Sweetheart Deal for Kentucky Uranium Enrichers, Bad Deal for America

Posted on Sat 06/11/2011 by

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By Jack SpencerDepartment Of Energy

The Department of Energy (DOE) holds approximately the equivalent of 59,000 tons of natural uranium. This includes low-enriched uranium, highly enriched uranium, depleted uranium left over from past enrichment, and natural uranium. With additional processing, much of it could be used to fuel America’s nuclear reactors. Depending on the spot price of uranium and the process required to get it to usable form, the DOE’s excess uranium is worth approximately $7 billion.

Leaving the uranium under government control makes no sense. It not only denies taxpayers the value of the asset but costs them additional dollars to store and to maintain it. Further, it denies American electricity consumers access to a valuable energy resource. But releasing this uranium must be done in an organized way to maximize taxpayer benefit without undue disruption to global uranium markets.

The best way to achieve this is to release all the uranium through a system of competitive bidding over a specified period of time—say, 10 years. This would ensure that taxpayers receive fair value for the assets and allow the uranium to be introduced in a limited way over a predictable time period.

The House is currently considering H.R. 2054, the Energy and Revenue Enrichment Act of 2011, which would allow about $1 billion worth of DOE’s depleted uranium to be re-enriched and sold into the market. Unfortunately, it rejects the competitive bidding process by defining the type of company that could engage in the re-enrichment in such a way that only one company could meet the conditions.

Specifically, the bill states that an enrichment plant means:

A uranium enrichment plant owned by the Department of Energy with respect to which the Nuclear Regulatory Commission has made a determination of compliance under section 1701 (b) (2) of the Atomic Energy Act of 1954.

It goes on to define the operator of said enrichment plant as:

A company that has experience in operating an enrichment plant under the Nuclear Regulatory Commission authorization and has the ability and workforce to enrich the depleted uranium that is owned by the Department of Energy.

Only one company meets the conditions set forth by these term: the United States Enrichment Corporation (USEC), the former government-owned enrichment company that operates a facility in Paducah, Kentucky, that employs 1,200 and will likely shutter if it does not get this contract.

Translation: This is a not very well-disguised attempt to give a sweetheart deal to a specific company. These used to be called earmarks.

There are many problems with this approach:

  • It removes competition. Although the legislation says that the Secretary of Energy “shall seek to maximize the financial return to the Federal Government,” it creates a situation where there is only one bidder for services. This is unjustified when other companies could compete for the contract. The unfortunate part is that USEC may well win the contract regardless. But because the legislation removes competition, it would now be able to inflate its prices at taxpayer expense.
  • It limits options. The underlying premise of the legislation, besides being a jobs program for western Kentucky, is to generate funds for the federal government while disposing of a liability. But it makes a critical error in both regards by assuming that Congress can best define how to achieve those worthy goals. A better approach is to issue a request for proposal to dispose of DOE’s depleted uranium. Then companies can determine how best to meet those objectives through a competitive proposal process. Some may choose the process currently envisioned by the legislation; others may come up with a better approach.
  • It stifles innovation. Because the legislation removes competition and defines specifically how to meet its objectives, it takes away the opportunity for companies to bring new and innovative approaches to helping the government to dispose of its uranium. Although the nuclear industry has not built a new reactor is decades, it is very active in the fuel sector, plant operations, and nuclear site clean-up. These are the areas of expertise that could be brought to bear for the DOE’s disposition program. But this legislation prohibits that.
  • It costs taxpayers. The lack of competition and limits on innovation will yield inflated prices. Even if USEC eventually won the bid, the competitive process would ensure that it provided its service at the best possible price.

All We Are Saying Is: Give Competition a Chance

Competition serves consumers and industry. It gives consumers low prices and new products while forcing industry to innovate and maximize efficacy. While sweetheart deals, special treatment, and other breaks may seem to have some short-term benefit to their recipients, the fact is that it promotes technological stagnation and poor business practices. This is the wrong model for America’s nuclear industry.

Contributing Author Jack Spencer writes at The Heritage Foundation . http://www.heritage.org/  and he is a Research Fellow in Nuclear Energy at The Heritage Foundation’s Roe Institute for Economic Policy Studies.

Read more informative articles at Heritage – The Foundry . http://blog.heritage.org/

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