Fair Value Enrichment Pricing:

Is It Fair?

EMD-78-66: Published: Apr 19, 1978. Publicly Released: Apr 19, 1978.

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The Atomic Energy Act of 1954, as amended, requires the Department of Energy (DOE) to recover all costs for its enrichment activities over a reasonable period of time. Title V of the fiscal year 1979 DOE authorization bill would allow DOE to recover its costs plus a percentage of these costs representing certain other expenses which would be reflected in prices charged by private operators.

Advantages of using this fair value pricing include: (1) eliminating a subsidy to the nuclear industry; (2) generating sizable revenues and enhancing the U.S. balance of payments position; and (3) eliminating a possible barrier to eventual private ownership of future enrichment capacity by permitting more business-like pricing. It may also help to reduce the demand for electricity because of price increases, but DOE does not believe that the impact on demand will be significant. Disadvantages include a potentially negative impact on nuclear nonproliferation goals and the effect of high prices on foreign competition. These effects can be avoided through carefully formulated criteria. In general, the advantages of changing the basis for pricing outweigh the disadvantages. Proposed revisions to uranium enrichment services criteria should be strengthened.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: If DOE proposes new criteria that are identical to the draft proposed criteria, the Subcommittee on Energy and Power should amend it to: (1) require that charges be those in effect at the time of actual, not constructive, delivery; (2) specify the bases for establishing reasonable time periods for recovery of costs and for determining the frequency of review of prices; (3) require periodic calculation of the interest rate and return on equity used in calculating prices to reflect changes in the financial marketplace; (4) require DOE to establish the basis for its charge for state and local taxes and insurance and make the charge applicable to all taxable and insurable assets; and (5) eliminate the 30-percent fair value percentage ceiling and instead establish requirements for notifying Congress if the percentage is exceeded.

 

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