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healthy in this area to provide some independent, technical analysis review of the other party's work.
Chairman HATFIELD. We do have some additional questions for you, Mr. Secretary, which will be included at the end of the hearing. Mr. VAUGHAN. We will be very pleased to promptly respond.
NRC REPORT ON HANFORD SITE Chairman HATFIELD. Mr. Rusche, last year in the hearings, you recall, I made reference to the U.S. Geological Survey and the NRC's critical comments concerning DOE's site evaluation report of the Hanford waste site. Can you comment on what actions have been taken, if any, relating to the criticisms and concerns of these other Federal agencies?
Mr. RUSCHE. I do remember your questions and comments, and I would like to note that even at the time we were in the process of discussions with both of those bodies, and I believe it is fair to say that those particular questions have been addressed, and, I think, resolved.
I suspect that if we talk again today, we will find that there are other matters that continue to provide a diversity in the program. I believe, though, that we have made considerable progress, particularly with the ground water problems and ground water monitors, which were the subject of those questions last year, particularly from the survey. We have a good working relationship with the Commission, and it continues to improve. I believe it is fair to say that we have made great progress.
OREGON-WASHINGTON COOPERATION IN REVIEW OF HANFORD SITE Chairman HATFIELD. Mr. Rusche, you also recall last year, perhaps, there was an expressed interest or concern by the Congress to incorporate the working relationships between Oregon and Washington on the potential impact of the Hanford site on the Columbia River. Can you give me a status report of this joint effort?
Mr. RUSCHE. Both as a result of your comment and other members of the delegation, we announced and stated we would be happy to receive their requests in concert with the State of Washington. The act, if you will recall, places specific direction on our interaction with affected States. By the direction of the act, Oregon is not a directly affected State. There is no question about the proximity and the relevance of the comments you made. I believe the State of Oregon and the State of Washington people have had several meetings. To the best of my knowledge, we have not yet had a joint funding request, but we are prepared to accept it and be responsive to it in a positive way.
Chairman HATFIELD. Do you have any additional information on that? Would you submit it for the record?
Mr. VAUGHAN. I would be glad to, Mr. Chairman. (The information follows:)
HANFORD SITE Under the Washington State grant, a contract has been signed by the States of Oregon and Washington, with DOE review and concurrence, to give Oregon $100,000 for fiscal year 1986 to fund a study related to the potential siting of a repository at Hanford.
Chairman HATFIELD. I am glad we are not hung up on technical definitions as it relates to the practical impact of some of these things.
Mr. RUSCHE. We can't escape the technical ones, but we have got to work with them, and I think this is a practical way to work.
Chairman HATFIELD. It always reminds me of 1964, I would say to my colleagues, there was a wind that came upon the Oregon coast and moved inward, inland, reaching, I think, 150 miles an hour in some areas with tremendous destruction. But the Weather Bureau does not have in its handbook of nomenclature a word such as a tornado or hurricane, because they don't happen on the west coast. Therefore, they have never been able to officially ever call it other than a windstorm. So, in spite of the fact that it was a hurricane, we have never gotten an official recognition because of the technical definitions and so forth.
Mr. RUSCHE. We have tried to go beyond that, sir, and I think in the case you are referring to, we are willing to work in the manner you suggested.
Chairman HATFIELD. Because it happened on Columbus Day, we call it the Columbus Day windstorm. (Laughter.]
Senator DOMENICI. The Italian windstorm. (Laughter.)
Chairman HATFIELD. I would like to again recognize the Senator from New Mexico, if he would like to pursue the question now with the witnesses.
URANIUM ENRICHMENT ENTERPRISE
Secretary Vaughan, I want to ask you a series of questions about the uranium enrichment criteria that are presently being contemplated. As I understand it, the notice of proposed rulemaking in 10 CFR on January 29, 1986, is published. I would like to ask some questions concerning the uranium enrichment activities as it precedes all of this to see if I can get in my mind some clarification of how we figured out the account.
So let me start. I hope it doesn't take too much of your time. I will try to be very careful and quick, because we are all going to run out of time here.
Mr. VAUGHAN. I think what I would like to do, Senator Domenici, is first of all, thank you for your keen interest and constructive comments regarding the uranium enrichment business over the years. We have appreciated that. I am going to ask Mr. Longenecker to help me respond to your questions crisply, because I suspect you will have some data in a number of areas.
Senator DOMENICI. Fine; let me start.
The first separate financial statement of uranium enrichment activities, as I understand it was published in 1971. What was the initial
opening balance for the government investment line item, including physical plant, preproduced inventory and working capital? Do you know what that number was?
Mr. LONGENECKER. It was about $1.5 billion, Senator. Of that amount, $1 billion of that was the estimated value of the gaseous diffusion plants and the other half billion was inventories and other assets transferred to us at that time.
Senator DOMENICI. How much of that investment had been for military purposes?
Mr. LONGENECKER. Essentially all of it. The gaseous diffusion plants were built in the fifties for military purposes and a significant portion of the inventory had been built for military purposes as well.
Senator DOMENICI. What was the initial value of the physical plant as transferred to the Uranium Enrichment Service on June 30, 1970, and the initial value for working capital in inventory?
Mr. LONGENECKER. The gaseous diffusion plants cost about $2 billion when they were built in the 1950's for military purposes. When we assumed ownership in 1969, it was an accounting assumption that the plants were about half depreciated. So we picked them up at a net book value of $1 billion.
Senator DOMENICI. Of the half billion dollars for working capital and inventory, did it also cover inventory for military use later?
Mr. LONGENECKER. The inventories that we accepted were in enriched uranium, and at that time our primary customer was the military. So, we used those as working inventories for both civilian and military customers.
RECOVERY OF GOVERNMENT COSTS Senator DOMENICI. As I understand it, the administration is proposing to make repayment to the Treasury of what is called prior unrecovered Government costs.
How do you compute the amount, as far as your Department?
Mr. LONGENECKER. We computed the value from our annual financial statements for uranium enrichment. We started with the original $1.5 billion that was put on the books in 1969. We had increased that estimated asset value to about $7.5 billion by 1985 by investing in enriched uranium inventories, upgrades to the gaseous diffusion plants, and in construction of the GCEP project.
However, by the end of 1985, we recognized that GCEP would never be operated and had no value in the market, wasn't usable. Also, a large portion of the three gaseous diffusion plants were not going to be usable in the future as enrichment assets and had no value in the market.
We arrived at the real asset value for uranium enrichment today of about $3.5 billion.
Senator DOMENICI. I assume that OMB calculates this in a different way and reaches a different amount. You don't have to tell me what it is. Is that a fair statement?
Mr. LONGENECKER. I believe we and OMB are in agreement that the net value of our assets are $3.5 billion.
Senator DOMENICI. All right. What portion of the prior unrecovered Government costs consist of uranium and what portion SWU?
Mr. LONGENECKER. Of the $3.5 billion, about $2.1 billion is inventories. Of the $2.1 billion, approximately $1.7 billion is separative work and about $400 million is natural uranium.
Senator DOMENICI. What is the net asset of uranium enrichment activities today?
Mr. LONGENECKER. Our total assets are worth $3.5 billion, and of that $3.5 billion, $2.1 billion consists of separative work and natural uranium.
Senator DOMENICI. Do you set the price of SWU on the basis of recovery of Government costs on an annual basis on a 10-year project basis?
Mr. LONGENECKER. On a 10-year projected basis. Under the Atomic Energy Act, we arz required to recover costs over a reasonable period of time, which we now define that as 10 years.
Senator DOMENICI. Did the domestic customers, as you view it, understand that by signing the contracts with DOE, they would have to pay additional Government costs at a future date?
Mr. LONGENECKER. Senator, we issued the utilities services contract in January 1984, and we didn't articulate our policy on making the $3.5 billion payments to Treasury until January 1986. This policy is discussed in our proposed rulemaking and customers will have an opportunity to comment on it. But, the simple answer is “No.” We announced the repayment policy about 2 years after the utilities services contracts were issued.
Senator DOMENICI. I thank you. I understand it.
Did DOE use program revenues to offset operating expenses in R&D and to expand the production capacity?
Mr. LONGENECKER. Yes.
Senator DOMENICI. DOE claims that the civilian program has received, if I understand correctly, $788 million in net appropriations.
Mr. LONGENECKER. That is our calculation for civilian purposes from 1969 through 1984 for the net cash flow, not appropriations.
Senator DOMENICI. OMB claims the amount is $6.7 billion, and the GAO thinks it is $7.5 billion; is that correct?
Mr. LONGENECKER. Those were actually calculations of our total asset value rather than the net cash flow that we have received.
Senator DOMENICI. So do you conclude that you are in agreement with GAO and OMB at this point?
Mr. LONGENECKER. I would hesitate to speak for GAO, but the administration's position is that the net value of our assets is $3.5 billion. That derives from the $7.5 million estimate minus the value of GCEP and the unused portion of gaseous diffusion plants. I believe that we and OMB are in agreement that the net cash flow was about $780 million for civilian purposes through the years.
Senator DOMENIC. The utilities maintain that the civilian programs have received only $350 million in cash outlays from Treasury. If the same pricing mechanism used today had applied in the past for military programs, do you agree that the net cash flow contribution from the Treasury to the civilian program since 1969 is about $350 million?
Mr. LONGENECKER. That is probably a reasonable estimate. I understand, since they have testified to that estimate twice recently, that the $350 million number is based on an historical accounting of military costs based on today's standards. As you are aware, before 1983, the military didn't budget for their enriched uranium. Therefore, doing that calculation involves 15 years of past accounting. In fact, in 1986 we changed our accounting procedures and allocation of costs to be sure that costs are adequately spread between the military and civilian.
But taking a look at the calculation that they have presented to other committees and looking at our pricing formula today, I would have to agree that $350 million is probably a reasonable estimate of cash flow to the civilian program.
Senator DOMENICI. I thank you very much.
ADDITIONAL PREPARED QUESTIONS FOR THE RECORD Gentlemen, there will be, as I indicated earlier, some prepared questions submitted to you. I appreciate your cooperation and the rest of your testimony.
Mr. VAUGHAN. Thank you very much, Mr. Chairman. (The questions and answers follow:)