by Geoffrey Sea
Of late it's been said often that USEC Inc. has nine lives. The US Department of Energy repeatedly saves the allegedly-private company with some late-breaking, exorbitant, extortion-satisfying bailout announcement, no matter how disastrous are USEC's management decisions, no matter how severe its corporate calamities, how impending the doom, or how terrible the prospects for government and investor benefit. I have raised the question of whether USEC is "too rigged to fail." USEC says the letters of its name don't stand for anything anymore, but they do. The letters stand for: Undermine the Security and Economy of the Country, Incorporated.
But the purveyors of perpetual vitality for this enterprise have it wrong, because the last-minute salvation scam is inherently non-sustainable. USEC may be staggering on, with artificial life support from quasi-legal or explicitly illegal diversions of federal funds and material, but it's a walking dead man, The Paducah monstrosity cannot breathe beyond some undetermined number of months, at most. The nonsense “American Centrifuge” is as ready to crumble as a Caribbean sand castle in hurricane season. Nearly a quarter of USEC common shareholders are short-sellers betting on near-term misfortune. And the company's creditors are crying uncle more than they are counting on Uncle Sam. On Friday, June 1, USEC tried to put a happy face on a credit-facility extension of only fifteen days. Beyond that, the company's kneecaps are in extraordinary jeopardy.
I suggest there has been some collective typographical error. USEC is not the company of nine lives, but the company of nine lies. These lies are now employed to deceive Congress into supporting a bailout for the company expressly against national interests. So let's unpack:
Lie 1: USEC's problems can be blamed on lack of sufficient government support and unfulfilled political promises to the company, or on a need for emergency federal intervention in the company's projects.
Truth: In fact, the U.S. government has supported USEC with unaccounted BILLIONS of dollars since the company's privatization in 1998 through multiple gifts of uranium, enormous subsidies including free use of government-owned facilities and technology, liability waivers, and no-bid contracts designed to “compensate” USEC with cash in lieu of loan guarantees for which USEC never came close to qualifying. No politician or public official ever promised USEC a federal loan guarantee, and if they did, that act would have been expressly illegal and unethical. Any proposal to renationalize USEC or to take over or fully subsidize USEC in whole or in part would run directly counter to the USEC Privatization Act, which would need to be amended or repealed by Congress to make such federal involvement in USEC legal. The Privatization Act, in letter and intent, created USEC as a freestanding company, the commercial ventures of which should live or die on the basis of independent business decisions, without political interference. Offering bailout in bad times, with no commensurate payback to the government foreseen or foreseeable would be a supreme violation of the public trust.
Lie 2: USEC leases its facilities from the government and pays for the government services it receives.
Truth: USEC's single “lease” which covers its use of land and facilities at both the Piketon, Ohio, and Paducah, Kentucky, sites, is a misnomer. It is not a lease in any ordinary sense as USEC is not required to make payments to the government to retain control of the sites, the arrangement has no term or expiration, and there is no provision in the document for termination by the government under any circumstance. In short, the so-called lease represents a government giveaway to a private company, its “negotiation” was bad public policy, and the constitutionality of the arrangement is highly suspect.
Lie 3: The “American Centrifuge Plant” employes “advanced” or state-of-the-art technology that has tremendous efficiency advantages, and may yet be proven viable.
Truth: The ACP-100 machines employed by USEC in “the American Centrifuge Plant” project were developed by the U.S. Department of Energy in the 1970s, and were shelved between 1985 and 2002. There is no evidence in the public domain that the technology has been significantly improved since the 1970s. Indeed, two analyses of the technology's viability by DOE in connection with review of USEC's loan guarantee application resulted in the denial of that application twice, in part on grounds of technical inadequacy. USEC's intentional failure to complete a demonstration of the technology, even though USEC was contractually committed to do so in 2005, strongly suggests that the technology is not technologically viable. During the decades that this centrifuge technology has languished without significant development, competing technologies deployed by other domestic and foreign companies have leaped ahead with new generations of centrifuges and laser-based isotope separation methods. The latter represents tremendous efficiency advantages over any hypothetical USEC centrifuge plant.
Lie 4: The “American Centrifuge Plant” is “American” or “indigenous” in some way that competing domestic enrichment projects are not.
Truth: By definition in U.S. law and regulatory practice, all production plants located on U.S. soil are “domestic,” which makes the URENCO plant in New Mexico, the AREVA project in Idaho, and the GE-Hitachi project in North Carolina all “domestic.” USEC's project employs some technology of U.S. origin, but it also employs technologies of foreign origin, a fact that has been attested by the National Nuclear Security Administration. Some of USEC's competitors are owned by foreign companies, but USEC has also sold partial ownership shares to foreign-owned companies, notably Toshiba, a USEC strategic investor. Indeed, USEC imports more than half of its product from Russia and has strategically partnered with Tenex of Russia to continue that relationship, making USEC far less “indigenous” than its domestic rivals. USEC has even agreed to support construction of a Tenex enrichment plant on U.S. soil, obviously intended to transition “the American Centrifuge Plant” into a “Russo-Japanese Centrifuge Plant” or something of the sort. No cogent argument has been made for why this venture merits special support by the U.S. government.
Lie 5: The “American Centrifuge Plant” serves some U.S. national security purpose related to production of uranium or nuclear nonproliferation.
Truth: The proferred “national security” rationales for ACP are all demonstrably fallacious. The U.S. will not need a new supply of Highly-Enriched Uranium for between fifty and a hundred years, precisely because USEC was already paid to produce an enormous stockpile of that material in the 1990s at Piketon. TVA does not need a dedicated source of Low-Enriched Uranium for its tritium production reactors, precisely because TVA has now contracted to obtain a stockpile of that material from reenrichment at USEC's Paducah plant. If other supplies for TVA are needed, that can be most cheaply done by down-blending the government's HEU stockpile. The U.S. government has disclosed no role for USEC in assisting nonproliferation efforts, and covert projects to achieve “nonproliferation” by attacking the centrifuge programs of foreign countries are properly funded and conducted by the military, if needed. Confusing covert military programs with allegedly civilian commercial projects actually undermines national security, especially by making any involved site a legitimate military target for foreign countries.
Lie 6: The “Research, Development and Demonstration” project will prove the viability of ACP technology and serve as a step to completion of a commercial-scale “American Centrifuge Plant.”
Truth: In October of 2011, Secretary Chu proposed a two-year RD&D project, to serve as a bridge to a commercial-scale ACP. The timing was critical because USEC's sweetheart agreement to sell Russian weapons uranium expires at the end of 2013, and USEC has a $530 million debt to bondholders due in 2014, with no business plan for repaying that debt. Even if it were possible to complete a two-year RD&D program, it would not be possible to finance and build a commercial plant before USEC's big projected profit losses and debt payment deadlines. But Chu's schedule was dependent on near-immediate funding by Congress, and that funding did not materialize. No actual RD&D program has yet started, and if Congress appropriates funding for 2013, that funding will not be available until October 2012, at the earliest, meaning that the first year of the proposed program will have passed without progress. Since the plan was for USEC to pay 80% of RD&D costs in the second year, if 2013 is considered the second year, then a large federal contribution won't be needed – it's USEC's turn to pay. All of this is nonsense, of course. It's become obvious that neither DOE nor USEC intend to use appropriated funds for any real RD&D program. Rather, they cobbled together a proposed RD&D program as a rationale to obtain congressional appropriations that could then be utilized as a general corporate bailout fund for USEC – paying the company's general debts and expenses. If a real RD&D were warranted, USEC would have attracted private investment to complete it long ago.
Lie 7: The “Research, Development and Demonstration Project” for which congressional funding is sought is the same as, or is a part of “the American Centrifuge Plant."
Truth: Legislative language drafted in large part by the Department of Energy refers to a “Research, Development and Demonstration Project” on “uranium enrichment technology” for “national security” purposes, without explicit mention of USEC, ACP, or any geographic site. USEC, and its agents in Congress have characterized this as “the American Centrifuge RD&D project,” implying that appropriated funds will necessarily go to USEC's project in Ohio, but that is far from clear. USEC may want to lay claim to any appropriated funds, but DOE may be anticipating USEC's collapse and may intend the RD&D program to retain certain overt or covert aspects of the former ACP project under a new guise and operated by other companies. RD&D has clearly changed substantially since Chu proposed it in October of 2011, but DOE has intentionally obscured what those changes are, or how or where it intends to implement the program. Congress would essentially be appropriating funds for a black-box program for which at least three different characterizations have been made. Would the money go to build 120 centrifuge machines at Piketon, as Ohio politicians claim? Or would it go to pay the debts and expenses of USEC Inc. of Bethesda, MD., as the company's investors and creditors expect? Or would it go to pay for an ACP replacement project in Oak Ridge, Tennessee, run by Babcock & Wilcox, as the DOE rumors and internal agency motives would have it? Members of Congress asked to vote on the appropriation would presumably like to know.
U.S. Senator Sherrod Brown, running for 2012 reelection
on the ACP Spin-Counterspin platform
on the ACP Spin-Counterspin platform
Lie 8: The “American Centrifuge Plant” will generate 4,000 jobs in Ohio and another 4,000 jobs in other states.
Truth: USEC has never provided a shred of evidence that its job numbers for a commercial-scale ACP weren't just cooked up by a PR hack at the company's Bethesda headquarters. Indeed, an internal memo from the Department of Energy in 2009 showed that USEC's jobs numbers evolved in a seemingly arbitrary way, the projection increasing over time as requests for government assistance intensified. When USEC was seeking private investment on the argument of efficiency of operations, its jobs estimates were significantly smaller. Moreover, Ohio politicians have magnified the chicanery by suggesting that the proposed miniscule RD&D project will generate all of the 4,000 Ohio jobs, promised but never documented to come from a full-scale commercial ACP plant. In reality, USEC's continued non-productive occupation of the Piketon site prevents cleanup and alternative development of that site, having a profound negative impact on employment in the area surrounding Pike County, which continues to have the highest unemployment rate of Ohio's 88 counties.
Lie 9: The “American Centrifuge Plant” is good for Ohioans, so politicians and political parties who want to win in Ohio should support it.
Truth: The “American Centrifuge Plant” has been a disaster for Ohioans and represents an ongoing catastrophe for the community. The corruption scandal that is ACP will attach itself to any politician who touches it. Formal termination of ACP would have happened long ago, if the bizarre USEC “lease” had contained a termination clause, and if USEC had to pay to maintain its titular presence and actual control of the site. But under the numerous sweetheart arrangements that were accorded if not authored by Ohio politicians, USEC can sit there, doing nothing, employing virtually no one, forever, or until Americans elect a government with some gumption, whichever comes first. Even more outrageously, USEC's cleanup and decommissioning obligation does not kick in until ACP is formally terminated, meaning that USEC has a tremendous financial incentive to “demobilize” but never “terminate” the project. Thus USEC can potentially delay cleanup and decommissioning until after the company is beyond reach in liquidation, at which point its over-compensated officers will have moved on to those great beyonds where U.S. tax laws and extradition treaties can't reach them. Call it the centrifuge runaround, the only technical demonstration of USEC's spin capabilities that U.S. taxpayers will ever see. Memo to Romney running-mate vetting-process personnel: The assumption that Appalachian Ohioans are too stupid to know a scam or a lying politician when they see one is both highly offensive and historically proven wrong.