DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Appeal

Name of Petitioner:Long Island Lighting Company

Date of Filing: December 14, 1994

Case Number: VEA-0003

On December 14, 1994, the Long Island Lighting Company (LILCO) filed an Appeal from a November 14, 1994 determination issued to it by the Department of Energy's Office of Environmental Management (OEM). In this decision, we consider LILCO's claim that the OEM erroneously determined its special assessment for payment into the Uranium Enrichment Decontamination and Decommissioning Fund (the D&D Fund) established under the Energy Policy Act of 1992. Pub. L. No. 102-486, 42 U.S.C.A. 2297(g), et seq. (1994). If LILCO's Appeal were granted, its D&D Fund assessment would be based on 3,178 separative work units (SWU) instead of 21,250.

I. BACKGROUND

Since the era of the Manhattan Project, the DOE and its predecessors have engaged in the process of uranium enrichment in order to meet the nation's national security, research and electrical generation requirements. (1) Uranium enrichment is the process by which uranium is prepared for use in commercial electrical generation or weapons production by increasing the concentration of a particular isotope of uranium-- uranium-235 (U-235)-- above the naturally occurring percentage of 0.711%. The percentage of U-235 contained in a parcel of uranium is referred to as its "assay."

Most commercial power generating plants require fuel with assays between 2.5 and 4.5 percent.

The enrichment process involves separating uranium feed into two portions, and transferring U-235 molecules from one portion to the other. The resulting portions of uranium are called "the product" and "the tails." The product consists of enriched uranium (having a higher than natural percentage of U-235). The other portion, the tails, consists of depleted uranium (having a lower than natural percentage of U-235). The effort required to separate the two isotopes is referred to as separative work and is measured in terms of separative work units (which are commonly referred to as SWU). The SWU is the common unit of measurement for uranium enrichment services used by the nuclear power industry.

In the United States the uranium enrichment process has been performed solely at three DOE plants which used the gaseous diffusion technology to achieve separation of the isotopes. (2) The emergence of newer, more efficient technologies and the globalization of the uranium enrichment market have rendered the government owned plants obsolete and uncompetitive. It therefore became necessary to decommission and replace the gaseous diffusion plants and to recover the costs of these operations. On October 24, 1992, Congress amended Chapter 28 of the Atomic Energy Act of 1954 to establish a Uranium Enrichment Decontamination and Decommissioning Fund (the D&D Fund) to pay for the costs of decontamination, decommissioning and other remedial action activities at DOE's uranium enrichment facilities, and for reimbursement of certain decontamination and decommissioning, reclamation, and other remedial action costs incurred by licensees at active uranium or thorium processing sites.

The legislative history indicates that Congress intended that the D&D fund be financed by those entities that had directly benefited from the operation of the plants, and that the allocation of assessments be apportioned in accordance to the degree which those entities had benefited from the uranium enrichment program. H. Rep. No. 474, 102nd. Cong., 2d sess.144, reprinted in 1992 U.S. Code Cong. & Admin. News 1954, 1967 ("The prevailing view on the allocation of costs of cleaning up these plants is that it should be based on benefits received from the program"). (3) Accordingly, the statute mandates contributions to the D&D Fund from both the governmental entities and the domestic utilities that took delivery of enriched uranium from the plants. After considering various alternative methods of apportioning responsibility for the D&D Fund, Congress determined that the benefits received from the program could best be measured by each entity's receipt of DOE- originated SWU. See id. (4) Therefore the statute requires that each domestic utility's D&D Fund assessment be based upon the total number of SWU that it purchased from the DOE for the purpose of commercial electrical generation prior to October 24, 1992. However, since Congress recognized that utilities often purchased or sold enrichment services in the secondary market, the statute further provides:

(1) a utility shall be considered to have purchased a separative work unit from the Department if such separative work unit was produced by the Department, but purchased by the utility from another source; and

(2) a utility shall not be considered to have purchased a separative work unit from the Department if such separative work unit was purchased by the utility, but sold to another source.

42 U.S.C.S. § 2297g-1(c); codified at 10 C.F.R. § 766.101. As a result, a domestic utility's D&D Fund assessment will be based upon the following formula: A+B-C=X, where X is the number of SWU that the utility's D&D Fund assessment is to be based upon; A is the total number of SWU that the utility purchased from the DOE prior to October 24, 1992; B is the number of DOE-produced SWU purchased by the utility in the secondary market prior to October 24, 1992; and C is the number of DOE-produced SWU transferred or sold by the utility prior to October 24, 1992.

Utilities were required to purchase and then deliver to the DOE enough natural uranium feed for DOE to conduct the enrichment requested by the utility. DOE then charged the utility, on a per SWU basis, for the amount of the separative work necessary to enrich the natural uranium feed provided by the utility to the weight and product assay sought by the utility.

The relationship between separative work, feed and enriched uranium can be analogized to the production of apple cider. One making apple cider might squeeze twenty apples with a great deal of force to make one gallon of apple cider (therefore leaving relatively little juice remaining in the crushed apples). Alternatively, one might choose to squeeze the apples only half as hard but use forty apples instead of twenty and still end up with one gallon of apple cider (leaving a relatively greater amount of juice in the crushed apples). The apples in this example can be analogized to uranium feed, the apple juice to the U-235 isotope, the squeezing force to separative work, the crushed apples to the tails, and the apple cider itself to the product. Just as the production of a given quantity of apple cider can be achieved through the use of different combinations of apples and squeezing force, a given quantity of uranium enrichment can be produced by different combinations of feed and separative work. For example, an enrichment could be performed using X SWU and Y kilograms of natural uranium feed at a tails assay of .2 or it could be performed using fewer SWUs and more natural uranium feed (and therefore a higher tails assay) with exactly the same result in terms of quantity and product assay. The varying quantities of separative work and feed required to produce a given quantity of enriched uranium at a given level of enrichment are set forth in the Standard Table of Enrichment Services published by the DOE in the Federal Register. By ascertaining the tails assay (the percentage of the U-235 isotope remaining in the tails after the enrichment is completed), the combination of separative work and natural uranium feed needed to produce the desired quantity and product assay can be determined. An increased tails assay results in fewer SWU and a higher natural feed requirement. Conversely, a decreased tails assay results in a higher number of SWU and a lower natural feed requirement. When utilities placed orders for enrichment services with the DOE, in addition to selecting the quantity and level of enrichment (the product assay) they chose the tails assay to which the uranium feed was to be depleted (and therefore the specific amounts of separative work and natural uranium feed to be used). The DOE in turn required that the utility provide the corresponding amount of uranium feed and charged the utility for the number of SWU needed to produce the product ordered at the selected tails assay.

Adding a layer of complexity to this process is the fact that the commercial uranium enrichment market relies upon the "transaction tails" method of determining the tails assay figure. There are two methods of determining the tails assay percentage to be used in a SWU calculation: (1) the "operating" or "as produced" tails method; and (2) the "transaction tails" method. Under the operating or as produced method, the tails assay used to calculate the amount of natural uranium feed to be supplied by the purchaser and the amount of separative work to be purchased is the actual tails assay at which the enrichment was conducted. In contrast, under the transaction tails method, computations of separative work and feed requirements are independent of the actual tails assay used by the DOE to conduct the enrichment. Instead, under the transaction tails method, the purchaser would select the tails assay that was most economically beneficial to it and then provide the corresponding amount of natural uranium feed. The utility would then be charged for the number of SWU indicated by the standard table of enrichment services (even though the actual uranium enrichment would often be conducted at a different tails assay). In other words, the number of SWU purchased in a transaction using the transaction tails method was determined by the tails assay selected by the purchaser instead of the actual tails assay used in the enrichment. During the assessment period the DOE used the "transaction tails" method to determine the tails assay to be used when calculating how many SWUs were to be purchased by domestic utilities seeking uranium enrichment services.

The practice of using the transaction tails method carried over into the secondary market for enriched uranium, where utilities resold enriched uranium originally purchased from the DOE, as well as SWU credits and feed credits. In the secondary market, the price of enriched uranium was based upon the market value of its two components, natural uranium feed and separative work. In some circumstances, utilities seeking to sell enriched uranium found separate purchasers for the feed and separative work components, or purchasers who wished to purchase a different combination of separative work and feed than the enriched uranium had when it was first purchased from DOE. The use of the transaction tails assay method in the secondary market facilitated such transactions. (5) As a result, the tails assay used to determine the amount of separative work and natural uranium feed purchased in the secondary market transaction could vary from both that which was actually used to enrich the uranium and the transaction tails assay used in the original purchase.

II. ANALYSIS

The present case involves a domestic utility, LILCO, that purchased SWU from the DOE and then later sold the enriched uranium produced by the SWU (the first reload) to the DOE. Due to the difference in the transaction tails assays between LILCO's original purchase of the first reload from DOE and the transaction returning the first reload to the DOE, LILCO sold 18,072 fewer SWU than it had originally purchased from the DOE. The question before us is whether LILCO's D&D Fund assessment should include the 18,072 SWU difference.

On August 19, 1982, the DOE shipped 26,886 kilograms of enriched uranium to LILCO, enriched at a transaction tails assay of .2%. In order to obtain this enriched uranium, LILCO had supplied DOE with 129,921 kg. of natural uranium feed and had purchased 94,760 SWU from the DOE. LILCO had intended to use this enriched uranium for the first reload of its Shoreham, N.Y. generating plant reactor. However, LILCO eventually abandoned its plans to operate the Shoreham plant and therefore sought to liquidate its uranium inventory which included the "first reload" uranium. Therefore, in 1991, it entered into a series of transactions aimed at divesting itself of the first reload uranium. First, LILCO entered into an agreement with the Power Authority of the State of New York (PASNY) in which LILCO agreed to assign 102,354 SWU to PASNY. Then, LILCO sold all of the first reload uranium back to DOE at a transaction tails assay of .3%. In return for the first reload uranium, DOE granted LILCO 76,688 SWU credits as well as credits for 150,286 kg. of natural uranium feed. By changing the tails assay used in this transaction from .2% to .3% LILCO was able to sell fewer SWU (76,688) back to the DOE than it had originally purchased and a larger amount (150,286 kg.) of natural uranium feed than it had originally supplied, effectively allowing LILCO to convert the difference of 18,072 SWU to 20,365 kg. of natural uranium feed credits. As part of the transaction, DOE then transferred 102,354 SWU to PASNY which consisted of the 76,688 SWU credits it had provided to LILCO in exchange for the first reload uranium (along with the feed credits) and an additional 25,666 SWU credits that LILCO had on DOE's books therefore fulfilling LILCO's contractual obligation to PASNY. Finally, LILCO sold the natural uranium feed credits it received from DOE to another utility. In this way, LILCO divested itself of both the natural uranium feed and SWU components of the first reload.

In calculating LILCO's special assessment, the OEM found that due to the difference in transaction tails assays, while LILCO had originally purchased 94,760 SWU when it obtained the first reload uranium, it had only transferred 76,688 SWU when it resold the first reload to DOE. Accordingly, the OEM concluded that LILCO should be held responsible for the D&D Fund assessment on the remaining 18,072 SWU. On November 14, 1994, the OEM issued a determination of LILCO's D&D Fund assessment in which it found that LILCO was liable for assessment based on a total of 21,250 SWU which consisted of the remaining 18,072 first reload SWU and 3,178 SWU attributable to LILCO's original Shoreham reactor core. LILCO does not contest its liability for the 3,178 original Shoreham SWU. (6) The Office of Hearings and Appeals issued procedural regulations which were effective on April 20, 1995. These new regulations established a new Part 1003 in Chapter 10 of the Code of Federal Regulations, and they include a Subpart C for appeals, which will apply to future D&D Fund appeals instead of the procedures in Subpart H of 10 C.F.R. Part 205. 60 Fed. Reg. 15004 (March 21, 1995). On the same date, DOE issued technical corrections to the appeal provision in 10 C.F.R. § 766.104(d) to make it refer to 10 C.F.R., Part 1003, Subpart C. This change does not affect the present case, since it was filed before those changes. (7) LILCO, contending that it should not be assessed for the balance of the first reload SWU, filed the present Appeal on December 14, 1994. Comments on LILCO's Appeal were submitted by both the OEM and the Power Authority of the State of New York (PASNY) on February 10, 1995. On March 7, 1995, LILCO submitted a response to OEM and PASNY's comments. On April 27, 1995, OHA conducted an informal telephone conference relating to this Appeal with officials from OEM, PASNY and LILCO. (8)

On appeal, LILCO argues that it should not be assessed for the balance of the first reload SWU, contending that since: (1) it sold all of the first reload uranium to DOE, it must have therefore sold all of the first reload SWU to DOE as well, and (2) Congress' intent in creating the SWU assessment was to place the "burden" of the decontamination and decommissioning program upon those utilities that benefited from use of the DOE's uranium enrichment facilities, assessing utilities that transferred all of their enriched uranium inventories without generating electricity is contrary to Congressional intent. After reviewing the submissions of the parties and the record, we find that LILCO was properly assessed for the contested 18,072 SWU.

We turn first to LILCO's claim that since it returned all of the first reload uranium to the DOE, it must have returned all of the 94,760 SWU it purchased in order to obtain that uranium as well. If the DOE and the secondary market had used the "as produced" method to calculate the number of SWUs sold to utilities this would be a valid contention. If the "as produced" method had been used, a fixed number of SWUs could have been associated with a given parcel of enriched uranium and the laws of physics would have dictated that if a utility had received a parcel of uranium from the DOE and then sold it, the number of SWUs purchased would then equal the number of SWU sold. As the preceding discussion indicates however, the DOE and the secondary market did not use the as produced method but rather used the transaction tails method to calculate each utility's SWU purchases. As a result, the number of SWU purchased in order to obtain a given parcel of enriched uranium was not directly determined by the amount of separative work actually performed, but rather was determined by the tails assay selected by the purchaser (or agreed to by both parties in the case of a secondary market transaction). Nor was the number of SWU needed to obtain a particular parcel of enriched uranium fixed, but rather was subject to change. Therefore, the assumption upon which LILCO's contention is based, that the number of SWU associated with a given parcel of enriched uranium remains constant, is unwarranted. (9)

Moreover, we note that LILCO's assertion that it did not have any SWU "left over" is irrelevant. The question before us is not whether LILCO had physical possession or legal title to the 18,072 first reload SWU, since the SWU assessment is not levied on the basis of existing SWU inventory. Instead, the statute established a framework which requires that any DOE-produced SWU purchased by a domestic utility prior to October 24, 1992 and not sold to another source prior to October 24, 1992, would be part of its assessment, regardless of whether the SWU was consumed in commercial power generation, lost in fabrication, held in inventory until after the assessment period, or as happened in the present case, converted into natural uranium feed credits. Accordingly, since LILCO sold fewer first reload SWU than it had originally purchased from DOE during the assessment period, the statute mandates that the difference be included in its SWU assessment. For these reasons, the OEM properly determined that 76,688 instead of 94,760 SWU were transferred back to the DOE by LILCO with the First Reload uranium. Accordingly, we find LILCO's contentions to the contrary are without merit.

Finally, we turn to LILCO's contention that OEM's assessment of LILCO for the balance of the first reload SWU is contrary to congressional intent. The legislative history indicates that by levying a portion of the responsibility for the decontamination and decommissioning of the DOE's uranium enrichment facilities upon domestic utilities that purchased uranium enrichment services from the DOE, Congress sought to place the economic burden of the D&D effort upon the parties that benefited from the uranium enrichment program and to apportion the responsibility among the domestic utilities equitably. H. Rep. No. 474, 102nd. Cong., 2d sess.144, reprinted in 1992 U.S. Code Cong. & Admin. News 1954, 1967. LILCO argues that since it never generated any electricity from the first reload, it did not "benefit" from the uranium enrichment services used to produce it. Therefore, LILCO argues, it is not among the parties that Congress sought to hold responsible for the enrichment services performed upon the first reload uranium.

As an initial matter, we note that LILCO did receive an economic benefit from the 18,072 first reload SWU that were not transferred to the DOE. By changing the tails assay of the first reload uranium, LILCO received an additional 30,365 kg. of natural uranium feed credits from the DOE, and it is safe to assume that the receipt of feed credits instead of SWU credits conferred an economic advantage upon LILCO. It is therefore difficult to conclude that LILCO did not receive any benefits from the SWU it converted into uranium feed. Accordingly, the question before us is whether Congress intended that the benefit received from generating electricity is the only type of benefit that Congress sought to apportion by basing each domestic utility's D&D Fund assessment upon purchases of SWU. We find that neither the statute, nor its legislative history supports LILCO's argument that the SWU assessment is limited only to those SWU that actually generated electrical power.

Instead, the legislative history indicates that Congress specifically rejected a proposal to base the D&D Fund assessment upon electrical generation. Congress established purchases of DOE-produced SWU as the exclusive basis upon which domestic utilities' D&D Fund assessments are to be based. The clear implication is that Congress found purchases of SWU from the DOE's uranium enrichment facilities to be the best indicator of how benefits from the facilities were apportioned among the program's customers. The fact that the statute offers no alternative basis for determining responsibility further clarifies this intent. We therefore find that Congress intended that each domestic utility's D&D Fund assessment be based solely upon its purchases of DOE-produced SWU and that LILCO's contentions to the contrary are without merit.

There is no question that EPACT's choice of DOE-produced SWU as the means of measuring a utility's proportionate share of the uranium enrichment cleanup will have an unforeseen (though minor) economic consequence for LILCO and its rate-payers. When LILCO returned the first reload uranium to DOE, it certainly had no idea that changing the tails assay (and thus reducing the number of SWU attributable to the unused product) would later cause it to be assessed for the 18,072 SWU that it converted into natural uranium feed credits. However, LILCO's situation is by no means unique among domestic utilities, none of whom could have foreseen the eventual creation of the D&D Fund and the institution of the SWU assessment and all of whom, if they would have been able to foresee the SWU assessment, could have changed their behavior to avoid buying as many SWU. (10) That is simply the way the law was made, and DOE has no other choice but to assess LILCO on the basis of the net amount of DOE-produced SWU that LILCO bought and sold.

III. CONCLUSION

For the reasons set forth above, we find that the contentions set forth in the Long Island Lighting Company's Appeal are without merit. Accordingly, we have determined that its Appeal shall be denied.

It Is Therefore Ordered That:

(1) The Appeal filed by the Long Island Lighting Company (Case No. VEA-0003) on December 14, 1994, is hereby denied.

(2) This is a Final Order of the Department of Energy

George B. Breznay

Director

Office of Hearings and Appeals

(1) In this decision we make frequent reference to the DOE's uranium enrichment program, which prior to the DOE's creation in 1977 had been conducted by its predecessors, the Energy Research and Development Administration (ERDA), which administered the program from 1974 through 1977, and the Atomic Energy Commission, which administered the program from its inception until 1974. In 1993, Congress created the United States Enrichment Services Corporation and transferred administration of the uranium enrichment program to it. Unless stated otherwise, when we refer to the DOE's uranium enrichment program, we are also referring to the program as administered by DOE's predecessors.

(2) Two of these plants are still operating.

(3) The D&D Fund is to consist of annual deposits of $480 million per fiscal year, to be adjusted for inflation on an annual basis.

(4) Collection of the special assessment is authorized for either a period of fifteen years or until $2.25 billion (adjusted for inflation) has been collected, whichever occurs first.

(5) For example, a purchaser that wished to purchase fewer SWU and more feed could bargain for the use of a higher transaction tails assay to meet its needs. Similarly a seller could meet the needs of a purchaser seeking only feed credits by first finding a second purchaser to sell its enriched uranium to at a higher transaction tails assay than had been used in its original enrichment in exchange for feed credits and then reselling the feed credits to the first purchaser.

(6) On August 15, 1994, the DOE implemented the EPACT's D&D Fund mandate by issuing its final rule establishing the methods and procedures to be utilized by the DOE's Office of Environmental Management (OEM) to invoice and collect the special assessment. 10 C.F.R. Part 766, 59 Fed. Reg. 41956 (August 15, 1994). Under Part 766, the OEM is required to reconcile each utility's purchases of SWU in the primary and secondary markets as well as their secondary market sales. The next step of the reconciliation process set forth in Part 766 requires the OEM to issue special assessment invoices to each domestic utility on an annual basis. 10 C.F.R. § 766.103. The special assessment invoices are to set forth each domestic utility's annual assessment and a detailed explanation of how it was calculated by the DOE. Id. Under 10 C.F.R. § 766.104(c), domestic utilities are allowed an opportunity to request an adjustment of their annual assessment. Any domestic utility disputing a written determination issued in response to a request for adjustment has the right to file an administrative Appeal with the Office of Hearings and Appeals (OHA) under § 766.104(d). The procedures set forth at §766.104(d) are supplemented for this case by OHA's general procedural rules for appeals set forth at 10 C.F.R., Part 205, Subpart H.

(7) The Office of Hearings and Appeals issued procedural regulations which were effective on April 20, 1995. These new regulations established a new Part 1003 in Chapter 10 of the Code of Federal Regulations, and they include a Subpart C for appeals, which will apply to future D&D Fund appeals instead of the procedures in Subpart H of 10 C.F.R. Part 205. 60 Fed. Reg. 15004 (March 21, 1995). On the same date, DOE issued technical corrections to the appeal provision in 10 C.F.R. § 766.104(d) to make it refer to 10 C.F.R., Part 1003, Subpart C. This change does not affect the present case, since it was filed before those changes.

(8) A slight difference exists between the weight of the First Reload uranium as originally purchased and the weight of the enriched uranium returned to the DOE; however, there is no significance to that difference for the purposes of the present Appeal.

(9) Moreover, since the DOE and the secondary market used the transaction tails method to calculate the number of SWU purchased from the DOE or transferred in the secondary market, it was clearly reasonable for DOE to use the transaction tails assay to calculate each domestic utility's SWU assessment as well. The contemporaneous records documenting SWU transactions are based upon transaction tails method calculations. It is unlikely that records documenting the operating tails assays of the enriched uranium sold to domestic utilities by the DOE even exist. Use of the transaction tails assay to calculate each domestic utility's SWU assessment is therefore the only reasonable course of action available to the DOE.

(10) For example, a firm could have used higher transaction tails assays when purchasing from the DOE, therefore allowing itself to purchase fewer SWU.