Chapter Five
Financial Management
OCRWM Annual Report to Congress, FY 1996

Program Funding

The Nuclear Waste Policy Act of 1982 requires that the costs of disposing of spent nuclear fuel and high-level radioactive waste be borne by the parties responsible for their generation. The Act left it up to the President to determine whether civilian and defense-related wastes should be emplaced in the same repository. On April 30, 1985, the President 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 appropriately. The result was published in the Federal Register in August 1987. The program's accounting system is consistent with this methodology.

Program revenues: ratepayer dollars for civilian waste

The Nuclear Waste Policy Act provides for two types of fees to be levied on the owners and generators of 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 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 was paid and $900 million was deferred.

Fees for spent fuel disposal are deposited in the Nuclear Waste Fund (NWF), a separate account in the U.S. Treasury that is managed and administered by the Department of Energy. Amounts not appropriated for current expenses are invested in U.S. Treasury securities, and OCRWM manages these investments strategically to ensure that the long-term costs of waste disposal can be met.

The program earns civilian revenue when nuclear utilities generate and sell power, when the program earns interest or capital gains on Treasury investments, and when interest is charged on the utilities' unpaid fee balances. As shown in Table 5-1, cumulative program revenue from civilian sources as of Septem- ber 30, 1996, totaled $12,996 million. The program's earned civilian revenue included $10,147 million in fees (including interest on unpaid fee balances), of which $7,927 million had been paid and $2,220 million was unpaid. Civilian revenue also included $2,849 million in interest and capital gains on Treasury investments, of which $2,746 million had been paid and $103 million was due with the next semiannual interest payment.

During Fiscal Year 1996, the program earned $1,151 million in civilian revenue, compared to $1,078 million in Fiscal Year 1995. Fiscal Year 1996 revenue consisted of $636 million in ongoing 1 mil/kWh fees, $106 million in interest on and adjustments to one-time fees, and $409 million in investment earnings. On September 30, 1996, the market value of NWF investments was approximately $5,898 million, compared with $5,284 million at the end of Fiscal Year 1995.

Table 5-1
Status of Program Revenue as of September 30, 1996
(Dollars in Millions)

	Civilian Revenue			Defense Revenue*	Total Program Revenue
	Fee Income*	Return on Investment	Subtotal
Earned Revenue	$10,147	$2,849	$12,996	$1,614	$14,610
Paid	$ 7,927	$2,746	$10,673	$ 527**	$11,200
Unpaid Balance	$ 2,220	$ 103	$ 2,323	$1,087	$ 3,410
* Includes interest on unpaid amounts. ** The $527 million includes $12.5 million paid into the NWF, a credit of $18 million for use of Nevada Test Site facilities, and $497 million of the $513 million made available through the Defense Nuclear Waste Disposal Appropriation as of September 30, 1996. The remaining $16 million provided through the Defense Nuclear Waste Disposal Appropriation is included in the unpaid balance because it remained unexpended at the end of Fiscal Year 1996.

Program revenues: taxpayer dollars for defense waste

The Department of Energy's Office of Environmental Management (EM) is the custodian of the Nation's defense waste. We are developing a memorandum of agreement with EM to govern arrangements for the disposal of this waste. The agreement will outline the responsibilities of the parties, specify procedures for identifying wastes for disposal, assign fees by waste type, and establish payment schedules. A steering group we formed with EM to resolve outstanding issues continued to meet during Fiscal Year 1996.

Table 5-1 also shows program revenue from defense sources. Defense revenue is earned when the program incurs costs related to defense waste disposal. The program's total defense revenue as of September 30, 1996, was $1,614 million, of which $527 million had been paid and $1,087 million (including interest) remained unpaid. During Fiscal Year 1996, the program earned $136 million in defense revenue, including $52 million in interest on unpaid balances.

Program expenses

The Congress makes two separate appropriations for the program, one from the NWF, 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.

Expenditures from the NWF and the Defense Nuclear Waste Disposal Appropriation 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 NWF is composed of dedicated ratepayer money, it is included in the total spending limits imposed on general Federal programs. Historically, this has resulted in constraints on program funding.

As shown in Table 5-2, cumulative program expenses were $5,231 million, of which $3,617 million was allocated to civilian and $1,614 million to defense waste disposal activities. Through Fiscal Year 1996, Congress had appropriated a total of $5,156 million for the program and related activities under the Nuclear Waste Policy Act, as amended. Fiscal Year 1996 appropriations were $152 million from the NWF and $163 million from the Defense Nuclear Waste Disposal Appropriation (excluding the $85 million that was reserved pending statutory authority to develop an interim storage facility).

The OCRWM Financial Statements for Fiscal Year 1996 and the report of OCRWM's independent auditor are presented in Appendix A.

Table 5-2 Status of Program Expenses as of September 30, 1996 (Dollars in Millions)
.	Civilian	Defense	Total *
Expenses	$3,617	$1,614	$5,231
Appropriations	$4,643**	$513***	$5,156
* Expenses are greater than appropriations because civilian costs include $135 million in interest on utility overpayments, most of which was funded through fee credits, i.e., not through appropriations. ** Includes $164 million appropriated from the NWF to the Nuclear Regulatory Commission, the Nuclear Waste Technical Review Board, and the now defunct Office of the Nuclear Waste Negotiator. *** Does not include $85 million appropriated in Fiscal Year 1996, which is reserved pending statutory authority to develop an interim storage facility.

Long-Range Financial Planning

Estimating Total System Life Cycle Cost

In Fiscal Year 1995, we completed the Analysis of the Total System Life Cycle Cost of the Civilian Radioactive Waste Management Program, the first comprehensive update to OCRWM's total system life cycle cost (TSLCC) estimate since 1990. This report reflects changes in the design of the waste management system that had occurred since then, including the program approach adopted in early Fiscal Year 1995.

Following the unanticipated reduction in program funding for Fiscal Year 1996, and the issuance of our revised Program Plan, we decided to defer updating the 1995 TSLCC. Instead, we will conduct a new total system life cycle cost analysis to support the site viability assessment that will be completed in Fiscal Year 1998.

Assessing fee adequacy

Because the owners and generators of spent nuclear fuel are required to pay the full costs of its disposal, the Nuclear Waste Policy Act requires an annual assessment of the adequacy of the 1 mil/kWh fee. The latest assessment, published in Fiscal Year 1996, is the first based on the 1995 Analysis of the Total System Life Cycle Cost of the Civilian Radioactive Waste Management Program. It indicates that the fee is adequate to ensure full cost recovery.

Managing investments

The Nuclear Waste Policy Act requires that the fees charged for spent nuclear fuel disposal cover the full cost of its disposal--through repository decommissioning. Our investment management goal is to ensure that funds will be available to cover both near-term system development and construction costs and long-term operation, monitoring and closure costs. We prudently distribute investments among the available Treasury securities, to meet program needs while balancing investment risk and expected return. Over the last year, the Nuclear Waste Fund investments returned 5.15 percent, exceeding the return of the average intermediate-term Treasury bond fund by 1.18 percentage point, or 30 percent. The Fund's average annual return, since inception, is 8.23 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 Nuclear Waste Policy Act. There was no appropriation to this account for Fiscal Year 1996; only funds carried over from prior years were spent.