Summary: GAO discussed its views concerning recent intiatives and proposals in the Department of Energy's (DOE) uranium enrichment program. The program's competitive position has steadily deteriorated in recent years due to: (1) differences in the market environment since the full-cost recovery requirement for the program was established; (2) lower prospects for growth in the nuclear power industry; (3) foreign competition; (4) emergence of a secondary market for enriched uranium; and (5) the program's high prices. Some of the DOE initiatives to cope with this situation, however, conflict with the enrichment program's statutory cost recovery requirement. As part of its new strategy, DOE offered a utility services contract to its existing and prospective customers and introduced accounting modifications for pricing purposes to reduce program costs. GAO found that DOE should have amended its uranium enrichment services criteria to conform to the anticipated provisions of the contract, since the criteria do not specifically authorize the guaranteed ceiling price included in the contract. GAO was also concerned that DOE deprived Congress and other affected parties from meaningful participation in the contract decisionmaking process. GAO also found that DOE has made accounting modifications to meet its full-cost recovery requirement and still meet the contract's guaranteed ceiling price; this action in effect constitutes a subsidization of the enrichment program in contravention of the Atomic Energy Act of 1954. GAO believes that, given the complexity, cost, and national significance of the program, there is a need for a broad-based reevaluation of the program by Congress. Such a reevaluation involves addressing the continued viability of full-cost recovery pricing in the highly competitive enrichment market and the related implications of U.S. efforts to introduce advanced enrichment technologies and retain a substantial share of the world uranium enrichment market.
