Fair Value Pricing of Uranium Enrichment Services

The Department of Energy (DOE) is the sole supplier of uranium enrichment services in this country. The basis used for setting enrichment service prices has been the recovery of the Government's costs over a reasonable period of time. Under a fair value pricing concept, enrichment service prices would be based on what a private enricher would charge if it owned and operated a uranium enrichment facility. This would allow DOE to include price factors for normal business charges such as return on equity, taxes, and insurance, and it would put the Government's enrichment activity on a business-like basis. GAO has been in favor of fair value pricing of enrichment services to prepare for and ease the eventual transfer of enrichment technology to private industry and to increase revenues from enrichment services. DOE now has reservations about changing to fair value pricing because of growing competition from foreign enrichment sources. In 1978, the advantages for changing to fair value pricing were the elimination of an existing subsidy to companies purchasing uranium enrichment services, the lowering of potential barriers to private industry's entry into the uranium enrichment business, and an increase in revenues from enrichment operations. The disadvantages were a slight increase in the consumer cost of electricity generated from nuclear energy and the potential for encouraging customers to seek enrichment services elsewhere. The extent to which additional revenues from fair value pricing would accrue to the Government cannot now be estimated with confidence. Demand for enrichment services has decreased, DOE recently announced price increases, and substantial competition from foreign countries has emerged. The potential loss of customers could be minimized through carefully formulated criteria for implementing fair value pricing, which allows appropriate consideration of world market conditions. Supply assurance, rather than prices, may be the determining factor in the gain of new enrichment customers.