrich uranium by gas
centrifuge, a technique that consumes far less energy than the gaseous
diffusion process used at DOE's Portsmouth and Paducah facilities.
[8] GAO, Nuclear Material: DOE's Depleted Uranium Tails Could Be a
Source of Revenue for the Government, [hyperlink,
http://www.gao.gov/products/GAO-11-752T] (Washington, D.C.: June 13,
2011).
[9] We used estimates for future fuel requirements identified by
Energy Resources International, Inc., in a market impact analysis it
prepared for DOE. See Energy Resources International, Inc.,
Quantification of the Potential Impact on Commercial Markets of DOE's
Transfer of Natural Uranium Hexafluoride during Calendar Years 2011,
2012, and 2013 (Washington, D.C., December 2010).
[10] Because DOE's first uranium transaction with Fluor-B&W Portsmouth
occurred as this report was being finalized, we did not analyze the
extent to which DOE's transaction with Fluor-B&W Portsmouth is
consistent with federal law. Therefore, this section discusses only
the transactions between DOE and USEC.
[11] Miscellaneous receipts statute, 31 U.S.C. § 3302(b) (2006) ("an
official or agent of the Government receiving money for the Government
from any source shall deposit the money in the Treasury as soon as
practicable without deduction for any charge or claim").
[12] 42 U.S.C. §§ 2093, 2201(m) (2006).
[13] We came to the same conclusion when analyzing a similar series of
transactions in 2006. See GAO, Department of Energy: December 2004
Agreement with the United States Enrichment Corporation, [hyperlink,
http://www.gao.gov/products/B-307137] (Washington, D.C.: July 12,
2006).
[14] The fact that these transactions were sales and not barters is
also significant to the question of whether DOE complied with federal
fiscal law. By not depositing the proceeds from these sales into the
Treasury, DOE violated the miscellaneous receipts statute, as
described in greater detail below.
[15] DOE officials have stated that they did not ask, but instead
allowed, USEC to solicit buyers or bids for the uranium. In addition,
DOE officials approved USEC's valuation of the uranium on the basis of
USEC's solicitation of bids. Because parties may assent to an agency
relationship by words or actions (see Restatement (Third) of Agency, §
1.01 (2006)), whether DOE expressly asked USEC to act as its agent, or
merely allowed it to do so and approved the resulting valuation, the
result is the same: USEC acted as DOE's agent.
[16] USEC, U.S. Securities and Exchange Commission, Form 10-K, Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
1934, fiscal year ending December 31, 2010.
[17] 42 U.S.C. § 2297h-10 (2006).
[18] Energy Resources International, Inc., Quantification of the
Potential Impact on Commercial Markets of DOE's Transfer of Natural
Uranium during the Period October 2009 through December 2013
(Washington, D.C., Nov. 5, 2009).
[19] DOE carried out a sixth transaction with USEC in March 2011. This
transfer was not included in Energy Resources International's November
2009 analysis.
[20] Energy Resources International also presented percentage price
changes for the spot market, which were based on the firm's estimated
price changes in the term market. In other words, the firm estimated a
percentage spot price change if the spot market were to experience the
same dollar amount of change in price as it had estimated for the term
market.
[21] Energy Resources International, Inc., Quantification of the
Potential Impact on Commercial Markets of DOE's Transfer of Natural
Uranium Hexafluoride. This study evaluated the impact on the domestic
uranium market of 12 additional transfers totaling up to 4,679 metric
tons of natural uranium in the 3-year period from January 2011 through
December 2013.
[22] Energy Resources International's expanded analysis of the
potential price impact on the spot market, found that DOE's 12
additional planned transfers would have no material adverse impact on
uranium producers.
[23] 31 U.S.C. § 3302(b) (2006).
[24] This concept refers to the clause of the Constitution stating,
"No Money shall be drawn from the Treasury, but in Consequence of
Appropriations made by Law." U.S. Const. art. I, § 9, cl. 7.
[25] GAO, [hyperlink, http://www.gao.gov/products/B-307137].
[26] Cummings v. Missouri, 71 U.S. (4 Wall.) 277, 325 (1866).
[27] GAO, Contractors Collecting Fees at Agency-Hosted Conferences, B-
306663 (Washington, D.C.: Jan. 4, 2006), and GAO, B-307137.
[28] DOE states that we did not refer to or refute the legal
conclusions in its internal Guidance on Barter Transactions Involving
DOE-Owned Uranium, which sets forth the department's position that it
has general authority under the Atomic Energy Act to barter uranium
for services as it did here. Our report does, however, present DOE's
position in this regard. Our report also highlights the fundamental
limitation that Congress placed on this general DOE authority: the
later and more specific provisions of the USEC Privatization Act,
which, as relevant here, authorize only sales of uranium. Because we
found that the transactions were sales, we did not consider and did
not decide whether barters are also authorized under the USEC
Privatization Act. We note, however, that barters are not explicitly
or clearly authorized by the terms of the Privatization Act. The
provision of the USEC Privatization Act applicable to transactions
involving the type of uranium at issue here authorizes only sales, and
other provisions draw a distinction between the terms "transfer" and
"sell." This distinction suggests that Congress did not intend for
sales to encompass barters, which might more easily be understood as a
type of transfer, rather than a type of sale. Furthermore, a 2006 bill
gave DOE temporary authority to barter uranium, suggesting that
Congress did not believe that DOE already had such authority.
[29] Merriam-Webster's Collegiate Dictionary, 11th ed. (Springfield,
Mass.: 2003).
[30] 42 U.S.C. §§ 2093, 2201(m) (2006).
[31] USEC Privatization Act, 42 U.S.C. §§ 2297h-2297h-13 (2006).
[32] 31 U.S.C. § 3302(b) (2006).
[33] 42 U.S.C. §§ 2093, 2201(m) (2006).
[34] To the extent that the Atomic Energy Act conflicts with the USEC
Privatization Act, that conflict should be resolved under the basic
tenet of statutory construction that the more specific provision takes
precedence. See, e.g., Preiser v. Rodriguez, 411 U.S. 475, 489-90
(1973). See also Watt v. Alaska, 451 U.S. 259, 266-67 (1981);
Radzanower v. Touche Ross & Co., 426 U.S. 148, 153 (1976); Morton v.
Mancari, 417 U.S. 535, 550-51 (1974); and Smith v. Robinson, 468 U.S.
992 (1984) (Brennan, J., dissenting).
[35] According to DOE, the material provided to USEC was uranium
delivered in 1997 and 1998 under the US-Russia Highly Enriched Uranium
Purchase Agreement. Public Law Number 105-277, which appropriated the
funds for the purchase of this material, specifically provided that
this material would become part of DOE's inventory.
[36] The additional conditions are a presidential determination that
the material is not needed for national security; a secretarial
determination that the sale of the material will not have an adverse
material impact on the domestic uranium mining, conversion, and
enrichment industries; and that the price paid to the Secretary will
not be less than the fair market value of the material. See 42 U.S.C.
§ 2297h-10(d) (2006).
[37] GAO, Department of Energy: December 2004 Agreement with the
United States Enrichment Corporation, [hyperlink,
http://www.gao.gov/products/B-307137] (Washington, D.C.: July 12,
2006).
[38] USEC, Inc., U.S. Securities and Exchange Commission, Form 10-K,
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, fiscal year ending December 31, 2010.
[39] GAO, [hyperlink, http://www.gao.gov/products/B-307137] (citing
Dorf International v. United States, 291 F. Supp. 690, 694 (Cust. Ct.
1968)). See also Pier 1 Imports, Inc. v. United States, 708 F. Supp.
351, 354 (Ct. Int'l Trade 1989); Rosenthal-Netter, Inc., v. United
States, 679 F. Supp. 21, 23 (Ct. Int'l Trade 1988); and J. C. Penney
Purchasing Corp. v. United States, 451 F. Supp. 973, 983 (Cust. Ct.
1978).
[40] 1 Mechem on the Law of Agency, §§ 44-48, at 28-32 (2d ed. 1914)
(general essence of agency to sell). See also Stansifer v. Chrysler
Motors Corp. 487 F.2d 59 (9th Cir. 1973); Rosenthal-Netter, 679 F.
Supp. at 25; and Pier 1 Imports, 708 F. Supp. at 355 (stressing
importance of identifying beneficiary of transaction in determining
whether party is agent or principal).
[41] The contract modifications did not provide for delivery of the
goods to USEC until after the contract modifications were signed. This
fact is not relevant to our analysis, however. Uranium is typically
sold through book transfer rather than through physical delivery, so
physical possession of the uranium was not necessary for USEC to
arrange for its sale. In other words, uranium is fungible. For
example, according to USEC officials, USEC did not deliver DOE's
uranium to the buyers. Instead, to complete the sales, USEC arranged
for book transfer at its Paducah enrichment facility, whereby the
buyers received title to an equivalent amount of uranium already
located there. Only later did USEC move what had formerly been DOE's
uranium to Paducah to replace what it had provided to the buyers out
of its other inventories.
[42] We requested but did not receive copies of these sales contracts
from USEC. Even assuming the contracts conditioned the sales on the
expected receipt of the uranium from DOE, sales were arranged before
USEC agreed to take the uranium as compensation. Thus, USEC was acting
as DOE's agent and not for its own benefit in selling the uranium
because it sold the material on DOE's behalf before it accepted the
material as part of its "barter" with DOE.
[43] The 10-K states in relevant part, "DOE funded work in 2010 under
our contract for maintenance services at the Portsmouth site ('cold
shutdown contract') in part through an arrangement whereby DOE
transferred to USEC uranium which USEC immediately sold. USEC's
receipt of the uranium was not considered a purchase by USEC and no
revenue or costs of sales was recorded upon its sale. This is because
USEC had no significant risks or rewards of ownership and no potential
profit or loss related to the uranium sale. The amount of work
provided, and therefore the total value of the contract modification,
was dependent on the net value of the uranium realized by USEC upon
each sale. Net value of the uranium equaled the cash proceeds from
sales less USEC's selling and handling costs. The net value from the
uranium sale was recorded as deferred revenue. Revenue was recognized
in our contract services segment as cold shutdown services were
provided."
[44] It is common for selling agents to be given title and possession
to property in order to effect a sale on behalf of the principal.
Potts v. Budget Rent-a-Car Sys., No. 04-074, 2005 U.S. Dist. LEXIS
27356, at *13 (N.D. Fla. Nov. 14, 2005) (citing Restatement (Second)
of Agency § 14N (1958)): independent contractor agents "also fall
within the category of trustees, as in the case of a selling agent who
has been given title to the subject matter . . . [and] there is an
agency [relationship] if in the transaction which they undertake they
act for the benefit of another and subject to his control").
[45] The letters indicated that broker fees were applied to sales to
certain parties, whereas other sales were made directly to buyers
without a broker fee.
[46] 42 U.S.C. § 2297h-10(d)(2)(C) (2006).
[47] When we considered a similar series of transactions between DOE
and USEC in 2006, we noted that DOE required USEC to submit a
marketing plan for DOE's approval. In the transactions we review in
this report, USEC was not required to submit a marketing plan to DOE,
but in requesting that USEC value the material, and in approving a
value derived from firm offers for the material, DOE effectively did
review USEC's marketing strategy.
[48] 1 Mechem on the Law of Agency, § 48, at 31 (2nd ed. 1914); see,
e.g., Arbuckle v. Kirkpatrick, 98 Tenn. 221, 252-53 (Tenn. 1897).
[49] 31 U.S.C. § 3302(b) (2006).
[50] For a more detailed discussion of the augmentation concept, see
GAO, Principles of Federal Appropriations Law, 3rd ed., vol. II,
[hyperlink, http://www.gao.gov/products/GAO-06-382SP] (Washington,
D.C.: February 2006).
[51] See, e.g., Cummings v. Missouri, 71 U.S. (4 Wall.) 277, 325
(1866).
[52] GAO, Contractors Collecting Fees at Agency-Hosted Conferences,
[hyperlink, http://www.gao.gov/products/B-306663] (Washington, D.C.:
Jan. 4, 2006), and GAO, B-307137.
[53] See, e.g., Scheduled Airlines Traffic Offices, Inc., v.
Department of Defense, 87 F. 3d 1356, 1361-63 (D.C. Cir. 1996)
(Defense Department cannot require payment to morale fund of a portion
of concession fees derived from unofficial travel); Motor Coach
Industries, Inc. v. Dole, 725 F.2d 958, 968 (4th Cir. 1984) (Federal
Aviation Administration cannot hold in a trust fund amounts paid by
airlines to defray the Aviation Administration's cost of acquiring new
shuttle buses for Dulles Airport); GAO, National Institutes of Health:
Food at Government-Sponsored Conferences, B-300826 (Washington, D.C.:
Mar. 3, 2005) (National Institutes of Health cannot authorize its
contractor to charge a fee to cover the costs of a formal conference
that hosted by the institutes); GAO, Securities and Exchange
Commission: Reduction of Obligation of Appropriated Funds Due to a
Sublease, B-265727 (Washington, D.C.: July 19, 1996) (Securities and
Exchange Commission may not reduce its obligation of appropriated
funds resulting from a lease and correspondingly increase its
available appropriations, by subleasing space and arranging for the
sublessee to make its payments directly to the landlord).
[54] GAO, SBA's Imposition of Oversight Review Fees on PLP Lenders, B-
300248 (Washington, D.C.: Jan. 14, 2004) (in compensating contractors
by requiring regulated lenders to pay the contractor's fees, the
agency received money for the government because the receipts were to
cover government expenses or obligations). Cf. GAO, Return of Proceeds
from Diesel Fuel Sales, [hyperlink,
http://www.gao.gov/products/B-205901] (Washington, D.C.: May 5, 1982)
(money received by the Federal Bureau of Investigation for sales of
diesel fuel belonging to a private company as part of an undercover
operation was not money for the government and did not have to be
deposited into the Treasury).
[55] GAO, General Services Administration and Real Estate Brokers'
Commissions, B-302811 (Washington, D.C., July 12, 2004), and GAO,
General Services Administration: Real Estate Brokers' Commissions,
[hyperlink, http://www.gao.gov/products/B-291947] (Washington, D.C.
Aug. 15, 2003).
[56] As we noted in our 2006 decision with respect to the USEC
transactions at issue then, an agency may accept replacement for a
damaged item without depositing the value of the replacement item into
the Treasury. See GAO, Bureau of Alcohol, Tobacco, and Firearms:
Augmentation of Appropriations: Replacement of Autos by Negligent
Third Parties, 67 Comp. Gen. 510 (Washington, D.C.: July 12, 1988). We
concluded in this analysis, as we did in 2006, that this scenario does
not constitute an in-kind replacement of damaged items. Rather, DOE is
seeking to pay for new services--the accelerated cleanup of the
Portsmouth Gaseous Diffusion Plant--not to replace or repair federal
property.
[End of section]
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