CHAPTER FOUR
Financial Management
In Fiscal Year 2000, we continued to carry out our primary financial management functions: accounting for the Program's assets, liabilities, and cash flows; quantifying the Program's long-range financial needs; and managing the investment of civilian revenues so that they are available to meet Program requirements.
Program funding
The Nuclear Waste Policy Act (NWPA) provides that the costs of disposing of spent nuclear fuel and high-level radioactive waste be borne by the parties responsible for the generation of these wastes. The NWPA left it up to the President to determine whether civilian and defense-related waste should be emplaced in the same repository. On April 30, 1985, President Reagan issued a decision that they should be, with each party paying its proportional share of the full cost. To implement that decision, public rulemaking was used to develop a methodology for allocating defense and civilian costs. The result was published in the Federal Register in August 1987. The Program's accounting system is consistent with this methodology.
Program revenues: civilian utility fees for civilian waste
The NWPA provides for two types of fee to be levied on the owners and generators of civilian spent nuclear fuel: an ongoing fee of 1.0 mil (one tenth of one cent) per kilowatt-hour (kWh) on nuclear electricity generated and sold after April 7, 1983, and a one-time fee for all nuclear electricity generated and sold prior to that date. The fees are defined in the Standard Contract for Disposal of Spent Nuclear Fuel and/or High-Level Radioactive Waste, which was promulgated in 1983 and executed between the Department of Energy (DOE) and the owners and generators of the waste. Nuclear power producers make quarterly payments of the ongoing fee. For the one-time fee, the contract allowed owners to choose to pay immediately or defer payment and incur interest. Approximately $1,400 million in one-time fees has been paid and approximately $900 million has been deferred.
Fees for spent nuclear fuel disposal are deposited in the Nuclear Waste Fund, a separate account in the U.S. Treasury that is managed and administered by DOE. Amounts not appropriated by the Congress for current Program expenses are invested in U.S. Treasury securities. The Office of Civilian Radioactive Waste Management (OCRWM) manages these investments strategically to ensure that the long-term costs of waste disposal can be met.
OCRWM earns civilian revenue when nuclear power plants generate and sell power, when OCRWM earns interest or realizes capital gains on U.S. Treasury investments, and when interest is charged on the utilities' unpaid fee balances. During Fiscal Year 2000, OCRWM earned $1,426 million in civilian revenue. Fiscal Year 2000 civilian revenue consisted of $703 million in ongoing 1 mil/kWh fees, $138 million in interest on and adjustments to one-time fees, and $585 million in investment earnings. The cumulative civilian revenue, as of September 30, 2000 (shown in Table 4-1), was $18,156 million, of which $15,367 million had been paid and $2,789 million remained unpaid. Civilian revenue includes $4,968 million in earnings on U.S. Treasury investments, of which $4,886 million has been paid and $82 million was due with the next semiannual interest payment. On September 30, 2000, the market value of Nuclear Waste Fund investments was approximately $9,777 million, compared with $8,481 million at the end of Fiscal Year 1999.
The market value of the Nuclear Waste Fund increased during the past year. Market interest rates fell slightly during the year, and investment values go up when rates go down. The impact of market conditions varies from year to year. Standard accounting practices require that we report the market value of the Nuclear Waste Fund because we occasionally sell securities before maturity to adjust investments to Program spending plans. However, most of the securities will be held to maturity and would earn the return that was expected when they were purchased.
Program revenues: defense dollars for defense waste
The DOE Office of Environmental Management and the Office of Nuclear Energy, Science, and Technology's Naval Nuclear Propulsion Program are the custodians of the Department's inventory of high-level radioactive waste and spent nuclear fuel. In Fiscal Year 2000, we continued to work to implement the terms of the memoranda of agreement that we had executed with the Office of Environmental Management and the Naval Nuclear Propulsion Program in Fiscal Year 1998. The memoranda establish a process for determining waste acceptance and fee payment schedules.
Table 4-1 also shows OCRWM revenue from defense sources. Defense revenue is earned when OCRWM incurs costs related to defense waste disposal and when interest is charged on unpaid defense balances. In Fiscal Year 2000, the defense revenue was $15 million, which included $13 million in fee revenue and $2 million in interest on deferred fees.
OCRWM's cumulative accrued defense revenue as of September 30, 2000, consisted of $1,785 million in fees and $835 million in interest, for a total of $2,620 million. Of the total, $1,225 million had been paid and $1,395 million (including interest) remained unpaid.
Table 4-1
Cumulative program revenues as of September 30, 2000 (in millions of dollars)
Program expenditures
Congress generally makes two separate appropriations for the Program, one from the Nuclear Waste Fund, the other through a Defense Nuclear Waste Disposal appropriation. These appropriations are recorded in separate internal accounts; however, they are consolidated in the OCRWM financial statements.
Historical funding and outyear requirements
Appropriations for the Program are subject to the Federal budget process. They are considered part of the discretionary portion of the budget and thus compete for resources with other discretionary spending programs. As a consequence, although the Nuclear Waste Fund is composed of dedicated utility money, appropriations from it are included in the total spending limits imposed on general Federal programs. Historically, this has resulted in constraints on Program funding.
As shown in Table 4-2, cumulative Program expenditures were $6,781 million, of which $4,997 million was allocated to civilian and $1,784 million to defense waste disposal activities. Through Fiscal Year 2000, Congress had appropriated a total of $6,616 million for the Program and related activities under the NWPA.
Table 4-2
Cumulative program expenditures as of September 30, 2000 (in millions of dollars)
The OCRWM Financial Statements for Fiscal Year 2000 and the report of OCRWM's
independent auditor are at Appendix
A.
Managing investments
The objectives of OCRWM's investment strategy are to: (1) ensure that investment income is available when needed, (2) support the adequacy of the fee paid into the Nuclear Waste Fund by waste owners and generators, and (3) hedge against uncertainty and unplanned funding requirements. To achieve these objectives, the Nuclear Waste Fund is managed as two portfolios: a contingency portfolio and a match portfolio.
The purpose of the contingency portfolio is to hedge against reasonable contingencies, such as unexpected near-term expenditures. The purpose of the match portfolio is to provide reliable funding for expected Program expenditures. It serves to bring into balance the Program's assets and liabilities and to maintain that balance. The contingency portfolio is highly liquid and consists of U.S. Treasury securities, the average maturity of which does not exceed three years. The match portfolio consists of a mix of U.S. Treasury bills, notes, bonds, and zero-coupon bonds. The duration and present values of these investments are matched, or will be matched, year-for-year, to the durations and present values of OCRWM's projected liabilities. Matching investments to planned spending reduces the sensitivity of the fee adequacy balance to changing interest rates.
Each month, near-term cash flow expectations and current asset and liability values are reassessed and used as the basis for investment selection. The portfolio is rebalanced, as required, upon completion of each new total system life cycle cost analysis or when changes in Program assumptions warrant. During Fiscal Year 2000, the average of the contingency portfolio's month-end balances was $1.8 billion; and the average of its month-end maturities was 2.8 years. Match portfolio investments matched OCRWM's cumulative spending profile to within 12.5 percent in all years through 2024. The new total system life cycle cost estimate, which is scheduled to be approved in Fiscal Year 2001, may require that the portfolio be rebalanced.
Over the last year, Nuclear Waste Fund investments earned a market value return of 9.65 percent and a book value return of 5.51 percent. Market value moves in the opposite direction to interest rates. Because interest rates fell, the market value rose. Market value returns can change significantly from year to year. Book value returns reflect the actual income received from investments and realized capital gains. They are much more stable than market returns. Over many years, average book and market value returns will be approximately equal. Since the first investments were made in 1985, both the market value return and the book value return have averaged about 8.00 percent.
Civilian Radioactive Waste Research and Development account
We also administer the Civilian Radioactive Waste Research and Development account, which, like the Defense Nuclear Waste Disposal appropriation, is supported by general taxpayer revenues. It pays for generic research, development, and demonstration activities authorized by Title II of the NWPA. There was no appropriation to this account for Fiscal Year 2000; only funds carried over from prior years were spent.