oversight

Nuclear Waste: DOE's Hanford Spent Nuclear Fuel Storage Project--Cost, Schedule, and Management Issues

Published by the Government Accountability Office on 1999-09-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to the Chairman, Committee on
                  Commerce, House of Representatives



September 1999
                  NUCLEAR WASTE
                  DOE’s Hanford Spent
                  Nuclear Fuel Storage
                  Project—Cost,
                  Schedule, and
                  Management Issues




GAO/RCED-99-267
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Resources, Community, and
                   Economic Development Division

                   B-283386

                   September 20, 1999

                   The Honorable Thomas J. Bliley, Jr.
                   Chairman, Committee on Commerce
                   House of Representatives

                   Dear Mr. Chairman:

                   The Department of Energy (DOE) is undertaking a project to improve the
                   storage of spent (or irradiated) nuclear fuel from its nuclear reactors at the
                   Department’s Hanford Site in Washington State. This fuel is currently
                   stored in water basins a few hundred yards from the Columbia River,
                   where the deterioration of some of the fuel and the water basins has raised
                   health and safety concerns. To address these concerns, the project
                   currently under way involves installing equipment in the water basins to
                   retrieve and package the fuel, building a facility to dry the fuel, and moving
                   the dry fuel to a new interim storage facility farther from the river.

                   In our May 1998 testimony on this project, we stated that the project was
                   over 4 years behind schedule and that its estimated cost had doubled to
                   about $1.4 billion.1 We identified several reasons for these problems,
                   including an overly optimistic schedule that lacked adequate time to
                   address contingencies, poor performance by the project contractor in
                   managing the schedule and resolving technical issues, and inadequate
                   management and oversight by DOE and its contractor in charge of
                   managing the entire Hanford Site. Since our testimony, DOE and its
                   contractors have been trying to address these deficiencies and increase
                   the progress being made toward finishing the new facilities and beginning
                   to remove and treat the spent fuel. However, ongoing quality and safety
                   problems and recent changes in contractors’ responsibilities have raised
                   concerns that the project still may not be effectively managed.
                   Accordingly, you asked us to revisit this project to determine (1) its
                   current status, (2) what problems might affect achieving current cost and
                   schedule estimates, and (3) whether changes have been sufficient to
                   address management weaknesses.


                   Although DOE has increased confidence that the project eventually will
Results in Brief   begin to remove fuel from the water storage basins, uncertainty remains
                   over when the project will be finished and how much it will cost.


                   1
                    See Nuclear Waste: Management Problems at the Department of Energy’s Hanford Spent Fuel Storage
                   Project (GAO/T-RCED-98-119, May 12, 1998).



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Completion is currently scheduled for July 2007 at a cost of $1.7
billion—about 6 years and $1 billion beyond the original estimates made in
1995. However, the new completion date includes $133.5 million and about
2 years for work activities not included in the original estimate. Compared
with conditions that we reported on in May of last year, the amount of
progress is substantial, with considerable construction completed and
equipment installation under way. Nonetheless, since the current schedule
was established in December 1998, the estimated date for completing
safety documentation has slipped, operational readiness issues have
become major challenges, and most of the extra time built into the
schedule for addressing contingencies has already been used up.

DOE’s contractors have addressed the three main problems that existed
earlier in the project—an unrealistic schedule, poor control over the
project’s baseline, and unresolved technical issues—but still have several
matters to resolve before being able to provide assurance that cost and
schedule estimates can be met. In the short term, the time required to
reassess the procedures for removing loaded fuel-shipping casks from the
basins and the compressed schedule to complete safety documentation
and pass readiness reviews place in jeopardy a project milestone to begin
removing fuel from the first storage basin by November 2000. In the longer
term, to process the fuel within the project’s completion dates and cost
targets, DOE and its contractors must ensure the reliability of complex
one-of-a-kind equipment that has not yet been operated as a system. DOE’s
contractor must also overcome challenges in hiring operations staff and in
processing the spent fuel at a rate that can meet the project’s milestones.

Corrective actions have addressed some but not all of the management
weaknesses on the project. Although DOE’s contractor responsible for
overall management of the Hanford Site has consolidated its control over
the project and made other changes to strengthen the project’s
performance, it has been slow to address problems with safety
documentation and quality assurance. Similarly, although DOE has
increased oversight of its contractors’ activities, modified performance
fees, and conducted evaluations of the project that led to suggested
improvements, continued attention is needed to ensure that DOE’s
oversight will enhance the contractor’s ability to meet cost and schedule
targets.

This report makes recommendations to the Secretary of Energy to
strengthen leadership and oversight to better ensure that the project is
completed as efficiently and effectively as possible.



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             Irradiating nuclear fuel rods was one step in the process of producing
Background   plutonium for nuclear weapons. After being irradiated in a nuclear reactor,
             the “spent” fuel rods were stored in water-filled basins for about 6
             months and then moved to a processing facility where plutonium was
             extracted. DOE stopped producing plutonium in the late 1980s, and now
             about 2,100 metric tons of fuel rods are stored in Hanford’s water basins.

             The two water-filled basins where most of Hanford’s spent fuel is stored
             are located about 1,400 feet away from the Columbia River. The basins,
             which were constructed in 1951, are well beyond their useful life of 20
             years and are vulnerable to leaks and earthquake damage. Any rupture of
             the basins, such as from an earthquake or accident, could release large
             quantities of contaminated water to the soil and to the Columbia River. A
             loss of water from the basins could also expose workers and the public to
             the airborne transmission of radioactive materials released from the
             corroded fuel and the sludge in the bottom of the basins. Moreover, the
             fuel itself was not intended for long-term storage in water, and some of it
             has corroded or crumbled.

             DOE  has been developing an approach for moving the fuel rods to safer
             storage since 1994. The strategy being implemented through the current
             project consists of cleaning and repackaging the fuel in the basins,
             removing and drying the fuel, and moving it to new interim storage several
             miles from the river. Two major new facilities are involved—a fuel-drying
             facility and a storage facility. The project also includes special containers
             and metal baskets to hold the fuel; a transportation system for moving it
             between facilities; various systems to clean, package, and dry it; and
             special cranes to move the loaded containers to their storage tubes inside
             the storage facility where they may remain for up to 40 years, until being
             removed to a national repository site. Finally, the project involves treating
             and disposing of the sludge, debris, and water left in the basins after the
             fuel is removed, as well as deactivating the basins and project equipment.
             Figure 1 illustrates the major steps in the drying and storage processes.




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Figure 1: Major Steps to Improving the Storage of Hanford’s Spent Nuclear Fuel

        Facility                                                                                            New interim
                               Existing                                  New
        involved                                                                                              storage
                                water                               drying facility
                                basins                                                                        facility




        Process
        steps
                            oRetrieve fuel                         oAttach drying                         oOff-load casks at
                                                                    equipment                               storage facility
                            oWash fuel
                                                                   oOpen and drain                        oWeld lids to
                            oLoad fuel and                           containers                             containers
                             scrap into baskets
                                                                   oRun drying cycle                      oTransfer
                            oLoad baskets into                                                              containers to
                             containers to                         oClose casks and                         underground
                             transport                               transport to                           storage tubes
                                                                     interim storage




                                             DOE’s overall contractor for managing the Hanford Site, Fluor Daniel
                                             Hanford, Inc. (Fluor Daniel), has been responsible for overseeing the
                                             project since the company assumed responsibility for the site contract in
                                             October 1996.2 Fluor Daniel contracted with Duke Engineering & Services
                                             Hanford, Inc. (Duke Engineering), to manage the spent fuel project. DOE,
                                             which also oversees the project contractors, is responsible for meeting
                                             legally enforceable project milestones under the provisions of a
                                             federal-state agreement (commonly called the Tri-Party Agreement) with
                                             the Environmental Protection Agency and the Washington State
                                             Department of Ecology.




                                             2
                                              Westinghouse Hanford Company managed the project until October 1996.



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                                         The project’s major facilities and systems are nearing completion.
Construction Is                          Construction of the two new facilities—one to dry the fuel and the other to
Progressing, but the                     store the loaded fuel containers—is over 80-percent complete. The
Project’s Schedule                       installation of the equipment in the two facilities and within the water
                                         storage basins is in various stages of completion. (See table 1.)
and Budget Have
Increased


Table 1: Degree of Completion of Major
Components of Hanford’s Spent Fuel       Major component                                    Status as of July 1999
Storage Project                          Water storage basins Modifications to              First basin: The modifications are about
                                         these existing basins include installing           94-percent complete. Second basin: The
                                         specialized fuel-washing equipment, water          modifications are about 4-percent
                                         treatment systems, and overhead cranes             complete. For both basins, technical
                                         and related systems for moving the loaded          problems have been encountered with
                                         fuel-shipping casks out of the basins and          these systems, and some of the
                                         onto the transport trailers.                       components have had to be redesigned.
                                                                                            For example, a critical bearing on the
                                                                                            equipment to be used to wash the fuel
                                                                                            rods failed initial testing and had to be
                                                                                            redesigned.
                                         Fuel-drying facility: This new facility has        Construction: The building is about
                                         been designed to remove water from the             82-percent complete; the building’s
                                         fuel containers after they are removed from        equipment installation is about 50-percent
                                         the water basins.                                  complete.
                                         Storage building: This new facility has            Construction: The building and
                                         been designed to store containers of dry           equipment are about 90-percent complete.
                                         spent fuel for up to 40 years until the
                                         material can be shipped to a permanent
                                         repository.

                                         While progress is being made on constructing facilities and installing
                                         equipment and systems, the project’s schedule has been extended several
                                         times as it became apparent that the contractors could not meet the
                                         schedule. The latest extension, approved in December 1998, called for DOE
                                         to complete the project by July 2007, almost 6 years beyond the original
                                         schedule.3 The expected date to begin removing the spent fuel from the
                                         first basin—November 30, 2000—an important milestone for the project
                                         given the health and safety risks associated with current storage
                                         conditions, is almost 3 years later than originally scheduled. (See table 2.)

                                         3
                                          In April 1998, the contractor proposed beginning fuel removal in November 2000, completing fuel
                                         removal in August 2003, and completing the project in December 2005. However, DOE did not approve
                                         the proposal, and the contractor reassessed the project, leading to the December 1998 schedule. The
                                         July 2007 date includes 23 months for basin deactivation—an activity not originally included in this
                                         project.



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Table 2: Changes in Key Milestones for
Hanford’s Spent Fuel Storage Project                                                                                                     Cumulative
                                                                                                                                            delay to
                                                                                           Date to             Date to                     project’s
                                                                      Date to begin        complete fuel       complete                  completion
                                             Schedule                 fuel removal         removal             project                     (months)
                                             Original schedule Dec. 1997                   Dec. 1999           Sept. 2001
                                             (Apr. 1995)                                                                                            N/A
                                             First revision           May 1998             July 2000           Sept. 2001
                                             (Apr. 1997)                                                                                             0
                                             Second revision          July 1999            July 2001           Sept. 2003
                                             (Dec. 1997)                                                                                            24
                                             Third revision           Nov. 2000            Dec. 2003           July 2007a
                                             (Dec. 1998)                                                                                            70
                                             a
                                                 This date includes 23 months for the deactivation work transferred to the project in April 1998.



                                             The schedule approved in December 1998 was intended to address the
                                             major problems associated with the previous schedules, including the lack
                                             of flexibility for addressing unforeseen problems and the unrealistic
                                             estimates of the time needed to complete specific work. DOE and its
                                             contractor expressed a “high confidence” of success in meeting the
                                             December 1998 schedule. For example, to address the lack of flexibility in
                                             the previous schedules, the latest schedule included about 7 months of
                                             contingency time to be used if unforeseen problems were encountered. By
                                             August 1999, however, all but 1 week of the 7 months of the contingency
                                             time had been used because of two developments:

                                         •   Because of an error in the original safety analysis, the system for removing
                                             loaded fuel-shipping casks from the water basins had to be reevaluated to
                                             ensure that it was safe.4
                                         •   When design work for the fuel-drying facility ran longer than expected,
                                             purchasing equipment and completing the final safety analysis report for
                                             the facility were delayed.

                                             Each time the schedule was revised, DOE and its contractors also revised
                                             the estimate of the project’s total cost. The project’s cost estimate is now
                                             $1.7 billion, or about $1 billion more than the original 1995 estimate.5 This

                                             4
                                              A decision by DOE and Fluor Daniel not to redesign the cask-lifting system may add a few weeks of
                                             contingency time back into the schedule.
                                             5
                                              At the time of the May 1998 hearing on this project, the proposed cost estimate was about $1.4 billion.
                                             However, that estimate had not been fully reviewed. After the hearing, DOE and the contractors
                                             developed new cost estimates based on an internal and external review. Subsequently, a cost estimate
                                             of $1.7 billion was formally approved in December 1998 and was characterized as having a 90-percent
                                             probability of success.



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                                     cost estimate includes $133.5 million for work activities not included in
                                     previous cost estimates. The additional work is for decontaminating and
                                     deactivating the water basins.6 (See table 3.)

Table 3: Changes in Total Cost
Estimates for Hanford’s Spent Fuel   Dollars in millions
Storage Project                                                                                        Cost                  Cumulative
                                     Date of cost estimate                                         estimate                cost increase
                                     Oct. 1995                                                          $740                           N/A
                                     Apr. 1997                                                          $814                           $74
                                     Dec. 1997                                                       $1,089                           $349
                                     Dec. 1998                                                       $1,720a                          $980
                                     a
                                         This amount includes $133.5 million for deactivation activities.




                                     DOE   and its contractors have made progress in resolving some of the cost,
Problems Make                        scheduling, and technical issues that have plagued the project, but they
Achieving the                        still face short-term and long-term challenges in meeting the project’s
Short-Term Milestone                 milestones. In the short term, a November 2000 milestone to start
                                     removing fuel from the basins is in jeopardy. In the longer term, complex
Unlikely and                         equipment and systems must perform reliably for several years, and
Achieving the                        sufficient staff must be hired—a recruiting task that has so far proven
                                     difficult. However, DOE and Fluor Daniel believe that some flexibility in the
Project’s Longer-Term                operations phase of the project may help in addressing these challenges.
Goals Uncertain
DOE Has Made Efforts to              Our 1998 report pointed out three main types of problems DOE had not
Improve Project Controls             resolved: an unrealistic schedule, poor control over the project’s baseline,
and Resolve Technical                and unresolved technical issues. DOE and Fluor Daniel have resolved these
                                     problems. The actions taken to deal with the first problem were discussed
Issues                               previously. With regard to the second problem, DOE and Fluor Daniel have
                                     implemented a formal project baseline management system that includes a
                                     process for making changes to the project’s baseline. Under this system,
                                     any changes to cost or schedule must be documented and go through a
                                     structured review and approval process. Fluor Daniel holds weekly
                                     meetings with managers of the subprojects and other key staff to discuss
                                     any events or problems that could affect the schedule. This discipline was
                                     missing earlier in the project.


                                     6
                                     In April 1998, these tasks were transferred to the project because DOE and its contractors decided it
                                     would be a cost-effective way to accomplish the activities associated with removing the debris and
                                     water from the basins. Until April 1998, this work was planned and budgeted as a separate project.



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                            With regard to the third problem, a number of the technical issues present
                            when we issued our previous report have been resolved. For example, fuel
                            elements were found to have water-bearing aluminum hydroxide coatings
                            that could contribute to pressurization of the loaded container of fuel
                            during interim storage, and decisions had not been made about how best
                            to obtain data on temperature, pressure, and gas composition once fuel
                            storage containers are in the storage building. As of July 1999, these issues
                            had been resolved. For the most part, doing so required the contractor
                            either to demonstrate that its proposed processes were safe or to revise its
                            procedures to add an additional margin of safety.


Beginning Fuel Removal by   Although DOE and its contractors have made progress, several challenges
November 2000 Will Be       make it difficult for the contractor to begin removing fuel from the water
Difficult                   basins by November 2000. These challenges include taking time to resolve
                            a new technical issue, completing safety documentation, and meeting an
                            aggressive schedule to demonstrate the readiness of the project’s
                            operations.

Resolving a New Technical   Fluor Daniel has been evaluating the possibility that as the loaded shipping
Issue                       casks are lifted out of the water basins and onto the transport trailers, a
                            cask might accidentally be dropped back into a basin. Dropping a cask
                            into a water basin could damage the basin and lead to a discharge of
                            contaminated water to the soil and to the Columbia River. An earlier safety
                            analysis had not properly analyzed this potential occurrence. A
                            reassessment of the risk and appropriate corrective actions have taken
                            most of the remaining contingency time in the project’s schedule. In
                            August 1999, Fluor Daniel and DOE decided not to redesign the cask-lifting
                            system but instead to modify operational procedures and develop a way to
                            plug a basin leak if a cask is dropped. According to Fluor Daniel’s acting
                            project manager, this approach will add a few weeks of contingency time
                            back into the project’s schedule. DOE decided that accepting the additional
                            risk associated with dropping a cask in the basins was preferable to the
                            delays and additional costs associated with redesigning the cask-lifting
                            system.

Completing Safety           Completing safety documentation, which involves analyzing and
Documentation               demonstrating that the facility or operation can be conducted safely, has
                            been a significant and long-standing problem. We discussed this problem
                            in our May 1998 testimony, and it has continued to adversely affect the
                            project. For example, since the latest schedule was approved in
                            December 1998, the dates for completing safety documents for each of the



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                                   project’s major activities have slipped between 5 and 9 months. (See table
                                   4.)

Table 4: Delays in December 1998
Schedule for Completing Safety                                    December 1998
Documentation                      Safety document                schedule              Current schedule           Delay (months)
                                   Storage building               May 1999              Dec. 1999                                   7
                                   Fuel-drying facility           June 1999             Nov. 1999                                   5
                                   Water basins                   July 1999             Mar. 2000a                                  8
                                   Fuel container                 Feb. 1999             Nov. 1999                                   9
                                   a
                                    On July 13, 1999, DOE and Fluor Daniel signed an agreement for revising the process to review
                                   and approve the safety documentation for the water basins. According to the agreement, the
                                   revised process may reduce the delay in completing the documentation by several months.



                                   Completing safety documentation is a critical step in the process of getting
                                   approval to operate a nuclear facility. The safety documentation serves as
                                   the basis for facility operations and is needed to develop the operating
                                   procedures and subsequent employee training. Therefore, any delay in
                                   getting the safety documentation approved also affects the completion of
                                   other aspects of the project that must be in place before a review of the
                                   project’s readiness to begin operation can occur.

                                   Since February 1999, the contractor has been addressing safety
                                   documentation problems by assigning more staff to the effort, reorganizing
                                   the workload, and working more closely with the DOE staff who review the
                                   documentation. While it is too soon to gauge the overall effectiveness of
                                   these changes, early indications are that the corrective actions may be
                                   making a difference. For example, the safety documentation for the
                                   fuel-drying facility that the contractor submitted to DOE in June 1999
                                   generated only about one-third of the number of comments that DOE had
                                   raised in an earlier review of safety documents for the fuel storage
                                   building. Even so, the remaining safety documentation must be completed
                                   on an aggressive schedule if the contractor is to begin removing fuel from
                                   the first basin by November 2000.

Meeting an Aggressive              Before Fluor Daniel can begin to remove fuel from the basins, the project
Readiness Schedule                 must pass an extensive assessment known as an operational readiness
                                   review. This review, conducted by team members who are independent of
                                   the work being reviewed, represents the culmination of the contractor’s
                                   work to ensure that the project is operationally ready and takes place after
                                   the contractor’s self-assessment of readiness. The fieldwork portion of the
                                   readiness review involves a careful assessment of whether the facilities,



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                          systems, operating procedures, personnel, and management oversight
                          processes are in place and effective enough to ensure that the facility can
                          be operated safely. Considerable concern exists, however, that the current
                          schedule does not allow sufficient time to complete an operational
                          readiness review and to implement all needed corrective actions.

                          The schedule approved in December 1998 allowed 5 months for
                          completing the operational readiness review process, beginning with the
                          contractor’s self-assessment in May 2000 and ending with DOE’s
                          authorization for the contractor to proceed in October 2000. In contrast,
                          the current schedule for demonstrating readiness to operate has been
                          compressed to about 3 months because delays with other parts of the
                          project have deferred the start of the contractor’s self-assessment until
                          July 2000. Fluor Daniel is compressing the schedule for completing the
                          readiness review because of its desire to meet the milestone to begin
                          removing fuel from the basins by November 2000. Doing so will, among
                          other things, make Fluor Daniel eligible for about $4.9 million in contract
                          incentive fees for fiscal year 1999 and additional fees for fiscal years 2000
                          and 2001. According to Fluor Daniel’s start-up integration manager, the
                          compressed schedule for demonstrating operational readiness is very
                          aggressive and will require that all systems and personnel work perfectly
                          when tested. He said that the current schedule allows only 1 month to
                          correct problems identified in the contractor’s self-assessment before the
                          DOE readiness review starts and that a more normal schedule would allow
                          2 or 3 months to make those corrections.

                          In a June 1999 review of the project, DOE recommended adding 90 days to
                          the readiness review schedule. As an alternative, however, DOE encouraged
                          Fluor Daniel to relieve some of the time pressures caused by the previous
                          delays on the project by testing some of the systems earlier than originally
                          planned. As a result, the company is planning earlier testing of the water
                          treatment system and the fuel retrieval system in the first basin using
                          actual fuel elements. DOE and Fluor Daniel believe that this early testing
                          initiative will allow additional time to identify and react to any unexpected
                          results, will better prepare the project for the readiness review, and will
                          increase the company’s chances of meeting the November 2000 date to
                          start removing fuel from the basins.


Achieving the Project’s   If the project is to meet its long-term goals of removing all fuel from the
Long-Term Goals Is        basins by December 2003 and completing all work by July 2007, the
Uncertain                 systems involved must operate successfully over this extended period.



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                         Concerns exist, however, about the long-term reliability of the various
                         systems and equipment and about whether the contractor can obtain
                         sufficient staff for the multiple shifts of operations it has planned to
                         process the fuel. Equipment failures and other operational concerns could
                         affect the rate at which the contractor dries and packages the fuel for
                         storage and, ultimately, whether the project’s cost and schedule targets are
                         achievable. Because of the nature of the uncertainties remaining, it is too
                         early to determine whether the project will be able to meet the long-term
                         schedule.

Ensuring Equipment and   The spent fuel project involves one-of-a-kind equipment and system
Systems Reliability      designs, much of which has not been operated under the conditions to be
                         found at Hanford. Because some of the equipment and systems must
                         operate continuously for a minimum of 3 years in a highly contaminated
                         environment, reliable performance is critical. Furthermore, if any of
                         several components in the basins that are critical to continued operations
                         need unscheduled maintenance or repair, a whole series of activities must
                         stop. For example, to prepare fuel for transport from the basins to the
                         drying facility, the water treatment system, fuel retrieval system, and the
                         crane used to remove the loaded fuel casks must all be operational.
                         Failure of any one of those components would stop operations in the basin
                         and delay fuel-processing activities.

                         Early testing has led to opportunities to improve the performance of some
                         systems. For example, early testing allowed improvements to be made in
                         the equipment to be used to extract moisture from the loaded fuel
                         containers. Also, in June 1999, DOE learned that a critical bearing on the
                         equipment to be used to wash the fuel rods was failing after only 30
                         seconds of use. The equipment had to be redesigned. DOE’s own studies
                         have expressed concern about the need for additional testing to ensure
                         that the project’s systems will work together. For example, a June 1999
                         DOE study raised concerns about system reliability and noted that the
                         systems have never performed together.7 The study recommended that the
                         contractor operate the fuel retrieval systems under actual conditions as
                         soon as practical to ensure that they operate properly. According to the
                         Fluor Daniel Vice President in charge of the spent fuel project, the project
                         plans to begin this testing in December 1999 and continue the testing for
                         several months.




                         7
                           Baseline Review of the Richland Spent Nuclear Fuel Project, U.S. DOE, Office of Environmental
                         Management, Office of Project Management, June 1999.



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                                Even after systems are successfully tested, the efficiency of the overall
                                process cannot be known until operations actually begin. An example can
                                be seen in the water treatment system, which is designed to capture the
                                sludge and other debris coming off the fuel rods as they are being cleaned.
                                Effective performance of the water treatment system is critical to basin
                                operations. If the water becomes cloudy and the operators cannot readily
                                see the fuel rods being washed and handled below the surface of the
                                water, cleaning operations will have to stop until the water clears.
                                According to the June 1999 DOE review, the water treatment system must
                                operate 95 percent of the time to meet the project’s production schedule of
                                one fuel container loaded per day.8 Fluor Daniel officials believe that the
                                equipment and systems will meet the required reliability standards, but
                                they have also developed maintenance plans and work-around strategies
                                to attempt to minimize the effects of potential equipment failures.
                                However, with no operating experience under actual conditions, the
                                overall reliability of the equipment and systems has not been established.

Obtaining Qualified Staff for   Concerns also exist about obtaining enough staff to fully support the
Operations                      project during its operational period. Although the approximately 280
                                operations staff currently on the project apparently are sufficient to begin
                                the removal of the fuel from the first basin, Fluor Daniel plans to increase
                                the total number of operations staff to a peak of at least 680 by 2002—more
                                than double the current number. Fluor Daniel officials are concerned
                                about being able to hire sufficient numbers of staff to support the
                                continuous operations being planned. According to the Fluor Daniel
                                operations manager, the company has already had difficulty filling
                                positions at the current staffing level. Reasons given for the difficulty
                                include the commuting distance required to reach the remote location of
                                the water basins and the concerns voiced by potential applicants about
                                their employment opportunities being unclear after the project is
                                completed. Fluor Daniel’s Executive Vice President said the company is
                                developing a set of employee incentives to help overcome these hiring
                                barriers. However, the staffing difficulties are already affecting the scope
                                of work that can be performed. For example, a shortage of nuclear
                                operations staff caused Fluor Daniel to curtail the installation of
                                equipment in the second water basin so that work in the first basin could
                                be fully supported.

                                In contrast to the concerns about obtaining enough staff for the project,
                                others have questioned the need for so many staff. For example, a

                                8
                                A loaded fuel container will generally hold between 216 and 240 fuel rods and a basket of scrap
                                material.



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                              June 1999 DOE study recommended that the contractor reassess whether
                              fuel has to be extracted from both basins simultaneously because doing so
                              will require substantially more staff than removing the fuel from one basin
                              at a time. In addition, a June 1998 review of the project’s baseline by an
                              independent reviewer raised several questions about the proposed staffing
                              and suggested that about 100 proposed positions could be eliminated.
                              Fluor Daniel officials have agreed that operational aspects of the project,
                              including staffing requirements, have not been fully planned and need
                              further development.

Combining Deactivation        In April 1998, DOE added the activities associated with deactivating the
Activities With the Current   basins and the project’s equipment to the spent fuel project’s scope of
Project                       work. Originally, the deactivation was planned and budgeted as a separate
                              project. Adding deactivation to the existing project increased the project’s
                              budget by $133.5 million and lengthened the schedule for project
                              completion by 23 months. However, substantial uncertainty exists about
                              the duration and the cost of deactivating the basins because detailed plans
                              for deactivation have not been completed.


Flexibility in the Current    According to DOE and Fluor Daniel officials, a degree of flexibility in both
Plans May Help the Project    cost and schedule during the operational period of the project may exist
Achieve Cost and Schedule     that could be used to help address some of the challenges facing the
                              project beyond November 2000. This added flexibility comes from two
Targets                       sources—revised strategies for treating the sludge in the basins and the
                              unexpended contingency funds built into the cost estimates.

                              The project budget includes about $76 million to remove and treat about
                              50 cubic meters of sludge before adding it to the other wastes stored in
                              Hanford’s underground high-level waste tanks.9 When subsequent
                              estimates of the costs of treating the sludge grew to $150 million or more,
                              officials of DOE, Fluor Daniel, and the Environmental Protection Agency
                              developed an alternative strategy. This strategy calls for removing and
                              packaging the sludge for storage elsewhere on the Hanford Site until it can
                              be combined with a larger Hanford project that also involves treating some
                              of the waste at the site. Although the ultimate cost of disposing of the
                              sludge is unclear, this strategy may help reduce both the cost and the time
                              necessary to complete the spent fuel project. A detailed estimate of the
                              effects of this strategy on the project’s cost and schedule is not expected
                              until fiscal year 2000.

                              9
                               Treatment is required to eliminate organics and flammable components from the sludge to meet the
                              acceptance criteria for waste to be stored in the underground tanks.



                              Page 13                                 GAO/RCED-99-267 Hanford Spent Fuel Storage Project
                          B-283386




                          The project’s baseline approved in December 1998 included about
                          $112 million in contingency funds for uncertainties associated with
                          completing the project. As of June 1999, over $100 million in contingency
                          funds was still available for use over the remainder of the project.


                          DOE  and Fluor Daniel have taken steps to address several of the
Management and            management and oversight weaknesses discussed in our May 1998
Oversight Have            testimony. Despite this progress, concerns continue to exist about the
Improved, but             project’s management and oversight. Continued and focused management
                          attention is needed to successfully address both the short-term and
Weaknesses Remain         long-term challenges on the project and, ultimately, to bring the project to
                          completion.


Types of Management and   In the last year, many changes have been made in the management of the
Oversight Changes Made    project. Significant among those changes has been a shift in the role of
                          Duke Engineering. Originally, Duke Engineering was a subcontractor to
                          Fluor Daniel and was the company primarily responsible for managing the
                          project. Fluor Daniel’s responsibilities were primarily to integrate the
                          activities of the various subcontractors on the site and to oversee those
                          activities. Poor performance by Duke Engineering, however, led to a
                          significant expansion of Fluor Daniel’s role on the project.

                          In December 1997, Fluor Daniel issued a letter (called a cure notice) to
                          Duke Engineering, requiring the company to correct problems and
                          improve performance on the project or face termination for default or
                          other possible contractual remedies, including recompetition of the
                          subcontract at the end of its initial 2-year term. Duke Engineering
                          prepared a recovery plan and made other organizational changes to try to
                          strengthen its management of the project. Although Duke Engineering
                          subsequently passed the conditions set forth in the cure notice and
                          received conditional approval to continue to manage the project, Fluor
                          Daniel’s management began to take greater control of the day-to-day
                          activities. Key technical staff from Duke Engineering have remained with
                          the project, but Fluor Daniel is now fully responsible for managing the
                          project. After assuming control, Fluor Daniel integrated the staff working
                          on the project into a single organization. According to Fluor Daniel’s spent
                          fuel project director, these actions eliminated many of the organizational
                          conflicts plaguing the project and allowed the project director to more
                          directly influence the activities involved.




                          Page 14                        GAO/RCED-99-267 Hanford Spent Fuel Storage Project
    B-283386




    Fluor Daniel also took other steps to improve the project, including
    replacing several subproject managers; adding a senior manager at the
    vice president level to oversee the transition from a construction project
    to an operational project; and initiating increased interaction with DOE
    managers and technical staff to improve communications, identify
    potential problems earlier, and address those problems. According to DOE
    officials, the management of the project has substantially improved since
    these changes occurred.

    DOE also took steps to improve the oversight and management of the
    project:

•   DOE  not only denied performance fee payments to Fluor Daniel for the
    project for fiscal year 1998, it imposed a “negative incentive” and
    required Fluor Daniel to repay DOE $351,000.10 Also, based on
    commitments made at a hearing on the project in May 1998 before the
    Subcommittee on Oversight and Investigations of the House Commerce
    Committee,11 DOE modified its contract with Fluor Daniel to tie part of the
    performance fees for fiscal years 1999 and 2000 to meeting the November
    2000 milestone to begin removing spent fuel from the first basin. For these
    years, the amount of the fee in excess of $1 million is contingent on Fluor
    Daniel’s beginning to remove the first fuel by November 30, 2000.12
•   In March 1999, DOE’s Acting Assistant Secretary for Environmental
    Management sent a letter to Fluor Daniel and Duke Engineering
    emphasizing the importance of completing the project on time and making
    clear that the performance fee would continue to be at risk regardless of
    the organizational structure that Fluor Daniel chose for managing the
    project.
•   DOE conducted two reviews of the project: an assessment of the incentive
    fee structure and an assessment of the reasonableness of the project’s cost
    and schedule baseline. Although the baseline review concluded that strong

    10
     While Fluor Daniel earned no fee for fiscal year 1998 on this project, a subcontractor to Duke
    Engineering that also has organizational ties to Fluor Daniel—Fluor Daniel Northwest—received about
    $1 million in fees for work on the spent fuel project under a cost-plus-fixed-fee subcontract with Duke
    Engineering.
    11
       Department of Energy’s Hanford Spent Nuclear Fuel Project, testimony by Dr. Ernest Moniz, DOE,
    before the U.S. House of Representatives, Subcommittee on Oversight and Investigations, Committee
    on Commerce, 105-90, May 12, 1998.
    12
      The 1999 fee will be awarded to Fluor Daniel before November 2000. However, if the company
    subsequently misses the milestone, it will not be permitted to retain the contingent portion of the fee
    that was awarded. Fluor Daniel could recoup some of the contingent portion of the fee by beginning
    fuel movement no later than January 31, 2001. After that date, however, none of the contingent portion
    of the fee will be available to Fluor Daniel. Any fee that has already been paid and that Fluor Daniel is
    not permitted to retain is to be offset against the next fee payment. The fee for fiscal year 2001 could
    also be affected by this provision.



    Page 15                                    GAO/RCED-99-267 Hanford Spent Fuel Storage Project
    B-283386




    and effective DOE and contractor management teams were in place, both
    reviews identified risks or problems and recommended actions to improve
    the project. For example, the baseline review concluded that difficulties in
    developing safety documents were having a significant adverse effect on
    the project and recommended reengineering the development and
    approval process for safety documentation to increase its effectiveness.
•   In June 1999, DOE’s Deputy Secretary announced that as part of a DOE-wide
    initiative to improve project management, the spent fuel project was being
    placed on a “watch list” monitored by DOE’s Chief Operating Officer. The
    purpose of the watch list is to increase the level of DOE’s oversight of the
    project’s activities.
•   The newly appointed manager of DOE’s Richland Operations Office
    reviewed the project and suggested several changes, including
    (1) implementing the early start initiative discussed previously to test the
    equipment in the basin sooner than initially planned and (2) establishing a
    team of senior DOE and contractor executives (called the Process
    Improvement Team) to discuss overall management procedures and job
    processes that need improvement and to take steps to make those
    improvements.
•   DOE’s Richland Operations Office added expertise to its group responsible
    for overseeing the project’s cost and schedule.

    These actions are positive steps, but whether they will be sufficient to stop
    the upward creep in both cost and schedule remains to be seen. To some
    extent, the project continues to be affected by decisions made much
    earlier to “fast track” the project by doing testing, design, construction,
    and safety documentation phases concurrently. This approach has led to
    technical and managerial problems as DOE and its contractors discovered
    that earlier assumptions were not correct and that redesign and rework
    were required. For example, the Defense Nuclear Facilities Safety Board
    said in July 1999 that incomplete engineering and design work contributed
    to delays in completing the safety documentation on the project. The
    Board said that changes in design caused significant amounts of safety
    documentation to be done over because the documentation was being
    prepared concurrently with design and testing. This fast-track approach
    has also led to inefficiencies. For example, the fuel-drying facility was
    designed and constructed with four separate bays in which to dry the fuel
    containers. After construction was well under way, however, Fluor Daniel
    determined that no more than three bays would be needed to meet the
    project’s requirements.




    Page 16                        GAO/RCED-99-267 Hanford Spent Fuel Storage Project
                                B-283386




The Contractor’s Response       The large number of unexpected technical and managerial problems has
to Problems Has                 contributed to Fluor Daniel’s sometimes being slow to fully address
Sometimes Been Slow             problems until they threaten the project’s cost or schedule, as these
                                examples show:

                            •   Quality assurance. Fluor Daniel was slow to address quality assurance
                                problems, even after repeated communications from DOE that the
                                problems were not being corrected. Quality assurance involves ensuring,
                                among other things, that subcontractors are qualified to do the work; that
                                the work meets performance standards; and that poor-quality work is
                                identified, corrected, and prevented from recurring. Even after repeated
                                warnings from DOE, Fluor Daniel did not take adequate steps to correct
                                quality assurance problems. In May 1999, DOE took enforcement action by
                                issuing a civil penalty of $330,000 for violations of nuclear safety
                                requirements. According to Fluor Daniel officials, the penalty was issued
                                for sitewide violations, of which a significant portion were on the spent
                                fuel project. This was the largest penalty issued in almost 4 years of the
                                enforcement program and also the first time that DOE had issued a
                                compliance order specifying a deadline by which a contractor must
                                correct the deficiencies.13 Fluor Daniel paid the penalty and is now
                                working to address these deficiencies.
                            •   Safety documentation. Completing safety documentation was a significant
                                concern that we reported on in May 1998. Fluor Daniel has been slow to
                                correct these problems. Delays in completing the safety documentation
                                have contributed to the loss of the 7 months of contingency time added to
                                the project’s schedule in December 1998. In early 1999, DOE and Fluor
                                Daniel involved senior management to identify the underlying causes of
                                the problem and to implement corrective actions. They found that disputes
                                over safety documentation issues, such as how much detail the
                                documentation should contain, were not being elevated to higher levels for
                                resolution. Instead, the disputes were shuffled back and forth between
                                contractor and DOE review staff. According to a DOE official, the
                                involvement of senior management has facilitated better communication
                                on safety issues, but problems continue to exist below the senior
                                management levels. It remains to be seen whether the management of this
                                important process has been significantly improved.

                                Fluor Daniel also appears to be behind in planning for the operational
                                phase of the project. Until recently, most of the planning has focused on
                                achieving the November 2000 milestone to begin removing the fuel from

                                13
                                 For a more complete discussion of DOE’s nuclear safety enforcement program, see Department of
                                Energy: DOE’s Nuclear Safety Enforcement Program Should Be Strengthened (GAO/RCED-99-146,
                                June 10, 1999).



                                Page 17                                GAO/RCED-99-267 Hanford Spent Fuel Storage Project
                                B-283386




                                the first basin. Detailed plans for significant aspects of the operational
                                phase of the project are only now being developed. Limited planning for
                                operations activities has led to increased uncertainties about such matters
                                as the number and types of staff needed to operate the facilities, the extent
                                that staff will need administrative support facilities at the basins, and the
                                overall cost of the operational period of the project. In its June 1999 report
                                on the project, DOE confirmed that little detailed planning for operations
                                beyond November 2000 had been done and recommended that planning
                                for those activities begin as soon as practicable.

                                Fluor Daniel managers told us that initiatives are under way to improve
                                both the quality assurance program and the safety documentation process.
                                Fluor Daniel said these changes should overcome the recent problems.
                                The managers said that detailed planning for the operational phase is also
                                under way and will be completed in time to support the project. However,
                                the effectiveness of these initiatives is not yet known.


Continued Attention to          Although DOE has taken steps to improve its oversight of the project and
DOE’s Oversight Is Needed       has supported many of the contractor’s actions to improve performance,
                                several areas of concern require ongoing attention. These areas of concern
                                include the structuring of the contractor’s incentive fees, decision-making
                                about long-term storage requirements, and sustaining the continuity of
                                leadership on the project.

                                DOE’s approach to performance fees may have contributed to less than
                                optimal performance by the contractors. DOE conducted an assessment of
                                the effect of contract incentives and penalties on performance and
                                concluded, among other things, that14

                            •   the incentive fee structure may have contributed to a lack of management
                                attention by Fluor Daniel and Duke Engineering;
                            •   the improbability of earning a fee in fiscal year 1998 likely caused Duke
                                Engineering to not reassign staff from more profitable work to help
                                address the problems on the spent fuel project; and
                            •   the contract mega incentive,15 which includes performance in noncritical
                                and support areas, has diverted attention and fees from the major cleanup
                                objectives.


                                14
                                  See Hanford Spent Nuclear Fuels Project Incentives Review, June 4, 1999.
                                15
                                 The contract’s mega incentive consists of a variety of performance factors that are secondary to
                                safely storing the spent fuel, such as the number of new jobs created in the community.



                                Page 18                                   GAO/RCED-99-267 Hanford Spent Fuel Storage Project
B-283386




The DOE report makes several recommendations, including developing
financial incentives and other options for reducing the costs during the
operational period of the project and further defining the appropriate roles
of DOE’s staff in managing performance-based contracts. As of
August 1999, these recommendations were being considered but had not
been implemented.

Concerns also exist about possible changes in packaging requirements for
the spent fuel. Because the spent fuel may eventually be placed in a
national repository for long-term storage, the fuel baskets and the storage
containers may have to meet the repository’s rigorous quality assurance
standards, which are required of those items determined to be important
to safety. In November 1998, DOE decided that the baskets and storage
containers did not have to meet the quality assurance standards and
directed Fluor Daniel to contract for containers and baskets under
standards less rigorous than the repository’s standards. This decision was
also expected to reduce costs and to allow the containers and baskets to
be obtained in time to meet the November 2000 milestone. However, DOE is
now reconsidering whether these items serve a safety function. If DOE
decides that the containers and baskets must meet the repository’s
standards, then project managers will have to show that the items and all
associated work processes met quality assurance standards that are
equivalent to the repository’s standards. If the project managers are unable
to do this, they would be faced with either (1) modifying the current
procurement contracts (if packaging of the spent fuel has not already
occurred) to incorporate the requirements, further delaying the project
and potentially increasing costs by $2 million to $5 million, or
(2) repackaging the fuel, which DOE believes would be very costly.

Finally, there has been significant turnover within DOE’s team of staff
responsible for overseeing the project. For example, during 1999, both of
DOE’s key day-to-day managers on the project—the Assistant Manager for
Waste Management and the Spent Fuel Project Manager—left Hanford to
assume positions elsewhere in the DOE complex. DOE has not permanently
filled either position. In explaining why DOE allowed a disruption in the
continuity of management at such a critical time in the project, the then
Acting Assistant Secretary for Environmental Management said that
although he would have preferred that these managers remain with the
spent fuel project, career opportunities took them elsewhere.




Page 19                        GAO/RCED-99-267 Hanford Spent Fuel Storage Project
                  B-283386




                  Problems with the continuity of management are not new for DOE. A 1995
                  study by Independent Project Analysis, Inc., concluded that the turnover
                  among DOE project managers was nearly twice the industry average and
                  was increasing in frequency.16 Furthermore, our 1996 report on DOE’s
                  major system acquisitions disclosed that many of the ongoing projects and
                  most of the completed ones had cost overruns or delays.17 Given the
                  overall status of the spent fuel project and the challenges that Fluor Daniel
                  and DOE face in successfully completing it, DOE’s leadership will continue
                  to be important as construction is completed and the project begins
                  operations.


                  The spent fuel storage project at Hanford has had a history of problems.
Conclusions       Actions by Fluor Daniel to take managerial control of the project from
                  Duke Engineering have helped to strengthen the management of the
                  project. DOE and Fluor Daniel have been working to correct deficiencies
                  and to complete the construction of facilities and to begin removing fuel
                  from the water basins. Progress has been made in constructing facilities,
                  but many challenges remain in ensuring that the project is successful.
                  Given the challenges remaining to make the project operational, the
                  lingering management weaknesses, and the need to ensure that
                  performance incentives help to control costs during operations, effective
                  leadership and oversight by DOE are needed to increase the chances that
                  the project will be completed within current cost and schedule targets.


                  To ensure that the Department of Energy provides effective leadership and
Recommendations   oversight to the project, we recommend that the Secretary of Energy
                  immediately take steps to permanently fill the positions of the key
                  day-to-day managers that oversee the project. In addition to establishing a
                  continuity of DOE leadership during this critical time, the Secretary of
                  Energy should take steps to ensure that the Hanford spent fuel project is
                  completed as efficiently and effectively as possible by (1) ensuring that the
                  contractor’s performance incentive fees contain the proper balance
                  between the incentives to achieve the interim milestone to begin moving
                  spent fuel and the incentives to achieve efficiencies during the operational
                  period of the project and (2) clarifying the quality assurance standards to
                  be applied to the fuel containers and baskets to minimize the long-term
                  costs of packaging and eventually shipping the fuel to a repository.

                  16
                    Project Performance Study: Waste Management Addendum, Independent Project Analysis, Inc., 1995.
                  17
                   Department of Energy: Opportunity to Improve Management of Major System Acquisitions
                  (GAO/RCED-97-17, Nov. 26, 1996).



                  Page 20                                 GAO/RCED-99-267 Hanford Spent Fuel Storage Project
                      B-283386




                      We provided a draft of this report to DOE for review and comment. DOE
Agency and            generally agreed with the report’s conclusions and recommendations. In
Contractor Comments   particular, it recognized the need to permanently fill the positions of Spent
                      Fuel Project Director and Assistant Manager for Waste Management and
                      discussed its efforts for doing so. It similarly agreed that contractor
                      performance incentive fees need to contain a proper balance between
                      incentives to begin fuel movement and incentives to achieve operational
                      efficiencies and identified activities it is undertaking to this end. Finally, it
                      said it is actively working to clarify quality assurance standards to be
                      applied to fuel containers and baskets.

                      DOE also provided several technical clarifications that we have
                      incorporated as appropriate. Appendix I includes DOE’s comments.

                      We also provided a draft of this report to DOE’s contractor, Fluor Daniel
                      Hanford. Fluor Daniel chose not to comment separately but provided
                      comments to DOE.


                      To determine the current status of the project, we reviewed our past work
Scope and             on the project and DOE documents describing the spent fuel storage
Methodology           project, project schedules, and cost estimates approved by DOE. We also
                      reviewed status reports and correspondence from DOE and other pertinent
                      information. We interviewed DOE and contractor officials as well as
                      officials from the Defense Nuclear Facilities Safety Board and the
                      Environmental Protection Agency about the project’s history, the reasons
                      for the changes to schedule and cost estimates, and the major events
                      leading to those changes.

                      To determine what problems still exist that might affect DOE’s ability to
                      achieve its current cost and schedule estimates, we reviewed our past
                      work and DOE’s, the Safety Board’s, and the contractors’ records and
                      reports. We also interviewed officials from those organizations to obtain
                      their views on the causes of the project’s difficulties. We also reviewed
                      reports on other DOE projects to understand why some of those projects
                      had cost and schedule problems. In addition, we interviewed DOE and
                      contractor officials, including the Principal Deputy Assistant Secretary for
                      Environmental Management and officials from the Office of Civilian
                      Radioactive Waste Management and the DOE National Spent Fuel Program.

                      To determine whether the changes that DOE and its contractors have made
                      since last year have been sufficient to address management weaknesses,



                      Page 21                          GAO/RCED-99-267 Hanford Spent Fuel Storage Project
B-283386




we reviewed the contractors’ records, correspondence, and contract files.
We also interviewed DOE and contractor officials and attended various
project meetings between DOE and Fluor Daniel. In addition, we
interviewed DOE safety officials and members of DOE’s Independent Review
Panel.

We performed our review from April 1999 through September 1999 in
accordance with generally accepted government auditing standards.


As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days after the
date of this letter. At that time, we will send copies to the Honorable Bill
Richardson, the Secretary of Energy. We will also make copies available to
others on request. If you or your staff have any questions or need
additional information, please call me at (202) 512-3841.

Sincerely yours,




(Ms.) Gary L. Jones
Associate Director, Energy,
  Resources, and Science Issues




Page 22                         GAO/RCED-99-267 Hanford Spent Fuel Storage Project
Page 23   GAO/RCED-99-267 Hanford Spent Fuel Storage Project
Contents



Letter                                                                                               1


Appendix I                                                                                          26

Comments From the
Department of Energy
Appendix II                                                                                         28

GAO Contacts and
Staff
Acknowledgments
Tables                 Table 1: Degree of Completion of Major Components of Hanford’s                5
                         Spent Fuel Storage Project
                       Table 2: Changes in Key Milestones for Hanford’s Spent Fuel                   6
                         Storage Project
                       Table 3: Changes in Total Cost Estimates for Hanford’s Spent                  7
                         Fuel Storage Project
                       Table 4: Delays in December 1998 Schedule for Completing                      9
                         Safety Documentation

Figure                 Figure 1: Major Steps to Improving the Storage of Hanford’s                   4
                         Spent Nuclear Fuel




                       Abbreviations

                       DOE        Department of Energy
                       GAO        General Accouting Office


                       Page 24                       GAO/RCED-99-267 Hanford Spent Fuel Storage Project
Page 25   GAO/RCED-99-267 Hanford Spent Fuel Storage Project
Appendix I

Comments From the Department of Energy




             Page 26    GAO/RCED-99-267 Hanford Spent Fuel Storage Project
Appendix I
Comments From the Department of Energy




Page 27                          GAO/RCED-99-267 Hanford Spent Fuel Storage Project
Appendix II

GAO Contacts and Staff Acknowledgments


                  (Ms.) Gary Jones, (202) 512-3841
GAO Contacts      William Swick, (503) 235-8500


                  In addition to those named above, Chris Abraham, Margaret Armen,
Acknowledgments   Dwayne Curry, Nancy Kintner-Meyer, Tom Perry, Charles Sylvis, and Stan
                  Stenersen made key contributions to this report.




(141317)          Page 28                       GAO/RCED-99-267 Hanford Spent Fuel Storage Project
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