by Geoffrey Sea
The fate of USEC Inc., the quasi-privatized pseudo-nuclear company allegedly building a new centrifuge plant at the federal site near Piketon, Ohio, has hung on congressional 2012 and 2013 budget deliberations. Committees now have filed reports for 2013 Energy and Water appropriations, which were anticipated to clear up the matter. But clarification was the last thing provided, as USEC-purchased politicians announced that the Piketon project has been funded, while the actual committee documents contain no mention of USEC, its "American Centrifuge Plant" (ACP), the Ohio project site, or any intent to fund commercial uranium enrichment.
Funny way to bail out a private company.
USEC management feigned triumphalism at the annual shareholders meeting on April 26, but the stock market revealed the flimflam as shares traded near the lowest price and volume levels ever.
Around and Around We Go
If investor sentiment has been a slow fizzle, panic has struck the political class, as USEC's final collapse comes timed to the national election campaign in the critical swing region of the most crucial swing state, impacting not only the presidential contest but the careers of Ohio's two rising-star U.S. Senators, each of whom may appear on the November ballot. Democrat Sherrod Brown is running for reelection as the bought and paid-for baby of USEC's corporate PAC, while Republican Rob Portman, a former congressman whose district included Piketon, is now widely mentioned as topping the list of potential Romney running-mates. It's Enron and Solyndra spun together into a Watergate cotton-candy centrifuge swirl.
USEC certainly needs a bailout desperately. One financial analyst who prefers to remain anonymous describes USEC as in "an advanced stage of atrophy," now "burning the furniture" to stay in business. In March the company reported a $540 million net loss for 2011, while it was hit with a $100 million assessment for pension benefits liability in Ohio, on fears of impending bankruptcy. USEC's sole remaining production plant at Paducah, Kentucky, is expected to shut down in May, which presumably will result in a like assessment by the pension fund overseers in Kentucky. Shutdown is an economic necessity for USEC, because the plant has been operating at a loss for every order for enriched uranium it processes. Fantastic efforts by the Obama Administration to postpone the Paducah shutdown until after November would come, if they materialize at all, with a taxpayer bill in the hundreds of millions of dollars.
USEC has acknowledged its predicament by setting a series of "deadlines" for government assistance over the past ten months, each one missed in consideration of the legal if not political consequences of public accession to the extortion demands of a private company. USEC has more than $500 million in debt to bondholders coming due quickly in 2014 following accruing bank debt, and its principal income stream from sale of Russian uranium under a government-negotiated treaty will expire in 2013, fast approaching. Another big shoe yet to drop is that USEC's two strategic investors, Toshiba and B&W, retain rights to convert and sell millions of shares of USEC preferred stock, which will bring a large dilution of common shares expected before August.
USEC lists $1.7 billion in assets on its books. But those book assets include centrifuge machines that become less than worthless overnight once the project is terminated (they can't even be scrapped), along with uranium that USEC likely over-valued in order to beef up its portfolio to attract investments and political bailouts that never came. Whatever real value remains will be fought over by bank creditors and by government agencies intent on recouping the costs of disposing of accrued uranium tails and decommissioning the freshly-contaminated site in Ohio, deferred costs which USEC is legally obligated to pay. Indeed, USEC has so many uncharted debts and obligations that emergency efforts to arrange a salvation sale of the company, or a renationalization by some less-odious name, have run into ranks of nightmare accounting and attorney hurdles.
Five-year USEC (USU) stock price chart with volume on lower scale
as of April 26, 2012, courtesy of Morningstar.com
The stock market, at least, has come to the conclusion that ACP was never anything but a cruel hoax, played at the biggest expense of Ohio workers and common shareholders, with federal regulators acting as criminal accomplices. At the current price of 83 cents per share, the total market valuation of USEC is just $102 million, meaning that the federal government could just buy the company for one third the price of the proposed bailout. But that, of course, would stick the federal government with USEC's debts.
Twice turned down for a $2 billion federal loan guarantee, USEC and the U.S. Department of Energy (DOE), since October of 2011, have been advertising an expected congressional bailout package of $300 million -- a package that failed to materialize through three abortive legislative attempts in December, January, and March. The package, as proposed by Energy Secretary Steven Chu last October, was supposed to fund a two-year "Research, Development, and Demonstration Project" (RD&D) to partially complete USEC's "Lead Cascade" centrifuge array, licensed as the demonstration facility leading to completion of the commercial-scale ACP.
Construction of a $5 billion new centrifuge plant under such conditions is beyond fantastic, however. USEC PR hacks still say it will happen, and Ohio newspapers still quote them saying it, but pigs will sooner fly over a Gingrich-built moon base than ACP will open for business at Piketon. As I have previously written, the ACP 44-foot centrifuges were designed in the 1970s, optimized to produce Highly-Enriched Uranium (weapons grade). They have no commercial adaptability for reactor-grade fuel, which the Reagan Administration realized in 1985, when development of the technology was aborted.
Since inception in 2001, the entire "privatized" ACP project has been a hoax, or more precisely a scam intended to wheedle funds from the U.S. Treasury, with the Ohio Connection supplying opiate for the political class. And it worked too well, creating a sky-high house of cards set to collapse in accord with the Mayan Calendar.
So the first reason that Congress removed USEC's name from the company's proprietary bailout legislation is that USEC may well not exist as an ongoing entity by the time of the November election. Implausible deniability was needed so that, in the case of a bankruptcy filing or other embarrassing calamity, the politicians could make the ridiculous claim that they were supporting a "national-security program," as the House wording goes, and not a single company. It's ridiculous because the intent of the funding would be to pay USEC corporate expenses and debts, and thereby avoid the pre-election accounting of under-the-table government payments, which a bankruptcy court would require.
Solyndra had an actual business plan, a solar panel technology that demonstrably worked, and that company did make a profit on units sold. The question in the Solyndra corruption case has been whether some political considerations influenced government assistance decisions. The question in the USEC corruption case is whether there has been any business analysis at all to back up government funds awarded by the political calendar outside of any statutory authority. USEC can only aspire to the status of Solyndra. Since its privatization in 1998, USEC has squandered unaccounted billions of dollars acquired through government gifts, concessions, and subsidies -- many times the $535 million lost from the Solyndra loan guarantee.
With turkey vultures circling over the USEC carcass, USEC's stock price plummeted to a historic low of 81 cents per share on April 24. That represented a loss of over 96% since the giddy high of $23.91, achieved just five years ago after the Nuclear Regulatory Commission (NRC), under tremendous political pressure, insanely licensed construction of a full-scale commercial centrifuge plant at Piketon, though USEC had neither demonstrated its technology nor produced a semblance of a financing plan. Oddly, like everything else about USEC, the stock hit its all-time low the day before congressional appropriators were set to announce a supposed bailout package.
Music to the Earmarks
In part, that coincidence occurred because of the second reason that USEC's name had to be excised from the alleged bailout legislation, which was that any naming of USEC would violate the hard-and-fast House rule banning earmarks, a rule enforced by Tea Party rebels against the leadership of House Speaker John Boehner, from southwest Ohio, the principal pusher of the USEC funding. By removing company and project names from the committee reports, congressional leaders could and did claim that the earmark wasn't an earmark. And it did slide through the committees on that astounding denial of the obvious.
But that deception creates a whole new series of roadblocks. For one, Sherrod Brown, or Sherrod the Shameless when it comes to special interest pandering -- celebrated the alleged good news for USEC as an accomplished earmark for Ohio -- and he was quoted in the papers doing so, thus outing his own effort as an explicit violation of House rules. And that has made House members of both parties hopping mad -- members who have yet to amend and vote on the budget package on the House floor.
Why Sherrod Brown sabotaged the USEC non-earmark earmark relates to sabotage, the third reason that the USEC and ACP names were deleted from the appropriations reports: The prospectively funded work may have nothing or little to do with Ohio.
Ohio, of course, is where the political fruits of the "American Centrifuge Plant" are picked. But actual work on the project has proceeded mostly in the non-swing state of Tennessee, where the centrifuge R&D and manufacturing facilities are located. Not publicly disclosed (until right now), USEC has conducted centrifuge testing at a federal facility in Oak Ridge, Tennessee, designated K-1600, a facility for which USEC appears to pay no leasing fee. I picked up that information from one line in a DOE engineering report that mentioned the site of two undisclosed USEC centrifuge crashes in early 2011 as K-1600, clearly a federal site designation identified further in other public documents about Oak Ridge. In a telephone conversation on April 16 of this year, the Nuclear Regulatory Commission Region 2 office confirmed for me that USEC has been using the K-1600 facility, and that NRC inspectors have visited the site.
That is extremely relevant because the alleged justification for new federal funding of USEC is a new "Research, Development & Demonstration" project for centrifuge technology, which if taken as accurate, would imply that all or almost all of the actual work would be done at Oak Ridge, with little if any payoff in Ohio jobs. Since the budget language reinforces that conclusion by failing to specify any site for the work, Sherrod Brown was compelled for campaign purposes to assert that the budget item he champions will indeed serve home state interests. But it won't, even if the funding survives additional challenges.
TheHouse language says this on page 122:
"The recommendation includes $100,000,000 to support the start of a national security-related domestic uranium enrichment technology development program, $50,000,000 below the request." .
That is, Congress is initiating a NEW program, aimed at national security needs, not a commercial plant, which may or may not involve USEC and the Piketon site, according to the budget item.
And what might those "national security needs" be? Well it isn't to secure domestic supply of reactor-grade uranium, because the world market is super-saturated with such uranium. A new centrifuge enrichment plant has been opened in New Mexico, and two other domestic projects, in Idaho and North Carolina, are awaiting only an uptick in demand. From a market perspective, there is simply no room or available private financing for a fourth project in Ohio.
And the justification isn't production of weapons-grade uranium, because the U.S. has an estimated hundred-year stockpile of that stuff, so much that the government has considered down-blending the material to reactor-grade and selling it just to raise needed cash. When that supply does run out, if ever, new enrichment technologies will make 1970s centrifuges totally obsolete.
Some time ago, Rob Portman started saying that USEC uranium was needed for the "national security" purpose of supplying TVA reactors that produce tritium for nuclear weapons as a by-product. Portman stopped making that claim after I called him on it. In fact, TVA has legally purchased uranium fuel on the open market, and can continue to do so, since its tritium production does not fall within arms-control restrictions.
There is, however, one remaining and genuine national-security purpose for an "RD&D" project based at Oak Ridge. It just happens to involve no USEC centrifuges. When Libya surrendered its uranium centrifuges to the United States in 2004 (to avoid the kind of invasion threat just suffered by Iraq), those Libyan centrifuges were airlifted, guess where? That's right, they are stored at the federal facilities in Oak Ridge, Tennessee, as was publicized with fanfare by the Bush Administration.
The confiscated Libyan centrifuges are of the P-1 variety, constructed from the same purloined European designs distributed by the renegade A. Q. Khan network of Pakistan also to Iraq, Iran, and North Korea. In January of 2011, the New York Times disclosed that the U.S. National Nuclear Security Administration or NNSA was using the P-1 centrifuges at Oak Ridge to develop physical and software techniques for disabling or destroying the like-designed centrifuges of Iran, in a joint clandestine program with the government of Israel.
Those disclosures came about after Iran acknowledged in 2010 that a significant fraction of its centrifuges had been disabled by theStuxnet computer worm, generally believed to have been a cyberweapon of Israeli-American invention. While the Times revealed that software attack methods had been tested in Israel, physical attack methods, including direct bombardment, on-site sabotage, and destructive materials replacement, have been considered more of an American specialty.
Iran's president reviews banks of uranium centrifuges that actually work.
The real target of the U.S. new "national-security" centrifuge R&D program?
Now it should be pointed out that the K-1600 facility at Oak Ridge does not appear to be leased by USEC. Rather it is listed in Oak Ridge Real Estate Office records as leased by the U.S. Air Force. It was originally built in the 1970s for testing the susceptibility of centrifuges to "seismic shock" -- as in how much disruption from aerial bombardment might be required to disable a centrifuge array that is bunkered underground.
NNSA -- the federal agency known to be in charge of the clandestine counter-centrifuge program -- is also the agency with open managerial and regulatory responsibility for USEC's "American Centrifuge Plant," for which no normal civilian regulatory compliance measures have been undertaken. The 2013 budget item for support of the "national security" RD&D program is listed under the NNSA portion of the budget, using funds transferred from NNSA "non-proliferation" programs.
It appears then that, at least within high-level clearance circles, the "national security" RD&D program now under funding consideration may have little to do with USEC or Ohio at all. With USEC bankruptcy pending, DOE and NNSA may simply need another funding avenue for the military centrifuge sabotage program lodged at Oak Ridge. Previously, the fictitious ACP project at Piketon had served as a false-front cover operation, with the added benefit of swinging political support from the Ohio congressional delegation. But USEC owns no part of the needed operation at Oak Ridge, and it can be replaced easily as a contractor, its cover blown.
Piketon as a Potemkin Village
The proposed RD&D project never made any sense if related to USEC's private commercial venture. USEC had been contractually committed to complete a 240-centrifuge Lead Cascade in October of 2005. It never happened, and by 2011, USEC had just 38 centrifuges installed. On June 11, 2011, with only eighteen machines in operation, six of those machinescrashed, and one breached its casing, in an accident not fully investigated to this day. By mutual agreement with NRC, USEC ran NO URANIUM at Piketon in more than ten months. Hardly a going concern in comparison, say, to the tens of thousands of centrifuges spinning uranium gas in Iran, which turn out to be very relevant to this story.
Another problem is that, from a funding perspective, at least a year is already gone, meaning that no two-year RD&D project as proposed can possibly be completed before USEC's bonds are due for payment in 2014. Funds appropriated for 2013 cannot legally be spent before October, meaning that the minimum seven-year delay just to demonstrate the viability of USEC's technology has killed any prospect for a commercial-scale plant, if such a prospect ever existed. Those "four thousand Ohio jobs" that Senator Sherrod Brown keeps promising over and over again on the re-election campaign stump will not be materializing -- ever. And Mr. Brown, currently the leading beneficiary of USEC PAC contributions, knows well that those jobs are a figment of his cooptation.
What did Sherrod Brown and Rob Portman know about the real "national security" purpose of NNSA-sponsored centrifuge "research" and when did they know it? Those questions ought to figure prominently in the campaign debates and veepstakes vetting to come. For even if the senators had genuine national security interests in mind, wanting to bolster the arsenal of weapons to be deployed against Iran and North Korea, the senators have lied continuously to the voters and workers of Ohio. Fundamental questions of military secrecy in a democracy are raised. Bondholders and shareholders have been duped, the latter class including virtually all USEC employees.
If USEC's "American Centrifuge Plant" served any national purpose at all, it related to technologies for destroying centrifuges, not building them. And those 4,000 Ohio jobs promised ad nauseum to the Buckeye State electorate were nothing but a crass and cruel bipartisan campaign hoax.
Portman has actually pulled away from his USEC advocacy. No doubt the prospect of a Romney-Portman ticket -- opposing the auto industry bailout but supporting a bailout for bankruptcy-ripe USEC -- might raise some eyebrows even among the 1%.
Brown, on the other hand, has doubled down. On April 18, Brown went to the White House yet again to lobby for USEC, reciting the "4,000 jobs" promise in his press release for the umpteenth time.
Just which party gets left holding the USEC bag is the biggest mystery remaining. Either way, clarification is required as to whether the 2013 NNSA budget item pertains to the private commercial USEC centrifuge plant in Ohio -- in which case it clearly violates the House rule against earmarks -- or to a government military program for developing anti-centrifuge weapons. Anybody?