Mismanagement in the Department of Energy's uranium-enrichment program -- financed with nuclear-industry user fees -- has caused a $7.5 billion deficit over the past 14 years, key congressmen and industry observers have charged.
That loss must be paid for by the utilities through the rates DOE charges for the services, according to the Atomic Energy Act. Because the agency fears its customers will switch to more competitive uranium-enrichment sources if rates are raised substantially, leaving the program bankrupt, the DOE wants taxpayers to swallow $4 billion of the deficit.
Enriched uranium is used as a fuel to generate electricity, for submarine propulsion and to make weapons.
"If we run the business in a competitive way, ultimately the taxpayer will get back $3.5 billion," said John R. Longenecker, deputy assistant secretary for uranium enrichment at the DOE. "If we try and recover the $7.5 billion, by the year 2000 we would be making no civilian sales."
Congressmen and industry sources have criticized the DOE for creating the problems by going forward with construction projects in disregard of General Accounting Office reports issued in the early 1980s that questioned the demand for uranium-enrichment services, costs of new technologies to enrich uranium and the need for plant construction.
Longenecker said both the DOE and Congress were responsible for wrong decisions having to do with enrichment-facility construction in the 1970s and early 1980s that led to the deficit. "We did not do this in a vacuum; each year Congress appropriated money on it," he said.
"We both made a mistake, we did the wrong thing for the country -- they were government mistakes we should not have made."
But some congressmen believe more of the responsibility lies with the DOE and nuclear utilities. "The Reagan administration is fond of saying that 'government should be run more like a business,' " said Rep. Edward J. Markey (D-Mass.), chairman of the House subcommittee on energy conservation and power. "If that were the case, then the managers of this program would be reprimanded for overseeing the worst-managed government program.
"I call spending $3 billion on a plant they didn't need gross mismanagement."
Rep. Ron Wyden (D-Ore.), a committee member, said, "There were all these critical reports, but they had a strategy to keep us always going.
"Mismanagement? I don't think you can conclude anything else."
Rep. Gerry Sikorski (D-Minn.) called the DOE's proposal for "writing off" the debt "a $4 billion heist of the Treasury by the nuclear power industry with the DOE driving the getaway car." Nuclear utilities "aided and abetted the fix we're in" by pushing the DOE to build new facilities, he said.
The DOE was given the responsibility of developing enrichment services for utility use in 1964, when it was known as the Atomic Energy Commission.
Although demand for enrichment services was rising rapidly in the mid-1970s -- so much so that the United States could not guarantee its deliveries -- none of DOE's forecasts was on target.
By the time the DOE had built a new, state-of-the-art plant at Portsmouth, Ohio, worldwide demand for enriched uranium had fallen to one-sixth the amount predicted. Other European consortia offering the services at competitive prices already had been formed and enriched uranium is in oversupply.
"There was a lot of information available which indicated the situation they were developing, and they rejected it," said a GAO official. "They were turning a blind eye to what the facts were."
The costs DOE now faces include $2.5 billion associated with the new nuclear enrichment facility in Portsmouth, closed in 1985; $1.2 billion in improvements to existing plants that are not running at full capacity, and $300 million in interest expenses.
A newly formed company, American Enrichment Co. Inc., based in the District, is now proposing to take over the Portsmouth plant. "It's state of-the-art technology that ought not go to waste," said one investor in the company. Investors include Swuco Inc., a District-based uranium-enrichment brokerage, and other players in the nuclear industry.
The proposal is being presented to the DOE, the Office of Management and Budget and to members of Congress. Meanwhile, the nuclear industry says it would rather walk away from the DOE program and into the arms of its competitors than pay higher rates for the services.
"The DOE's prices will be the most noncompetitive in the world, and we will contract for services where they are lower cost," said Loring Mills, vice president of nuclear activities for the Edison Electric Institute, which represents 55 nuclear utilities.
"If revenues that utilities paid were used for the Portsmouth enriching plant . . . why should we pay twice?" he said.
"The $7.5 billion is a figment of the imagination of the General Accounting Office" in the face of budgetary constraints, he said. Furthermore, the costs of running the enterprise never were broken out according to how much was allocated to the commercial and military sectors.
John Norris, an official at Duke Power Co. in Charlotte, N.C., which represents 5 percent of DOE's nuclear-enrichment business, said DOE was charging prices 40 percent to 50 percent higher than its foreign competition and the utility already was shopping for a better deal.
"The enrichment market is a free market," he said. "There are at least four major companies that sell enrichment services to the free world."
But industry observers say nuclear utilities have paid for only a fraction of the cost of the new and upgraded plants. "The utilities haven't paid twice -- they haven't even paid the first time except for a small part of the new Portsmouth plant," said Jeanine Hull, an energy lawyer at Kirkpatrick & Lockhart, a Pittsburgh firm with offices in the District.
"The DOE used monies that they told their customers were going to pay off the Treasury debt and instead invested those monies in a new plant and upgrade programs."
The DOE's Longenecker said the agency should not have to recover money for facilities that are not being used and has issued a new set of rules that essentially enables the agency to decide what costs are "appropriate" to recover. DOE maintains only $700 million worth of appropriations have not been covered by user fees.
"They are dead assets, you should not charge your customer for them," he said.
"In this case, the stockholders are the taxpayer. We are telling them the company in which they own stock is worth $3.5 billion not $7.5 billion, but they do get a healthy business and that means half a billion dollars a year in trade, 10,000 jobs in this country, energy security, and important nonproliferation leverage."
Longenecker said "no one could have predicted" what would happen to the nuclear industry between 1975 and the present day. Now, the agency is decreasing the price for uranium enrichment in exchange for customer commitments. In offering lower prices, Longenecker said overall market share can be increased, and the $3.5 billion returned to the Treasury over a period of about 20 years.
The GAO has called DOE's new rules contrary to the law. "This permits DOE to determine that some government enrichment costs are not appropriate for recovery," said J. Dexter Peach, director of the resources, community and economic development division of the GAO. "It is inconsistent with the full cost-recovery requirement now embodied in the Atomic Energy Act."
The GAO has called for a full review of the situation and said only legislation passed by Congress could change the law.
The OMB thinks it may not be reasonable to expect the DOE to recover the entire sum of money. But congressmen and taxpayers remain adamant that taxpayers shouldn't have to foot the bill.
The options left are legislation requiring utilities to buy enrichment services domestically and directing the DOE to pay back the whole sum over a period of decades, to live with the agency paying back less or to subsidize the program, say Capitol Hill sources.
"I think there is a possibility for a compromise but that is a decision for Congress to make and not the Department of Energy," said Rep. Markey. "If its determined it's just not reasonable to pay the whole sum back, Congress will pick the number." CAPTION: Picture, Construction on a DOE plant in Portsmouth, Ohio, was halted in 1985 after $2.5 billion had been spent. Dept. of Energy Photo