Dr. William J. Weida

September 30, 2025

Privatization is often a good idea when conditions are right and when something of value exists to sell or turn over to private industry. However, this is not the case for the design, development, permitting, construction and eventual operation of large, complex nuclear cleanup facilities. Further, the assumptions on which the DOE privatization program is built contain five fatal errors. These errors, which are explained below, create such a serious threat to the existing cleanup program that unless DOE’s Environmental Management (EM) Privatization program is corrected, DOE’s cleanup program will be irreparably damaged.

Risks associated with DOE’s privatization model (fixed price contracts with no payments until processing is successful) create a significant probability the contractor will not get paid regardless of who is at fault--the regulators, DOE, or the contractor. Each privatized facility is custom designed, complex, and costly. Unique wastes are processed at each location. There is no guarantee any facility will work until it begins to operate.

Nuclear waste cleanup is a public good. Risk should be borne by the government until contractors and all stake holders are comfortable with the operation of the facilities. DOE’s insistence that this risk be assumed by private contractors requires very large rates of return to cover potential financial disasters. Raising the price on a privatization contract to cover risk accomplishes nothing if the contractor never gets paid. In fact, contractors may have to raise prices to their other customers (many of whom are also government agencies) to make up for the non-payment risk in DOE privatization.

DOE erroneously assumes contractors will bid an 8% -10% rate of return on high risk privatization projects because corporations can currently issue debt at about 8%. However, most of a corporation’s balance sheet is financed by high cost equity which drives the weighted average cost of capital well into the double digits. In addition, most EM remediation projects are so large that if private corporations attempt to finance them on their own they would affect their debt ratings and increase their cost of capital. This would raise prices to DOE and all other customers of the corporation.

Contractor bids must cover not only the low cost debt, but also this weighted average cost of capital and a large risk premium. These finance charges are taxable income and approximately 40% of them are paid out as taxes. As a result, the IRS receives a significant portion of DOEís privatization budget.

DOE claims privatization reduces the cleanup ìmortgage.î In actuality, privatization creates new, larger mortgages by not accounting for risks to the contractor, by using costly private financing, and by delaying payments five or more years into the future. The following example for a generic $6 billion facility with a lifetime operating cost of $500 million demonstrates that finance charges for EM Privatization can easily exceed the cost of a facility. Aside from differences in the operating costs, these figures may be scaled up or down for any EM facility.

Payment Options--Generic Reprocessing Facility

$ Billions

This privatization mortgage is so large Congress will have to dramatically increase annual outlays at privatized sites to pay the accumulated privatization mortgages.

Cost savings have been assumed by DOE under privatization without rigorous financial analysis. For example, DOE only compares EM privatization with prior M&O contracts and it ignores all other contractual vehicles between these two extremes. DOE also ignores the following cost increases due to EM privatization: Shifting risks to the contractor and adding large private finance charges must result in higher contract costs because private corporations must increase price to cover risk. The more risk a contractor takes, the higher the cost will be. Under a fixed price contract, contractors must raise prices to cover all foreseeable risks and unknowns--whether or not these risks actually materialize. These risks are paid for by the government whether or not they materialize. Under a cost plus contract, the DOE would only pay for risks that occur.

One bidder on most DOE privatization contracts is not a typical US company. British Nuclear Fuels, Inc., (BNFL) is the US-based arm of England’s BNFL PLC. BNFL is 100% owned by the British government. Because of this, BNFLís cost of capital is somewhere between 4% and 6%. Either way, this government-backed company can use a 10% rate of return in their bids and still make approximately 100% more than their cost of capital. BNFL bid a 10% after-tax rate of return on the AMWTP facility at the INEEL last year--and this bid included their financing charges and profit. [Note: Even BNFL’s ‘low’ rate of return carried a heavy financing charge for DOE: the $270 million AMWTP facility required an additional $300 million in payments on the capital.]

Based on this bid by a contractor whose borrowing is backed by the British government, DOE has awarded a contract to the one company that can live within the financing assumptions in the DOE privatization model. While DOE may claim the AMWTP contract proves that 10% is a realistic cost of private financing, it has actually put a foreign corporation--BNFL--in a position to establish a monopoly in privatized cleanup contracts. Given their low capital cost, BNFL can drive competitors out of the market and then re-negotiate their contracts at more favorable rates after they have established a monopoly position in the industry. BNFL’s risk in this process is minimal since it has few assets in this country.

By embarking on a privatization program based on faulty assumptions, and by failing to understand either the nature or the implications of real privatization, DOE is creating a massive future mortgage on the nuclear waste cleanup program. This mortgage will consume a large portion of the cleanup program’s assets simply to cover cost of capital and rate of return expenses. To avoid this outcome, DOE must select the option of turning the ‘privatized’ cleanup program over to a foreign government corporation with a poor environmental record. This option only succeeds in the short run because it uses foreign capital to subsidize the US cleanup program long enough to drive US contractors out of the market. After this happens, BNFL will be able to establish a monopoly in cleanup area and raise its prices accordingly.

None of these choices is acceptable. The US government has a much lower cost of capital than any private corporation. As the entity with the lowest cost of financing, it should finance EM projects using a pay-as-you go contract that avoids finance charges. The DOE needs to separate ìcontract typeî decisions (whether to use fixed price or cost plus contracts) from the ìfinancingî decision (progress payments, milestone billings, or private financing) and it should start with cost plus development contracts and evolve into fixed price arrangements once cleanup facilities have been proven and are operating.

It is time to recognize DOE’s EM privatization program for what it is--a poorly conceived idea whose only goal is to delay capital payments for nuclear cleanup projects. This program, if allowed to continue, will endanger the entire nuclear waste cleanup program and it will guarantee that the funds allocated for this program will not be spent on actual cleanup of the many polluted sites around the US.