6/13/2014

 

The four recent Department of Energy uranium transfers that supported USEC totaling in the hundreds of millions of dollars may have been done illegally, according to a Government Accountability Office report released this week that sparked strong disagreement from DOE. The Department undertook the transfers in 2012 and 2013 largely to help fund USEC’s American Centrifuge technology as well as provide enriched uranium to be used for national security purposes. But DOE did not go through the legally required steps to gain approval for those transfers, GAO said. DOE also has major inconsistencies in how it assessed the value of depleted uranium tails, sometimes treating them as waste and sometimes giving them great value. But DOE vehemently disagreed with GAO’s legal analysis and seemed to question GAO’s authority to interpret laws. 

 

DOE and USEC have had a “long and complex” relationship, the report states. DOE relies on USEC as the sole domestic enrichment capability, which is needed to produce material that can be used for national security purposes such as tritium production and naval reactor fuel. Future domestic enrichment hopes are pinned on USEC’s American Centrifuge technology under development, but waning market demand and other issues have led to financial issues and ultimately pushed USEC into bankruptcy proceedings underway. As a result, DOE has launched programs to support American Centrifuge, which have largely been funded by the uranium transfers. But these transfers were strongly opposed by some lawmakers, who said they circumvented the appropriations process, as well as supporters of the uranium mining industry, which said the transfers add to issues with the current low demand for uranium. 

 

 

GAO identified legal concerns with all four of DOE’s uranium transactions. The first occurred in March 2012, when USEC transferred to DOE disposal liability for uranium tails, freeing up $44 million the company could then spend on American Centrifuge. In May 2012, a uranium tails re-enrichment deal between DOE, USEC and the utilities TVA and Energy Northwest was launched in an effort to keep the Paducah Gaseous Diffusion Plant operating, as well as increase the tritium supply by 15 years. In June 2012, DOE accepted another $87.7 million in tails liability, freeing up more money to be spent on American Centrifuge. Finally, in March 2013 DOE transferred the uranium back to USEC it had taken over liability for the previous March.

 

With the largest transaction, the re-enrichment deal, “GAO believes that DOE likely did not have authority to transfer tails under restrictions imposed by the USEC Privatization Act,” the report states. “DOE disagreed, citing its authority to conduct this transaction under the Atomic Energy Act. Even if DOE had such authority, GAO found that it did not meet the Act’s requirement to charge a price for the tails because it transferred them without charging any price at all.” In the March 2013 deal, “DOE transferred ownership of uranium material that it previously obtained to meet national security needs, without obtaining a presidential determination that the uranium material was no longer necessary for national security needs, as GAO found is required by the USEC Privatization Act,” the report states.

 

 

But DOE strongly disagreed with GAO’s legal assessment. “The heart of the GAO draft report is that two elements of the USEC Privatization Act … by their silence have repealed express provisions of the Atomic Energy Act that explicitly authorize DOE to engage in certain transactions involving uranium and other materials,” states an April 18 letter to GAO from DOE Deputy General Counsel Eric Fygi. “Such patently erroneous legal contentions cannot contribute to meaningful assessments of the Department’s performance of its various responsibilities.” The letter also cited the Supreme Court as stating that interpreting a law of Congress should not be done by an office under Congress’ control. But the GAO took issue with that statement. “ DOE appeared to question whether GAO has legal authority to interpret federal laws and to evaluate whether agencies have complied with them. However, it is GAO’s statutory duty to assist the Congress in carrying out its oversight and appropriations responsibilities,” the report states.  

 

 

Another issue cited by GAO is that DOE doesn’t have guidance or a “consistent method” for determining the value of tails in such transfers. “Lacking such guidance, DOE treated the tails that it transferred to Energy Northwest in May 2012 as a liability and determined that there was no cost to the department for this transfer. The department’s treatment of tails without value in this instance directly contradicts how it treated tails in other situations, such as in 2013 when it determined DOE’s inventory of tails were an asset and sought to sell them with the express purpose of creating ‘value’ for the U.S. government and in 2005 when it set a per-cylinder price for tails,” the report states. “Because DOE may sell or transfer additional tails in the near future, having guidance that provides a consistent and transparent method for determining the value of tails in the context of a transaction is timely and necessary to help DOE ensure that it is receiving reasonable compensation in return for its tails.”

 

DOE did not conduct quality assurance reviews for the two uranium impact studies that supported the transfers, according to GAO. “The studies included limited information about their methodology, data sources, and assumptions, and we identified several shortcomings with the studies that raise questions about the definitive conclusions that were drawn,” GAO said. It added: “Further, by removing the annual 10 percent guideline from its 2013 Excess Uranium Inventory Management Plan, without input from industry, DOE has introduced uncertainty in the domestic uranium market. This action runs counter to DOE’s stated objectives in the updated plan to provide current information and enhanced transparency to the general public and interested stakeholders regarding the management of DOE’s potentially marketable uranium.” 

 

The GAO had several recommendations on the issue. “We continue to believe that our previous matter for congressional consideration—that Congress consider clarifying DOE’s statutory authority to manage depleted uranium and provide explicit direction about whether and how DOE may sell or transfer depleted uranium—could, if implemented, help to address these concerns,” the report states. “We also believe the transparency of future uranium transactions would be enhanced if DOE takes steps to expressly and publicly cite the legal authorities governing uranium transactions that it believes authorize its transactions and demonstrates that it satisfied the conditions required by the cited legal authorities.” 

 

 

When asked if the findings of the report would influence the way DOE conducts future uranium transfers and market studies, a DOE spokesperson referred request for comment to the Department’s response in that report. The DOE letter generally disagrees with all six of GAO’s recommendations. In response, the GAO report stated: “We believe transparency is a fundamental tenet of good government and that our recommendations support actions needed to enhance DOE’s transparency.” It adds, “We believe it is incumbent upon DOE to provide public information on the costs and risks of, market impact for, and legal authorities for its uranium transactions. Furthermore, we find it difficult to reconcile DOE’s unwillingness to improve publicly available information about its uranium transactions with the stated objectives of DOE’s 2013 uranium management plan, which seeks to provide current information and enhanced transparency.”

 

 

Sen. Ed Markey (D-Mass.), who requested the report in 2012 along with Rep. Mike Burgess (R-Texas), said in a statement: “Our government has kept this uranium company on life support, wasting money and flouting the law, even though it was clear that it would end up in bankruptcy. This is the kind of government waste that Americans just don’t understand. It’s time to commit this junk technology to the junk bin.” Burgess also weighed in. “For the past decade, the Department of Energy has turned a blind eye to how its actions have deeply hurt the livelihoods of so many uranium workers in western states,” Burgess said in a statement. “Americans place their trust in the U.S. government to act in their best interest, and DOE has abused that trust by taking hard-earned tax dollars and wasting them on a junk project in a way that was wasteful and, indeed, illegal.” 

 

 

The industry group Uranium Producers of America said the new report “should be a wake up call” for the Department of Energy. “Given the significant effect these transfers have on our industry, any market analysis should be thoroughly reviewed and submitted for public comment before being finalized,” UPA President and Uranium One executive Scott Melbye said in a statement. “More transparency will greatly improve the process. As GAO noted, the methodology used by DOE’s contractor is not public, the conclusions are based on imprecise market data, and the analysis fails to consider the cumulative market effects of the transfers.” 

 

 

USEC also responded to the GAO report, releasing a statement that states in part that “USEC’s transactions with the Department to support the mid-term needs of the U.S. Government for unencumbered low enriched uranium and the development and deployment of a U.S. uranium enrichment technology for the long-term supply of LEU to produce tritium have supported these goals at minimal cost to the government.” It also notes: “USEC has not charged a fee or earned any profit from its centrifuge demonstration activities with DOE, and in fact paid for more than 20 percent of the cost of the RD&D program funded under the cooperative agreement.”