Nuclear Waste

The 177 underground storage tanks at the Department of Energy's (DOE) Hanford, Washington, site hold highly radioactive waste and other materials that pose a significant threat to the environment and surrounding communities. DOE recently revealed that waste leaking from some of the tanks had reached the groundwater and threatened the nearby Columbia River. DOE decided in 1996 to buy waste treatment services through competitively awarded, fixed-price contracts to demonstrate treatment technologies and treat at least six percent of the waste. Under these contracts, competing firms would build and operate temporary waste-processing facilities and be paid on a per-unit basis if they successfully immobilized the waste for storage. But in August 1998, DOE signed a contract with only one company--a subsidiary of British Nuclear Fuels, plc.--to build and operate permanent facilities to treat about 10 percent of the waste in Hanford's tanks. In view of the billions of dollars that the government will spend to treat this waste, this report assesses the implications of DOE's revised approach. GAO discusses (1) how DOE's current approach has changed from its original privatization strategy; (2) how this change has affected the project's schedule, cost, and estimated savings over conventional DOE approaches; (3) the risks involved in changing the approach; and (4) the steps DOE is taking to oversee the project.

GAO noted that: (1) the project as currently envisioned is substantially different from DOE's 1996 initial privatization strategy; (2) the most significant changes include eliminating further competition between contractors, building permanent facilities that could operate for 30 years or more instead of temporary facilities, and extending by 2 years the design phase and the dates for completing project financing arrangements and agreeing on the final contract price; (3) the revised approach extends the completion date for processing the first portion of the waste from 2007 to 2017, and total costs rise from $4.3 billion to $8.9 billion, including $2 billion in DOE's support costs; (4) the increased costs are mainly the result of DOE's decision to build permanent facilities that will take longer and cost more to design and build and the higher financing costs and contractor profits involved in operating these facilities over a longer period of time; (5) DOE estimates that this approach has the potential to save 26 to 36 percent over the contracting approaches it has used in the past; (6) the revised approach represents a dramatic departure from DOE's original privatization strategy of shifting most financial risk to the contractor; (7) the contract now calls for DOE to pay BNFL, Inc. for most of the debt incurred in building and operating the facility if BNFL should default on its loans; (8) DOE agreed to assume this risk because it did not think BNFL would be able to obtain affordable financing unless the government provided some assurance that the loans would be repaid; (9) DOE's financial risks are significant because the project has a number of technical uncertainties such as using waste treatment technology that has yet to be successfully tested at production levels on Hanford's complex and unique wastes, and other management challenges; (10) in an attempt to avoid repeating past mistakes in managing large projects, DOE has identified additional expertise it needs and has developed several management tools to strengthen its oversight of the project; (11) the success of the project, however, will depend heavily on how well DOE implements these plans; and (12) DOE has a history of not fully implementing its management and oversight plans, and there are some early indications on this project that DOE may be having difficulty ensuring that the proper expertise is in place and fully funding project support activities.