By Geoffrey Sea
High drama hits the world of the former U.S. Enrichment Corporation as a shareholder rebellion drubs the company stock price, restructuring and bankruptcy rumors swirl, safety issues delay USEC’s departure from Kentucky, a “left-right” anti-USEC coalition of Non-Governmental Organizations emerges and charges of USEC’s direct involvement in illegality proliferate.
USEC used to be a world giant in the supply of nuclear fuel. Once wielding monopoly power over the domestic supply and international pricing of enriched uranium, its motto touts “A Global Energy Company,” even as USEC struggles with the expense of closing its last production facility in the non-metropolis of Paducah, Kentucky. (Metropolis is over the river in Illinois.)
But in a spectacular sell-off signaling bizarre irregularities in the way the company has been managed and subsidized, USEC Inc.’s stock price has tumbled in a pattern known to market analysts as a “falling knife.” On the Friday after July 4, normally a sleepy trading day, the rush to sell USEC stock caused $2 gaps between ask and bid prices, ending with a 40 percent drop in value for the day. After double-digit percentage share-price declines at enormous volume on July 3, July 5 and July 8, (thirty times average volume on July 8), the total market valuation of the company is now about $16 million, ranking it as Lilliputian.
USEC’s bonds, which come due for payment in 2014, if not sooner, fell to about twenty cents on the dollar. The company’s common shareholders, including many past and current employees, have lost 99 percent of value since 2007, 80 percent of value since the start of 2013 and 67 percent of value since June 24, when the Paducah City Council and the McCracken County Fiscal Court met in joint session to cope with USEC’s abandonment of that community.
And let’s not forget that with its nose-thumbing at the Commonwealth of Kentucky, USEC may lose the lifeline shilling services of that state’s powerful congressional delegation, including Senate Minority Leader Mitch McConnell, presidential contender Rand Paul, House Appropriations Chairman Hal Rogers, and Energy and Commerce Chairman Ed Whitfield.
The hot betting at Kentucky tracks this season is on whether McConnell, Paul, Rogers and Whitfield will shun their former corporate sponsor in deference to western Kentucky voters before the 2014 appropriations cycle is complete.
USEC’s flirtation with a non-nuclear Apocalypse has profound implications for the safe completion of power-down at Paducah, for the long-term cleanup of the contaminated sites that USEC will leave behind, for the well-being of a region that came to depend on the company’s draw of unproductive federal spending, and for the viability of the U.S. nuclear industry as a whole.
The cliff-diving exhibition of USEC stock is pushed by fears of an impending bankruptcy filing or a stock-diluting debt-for-equity swap, two de-listing warnings from the New York Stock Exchange (NYSE), shock and horror over a reverse stock split at a monstrous ratio of 25-to-1 and growing realization that USEC stands as much chance of swinging a needed federal loan guarantee as George Zimmerman does of being voted Mister American Suave.
Even Frank Lewis of Ohio's Portsmouth Daily Times, who would report a nuclear disaster as a good-news opportunity for USEC, wrote last week that in announcing new loan guarantees, the Department of Energy is sullenly silent about USEC. No shit, Sherlock, the company is going broke.
At the pre-reverse split valuation rates in effect until July 1, USEC stock is now selling for thirteen cents per share. You can’t buy a doughnut-hole for that, but if you could, it might have more spin and enrichment potential than a USEC uranium centrifuge.
Yet even after the panicked sell-off of USEC stock, on the evening of July 10, the inestimable members of the U.S. House of Representatives, led by the very same characters who lambasted the Obama administration for its risky loan guarantee to the Solyndra Corporation, voted by nearly a three-to-one margin to make another $48 million of federal funds available to the USEC “centrifuge” venture in Ohio, at risk levels that would make a Carnival Cruise through the Bay of Beirut look like a safe bet by comparison.
So what is going on here?
The Un-American Centrifuge Plant
Created first as a government corporation in response to a mismanagement scandal at the U.S. Department of Energy (DOE) in the 1990s, USEC was privatized in 1998. The USEC Privatization Act, premised on delusional Thatcherite ideology, placed two solemn obligations on the respective parties in the split: The Department of Energy, though continuing to own the land and facilities with which USEC operates, had to stay out of the business of uranium enrichment; USEC, while free to conduct its business as a private corporation, had to use its free access to public land and resources to develop advanced uranium enrichment technology and improve the U.S. position in the global enrichment marketplace.
Now those statutory goals can only bring a ROFLMAO reaction. USEC has become a wholly-dependent ward of the Department of Energy, which effectively makes all the big “business” decisions that concern enrichment, and USEC has defaulted on any credible effort to deploy a domestic advanced enrichment technology. Yet the Privatization Act remains on the books, its provisions violated cavalierly but with no efforts at repeal, like metropolitan municipal laws about donkey carts and Sunday dancing.
The basic and shocking truth about USEC, which now ought to be celebrating the fifteenth anniversary of its privatization, is that the company, ballyhooed as “vital for national security” by members of Congress and local chambers of commerce, doesn’t produce anything anymore and it never will. It enriches no uranium, its government-granted sweetheart deal to market Russian warhead uranium expires at the end of this year, and its “American Centrifuge” project (ACP) at Piketon, Ohio, has become a parody of patriotism, so outpaced by Russian, European, Australian and Iranian competitors that the company can’t whip up enough whirl on a centrifuge machine to spin a cotton candy cone for the USEC anniversary.
ACP was scandalously licensed by the Nuclear Regulatory Commission (NRC) for construction and operation in 2007, and $520 million of bonds were issued to finance that construction, all premised on plant completion between 2011 and 2013. Now past the projected commercial opening date, not only has construction of a full-scale plant not neared completion, it hasn’t really been started, and estimated completion costs are now about twice what they were in 2007.
A supervisor on the project told me that most of the initial expenditure, affording USEC a hefty tax write-off it’s already taken, went to replace the roofs on the pre-existing buildings, apparently to ready those buildings for some use other than a centrifuge plant. That actually makes sense because USEC has never demonstrated possession of a commercially-competitive centrifuge technology ready for deployment, and has resisted that eight-year overdue demonstration like the legendary Count Dracula avoiding a mirror. And for precisely the same reason: If USEC were forced to complete a demonstration, it would only reflect the vacuity of the project. Imaginary monsters cast no reflection.
A so-called “Research, Development and Demonstration” (RD&D) projects, now being “completed” at Piketon with 80 percent federal funding, is only more smoke and mirrors, minus the mirrors, because the program involves no actual research, development, or demonstration of commercial viability. If completed, the project will only demonstrate that USEC centrifuges can spin without exploding, like a toaster demonstration that shows glowing coils but fails to produce any toast.
Despite public funding, no governmental process is contemplated for gathering or disseminating data on the commercial worthiness of USEC’s centrifuges, because that answer is already widely known: The technology at issue is forty years old and out of date, a fact confirmed by an active proposal from GE-Hitachi to use their molecular laser enrichment technology to extract usable uranium from USEC’s own old waste product at the Paducah site, a proposal that has brought no counter-offer from USEC. The real purpose of the “RD&D” project at Piketon is only to extend out the schedule of USEC’s galactically-embarrassing inevitable collapse.
This is no NIMBY attitude, though the centrifuge project is literally in my backyard. (My property has a one-mile long fence line with the USEC-leased portion of the DOE reservation). I’m the one who’s been telling anti-nuclear activists for nine years to stop directing their attacks at a centrifuge plant, because no centrifuge plant will ever happen here. I’d call the American Centrifuge Plant a pipe dream, if its pipes had any more reality than Bush’s “aluminum tubes.”
That other intended use of the so-called “centrifuge” buildings at Piketon became clear from the outset in 2007, when the Bush DOE, led by an assistant secretary who had formerly been Chief Operating Officer of USEC, pushed to make Piketon a storage center for the nation’s languishing stockpiles of spent nuclear fuel. USEC had purchased the leading American spent fuel storage company, and used its DOE-lease and NRC-license as Piketon place-holders, waiting to ditch its unviable centrifuge project for a far more lucrative federal contract warehousing nuclear waste. USEC had been given virtually unregulated and unconstitutional control of the federal sites at Piketon and Paducah, on the single condition that the company proclaims, with no means for verification, that it is developing an “advanced” uranium enrichment technology at those sites. Had John McCain won the 2008 election, USEC might have cashed in big by turning Piketon into the world’s largest nuclear dump.
That was not to be, however, and now USEC is stuck having to continually say it will build an enrichment plant that the company never had the technology, financing, or motivation to build. Politicians and the media have a hard time comprehending it, but the ACP project was never more than a false front, a mechanism for wrangling government bailout after government bailout, while the rock-red company waited for a Republican administration that would approve its audacious waste storage plans.
That was Plan A for the Piketon A-Plant, until the company just ran out of steam. False-front hi-tech deceptions can get expensive. ACP taxpayer funding was utilized as a bridge to USEC’s intended diversification, which is exactly the strategy that its 2002 team of new “strategic advisors” recommended. That team included Iraq War architect Richard Perle and a physics professor whose only claim to fame was in pushing centralized storage solutions for spent nuclear fuel. His name was Ernest Moniz.
U.S. Sen. Rob Portman (R-OH), whose old congressional district included Piketon, has invited the new Secretary of Energy to come and visit “the American Centrifuge Plant.” That’s a laugh, intended only so Republicans can berate the Obama Administration when Moniz, like his predecessors, fails to appear. If the former USEC “strategic advisor” and nuclear expert did come for a whizz-bang tour of the big empty buildings, he could be held criminally liable for the fraud. You can hear a swirling sound in those cavernous buildings, erected by the federal government at an alleged cost of $2 billion, but it’s the sound of U.S. Treasury bills going cyclonically down the drain. No one has actually added up the total amount of federal dollars wasted in subsidies, gifts and graft to USEC, but the Government Accountability Office is reportedly working on the task.
USEC has certainly achieved some record-setting milestones. The $5 billion price tag on a completed commercial centrifuge plant (an estimate USEC has not bothered to update) would be approximately 350 times the total current market value of the entire company. It’s like a kite-flying club saying that it will build a B-2 bomber. The annual salary of CEO John Welch is about a third of the total value of his company, a rate of compensation justified only by his ability to keep a straight face when saying that he expects the government to give him a $2 billion loan guarantee. Say “Solyndra” a hundred times slowly after setting off a stink-bomb to get some sense of the magnitude of the incipient scandal when USEC finally bites the dust.
But no, that really isn’t fair to Solyndra. Solyndra may have been a case of the government picking winners and losers unwisely. USEC is a case of the government picking a loser intentionally over and over again, only because the privatized cash recipient has strategically and falsely promised jobs in the states and districts of powerful Members of Congress.
Once described in the Financial Times of London as “the trust fund baby of the American nuclear industry,” USEC has squandered every sequential $50-million allowance check from the feds on posh executive salaries and luxurious lobbying. Therefore, the allegedly-private company still needs a couple of billions from the government, just to make ends meat and ward off investment-fraud litigation. The company’s loan guarantee application, repeatedly submitted in the run-up to key elections, has already been twice denied because “USEC had nothing, absolutely nothing,” in the words of a former aide to U.S. Sen. Sherrod Brown (D-OH).
Even if USEC got that federal loan by some underworld device, criminal or demonic, it would need to raise at least an additional $3 billion to complete a new production plant, which Welch says, still straight-faced and with no supporting evidence, could come from a Japanese international bank. I suppose that would be in gratitude for USEC’s supply of nuclear fuel to the three reactors at Fukushima that melted down and are still leaking. Those silly Japanese and their short memories and spare cash.
Recent developments at Piketon and Paducah make no sense at all without understanding that the working national plan for how to deal with the outmoded gaseous diffusion plants and their massively contaminated sites has been to convert both into “national sacrifice” waste repositories. But you won’t find that plan in any Federal Register notices or Environmental Impact Reports. Rather, it’s the subtext of a hundred different records of decision and formal notifications. The new way to evade those nuisance environmental compliance requirements is for federal agencies and funded corporations to simply not announce what they intend to do.
Exploiting exclusive lease provisions arising from the USEC Privatization Act, aided by exceptionally lousy government negotiating under the Clinton and G.W. Bush administrations, the anticipated waste enterprises at Piketon and Paducah were to be operated at a profit by USEC and its subsidiaries as they “diversified” away from the overly-competitive enrichment business back toward lucrative federal contract work. In accord with this master plan, a “Uranium Center of Excellence” or UCE was established at Piketon in the early 2000s, which collected uranium scrap waste from all over the country, including large shipments from the “cleanup” projects at Paducah, KY; Fernald, OH; and Hanford, WA.
The “excellence” of this facility was that the radioactive garbage was green-washed as “recyclable,” and Ohio voters were also duped by the promise that it would bring hundreds of jobs, when the final tally was only two full-time inventory managers. I suppose that if spent fuel storage had been added, it would have been called the Center for Real Awesomeness with Plutonium.
But when the spent fuel storage plan was ditched quietly by the Obama Administration as an impediment to future electoral success in the Buckeye State, the Uranium Center of Excellence stuck out like a radioactive thumb. Many of the same contractors who had been paid to haul the excellent garbage in were then paid a second time to haul the excellent garbage out in a less-than-excellent shell game that meant lucre for an elite group of crappy corporations. Some of the uranium that had been trucked from Paducah to Piketon has been trucked back to Paducah, just as that facility was being readied for closure and alleged “cleanup.” The mother-lode of excellent uranium trash has been moved en masse to a new UCE at Oak Ridge, TN, which curiously seems to have not much going on in the way of human activity.
USEC had intended to be the chief beneficiary of all this excellent wastefulness, but found itself sidelined by dual rulings of the DOE General Counsel that barred the company from bidding on Piketon or Paducah cleanup contracts due to unspecified conflicts of interest. (Why the text of those rulings remains undisclosed is clear: The conflicts of interest that legally impede USEC involvement in cleanup also apply to Babcock and Wilcox, the lead strategic investor in USEC, and to Fluor Corporation, which signed a one-billion-dollar manufacturing contract with USEC for ACP in 2008. However, Fluor and B&W jointly were granted the principal $2.2 billion cleanup contract at Piketon in 2009, which USEC had hoped to acquire.)
Barred from major cleanup contracts and unable to swap its centrifuge lemon for a lucrative waste storage project, USEC found itself cock-blocked at the very sites it was supposed to control by virtue and vice of the USEC Privatization Act. The company then resorted to an extortion caper as its business plan. The Piketon gaseous diffusion plant had been closed in 2001, but Paducah remained in operation, losing money for USEC every day it did so, not counting the patronage payoffs to USEC provided by the Kentucky congressional delegation. (USEC made what little profit it did off the sale of Russian uranium, offsetting Paducah losses.)
That left USEC with a single card to play, and the company played it. Leveraging its precarious financial situation, USEC threatened the Department of Energy with a sudden shutoff of power at Paducah at the end of May, on strict interpretation of the clause in the Privatization Act that limits USEC responsibilities to the business of enrichment, ignoring a lease provision that requires return of the facility to DOE “in safe condition.” That was intended to wrangle additional subsidies from DOE or get the government to bend on the conflict-of-interest exclusion from “cleanup.” Instead, the explicit extortion drove home USEC’s conflict of interest, angered the new Secretary of Energy, and erased years of community relations work. USEC was telling the people of the Paducah area that the company was willing to place their lives and health in immediate jeopardy in order to make an immediate extra buck and temporarily keep itself out of bankruptcy.
What USEC probably wasn’t counting on was that current and former USEC employees, who include many Paducah area residents and account for a large percentage of investors clinging to USEC common shares, would dump the stock in defiance. And that’s what apparently happened around Independence Day, giving new meaning to the holiday in the context of the end of dependence of the Paducah community on its old gaseous diffusion plant and the company that ran it into the ground.
The grotesqueness of USEC’s financial mismanagement has led to ideas among the company’s own current and former employees that they could do a better job of running the enterprise and preserving jobs. Groups of employees at both Piketon and Paducah have schemed about USEC takeover or replacement, likewise running into the hurdles of the company’s staggering debts and its statutory authority—amending or repealing the USEC Privatization Act in this Congressional gridlock would be tantamount to a Texas secession. Everybody knows it ought to happen, but don’t hold your breath. I asked one such schemer, off the record, why he thought his group would have a leg up over current USEC management and he said: “We wouldn’t be a billion dollars in debt or pay our CEO six million dollars.” He has a point.
USEC stock has nose-dived before, especially when the company’s “Atomic Vapor Laser Isotope Separation” technology was revealed in 1999 to be vaporously fraudulent and inexcusably wordy. (“We will see Elvis before we see AVLIS” became a common saying in the USEC-dependent communities). However, the most recent plunge puts USEC stock into territory of dire consequence for the company’s survival.
The 25-to-1 reverse stock split accomplished on July 1 was intended resolutely to cure USEC’s stock price deficiency, which was cause for a de-listing warning from NYSE in May of 2012, after the company’s share price fell below the one dollar mark for thirty days. By multiplying stock value by a whopping twenty-five, USEC wanted to extinguish any chance of falling back again into deficiency. But by July 8, only four trading days after the reverse split, USEC stock already hit a low of $2.60, raising the definite specter that it will soon be back in deficiency territory.
Any reverse stock split is widely regarded by investors as a prelude to bankruptcy. The size of this one resulted in some really funny glitches on market websites unprepared for such a radical revaluation. GoogleFinance gave up and reported the July 1 market move for USEC as a flat-line at zero, while YahooFinance took an opposite approach, neglecting to apply the split ratio of 25, showing the stock value as rising more than 2100 percent on the day when the adjusted value in fact had fallen. Investors were none too pleased when receiving brokerage bills for the mandatory swap.
Meanwhile, USEC received a second de-listing warning from NYSE in April of 2013, after market capitalization fell below the required minimum of $50 million. The reverse stock split was expected to worsen that problem by taking some toll on equity value, but USEC hoped to rectify that problem by soon employing a debt-for-equity swap that would involve an issuance of many new common shares. That solution, however, exacerbates two other problems in the manner common to sinking companies.
With common shares already trading at such low value, their dilution by a large amount of newly-issued stock would reduce share value to near zero. And to implement a near-term debt-for-equity swap effectively would undo the reverse stock split just employed—a one-two punch clearly aimed at squeezing common shareholders just to pay for extended executive salaries prior to liquidation. Since publicly-traded companies are, by law, supposed to act for the benefit of their shareholders, such transparent abuse of them would likely raise SEC violation issues and serve as a basis for a new round of shareholder litigation.
Moreover, the magnitude of the Independence Day plunge brought USEC’s market capitalization below yet another de-listing threshold. On July 8, the market cap fell to just $14 million, a level which, if sustained, would bring immediate de-listing from the stock exchange, with no allowance for time to cure the deficiency by a corporate restructuring. Since July 8, the market cap has been hovering close to the $15 million threshold. If USEC were to be de-listed from NYSE, the company’s bonds would become immediately due for payment, and that would necessitate a swift filing for bankruptcy.
If the last three paragraphs were gobbledygook to you, here’s a kind of Idiot’s Guide to USEC: USEC has virtually no sellable assets (its facilities, equipment, and uranium inventories are almost all owned or subject to seizure by the government); USEC has no business plan (its enrichment business and Russian-uranium marketing venture are rapidly winding down and its diversification dreams never materialized); USEC has no reason for existing (it survives as a statutory creation of the Privatization Act but it fulfills no mission for the nation beyond the orderly decommissioning of its projects); USEC’s equity value is on a glide-path to worthlessness; USEC continues to accrue debt at an alarming rate.
Judging by recent votes, the entire Congressional leadership, led by Ohio’s least-favored son John Boehner, and solid majorities in both houses of Congress, believe the above attributes make USEC an excellent candidate for billions of dollars in new federal loan guarantees. Idiot’s guides are way above the heads of most members of Congress.
On July 10, the House of Representatives voted by solid majorities to defeat two proposed amendments that would have killed future funding for USEC’s Piketon charade. The amendments were sponsored by conservative Republican Michael Burgess of Texas, and co-sponsored by Democrat Ed Markey of Massachusetts, who will have the odd distinction of voting again on the same appropriations measure after he is sworn in as a U.S. Senator on July 16. (USEC, however, may not survive out of bankruptcy until the time the Senate votes.)
Reflecting the spectrum-spanning diversity of USEC fed-uppedness in the House, a “left-right” DC coalition of five conservative economic groups (including the National Taxpayers Union and the National Enterprise Institute) and four progressive environmental groups (including the Natural Resources Defense Council and Friends of the Earth) issued a letter supporting the Burgess-Markey amendments.
Calling upon Congress to “Stop USEC Giveaways,” that letter stresses the crash of six USEC demonstration centrifuges in June of 2011, and the legal incorrectness of “national security” justifications for continuing USEC bailout. (USEC’s congressional defenders, like freshman Congressman Brad Wenstrup from Portman’s old district in Ohio, repeatedly claim (as seen in the below video) that USEC’s future centrifuge facility is needed to make tritium for nuclear weapons. That argument is patently false—TVA’s nuclear reactors that produce tritium as a by-product have received and may receive uranium fuel from non-USEC sources, including down-blended U.S. stockpile material or URENCO’s centrifuge plant in New Mexico. Ohio is not more “domestic” than New Mexico, except in the minds of John Boehner’s minions.)
How soon will the end come for USEC Inc.?
On July 29, USEC is scheduled to report its second quarter losses, including the large yet-undisclosed cash hemorrhage caused by DOE’s insistence that USEC pay for the power-down procedure at Paducah, rather than simply turn out the lights and leave. The first round of substantial Paducah layoffs will occur around A-Bomb day, the anniversary of the Hiroshima bombing, on Aug. 6. Look for the financial bombshell before or during that week, signaled also by cash-strapped USEC’s hiring of a prominent lobbying firm last week to negotiate terms of the company’s dissolution (or as they prefer to put it, “restructuring”) on Capitol Hill.
According to Politico Morning Energy on July 3, USEC has hired Cozen O’Connor Public Strategies (COPS) to lobby on issues related to closure of the Paducah plant, following a little PR snafu when the governor and attorney general of Kentucky announced they may initiate lawsuits to compel safe shutdown and cleanup of the closing plant. But the admittedly-impoverished USEC doesn’t really need high-priced help running away from responsibilities at Paducah. The company’s predicament is far more dire than that. In actuality, COPS is being employed to consort with the robbers in Congress (hat tip to Senator Portman) to craft a last taxpayer-funded going-away gift for USEC Inc.
Many other indicators also point to some form of USEC liquidation in coming months. According to financial experts who prefer to remain anonymous, USEC has arranged its subsidiary structure in order to fend off potential litigation by various claimants, in anticipation of bankruptcy proceedings. Last year, President Obama signed an executive order aimed at protecting Russian uranium in USEC’s possession from potential seizure by a bankruptcy court in case of the kind of rapid unraveling now underway.
Rumors are rampant in Piketon and Paducah about how remaining USEC projects will be divvied up in the assumed liquidation. Five months remain of the Megatons to Megawatts program with Russia, but USEC’s role in that was never more than one of an easily replaceable reseller. It is widely speculated that Babcock & Wilcox, a USEC “strategic partner,” has been prepped to take over USEC’s role in the Piketon centrifuge RD&D project, but following USEC’s collapse, that project would lose its potential commercial application, and along with that it’s reason for existence. The last thing that DOE wants is to be back in the saddle running a centrifuge project at Piketon, Ohio. It’s been thrown from that horse too many times.
The only big outstanding questions are how the completion of power-down procedures at Paducah will be paid for, and how the massive “centrifuge” buildings at Piketon with new USEC roofs will be disposed of. Dennis Carr, now the project manager of Fluor-B&W’s cleanup venture at Piketon, told me in 2010 that he had already made plans to demolish those buildings and include the debris in a 100-acre on-site waste cell. That’s how foregone the conclusion of a USEC liquidation has been.
Payment for these ignominious ends of the USEC empire is further complicated by the fact that in recent years, DOE has assumed liability for some USEC decommissioning responsibilities, allowing USEC to cash in posted surety bonds, thus postponing bankruptcy a little longer. The extent to which DOE has subsidized USEC in this manner, nullifying the Privatization Act with dubious legal authority and adding substantially to taxpayer liabilities, is a subject of ongoing investigation. DOE is mum on such questions. “National security,” the Fifth Amendment, and all that.
Legal matters too remain outstanding. For at least four years, USEC has been shipping contaminated process equipment – converters, compressors, and motors—salvaged from the defunct gaseous diffusion plant at Piketon to the Paducah site, where the material has been stored inside the process buildings of that plant. These shipments were made under the rubric that USEC needed “spare parts” at Paducah. But why so many “spare parts” were required at a plant being prepped for closure, and high contamination levels on the shipped equipment (both radioactivity and toxic chemicals) raise substantial questions about what USEC intended to accomplish, how much USEC’s partners Fluor and B&W gained by the acceleration of Piketon cleanup, and whether the shipments were the quid pro quo for extra-legal DOE payments to USEC.
I’ll give the last word to a long-time commenter on USEC investor message boards, who posted the following message on July 8:
“Cannot believe an energy company with a monopoly market died. Oh well see you all. USEC is "dead to me." Anybody working at this company best get resume updated.”
By Geoffrey Sea
The Commonwealth of Kentucky may sue the federal government to compel cleanup of the now-closing uranium enrichment site at Paducah, according to the governor and the state attorney general. The quasi-privatized operator of the facility, USEC Inc., filed suit against the Department of Energy (DOE) in May. Shareholders and/or bondholders of USEC may sue the company for a third or fourth time over its current financial collapse, and the feds may have to sue USEC if it defaults on its obligation to properly restore the Paducah plant to safe status before it departs.
Whistleblowers allied with the Natural Resources Defense Council have filed suit against Paducah contractors over past fraud and legal violations in waste handling at the site, a new round of litigation after fraud claims joined by the federal government about a decade ago. Paducah workers will likely sue to recover their vanishing pension benefits, and heck, if you don’t sue somebody, then you’re just not a member of the Paducah nuclear club.
It’s a litigious self-sustaining chain reaction, a post-atomic parody of the old Tom Lehrer A-Bomb song “Who’s Next?” Yesterday I visited “Future City,” an empty developer’s dream town adjacent to the hulking Paducah Gaseous Diffusion Plant, and I saw the Paducah mural wall along the lovely Ohio River, which includes one depicting the incoming traffic of the “A-Boom” of 1952. But there’s an ominous empty mural space after it, ripe for depiction of the rear-ends of automobiles in the A-Bust of 2013, and it’s clear that Future City belongs now only to the lawyers.
The Week the USEC World Ended
USEC, the company whose bust-up operations and the cessation thereof included no serious planning for impacts on the community, is only midway through a nuclear week of woe.
On Monday, June 24, a special joint session of the Paducah City Council and the McCracken County Fiscal Court, chaired by mayor Gayle Kaler, was called to respond to the crisis of USEC’s precipitous departure, resulting in a joint resolution demanding federal insurance of safe power-down and recognizing united community opposition to a planned on-site 100-acre waste cell following plant demolition.
Representatives of Neighbors for an Ohio Valley Alternative (NOVA) attended, presented comments, and announced the launch of a nationwide petition-drive to transfer responsibility for nuclear cleanup from the Department of Energy to the U.S. Environmental Protection Agency. The NOVA petition also calls for a transfer of federal funds from USEC’s failed “American Centrifuge” program to urgent safety and cleanup work at the Paducah and Piketon, Ohio, sites. Media attention has focused on my revelation at the Monday meeting that for years USEC has been moving contaminated equipment from the Piketon site to Paducah, under the rubric of “spare parts,” but with many outstanding questions as to why contaminated spare parts would be required for a facility scheduled to be shut down.
On Tuesday, June 25, Kentucky Governor Steve Beshear came to Paducah for meetings with Mayor Kaler and other officials mobilizing community response, after which the governor announced that the state is contemplating a lawsuit against DOE. Such a suit would be modeled on the massive successful litigation brought by the states of Washington and Oregon against DOE, to increase the funding and alter the action plan for cleanup of the Hanford nuclear reservation, near the border of those two states.
At issue in the potential Kentucky case would be DOE’s failure to plan for and fund safe power-down at Paducah. Instead, DOE relied on a weak lease provision that requires USEC to accomplish that work, but DOE apparently failed to take cognizance of USEC’s financial collapse, rendering the company incapable of incurring additional expenses without pushing itself into bankruptcy. That eventuality would bring a raft of other problems of unanticipated consequence, including the potential disappearance of worker pension benefits at the same time workers lose the remaining value of their USEC stock holdings.
Enron All Under Again
USEC stock value has flat-lined at about 30 cents per share, creating a radioactive penny-stock, making a mockery of USEC’s “Stock Up” program of partial employee compensation. It’s Enron all under again, with economic impact highly concentrated in the communities of Paducah and Piketon, far less capable of absorbing the impacts than was Houston.
Also on Tuesday, Edward Markey was elected to the U.S. Senate in a special election in Massachusetts. Markey has been USEC’s arch-foe in the House, dubbing it “the United States Earmark Corporation,” a jab at the House Committee chairmen from Kentucky, Hal Rogers and Ed Whitfield, who claimed credit for the Republican “No Earmark Rule” even as they shoveled new federal subsidies to USEC. In its carefree days, the company would dutifully kick back some of those subsidies in the form of campaign contributions, with Rogers and Whitfield near the top of that list. They, along with Paducah point man Mitch McConnell, will have to explain to constituents, if not the Justice Department, why USEC took the federal money and ran.
This would be a propitious time to review just one of Congressman Markey’s prophetic anti-USEC rants in House committee deliberations, this one in opposition to USEC’s eligibility for a federal loan guarantee.
Now, Congressman Markey will move to the U.S. Senate, where he will caucus with the majority, just as USEC is preparing to submit a third revision of its loan guarantee application, or so the company says.
Quadruple Back-Flip Split?
But the week is far from over. On Thursday, June 27, USEC shareholders are meeting at the company’s beltway-bandit hideout in Bethesda, Maryland. They will stare straight into the double-barrels of doomsday de-listing warnings from the New York Stock Exchange (NYSE), one because USEC’s stock price has failed to meet the one-buck minimum for over a year, and another because the company’s total market capitalization is only 75% of the $50 million minimum NYSE requirement. If USEC is de-listed for either or both reasons, half a billion dollars of bond debt becomes immediately due.
To ward off that Apocalypse, USEC shareholders will vote on a no-choice proposal for a reverse stock split, whereby current shares will be traded in for new ones at a ratio of between ten-to-one and thirty-to-one. It’s a Wikipedia understatement that “a reverse stock split is often an indication that a company is in financial trouble,” even when the swap ratio is lower than double-digits. But USEC has a number of additional problems. While the reverse split will likely cure the share price deficiency at least temporarily, it will also likely worsen the market capitalization deficiency, which USEC suggests in a disclosure statement. That’s not just because reverse splits have the stench of dead flesh, but because odd shares that cannot be swapped at the selected ratio must be cashed out. (If the swap ratio is thirty-to-one but you only own twenty-nine shares, the company has to buy your shares.)
NYSE just was not cut out for micro-cap companies that make a meager living by extorting illegal subsidy payments from corrupt politicians. Maybe USEC needs a quadruple back-flip split on the balance beam as its final substitution for a legal business plan?
And it gets worse for USEC. The company needed to cut its losses at Paducah, after paying about half a billion dollars each year just in power costs to TVA. However, the company banked on being able to pack-up and leave Paducah cost-free. It had intended to shut out the lights, and “de-lease” the facility, using any threat of nuclear safety calamity from a rapid power-down as a way to extract yet more federal payments for subsidized “extension.”
When the Department of Energy said no to that plan in May, according to reliable sources, it also informed USEC that it would hold the company to a lease provision that the plant be returned in “safe condition.” The possibility of federal aid for that project is negated by USEC’s own scheming that Paducah power-down costs not be included in the 2013 federal budget (even in theory, such funds will not be available until October at the earliest).
There is ongoing wrangling between the litigants even now as to what exactly “safe condition” means. USEC is meeting a minimal standard of its own determination, simply blowing air through the system as diffusion cells are powered down, but leaving substantial residues of solidified uranium and transuranic crap inside the pipes and compressors. That will be a costly nightmare for future cleanup workers. (Workers report about two inches of residue coating the insides of all process equipment). Imagine a gigantic sixty-year-old sewerage installation that’s never been Roto-Rooted.
That leaves a horrid legacy for future cleanup workers, as Terra Hays testified at Monday night’s governmental meeting. She is the wife of a Paducah worker who became seriously ill after only 23 months of removing and packaging contaminated materials at Paducah, and Ms. Hays cited the statistic that there are now 19,128 active claims for work-related illness compensation at Paducah.
DOE was able to compel USEC to take minimal safety precautions at Paducah because USEC’s continuing investment scam is to say that it will apply for and receive a $2 billion loan guarantee from DOE, a loan guarantee that is inexplicably supposed to enable USEC to build a new centrifuge plant with undemonstrated technology that will cost a minimum of $5 billion. Thus, USEC did not terminate its TVA power contract at the end of May as threatened, and to date has shut down about 60 percent of the Paducah cascade, with the remainder to be shut down over the next month or two. Power consumption has been reduced from about 1500 MW per year to about 350 MW or lower.
With USEC’s financial situation, however, that creates a whole separate set of issues. USEC did not anticipate having to pay the costs of that work, and so did not disclose those costs to its investors or the SEC. In a Form 8-K filed with the SEC on May 31, USEC says only that “USEC is in discussions with DOE regarding the timing of USEC’s de-lease of the Paducah GDP and is seeking to minimize its transition costs, which could be substantial.” By my estimation, the unanticipated power costs alone will total in the tens of millions of dollars.
And that raises the question of whether USEC has been forthcoming with its investors and federal regulators headed into its shareholders meeting on June 27. A cornucopia of new potential lawsuits!
Scores of World War II ammunition bunkers cluster around the Paducah plant. I think they may find a new use sooner than the gaseous diffusion plant, warehousing the litigation files about to be generated in a case of uncontrolled nuclear proliferation. As for the massively contaminated plant site itself, how could we do better than a new federal penitentiary for the white-collar perpetrators of these hazmat-orange crimes?
The security fences and guard stations are already in place for the nuclear chain gang, and the plant was prophetically organized by cell-block. Consider the government cost savings on convict transportation alone.
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By Geoffrey Sea
The United States Enrichment Corporation, the contracting subsidiary of USEC Inc.—the company that now produces nothing—has filed a lawsuit in the Court of Federal Claims seeking $38 million in back-bill payment from the U.S. Department of Energy (DOE). The complaint was filed on May 30 with no publicity, as it reveals that the entities running uranium enrichment projects at the Paducah, KY, and Piketon, OH, federal sites are more antagonists than partners.
The filing came exactly one week after DOE rejected USEC’s $13 million demand for extended payments at Paducah, and one day before USEC ceased enriching uranium at Paducah, making good on a long-time extortion threat. The legal action heralds the end of the “American Centrifuge” project at Piketon and of the uranium enrichment privatization experiment.
For this litigation, USEC has retained McKenna, Long & Aldridge, the leading firm specializing in government contracts that counts all of the top five U.S. defense contractors as clients.
A congressional staffer who has followed USEC dealings closely commented on the news: “It is outrageous.” USEC is displaying more chutzpah than its old mouthpiece, former Congresswoman from Ohio Jean Schmidt, when she called for making flag desecration a felony while draped in a Captain America suit.
This official transition from the Atomic Age to the Attorney Age makes obvious what has long been known to industry observers: The USEC Privatization Act of 1996 created a very stormy marriage between USEC and DOE. That marriage led the parties to commit unnatural acts at Paducah and Piketon, but without clear markers of mattress territory, and with irreconcilable differences between governmental and proprietary predilections. Virtual screaming matches between USEC and DOE at closed-door sessions have become something of a scandal unto themselves.
The Privatization Act created USEC as a non-governmental company with unprecedented (and unconstitutional) control over federal assets at two prime industrial production sites. The condition was that USEC shut down the existing antiquated power-hungry facilities and replace them with technology of its own development, free of political interference (insert laugh-track here). But the Privatization Act gave USEC no financial incentive to do the R&D, so the company didn’t, becoming a nagging ward of the bureaucracy from which it was supposed to be liberated. Before he won the Nobel Prize in Economics, Joseph Stiglitz opposed the privatization as chairman of the Council of Economic Advisors, and in an op-ed piece in The Wall Street Journal, he quoted a Republican Senator calling privatized USEC “a threat to national security.”
Now fifteen years into the marriage of inconvenience, the divorce will not be easy or amicable. As I wrote on May 28, the “negotiations” between DOE and USEC, advertized as concerning extended Paducah operations, were in fact about “timing, bill payment and where the political blame for job loss could be cast.”
To keep up public appearances, the squabbling spouses intentionally failed to make preparations or secure the congressional funding for clean plant power-down, because as every divorce lawyer knows, the chief strategic objective is to get the other side to blink. Each party had to show that it was ready to split the child of nuclear safety down the middle, attempting to win spiteful custody of whatever treasure remained. And in the real world of the nuclear complex, there was no King Solomon. They don’t call it a complex for nothing.
Legal considerations did come into play, however. Attempts by USEC to ditch the competitive uranium enrichment business in favor of lucrative no-bid nuclear cleanup contracts were partially thwarted by decisions of the DOE General Counsel that such contracts at either Piketon or Paducah are barred by federal conflict-of-interest rules. The absence of preparations for power-down at Paducah was in part an attempt by USEC to force DOE to waive those rules, since no other company besides USEC would be ready on the spot when power-down occurred. According to reporting in the Lexington Herald-Leader, DOE has now reasserted that conflict-of-interest rules will bar USEC from cleanup at Paducah.
The Government Accountability Office (GAO) determined in September of 2011 that DOE “discretionary” payments and uranium “barters” with USEC, to the tune of some $194 million, were in violation of federal fiscal laws. The $13 million additional gift of uranium from the national stockpile that USEC demanded as payment for a non-performing Paducah extension would have violated these same laws after the illegality had been identified by federal investigators, and would have been the most explicit nullification of the USEC Privatization Act yet on record. That act aimed at closure of the gaseous diffusion plants, and relegated the necessary shutdowns to USEC “business decisions” removed from political influence. Government payment to USEC for alteration of that decision would have defeated the main aim of the statute.
Duking It Out at Paducah
Other federal agencies aren’t done with their scrutiny of the strange transactions between DOE and USEC. Last week, GAO investigators quizzed both DOE and USEC about the apparent absence of plans for clean power-down at Paducah, despite intense negotiations between the parties that have reportedly been underway for more than a year. The results are some of the first public indications of how the Paducah shutdown will transpire, though correct interpretation of the responses relies on our ability to invert the given answers to get at the real truth, the way readers in the former Soviet Union learned to read the party newspaper Pravda.
According to informed sources who wish to remain anonymous, both USEC and DOE told GAO that USEC will return the Paducah plant site to DOE control in parcels gradually, with only the initial phase of “de-leasing” accomplished by the spring or summer of 2014. Similar gradual transfer of the Piketon site delayed cleanup substantially, provided endless opportunities for USEC to extort new payments from DOE, and generated hoax “redevelopment” projects with no more than PR value, such as the phony-baloney media event in 2009 at which USEC claimed it would build a nuclear reactor on a site with no body of cooling water. For these prerogatives, USEC paid no fees of any kind for retention of “leased” facilities, and was subject to no financial penalties for contractual violations. Kind of a sweet “leasing” deal you might want to ask John Boehner and Mitch McConnell to write into legislation on your behalf.
USEC’s exercise of its lease option to retain control of parts of the Piketon or Paducah sites indefinitely and without explanation or payment warrant against the wishful-nonsense proposal now being hawked by Paducah local media.
That proposal, spearheaded by former Paducah manager Jim Thomas, mischaracterizes USEC’s occupancy as DOE contract work for which there should be a successor, when in reality USEC was given control of the site by statute, and it may use that control to knock enrichment competitors out of the box, as it did when USEC slammed the door on competitor AREVA’s interest in building a centrifuge plant at Piketon. (AREVA subsequently went to a private site in Idaho). Briefly put, the Thomas proposal to continue government enrichment at Paducah, even if technically possible, would require repeal of the USEC Privatization Act, which will happen when pigs fly over a national monument honoring Julian Assange.
Whistle-blower Joe Carson addresses a meeting of sick Paducah workers and whistle-blowers. Meeting and
video arranged by Commonwealth Environmental Services of Paducah.
DOE and USEC reportedly also told GAO that the reason there is no federal budget line for purging of the diffusion cells at Paducah is that USEC will perform that work itself, before it cedes control of the site. That is utter lunacy. First, that is work barred to USEC under the conflict-of-interest rule. Second, USEC did not perform that service at Piketon, though it had nine years to do it, even though USEC was being paid hundreds of millions of dollars by DOE to do precisely that.
In fact, that constitutes much of the contract work for which USEC now claims it is owed back over-budget reimbursement in its new lawsuit. And though DOE has not yet commented on the lawsuit, the reason that DOE did not pay those over-charges when billed is that USEC failed to accomplish the assignment. Only now are the cells at Piketon being purged, with many problems encountered, under a $2.2 billion contract to Fluor-B&W.
Moreover, USEC is now in such financial distress, with $500 million each owed to bondholders and to pension obligations, with stock exchange delisting warnings in effect, that the company need not worry about being around long enough to make good on cleanup commitments at Paducah. The company’s total market valuation is down to $43 million. USEC might just as well represent to federal investigators that it will pay the billion-dollar cleanup costs at Paducah, since it’s never paid a penalty for making false promises, and covering for DOE corruption might help settle the current lawsuit and collect on fraudulent bills.
The date at which USEC and DOE represent they will finish the first stage of de-leasing at Paducah—between April and July of 2014—is quite coincidental, as is everything in this business. June of 2014 is the contractual date at which USEC must decide go or no go on the commercial scale version of its “American Centrifuge Project” at Piketon. That would be the project currently estimated as costing a minimum of $5 billion, more than a hundred times USEC’s current market valuation, and for which there is no financing plan that doesn’t read exactly like the investment-fraud plot device of The Producers.
Financially, USEC must ditch the centrifuge project by end of summer in 2014, because on Oct. 1 of that year, assuming it’s still around, half a billion dollars of bond debt becomes due.
In other words, “truther” gibberish aside, the twin towers of USEC operations at Piketon and Paducah are programmed for self-demolition in the summer of 2014, after maximum extraction of illegal payments from the government, but before USEC is required to pay off its investors. USEC will say “no go” on its long-suffering centrifuge runaround, and simultaneously surrender its site control at Paducah, leaving nothing of the company but chemtrails in the sky and in the water and on the ground. That is how the USEC Privatization Act will be repealed, without Congress needing to lift or point a finger. Only all the little people will get screwed.
Today, June 4, the Secretary and Deputy Secretary of Energy traveled to Capitol Hill to meet with members of Kentucky’s congressional delegation about the future of the Paducah site. USEC was conspicuously uninvited to those meetings.
The Leaser of Evils
One might wonder who the nutcases were who negotiated the USEC privatization agreement, who authored the screwy single USEC “lease” for Piketon and Paducah that requires no leasing fee and that levies no penalties for any order of malfeasance, who “negotiated” with USEC on behalf of the government when hundreds of millions of dollars were transferred to the private company in exchange for nothing at all (and that was called “barter”).
Well, some of the mid-level people who sat around the negotiating table and witnessed these atrocities also wondered, and some of them did some research, which they shared with me. Turns out it was pretty much all one guy. William A. Murphie, manager of the “Porstmouth/Paducah Project Office” of DOE, was the principal author of the USEC no-fee, no-penalties “lease.” Then he was also the guy who complained that his hands were tied by lease provisions when DOE could not get USEC to relinquish control of the Piketon site for cleanup, and now Murphie is the guy who intentionally failed to secure a budget line to pay for clean power-down at Paducah, on the empty assertion that USEC itself will pay for it.
The Department of Energy should open an interest office in Khabarovsk, as a place to which Murphie can be transferred; on the off chance he is not incarcerated.
Some will claim that the new litigation is routine and nothing but another bump on the road of USEC triumphalism. But consider that USEC has claimed that its fortunes depend entirely on winning a $2 billion federal loan guarantee, an award which has already twice been denied, the application for which has not yet been submitted. Consider that USEC has less than 1 percent of the equity required for the project for which it seeks the loan guarantee.
Now if you were approaching a mortgage lender with less than 1 percent of equity in your portfolio and a record of defaults and explicit threats against the lender, would you, just before you submit your application, try to swing the deal by filing a federal lawsuit against the lender on old claims that have already been denied?
Environmentalists should be jubilant as the dinosaurian uranium enrichment plant at Paducah, Kentucky, nears expiration as soon as May. Based on antiquated gaseous diffusion technology, the facility is the largest single-meter power consumer on the planet, eating as much electricity as the city of St. Louis. It is likely the largest point-source emitter of the worst ozone-depleting greenhouse gases in the world, chlorofluorocarbons, as well. Paducah has a notorious history as a generator of occupational illness, since worker-whistleblower Joe Harding compiled lists of cancer-stricken co-workers:
It should have been shut down long ago. Yet no government agencies or environmental groups are clamoring for closure, because the event will generate as many problems as it solves.
The shutdown has been foreseeable and even scheduled for many years. Privatization of the U.S. Enrichment Corporation (now USEC Inc.) in the 1990s aimed at closing Paducah and its sister plant near Piketon, Ohio, with plausible deniability for incumbent politicians. (The pols could huff and puff about the loss of jobs, while throwing up their hands at USEC's unchallengeable "business decisions.") But now, with cessation of production imminent in the run-up to a presidential election, the dark clouds of the most precipitous failure of privatization in U.S. history are gathering into a perfect storm of policy breakdown.
The Paducah plant's closure will end all USEC production of nuclear fuel, effectively terminating the company for its established purposes, undoing years of taxpayer-subsidized PR hawking USEC as the sole domestically-owned enrichment company. (USEC may continue as what the CEO calls "a smaller company," devoted to the importation of Russian uranium and peripheral businesses.)
Neither USEC nor the Department of Energy (DOE) have the funds to keep the plant open, nor have the parties cooperated on a plan to pay for the expensive process of shutting it down, redirecting the workforce, or cleaning up the radiotoxic mess. Decades of lax or unregulated dumping and maintenance neglect have left an industrial witch's brew of asbestos, PCBs, TCE, fluorides, beryllium, nickel carbonyl, plutonium and classified materials unknown or unrevealed.
The Piketon enrichment plant closed in May of 2001, on the theory that staggered cleanup of the grossly abused sites, which remain government-owned, would be more affordable. But for all eight years of G.W. Bush's tenure at the White House, Piketon cleanup was postponed, while USEC was paid exorbitant fees, a hidden form of subsidy, to maintain Piketon in mothball status. The expensive part of Piketon decontamination and decommissioning (D&D), involving tear-down of process buildings that cover almost a hundred acres and disposal of millions of cubic yards of waste has yet to begin. But now there isn't the money to pay for that either.
For decades of U.S. monopoly on the western world's supply of commercial enriched uranium, nuclear utility companies were charged a surtax on uranium fuel supplied from the gaseous diffusion plants to pay for ultimate D&D of the facilities. But with privatization and the rise of new generations of cheap centrifuge enrichment technology abroad, along with pressure from the utilities, the surtax was waived in yet another subsidy for USEC, to keep the company's product cost-competitive.
That was engineered principally by USEC's captive Ohio congressman, who became the Bush administration's trade representative and budget director, now U.S. Senator, Rob Portman. The future of the Piketon and Paducah sites for literally thousands of years to come was mortgaged to pay for a perceived transient business boost to USEC Inc. in the decade following 1998.
Make a mental note, because when Portman runs for POTUS at the end of his Senate term in 2016, the USEC catastrophe will be the most radioactive skeleton in his closet.
As a result of Portman's concessions to USEC, the D&D Fund languished with inadequate and non-accumulating balances, and now it has been all but shelved as a bipartisan embarrassment. In 2004, the Government Accountability Office warned that the fund is "insufficient to cover cleanup costs," but that warning was so dire and so implicitly condemnatory of rising stars in both of the major political parties (i.e. Mitch McConnell, Mr. Portman and the latter's south Ohio bedfellow rival Ted Strickland, not to mention the Clinton and Bush clans), the consensus action was to bury the report's conclusions.
Supposedly—no updated accounting is available—the fund has stood at about $4.4 billion. But in 1996, the National Academy of Sciences cited various estimates for the total costs of gaseous diffusion cleanup ranging from $8 billion to $46 billion, meaning that the D&D Fund, which has also been diverted to non-decommissioning activities, cannot now even pay for inflation adjustments on the bill.
Steps taken by the ensuing Obama administration to rectify the situation and prepare for the inevitable D&D operations remain undisclosed as if classified for national security. The Department of Energy has been wracked by paralysis born of the seriousness and magnitude of the problems, and internal divisions caused by top deputy and assistant secretary positions left in the hands of Bush administration holdovers, whose agenda has been to sabotage the current administration. Add wildly irrational antagonism from Republicans in Congress, including especially from the top two Republicans, Ohio's John Boehner and Kentucky's Mitch McConnell, who have made the inherent competition for funds between Piketon and Paducah into a kickball between the chambers of Congress, providing total assurance that nothing legislative can get done.
Until recently (too late to make a difference) all three officials at DOE with lead responsibility for the Piketon and Paducah sites were holdover Republicans: Deputy Secretary Daniel Poneman, a transfer from the neocon Scowcroft Group, whose chief prior portfolio in and outside of government had been unsuccessful attempts to persuade Australians and Mongolians to accept high-level nuclear waste from the U.S. for disposal; Assistant Secretary for Environmental Management (resigned last July amidst suspicions of misconduct) Ines Triay, who invented the illegal method of bartering uranium with USEC to fund cleanup operations; and Assistant Secretary for Nuclear Energy (replaced in 2011) Dennis Spurgeon, the former Chief Operating Officer for USEC.
The revolving door at the Department of Energy's Forrestal Building in Washington spins a whole lot more reliably than USEC uranium centrifuges.
With Triay and Spurgeon gone, the non-saboteurs at the Department of Energy had only ten months to come up with tens of billions of dollars in legal funds for cleanups at Piketon and Paducah, over the contradictory objections of congressional leaders, in an election year of Tea Party austerity.
Duck and Cover
Meanwhile, McConnell and the rest of the powerful Kentucky delegation launched a political offensive, insisting that DOE find a way to keep the Paducah environmental monstrosity open as a jobs program, although those temporarily-saved jobs would come at an exorbitant expense to U.S. taxpayers, and undo every vestigial benefit of privatization. (For the savings of closure, the government could hire many times the number of workers to sit and "watch waste," as one Piketon employee has described his second career.) Sen. McConnell even crossed territorial lines to verbally assault Secretary of Energy Steven Chu at a hearing in the House of Representatives.
In response, Chu and his subordinates followed the "Duck and Cover" guidance of their atomic agency predecessors:
And never has ducking and covering been done with more ardor and non-aplomb than by Chu's DOE. No less than three groups of senators and representatives from both parties barraged Chu with interrogatory letters in early 2012, seeking answers to basic questions about continuing stated DOE support for USEC Inc.'s fantasy-land centrifuge spin-doctoring, matched with a non-compos-mentis (not mentally competent) policy regarding real-world cleanup matters at Paducah and Piketon. Not one of the congressional inquiries has yet drawn a written response. Nobel-winner Chu is going for the gold now in Olympic ball-dropping.
The Kentucky delegation has pushed a proposal originally advocated by USEC called "re-enrichment," which would involve a sweetheart no-bid contract for USEC to run some depleted uranium "tails," now stored in thousands of cylinders at the Paducah and Piketon sites, back through the Paducah enrichment cascade, squeezing out some additional Uranium-235, staving off a total shutdown.
But all at once, this would violate the laws of economics, jurisprudence and thermodynamics. It could never be more profitable to "re-enrich" tails than it would be to enrich new natural uranium, and the latter course would employ now-underemployed uranium miners, if the objective were to save jobs. If tails were re-enriched, it would never make sense to employ the least-efficient technology on earth, rather than to send the tails to a super-efficient centrifuge plant like the one operating in New Mexico, if the objective were to make money to fund site cleanup. Current legal agreements aimed at protecting the uranium mining industry limit the amount of government uranium stockpiles that can be released in any year to ten percent of the domestic market for commercial uranium. But that allowance is already at quota, owing to the Triay caper of using uranium barters to funnel extra-legal funds to USEC for various and nefarious purposes beyond congressional scrutiny. Plus, any such legislated market intervention would explicitly contradict the USEC Privatization Act, the rationale for which, after all, was to shut Paducah down with hands-off by the politicians.
One can almost sympathize, however, with Mitch McConnell in this spring 2011 exchange with Steven Chu at a Senate Appropriations hearing:
Aside from the disingenuous posturing about the decrepit Paducah plant and the desperate re-enrichment proposal, McConnell makes a simple point:
"Let's assume we don't do that [re-enrichment], then the question is, do we have the funds in the 2012 budget to safely and securely idle the [Paducah] plant after it closes and returns to the government?...There's apparently no plan in your budget for cleanups after the operations cease."
Chu then evades the cleanup issue entirely. A bit later in the transcript:
Chu: We would have an obligation to clean up that plant
McConnell: When will we see the plan?
Chu: Well, um, we can get back to you and your staff on that.
McConnell: ...What I think I hear you saying is, you've got no plans for either contingency at the moment.
Chu never got back to McConnell or any other legislator on funding for Paducah cleanup.
The Wreck of the USS USEC
Ten months later, additional uranium transfers have been made to USEC for no purpose other than to keep the company out of bankruptcy, and with closure of Paducah only sixty days away, still no shutdown management or site cleanup plans have been disclosed by DOE. Worse, cleanup funding for the Piketon site has been slashed in the president's 2013 budget proposal, and it's become clear that DOE lacks the funds for legally-compliant cleanup of even one of the gaseous diffusion sites, much less two at one time.
The Senate exchange between Chu and McConnell does reveal what has happened. Asked about cleanup, Chu can't even train his scientific mind on the subject. Instead, he digresses to off-topic technobabble about a project he doesn't quite want to specify, intended to replace gaseous diffusion. That is a feint to USEC's own corporate PR, which, since the company's creation, justified all manner of end-runs around constitutional and statutory law for the sake of a yet-unfulfilled promise that USEC would develop an "advanced" enrichment technology, and deploy it in such a way as to replace the aged plants at Piketon and Paducah.
That proprietary pitch never worked out well for the impoverished communities of Piketon and Paducah, which were pitted against one another in USEC-incited competition. An "advanced" plant would employ relatively few people—a few hundred as opposed to a few thousand—leaving the jobs problem unaddressed. The national security dimensions of a new enrichment plant would prohibit any other form of more gainful reindustrialization at the selected site. And a new plant would not magically clean up the legacy contamination, though it might allow DOE to escape high costs by lower contamination standards through the rubric of "nuclear reuse."
And that's exactly how USEC sold its "American Centrifuge" charade to DOE budget bureaucrats. For more than a decade, DOE has funneled federal dollars to "privatized" USEC by the billions, on the ever-extended promise that by building some new kind of nuclear facility at either Piketon or Paducah or both, the major nuclear cleanup costs would be avoided, even if the political promise of saved jobs were as phony as the spin on a USEC centrifuge.
Which turned out to be pretty phony, indeed. On June 11, 2011, only weeks after Steven Chu's Senate dissembling about how a new enrichment technology might answer the cleanup question, six USEC centrifuges crashed in a covered-up accident at the Piketon test facility, where, after a decade of alleged development, USEC had managed to get only thirty-eight centrifuges running. The June 11 debacle led to a second denial of a federal loan guarantee to USEC, now under Solyndra-like scrutiny, which in turn left USEC barely able to stay out of bankruptcy court, much less build a new nuclear facility, as the company entered the cataclysmic year of 2012.
Half a Billion with a B
In its annual report filed March 14, 2012, USEC acknowledges a net loss for 2011 of $540.7 million. That's half a billion dollars, including a $127 million write-off for all of the operable centrifuges it had produced so far, a fair chunk of change. Virtually all of those lost moneys came from accrued federal subsidies, including a $50 million mystery payment to USEC from DOE in the third quarter of 2011.
Moreover, the Obama administration has proposed giving USEC an additional $300 million over the next two years for an alleged "Research, Development & Demonstration" centrifuge project—the same crashed program that USEC was contractually bound to complete with private financing by 2005 but never did. Congress has so far not consented to that appropriation, as the request lacks any hint of transparency or accounting controls.
Circumventing committee debate on the issue, Ohio's two Senators, Sherrod Brown and Rob Portman, inserted a provision for the funding as a last-minute amendment to the unrelated Transportation bill passed by the Senate, but in a rather stunning display of corporate-shill cynicism, Portman voted against the bill that contained his own USEC amendment.
The House has delayed action on the Transportation bill to at least mid-April and more likely to the ninety-day limit of a continuing bill introduced on March 22, which itself contains no bailout language for USEC. That means Congress will almost certainly miss the March 31 "deadline" set by both USEC and DOE as the last date by which the "American Centrifuge" project could be saved from termination by congressional action. USEC had less than $38 million in cash at the end of 2011, per its annual report.
USEC's bailout prospects have been further damaged by the sound defeat of incumbent congresswoman Jean Schmidt, whose district includes Piketon, in the Republican primary election on Super Tuesday. Schmidt sits on the Transportation Committee, and the T-bill strategy for accomplishing a USEC bailout had been premised on her influence.
Republicans in the congressional delegation from Kentucky may be a bailout's biggest opponents, since they are being asked to support a new unexplained payment to USEC that is cockamamie, as they may or may not say in Kentucky, just a month before the Paducah plant is scheduled for shutdown, with no management or cleanup plan revealed. That's a lot to swallow for a state that's shown no particular love for federal lawmaking.
Kentucky lawmakers are so exasperated, they have fallen back on demanding the re-enrichment scheme just to avert a catastrophic closure with no advance preparations whatsoever. But USEC has put the kibosh on that kind of talk, since the company is in no kind of shape to keep Paducah operating at a loss.
In a webcast conference call that attended release of its annual report, USEC managers emphasized that of three conditions all needed to extend operations at Paducah, none have been met, none are likely to be met by May, and one—sufficient market demand for low-enriched uranium—is virtually impossible given post-Fukushima conditions. Mandatory six-month plant closure notices were issued to Paducah employees last November.
In a concurrent filing with the SEC, USEC made plain:
"...we do not believe there is sufficient uncommitted demand for LEU [Low-Enriched Uranium] to support a Paducah extension, even with an agreement with DOE for tails re-enrichment to absorb a significant portion of the plant production capacity. Therefore, at some point in the next 18 months, we expect to cease commercial enrichment at the Paducah GDP [Gaseous Diffusion Plant] but the facility may remain operational to meet other requirements."
"Operational" means that USEC will continue non-enrichment activities at the site, to prevent its being replaced by some other managerial contractor. According to Weapons Complex Monitor, USEC has also expressed interest in obtaining the multibillion-dollar D&D contract for Paducah. But when USEC attempted to secure the equivalent contract at Piketon, it was barred from bidding by a conflict-of-interest ruling from the DOE General Counsel. There is no reason to think that the ruling would not apply equally to Paducah.
The Writing on the Wall
The Paducah plant will close in May or soon thereafter, reverting to U.S. government control through a process called deleasing (similar in all ways to delousing). USEC simply can't afford to keep Paducah open. Following pure profit motive, as it is supposed to do by virtue of the Privatization Act, USEC has calculated that the company loses money every day that Paducah remains in operation, whereas, precisely because DOE has not prepared any contingency plan for D-Day (deleasing day), DOE will be forced to retain USEC as a managerial agent for the shuttered facility. Just as it did at Piketon for a decade, USEC can then collect cushy contract fees, producing nothing, free of any risk or marketplace rough and tumble.
Exit from the internationally-competitive and shrinking (outside of China and India) uranium enrichment industry, and entry into the world of big-time contract services for the U.S. government and other companies, is exactly the corporate strategy that USEC has pursued for the last eight years, since 2004. In that year, USEC purchased NAC International, a company that provides transportation and storage services for spent nuclear fuel, on contract.
So while the Department of Energy has been hawking and funding USEC's centrifuge technology as the best thing since sliced atoms, USEC has been plotting its exit from the enrichment industry altogether, which partially accounts for why its "American Centrifuge" shadow play has been such a non-starter. There is no "American Centrifuge Plant," as the signs on the highway advertise. It's an American subterfuge project, nothing but a high-tech siphon for emptying the U.S. Treasury.
Has Chu's Department of Energy been fooled by this? I don't think so. DOE has rationally concluded that as long as it can maintain the pretense of a coming "advanced" enrichment facility, it can avoid billions of dollars in otherwise mandatory cleanup costs, by setting aside all or portions of the Piketon site for "future nuclear use," with attendant lower cleanup standards.
And that's what we've seen at Piketon—a succession of hoax promised nuclear projects (spent fuel storage, nuclear reprocessing, nuclear reactors, and what not)—together with accelerated "cleanup" schedules to sweep up the site on the cheap, before the future nuclear uses are revealed as phantoms. The latest announced schedule for Piketon D&D, premised on USEC running a completed centrifuge plant on a portion of the site, calls for conclusion of an on-site waste disposal decision, opposed by an overwhelming majority of the community, before this fall, coincidentally enough.
DOE appears to have calculated that it's cheaper to keep paying USEC in $50 million under-the-table installments—to save the company from bankruptcy court and to keep up the appearance that the "American Centrifuge" project is ongoing—rather than publicly acknowledge that DOE is on the hook legally for tens of billions of dollars of post-nuclear cleanup costs at both the Piketon and Paducah sites, with not even the prospect of funding to pay for it. That logic holds at least until the November election. After that, atomic bombs might as well drop.
But both Mitch McConnell and John Boehner are on to that caper. They know there will be no deus ex machina to prevent a catastrophic closure of the Paducah plant, or a final curtain draw on the "American Centrifuge" stage act, all before Barack Obama stands before the voters in November. The Republicans are planning one helluva summer and fall offensive in the heartland Ohio Valley.
And that is why Steven Chu, winner of the Nobel Prize in Physics, in continuing to shovel federal funds to USEC Inc., while simultaneously playing possum on cleanup of the Piketon and Paducah sites, may turn out to be the highest-ranking idiot savant of all time.
Re-posted on the Southern Ohio Neighbors Group blog.
Geoffrey Sea is a writer and historian who has studied the uranium enrichment industry for thirty years. In the early 1980s, he served as a consultant to the labor unions at both the Piketon, Ohio, and Paducah, Kentucky, plants. He now lives on the southwest fence-line of the Piketon site and is a co-founder of Southern Ohio Neighbors Group.
It was a dark and stormy night, except it wasn't, a full forty minutes before sunset. Last Friday, March 2, darkness came in curtains of rain, whipping winds, and a vengeful cloud front, punctuated by lightning flashes. The horses stabled on my farm fled to shelter, and Mweowa, my white German Shepherd, whimpered at my thigh, afraid to even look outside. Lethal funnels spun off the mother-storm had already wreaked devastation through southeast Indiana, northern Kentucky, and southwest Ohio, moving in a wedge that pointed distinctly at its cyclonic kin—the USEC uranium centrifuge facility south of Piketon, Ohio.
Yes, it's spooky. The death toll from the tornado flock has reached 38, concentrated in the energetic west, before the projectile point crossed the Ohio River at Moscow, site of a long-abandoned nuclear construction project. Afterward, the trees of Moscow-on-the-Ohio were reportedly draped with homeless rugs. A southern prong of twisters obliterated the town of West Liberty in eastern Kentucky. The easternmost tornado of the Ohio swarm cut a two-mile, 100-yard wide swath through the backwoods community of Camp Creek in Pike County—named either for its choice location as an Indian campsite, or for Christian camp revivals, or both. If it had continued eastward just a few more miles, the tornado would have hit "the American Centrifuge Plant" dead-on.
That is indicated by the National Weather Service report of a "March 2, 2012 Tornado SW of Piketon, OH" six miles southwest of the town. The tornado proceeded on a due easterly course for two miles, right on the 39th Parallel. A few miles to the east, that course travels along Hewes Street, an internal road on the Department of Energy (DOE) "reservation," a road that traces the 39th Parallel, the southern utility road of what is now the alleged test facility of the centrifuge uranium enrichment complex leased by USEC, Inc.
In other words, Mother Nature's lead storm cascade aimed right at the USEC buildings that house its test facility, called the "Lead Cascade." The Lead Cascade was intended to be the prototype for an 11,000-machine array of forty-foot tall centrifuges, until that project ran into monumental problems of financing and technology. A political football, the project is still kicked around, and I attended a "roundtable" at the site exactly two weeks prior to the tornado, hosted by U.S. Sen. Rob Portman (R-OH) of the "No More Solyndras Party." Portman is still angling to secure a $2 billion federal loan guarantee to enable USEC to build its forlorn plant, now proven to be a brave-new-climate tornado target.
One year ago, at a forum hosted by the Fluor Corporation, which has been contracted to clean up the adjacent site of the old shuttered enrichment plant (and is also a subcontractor on USEC's centrifuge misadventure), I wound up discussing Hewes Street with Jamie Jameson, head of Fluor's Piketon project. For some odd reason I couldn't pinpoint even at the time, I tried to explain that Hewes Street was the kind of historic feature the community might want to preserve as the reservation is redeveloped. The 39th Parallel is steeped in Masonic mysticism in these parts. George Washington viewed the parallel with esoteric reverence (the northern corner of the District of Columbia was planned to rest on the parallel, so the ultimate apropos target of the 2012 tornado spear might have been Washington, D.C.), and he can be considered the founder of the numerological cult of 39. While a British officer, Washington surveyed the latitude through Ohio, and he later designed a sundial to work only within one degree. The parallel nearly touches the northern edge of a twenty-acre prehistoric Indian earthwork enclosure just west of the DOE reservation, and local Freemasons of the pioneer generation planned eternal repose in graves set on latitude 39.
Whether the atomic planners who mapped out Hewes Street were part of this Masonic conspiracy I cannot say, nor can I speak for the Higher Power behind the Tornado of 2012. But if signs are had, I think we have one. Take a look at the eastward path of the northern prong of the March 2 tornado front, according to the National Weather Service Storm Map. It hones in on the DOE reservation, which is located just north of the Route 23 marker on the map, between Piketon and Lucasville.
And the spear-point pattern is not happenstance. It generally follows the route of the Ohio River Valley, which in turn follows a line of geologic faults that emanate northeast from the New Madrid earthquake focal point in Missouri. It is conjectured that this geologic fault line has electromagnetic properties conducive to intense electrical storm activity along a recurrent path. That is, Piketon, at the midpoint of the wall of the lower Scioto Valley, sits at the consistent cul-de-sac of one of America's most potent Tornado Alleys.
But there is something very strange about that Storm Map. The easternmost tornado, marked with a red balloon, is the Otway tornado in northwestern Scioto County. The Camp Creek tornado, just northeast of it—the one aiming straight for the USEC facility—is not marked, though it is listed as the last tornado in the time-sequence. Pike County has been preserved on the map, as it is in Department of Energy documentation, as a virtual tornado-free zone.
This might be written off as a chance error, were it not for a very long list of such errors in federal government documentation, including:
- Obvious spring-fed wetlands on the southwest boundary of the DOE reservation (mostly on my property) have never been recognized as wetlands, which would merit special environmental assessment and protection. An official of the Ohio Department of Natural Resources (ODNR), while staring at the marsh grass with me, told me the problem was that they were too close to the atomic site, implying that an official designation might be a hindrance to development. DOE documents have so far declared that "there are no wetlands" within a mile of the DOE site, which is patently false.
- A letter from the U.S. Fish and Wildlife Service (FWS) declaring the USEC project site to be habitat of the Timber Rattlesnake, listed as an endangered species by the State of Ohio, was mysteriously missing without indication of its absence, from the circulated draft Environmental Report for the American Centrifuge Plant, prepared by USEC and provided by the Nuclear Regulatory Commission (NRC). By the time the crucial document was produced, by way of snail mail in an unmarked envelope, the deadline had passed for licensing intervention on grounds of endangerment to the species. Though the FWS letter was produced to the NRC, the Department of Energy has yet to acknowledge the letter's existence. The letter now can be found in Appendix B of the final revision of the Environmental Report.
- The DOE reservation is ringed by properties listed on or eligible for the National Register of Historic Places, including numerous prehistoric earthworks and pioneer-era homes (including mine), but DOE did not conduct an official survey of such properties as required by law until 2011, and prior documentation including that produced for USEC's NRC license, affirmed the absence of nearby historic properties, even though they were known to exist. One unacknowledged geometric earthwork is 300 feet long, perhaps 2,000 years old, and it sits at the western highway entrance ramp to the DOE reservation.
- Before 2001, during operation of the old uranium enrichment plant, which emitted large quantities of fluoride to the air and water, ODNR staff discovered fluoride poisoning in local wildlife, but were instructed not to file reports of the discovery, for fear of impeding new projects at the site, including the centrifuge venture.
These are only examples of a persistent paranormal phenomenon at Piketon. Projects have been authorized, licensed, and federally funded on the premise of no wetlands, no endangered species, no impacted historic properties, and no serious tornadoes. In plain fact, there are wetlands, endangered species, impacted historic properties, and serious tornadoes. And if they had been recognized in timely fashion, the monumental wastage of funds on USEC's little twisters could have been averted.
But this is Appalachian Ohio, and federal law is assumed inapplicable. The USEC Environmental Report used to obtain expedited NRC licensing downplayed the risk of tornadoes thusly on page 3-52:
Tornadoes do occur in Southern Ohio; however, specific analyses of the frequency of tornadoes in the region show that they are rare...The site had an average of 3 days per year between 1950 and 2002 with severe storms with winds exceeding 58 mph.
Prior environmental reports for Piketon projects had been even more dismissive of tornado threat, conveniently citing the lack of record of severe devastation in Ohio for 50 or 100 years. That was particularly galling to students of history, since the removal of Indians from most of Ohio was accomplished by General "Mad" Anthony Wayne at the infamous Battle of Fallen Timbers in 1794. The battle site acquired its name because a horrendous tornado had felled the trees, removing the Indians' usual camouflage, and though that site is far to the north, another community named Fallen Timbers for like reasons lies close to Piketon toward the southeast.
The disingenuousness of official denials of tornado hazard were revealed to me most poignantly on a site tour aimed at locating "artifacts" for display at a future "atomic museum." Among the rusted paraphernalia of outdated nuclear ingenuity, I spied off to the side the steel door to a room marked in big stenciled letters: TORNADO SHELTER. Also, it bore the funnel-shaped international icon of a tornado, in case non-Anglo migrants might be wandering around the atomic site. I want that door displayed in the future museum—right next to the highlighted passage from old environmental reports, denying that there is any tornado danger at the site.
What might a severe tornado, of the type that struck on March 2, with winds ranging from 75 to 175 mph, mean for a hypothetical commercial-scale centrifuge plant, spinning uranium hexafluoride gas? Neither USEC nor the NRC bothered to conjecture. But on June 11, 2011, in fair weather, a simple power outage initiated a cascade of consequences that included failure of backup power, the crash of six of thirty-eight centrifuges, at least one breached casing, and the disabling of two safety systems. Inspectors noted an atmosphere of employee confusion and improvisation. [see article on the June 11 crash]
Now add hundred-mile-per-hour winds and a cyclonic storm hitting a Portman-pumped facility of eleven thousand super-fast uranium centrifuges. And pray.
That's what I did on the early evening of March 2, looking out over tempest from the cover of my back porch, as the USEC sirens blared non-stop. (Both DOE and NRC officials—none of whom have visited—concluded that they could envision no "visual, auditory, or atmospheric impact" of USEC's project on my historic property. Would that they had stood there with me on March 2.)
My home was secure. The family that built it, and rebuilt it after a partial collapse circa 1870, obviously knew of the tornado danger, for the outer brick walls are twenty-four inches thick and the roof is reinforced with industrial steel. I braved the outdoors to try to make out what the announcer over the USEC PA system was saying. The house is a mile from the USEC buildings, but the company's PA system comes through loud if never clear. (They say the former occupant of my house, a man named Fonzo, went bonkers thinking that the atom-plant voices were speaking to him personally, but never able to make out what they said.)
On March 2, o'er the sweep of rain and through the ionized atmosphere, I listened intently for emergency instructions from on high. But I only heard garble. I suspect the muddle of the message would only have increased had I gone straight to the source.
Late-breaking—a possible second tornado near Piketon on March 2 awaits confirmation by NWS as of Tuesday, March 6.
For background on USEC and the American Centrifuge Plant, see Geoffrey Sea's article series by clicking here.
Congressional leaders of both parties had rushed to provide an emergency bailout for the limping nuclear fuel supplier USEC Inc. But the bailout package, now stuck in the DC-standoff muddle, is too little and too late. USEC, hemorrhaging money, appears to be jumping ship to the arms of a French-government suitor.
Both former national nuclear companies of the United States and France, USEC and AREVA, are now quasi-privatized. Together they have driven the world market in nuclear fuel, and their axis of cooperation and competition has given definition to the global nuclear industry.
They were the only applicants for the fourth, forgotten, "front-end-nuclear"category of loan guarantees from the U.S. Department of Energy (DOE)—AREVA for its Eagle Rock centrifuge project in Idaho, and USEC for its "American Centrifuge" project or ACP near Piketon, Ohio. Both companies have suffered mightily from the global downturn in nuclear prospects and especially from the sudden market saturation in nuclear fuel, caused by the lingering shutdown of 44 of Japan's 54 nuclear reactors.
Many have believed it inevitable that USEC and AREVA would overcome their rivalry, and now the inevitable is happening. AREVA announced on Dec. 13 that the Eagle Rock facility, though now delayed, may be completed by a partnership of the two. The announcement would not be possible if discussions between the companies were not already at some advanced stage.
Significantly, on the same day, an expected congressional bailout of USEC, reported to be part of the omnibus 2012 appropriations package, evaporated in the most recent standoff between Reid and Boehner. USEC stock price plunged nearly 5 percent on that news, to $1.20, one penny higher than its historic closing low, reached just days ago.
Because the USEC bailout was structured in the form of federal "Research, Development & Demonstration" assistance for ACP technology [see part 4 in the series on USEC]—a poorly-chosen cover for the needed emergency cash infusion—the funds would not be spendable if USEC is pursuing project merger with AREVA. Even if the omnibus spending bill is salvaged, and it includes up to $300 million in ACP technology assistance, that provision would be immediately mooted by even the suggestion that USEC would abandon ACP for Eagle Rock.
(And to the Appropriations leaders reading this, the provision should be removed from the omnibus package, since the cat is out of the bag that USEC is pursuing another course).
USEC has made clear since the bailout was proposed in October that technology assistance would be insufficient to save the company or the project in the absence of a conditional commitment on a $2 billion loan guarantee. Meanwhile, the DOE has made clear that USEC has no chance of qualifying for a loan guarantee before at least two years of a technology development program not yet funded or begun.
Given the incompatibility of those positions, it was only a matter of time before ACP was acknowledged as over. How over is the American Centrifuge Plant? It's over like a flipped flapjack on the back of a turtle turned upside-down. And that, my friends, is over.
Around and Around We Go
While first reports provide few details of a prospective AREVA-USEC centrifuge partnership, the necessary parameters emerge from recent history. Almost as soon as he took office in 2007, Ohio Governor Ted Strickland, a hometown boy long familiar with USEC and its woes, pursued his own inspiration for an AREVA-led bailout of USEC, hosting talks between the companies at government offices in Columbus.
Strickland's conception, of course, was to substitute an AREVA centrifuge enrichment plant for USEC's unfinanced ACP, which was already foundering. That idea ran into a host of practical and legal roadblocks, including the impossibility of transferring USEC's NRC license to a different company using different technology, the straightjacket of USEC's long-term lease at the federal site, prohibitions of foreign ownership in the USEC Privatization Act, and, not least, the absence of any profit-incentive for USEC. Ultimately, it was USEC that ended the negotiation with insistence on a $2 billion federally-backed loan for its lonesome, and that pushed AREVA to Idaho, where it found a site on private land in sparse Bonneville County.
The last gasp of the failed Strickland initiative was a hoax event at the Piketon site in June of 2009, at which USEC and AREVA jointly announced, with an entourage of political parasites, that they would build an AREVA-design nuclear reactor at Piketon. But no one would say exactly where it would be built, or how it would obtain regulatory approval, or who would pay for it. Oops!
So let's see. AREVA has a private construction site, a centrifuge technology already proven and profitable around the world (licensed from URENCO), an NRC construction and operating license, and a conditional commitment on a $2 billion loan guarantee awarded in 2010. Despite the current downturn in its fortunes, AREVA is a diversified global giant with operations in dozens of countries.
USEC only leases the federal site in Ohio, which comes with a raft of regulatory and legacy cleanup problems. Its technology straddles the line between outmoded, dysfunctional, and fictitious, as the belated small demonstration-scale cascade suffered a major crash last June [see part 3 in the series on USEC]. USEC is mired in debt and has no financing to speak of, denied twice for a DOE loan guarantee and delayed for a federal bailout that would be restricted to a technology demonstration that probably never will come to pass. While USEC uses the slogan "A Global Energy Company," its only production plant is in Paducah, Kentucky, scheduled to close next May. Its slogan should be: "Think Globally, Act in Paducah."
The only thing that USEC does bring to the table is the chief asset it acquired through privatization—its order book of utility customers awaiting shipments of nuclear fuel.
USEC already signaled it was looking to team with a foreign partner when it signed an agreement with Russia's TENEX last March, including a commitment to support a future TENEX centrifuge plant on U.S. soil. That agreement went over with USEC's political backers like a depleted uranium balloon. Many of those same politicians had spent their careers making Cold War justifications for additional Piketon funding on the argument that Piketon was needed to kill the Russians, not capitalize them. (Lenin's prediction that western capitalists would one day sell him the rope he would use to hang them comes to mind).
Under political pressure, USEC unceremoniously dropped its Russian Centrifuge project plans. AREVA was the last and most logical resort.
Therefore, it is clear what a USEC-AREVA partnership would look like. USEC would abandon the Piketon site and the long-running fiction of ACP, releasing the company from hefty NRC licensing fees and other expenses it can no longer afford to pay. Paducah can close on schedule or soon thereafter, and USEC's customers, those that remain, can be delivered to the AREVA-USEC joint venture in Bonneville County, Idaho. With full subscription for its product, Eagle Rock could be up and running within two years. That's just in time to cover for the expiration of the current agreement that supplies USEC customers with uranium downblended from old Soviet nuclear warheads.
The foreign ownership statutory restriction would not be violated, since USEC would retain its corporate identity. USEC would be buying into AREVA, not vice versa. And the supposed "national security" justification for ACP would fall away as the malarkey it always was. It had been said that only USEC could provide the fuel for TVA reactors that then produce tritium for U.S. nuclear weapons. The argument was simply fallacious—TVA has legally contracted for uranium fuel from both URENCO's plant in New Mexico, and from downblended U.S. weapons-grade uranium stockpiled at Savannah River, South Carolina. Both of those sources, and possibly material from Eagle Rock, would continue to be available to TVA.
Though only the first suggestion of USEC-AREVA partnership has been publicly aired, the logic of the confluence is overwhelming, and as the foregoing history reveals, discussions have actually been underway since 2007. The terrain has been well explored by both companies. The partnership will almost certainly happen, and it may be what the U.S. Department of Energy had in mind, when it responded to USEC's demands for a loan guarantee with a counter-demand described only vaguely for the public as "a restructuring."
In the post-Fukushima world, two new centrifuge plants in Idaho and Ohio made no sense. Yet it was also unrealistic to think that both projects would be canceled, leaving U.S. nuclear utilities partially dependent on foreign supply of uranium fuel.
Many will be unhappy with the unfolding outcome. Ohio politicians who mercilessly shilled and shoveled U.S. Treasury funds to USEC on the promise of creating American jobs will get their wish, but the jobs will be in Idaho, for the most part. Expect "overseas in Idaho" as a phrase to enter the Buckeye State boondocks vocabulary.
Some self-styled environmentalists, of the sort who don't imagine that sites east of the Mississippi can be worth saving, had counted on the success of ACP to generate a reciprocal failure at Eagle Rock. That won't be happening, and it's a good thing, because the Piketon site is located rather specially alongside one of the most important complexes of ancient Indian earthworks in the Americas.
Now there is the opportunity for consensus on the post-USEC redevelopment of the Piketon federal site. Attention and resources should focus on getting USEC removed, so redevelopment can begin without additional delay. The southern Ohio community has waited through vacuous boosterism and raucous hucksterism enough.
AREVAderci USEC indeed.
"Operators...started the auxiliary standby generator. The operators then made repeated attempts to tie the generator to the faulted EMCC [essential motor control center] but were initially unsuccessful."
No, that's not a description of desperate attempts to restore power at the stricken Daiichi nuclear reactors in Japan, after the earthquake and tsunami of March 11, 2011. Rather, it's a just-released description of frantic efforts to restore power at the test nuclear fuel supply project near Piketon, Ohio, three months later to the day, on June 11, 2011. The facility is run by USEC, Inc., the same company that supplied the uranium fuel that melted down inside the reactors at Fukushima.
For years, USEC has touted its whiz-zinger gargantuan uranium centrifuges, while pleading for likewise enormous federal bailouts to save the company from bankruptcy. But now it is documented that the project is more whiz than zing. The Nuclear Regulatory Commission (NRC) has extended a ban on USEC's use of uranium in test machines, following the crash of six centrifuges, with attendant safety violations, last June.
The order comes in a Nov. 15 letter and Nov. 21 report from NRC, following an inspection of mid-September that found three serious uncorrected conditions. NRC had barred USEC from using uranium in its demonstration "Lead Cascade" at the Department of Energy (DOE) site near Piketon as soon as NRC had been formally notified of the safety breaches on July 1.
This was kept exceptionally quiet, since USEC has needed to demonstrate the commercial viability of its technology, to qualify for a $2 billion federal loan guarantee. Running the centrifuges without uranium cannot yield the required data—namely yield, efficiency, cost and reliability. All summer and fall, with no uranium running and without public acknowledgment, USEC has literally been spinning its wheels.
USEC has misled investors and the public by implying that the purpose of its Lead Cascade was only to demonstrate that "the technology works," meaning that the centrifuges spin. My blender spins, the machines at the laundromat spin—spinning is no big whoop. USEC had to prove that its technology can beat the commercial competition, and that effort has now spun to a stop.
U.S. Senator Rob Portman (R-OH) belittled the June centrifuge crash as a "hiccup" back in July, when the story broke: "The hiccup at the plant a few weeks ago, I think that has been addressed...We believe all the technology questions about the refinements have been answered. Those should be behind us now."
Not so fast, Senator. According to NRC technical staff four months after your statement, despite the nuclear scare, it's a case of hiccups that hasn't gone away. Portman speaks about USEC using the first-person plural because as congressman from the district and as U.S. Trade Representative, he created the USEC financial mess by temporarily shielding USEC from foreign competition.
[This report is the third in a series on USEC's "American Centrifuge Plant." The first two installments are: Is Privatized Uranium Company Too Rigged to Fail? and Uranium Barter Revealed as USEC Bailout Scam]
Lead, Follow, or Collect $2 Billion
Based on conversations I had with NRC staff last summer, it was expected that the Lead Cascade would be back running hot immediately after a September inspection verified corrective actions. But now USEC has failed that inspection, and the ban on uranium use has been extended at least until after a follow-up review scheduled to begin in mid-January.
This might seem inconvenient for USEC, since Jan. 15 was set by USEC as the alleged final deadline for DOE's award of a "conditional commitment" on a loan guarantee, a deadline which, if not met, could cause withdrawal of the project's two remaining major investors—Toshiba and Babcock & Wilcox.
On the other hand, the January inspection date may have been set precisely with the financial deadline in mind, since NRC's report and findings were not shared with the investors or other interested parties (as is standard practice), and public notice was limited to unadvertised electronic posting on NRC's document system. That is, one had to guess it was there.
According to the NRC letter, it was USEC project manager Dan Rogers who set the "mid-January" date—an awfully long time from the June crash occurrence—even though the new date coincides with USEC's crucial financing deadline. Having been denied a second time for a DOE loan guarantee in mid-October, USEC has been intensely lobbying for both a $300 million bailout package that must be approved by Congress, and also for a "conditional commitment" on a loan guarantee, even if USEC knows it cannot meet the conditions set for an award. Could USEC be postponing its safety compliance, with attendant publicity of the uranium ban, until after hoped-for decisions by Congress, DOE, and investors?
If so, it would fit USEC's consistent delay pattern for the "Lead Cascade." On paper, the Lead Cascade, licensed by NRC in early 2004, was supposed to be a demonstration array of 240 centrifuges, data from which would justify full-scale commercialization of the so-called "American Centrifuge Plant" or ACP. That idea, however, remained only on paper, as USEC endlessly postponed the project, with the claim it had to "tweak" its machines for optimality. Indications now are that USEC intentionally put off the demonstration because it would reveal the technology as unworthy of pursuit, while the company continued to lobby for bailouts and collect government fees for contract services.
Crony Capitalism or Baloney State Socialism
By August of 2004, USEC had already submitted the license application for a commercial-scale plant of 11,000 centrifuges. NRC granted a commercial scale license for ACP in the spring of 2007, before the Lead Cascade even was initiated, over vocal protest on the point in question by yours truly.
I argued in a petition of intervention to NRC filed in 2005 that if NRC licensed a commercial plant before completion of the demonstration project, it would be a formula for project collapse, leaving the site contaminated and unavailable for alternative use. The "Lead Cascade" would have to be renamed "the Follow Cascade," as its purpose would be rendered moot.
That logic evaded the sharp minds of U.S. government regulators. By 2009, when USEC was demanding a DOE decision on a $2 billion loan guarantee, the Lead Cascade had a total of ten centrifuges running. That's ten, as in you could count them on your fingers.
Lead Cascade was "demobilized" (shut down) in August of 2009 for financial reasons, and its "remobilization" two months later was, again, only on paper. By 2011, when USEC was back demanding reconsideration of the loan guarantee, the number of centrifuges had been raised to a whopping 38, 16 percent of the required 240. Six of those 38 machines crashed (and will never again operate) in the loss-of-power incident on June 11, 2011. If such an incident were to affect a completed commercial-scale plant, it could mean the crash of more than 1,700 large centrifuges, with breaches of their housings, an eventuality never contemplated in 2007, when NRC granted USEC a 30-year construction and operation license.
Meanwhile, USEC has adamantly refused to disclose the reliability and efficiency data gleaned so far from its Lead Cascade, even though it asserts with no evidence that performance merits at least $2,300,000,000.00 in public assistance. Twice so far, DOE reviewers with access to the data have disagreed. Originally, USEC was contractually committed to complete the 240-machine test cascade by October, 2005. Six years later, the company is not close to completion, acknowledged by a proposed deal with DOE to initiate now a "Research, Development and Demonstration" (RD&D) project with $300 million of federal money.
RD&D was the precise definition of what the Lead Cascade was supposed to have accomplished six years ago, using company funds derived from many years of substantial federal subsidy. In the highly competitive business of uranium enrichment, with three domestic enrichment projects that all use newer more-efficient technology, no logical case for continued USEC support has been made.
The USEC Crash
As to what occurred on June 11, 2011, the belated NRC inspection report has disturbing echoes of Three Mile Island, Chernobyl and Fukushima, all rolled into one, albeit on a miniature scale.
As in the Fukushima disaster, a power outage precipitated a cascading sequence of adverse consequences, with standby generators not available on demand. As at Chernobyl, workers intentionally disabled safety systems as an emergency bypass. And as with Three Mile Island, control instrumentation had been poorly designed, confusing the operators and making them commit grave errors and second-guess the instruments. Though the nuclear industry likes to tout "lessons learned" from major accidents, the USEC Crash demonstrates that some nuclear operators, at least, are very poor learners.
One line from the inspection report eerily recapitulates descriptions of what precipitated the meltdowns at Fukushima:
"Operators...started the auxiliary standby generator. The operators then made repeated attempts to tie the generator to the faulted EMCC [essential motor control center] but were initially unsuccessful."
Likewise, at Fukushima, backup generators were successfully delivered by truck, but they could not be connected to the reactor complex system. Typically for nuclear disaster scenarios, one unforeseen circumstance led to others, worsened by insufficient or improper training of personnel:
"During the efforts to re-energize the EMCC, the shift supervisor at the scene responded to the UPS [uninterrupted power supply] panel to acknowledge a general trouble alarm. However, instead of acknowledging the alarm, the individual mistakenly;y opened a protective cover and actuated the UPS shutdown pushbutton."
That resulted in a direct interruption of power, which caused "multiple casing breaches" on the centrifuges, and "loss of all process indications, and operator controls in the main control room." Manual bypass of some safety systems in order to restore power then had the effect of disabling certain vital mechanisms, including the ventilation fan that disperses hydrogen gas from the battery room, which could have led to an explosion.
Throughout the "incident," employees displayed inadequate training and lack of familiarity with instruments and equipment. In discussions with NRC, USEC management showed a profound lack of appreciation for the severity of the problems, and for the steps necessary to correct them. That is why NRC has extended the ban on USEC's use of uranium in the Lead Cascade.
If the USEC Crash was a "hiccup" then Bhopal was a burp. And the gas release most conspicuous is Senator Rob Portman's unregulated emission of July, by which he claimed that USEC merits a federal loan guarantee, because its "technology questions...have been answered."
As damning as the NRC inspection report may be, the Commission failed to investigate or address the three most important questions raised by the USEC Crash:
1. Did USEC have foreknowledge of the shortcomings of its centrifuge technology, and was that foreknowledge the reason that USEC postponed deployment of the Lead Cascade, until DOE loan application reviewers forced a token deployment?
2. Has USEC's financial condition degenerated to the point where the company cannot afford adequate safety measures, and cannot be entrusted to handle nuclear materials or deploy sensitive nuclear technology? (USEC has had negative earnings throughout 2011, a debt-to-earnings ratio of a whopping 51.5, and a total market capitalization of $155 million, only 3 percent of the estimated total cost of a commercial-scale plant.)
3. Has USEC delayed reporting and investigation of the June crash in order to dupe government officials, investors, and the public into the award of a federal loan guarantee or other forms of financial bailout?
The seriousness of June 11, 2011 categorized it as a "24-hour event" under NRC regulations, requiring formal notification of the Commission within 24 hours, notification that would result in public posting. Indeed, USEC did immediately inform its chief political backers on Capitol Hill—Senators Rob Portman and Sherrod Brown (D-OH). Yet USEC waited 19 days, until July 1, before sending formal written notification to NRC, thus postponing any public posting of the event, scheduling of an inspection or restrictions on continued testing.
The notification of July 1, which was posted on July 6, was extraordinarily deficient. It failed to make any mention of the crash of six centrifuges, involving casing breach or even that the centrifuges were running uranium hexafluoride gas at the time.
The timing delay was critical, because USEC had set June 30 as the widely-publicized deadline for DOE to award a conditional commitment on a loan guarantee. It appears that USEC hoped that DOE would meet the deadline and grant an award, before the facts of the centrifuge crash became known.
On the deadline day, June 30, USEC issued a news release announcing a postponement of financing arrangements with investors and DOE, but giving no hint of the extraordinary occurrences earlier that month. And both U.S. Senators kept USEC's silence, maintaining their public support for a loan guarantee, while failing to inform their constituents of the accident sequence that had occurred on Piketon's public land.
Public knowledge of the USEC crash did not come until a news release was issued by the watchdog Southern Ohio Neighbors Group on July 7. The severity of the incident remained unreported at that time.
Throughout the summer and fall, USEC continued to press for a $2 billion loan guarantee and other forms of public and private investment, all the while withholding the details of what had happened in Piketon in June, and even while meeting with NRC inspectors to schedule follow-up that coincides with the next USEC-set financing deadline. USEC's last scheduled conference call with investors was canceled with no explanation. News that the Lead Cascade has been running, or not, with no uranium, and that the uranium ban has been extended indefinitely, has not made it into local or national media, and that information has not been part of the public debate about whether USEC should be given a federal loan guarantee.
I am reminded of the dictionary definition of chutzpah as the quality possessed by one who murders both his parents, then pleads for mercy from the court on grounds that he is an orphan. USEC's request for a $300 million federal grant for completion of its Lead Cascade now rests with the leaders of the U.S. Congress as they haggle over appropriations for 2012. Central to the decision-making is Speaker of the House John Boehner, whose congressional district neighbors that of Piketon.
The inestimable Jean Schmidt (D-OH), whose district includes Piketon, summarized the USEC situation by saying: "It's a duh." The word is dud, Ms. Schmidt, with a 'd.'
In the Cold War satire The Mouse that Roared—a 1955 novel also titled The Wrath of Grapes and a 1959 film starring Peter Sellers—the potentates of the Duchy of Grand Fenwick (all played by Sellers) realize that their best chance to avert economic collapse would be to declare war on the U.S., so to become a recipient of lavish U.S. aid to the vanquished. By a series of plot twists involving the holding of Q-Bomb technology for ransom, Grand Fenwick inadvertently wins the war, but is saved by American largesse anyway, not to mention government capitulation to nuclear extortion.
USEC Inc., is a so-called nuclear company, the real product of which is perpetual threatened bankruptcy. It has remained afloat thanks to periodic huge infusions of federal assistance, despite an attitude of overt belligerence toward its governmental patrons. The Financial Times of London called USEC "the trust fund baby of the nuclear industry," and that was in 2006, before its wresting of bailouts became a racket. USEC seems to have adopted The Mouse that Roared as its corporate strategy bible.
Twice in the past three years, USEC has demanded rather than ask for a $2 billion loan guarantee from the Department of Energy (DOE), set its own "deadlines" for award of the federal assistance, been denied for said loan guarantee as unqualified, lashed out at the Obama Administration for the temerity of due diligence and then "negotiated" for lavish material aid as compensation for its troubles. Both times, in 2009 and 2011, DOE capitulated to USEC's extortion, offering aid packages worth up to $595 million, $60 million more than was lost to the U.S. Treasury from the actual award of a loan guarantee to Solyndra.
Now, documents released by DOE under the Freedom of Information Act and made publicly available for the first time here reveal that claimed investments in viable centrifuge technology and nuclear cleanup were actually designed as nothing more than USEC bailout packages.
Unlike the Solyndra debacle, which was packaged as what it was, a public investment gone sour, the USEC bailouts, perpetrated by a small group of highly-placed federal officials with discretionary control of agency funds and government material stockpiles, have constituted a fraud on Congress and the American people. Central to this group was DOE's Assistant Secretary for Environmental Management, Ines Triay, who left the government suddenly last summer in a manner that has sparked intrigue.
With shades of the Reagan Administration's Iran-Contra Affair, let's call this one the Uranium-Triay Affair. Iran-Contra, which broke exactly a quarter century ago, centered on an inter-agency rogue outfit, with involvement of the White House and the U.S. Department of Defense, that planned to "use residuals" from the black-market sale of arms to Iran to fund the Contra guerillas battling the elected government of Nicaragua. Both the arming of Iran and support of the Contras violated the laws of the U.S.
The Uranium-Triay Affair centers on an inter-agency rogue outfit, with involvement of the White House and the U.S. Department of Energy, that has used the barter of government uranium stockpiles to fund politically-motivated programs to bail out USEC, in contravention of various U.S. laws.
By giving concessions like no-bid contracts to USEC, along with stockpiled uranium, which USEC then sells at a profit, DOE has met USEC's needs for emergency float funds, without the time-consuming hindrances of congressional appropriations, budgetary accountability or regulatory oversight.
It's in the sense of lacking those niceties of democracy that the uranium barter operation can be considered rogue. As in the Iran-Contra case, "national security" served as a false shield to keep illegal operations covert, with minimal or fraudulent disclosure to Congress and the public.
In September, the Government Accountability Office (GAO) issued a report finding this arrangement illegal and unconstitutional. According to GAO's summary:
DOE’s uranium transactions with USEC were sales authorized by the USEC Privatization Act, but they did not comply with federal fiscal law.... By not depositing an amount equal to the value of the uranium into the Treasury, DOE has inappropriately circumvented the power of the purse granted to Congress under the Constitution.
DOE's response to GAO, provided in an appendix to the report, has so far quashed investigation and law enforcement by arguing, essentially, that the funded purposes were independently authorized by Congress. Even if the funding mechanism represented a shortcut, according to DOE, it was a shortcut commonly employed by federal agencies in order to make ends meat. If arming Iran and supporting the Contras had been legal and worthy aims, in other words, then the rogue maneuvers and black-market accounting used to accomplish them would hardly have made for a scandal.
The legality and worthiness of the aims of the uranium barter, however, are now called into question by a previously non-public memo to Secretary of Energy Steven Chu, sent by then-Assistant Secretary Ines Triay. (The memo is undated but based on references in the text, it had to be issued between Aug. 4 and Aug. 12 of 2009.)
The memo reveals that the real purposes of the uranium barter were not the advertised ones of accelerating cleanup at the Superfund site near Piketon, Ohio. Rather, the purpose was to assist USEC with its proprietary personnel management problems, in the wake of DOE's denial of a $2 billion loan guarantee. The memo lists its first two "assumptions" as:
USEC could begin to lay off the expected 300-400 workers within the next month; those workers typically have a broad experience in working in the nuclear industry.
The only significant work the Department has at Portsmouth [Piketon] is the current EM [Environmental Management] work involving deactivation/shutdown and environmental cleanup of the diffusion plant and the planned decontamination and decommissioning (D&D) of the facilities, including the environmental cleanup of the site.
Triay went on to argue that this was the only "short-term" work for which the uranium could be bartered. In other words, USEC had to be given an infusion of resources immediately, and so-called cleanup was the only way to do it, even though the managerial and regulatory apparatus for the cleanup work was not in place.
This shifting of funds from one congressionally-mandated purpose to another purpose is illegal under the Antideficiency Act. DOE was acting as if it still is responsible for personnel management decisions at the Piketon site, but the point of the USEC Privatization Act had been to take that management out of the hands of government, precisely so that local politics and employment considerations would not adversely impact national interests at the two gaseous diffusion sites in Ohio and Kentucky.
The Triay memo acknowledges that the decision to deny a loan guarantee for construction of a new enrichment plant at Piketon was conveyed to USEC on July 27, 2009, and a decision to accelerate cleanup at the neighboring site of the old enrichment plant at Piketon was made on July 28, one day later.
While the goal of accelerating cleanup at a Superfund site sounds admirable, one day was hardly enough time to make that work "shovel-ready," especially given the complex procedural requirements of CERCLA, the statute governing Superfund cleanup. Indeed, the CERCLA decision-making process at Piketon is only getting in gear now at the close of 2011.
Workers reassigned or hired-on in 2009 wound up sitting idle on paid time, waiting for the necessary technical and regulatory assessments, while huge contract fees for the make-work employment accrued to USEC. Perhaps worst of all, those expenses may be counted toward the total Piketon cleanup budget, meaning that fewer funds will be available to complete the cleanup when work is most needed years from now.
Pike is indeed the county with Ohio's highest unemployment rate. But employing large numbers of temporary workers in a spurt followed by a dearth of jobs because no careful cleanup strategy is employed is hardly good for the region's revitalization. To date there has been no public assessment or accounting for USEC's slap-dash cleanup work, for fear that it would damage USEC's remaining if vanishing chances to secure a $2 billion loan guarantee.
Indeed the logic of the Triay memo was that a one or two-year acceleration of the Piketon cleanup would coincide perfectly with the coerced extension of time for review of USEC's loan guarantee application. About four hundred workers from USEC's on-again off-again centrifuge project could be retained locally, even if there was little immediate cleanup work to be done, so that they'd be ready to transfer back to the construction project, when the loan guarantee was obtained, as Triay was sure it would be.
The problem with that logic was that USEC's centrifuge project had been an empty shell all along, a vehicle for obtaining more lucrative contract service work from DOE, not an end in itself. After two more years elapsed, USEC was, by intention, no closer to demonstrating the commercial viability of its centrifuges than it had been in 2009, and certainly the company is much worse off financially. Thus, Ines Triay was helping USEC retain employees on payroll at government expense for a re-transfer that never was a possibility.
Conflicts of Interest
In addition, Triay's memo completely contradicted the earlier decision by the DOE General Counsel barring USEC from bidding on the general cleanup contract at Piketon, due to conflict of interest. While the reasoning behind the order was not released to the public, it may be inferred that USEC, as purveyor of a new enrichment plant project at the site and as a sponsor of other nuclear projects, had demonstrated interests against those of cleanup—that is, in biasing future site development toward continued nuclear use, for example by intentionally failing to remove contamination. Though it's federal land, USEC has long regarded Piketon as its own proprietary site to do with as it pleases: the Sovereign Grand Duchy of USEC in Ohio.
The general cleanup contract was subsequently given to Fluor Corporation, but the changeover from USEC to Fluor, originally scheduled for March, 2011, was extended at least through September, in yet another apparent effort to offer contract work that would keep USEC from going belly-up.
In 2009, and again in October of 2011, the DOE Loan Programs Office determined that USEC was far from meeting the performance and risk requirements of the Energy Policy Act of 2005 and its Title XVII loan guarantee regulations. A Solyndra-like loan default was thus avoided. But a group of high-level DOE and White House officials arranged to substitute two compensatory packages for USEC, funded extra-legally, principally through the uranium barter.
In short, the Loan Programs Office, with its unappreciated review requirements, turned down USEC flat, actually requesting that USEC withdraw its application in July of 2009. Immediately, an ad-hoc bipartisan group of officials scurried to ensure that USEC did not sink, even though USEC is a private company, the federal supports for which supposedly had been cut by statute in 1996—the USEC Privatization Act.
That group, in addition to Ines Triay, included Chu's Deputy Secretary of Energy Daniel Poneman, formerly of the high-powered Scowcroft Group; Obama energy adviser and Special Assistant to the President in the White House, Joseph Aldy; and Assistant Secretary for Nuclear Energy Dennis Spurgeon, who had come to DOE during the G.W. Bush Administration after serving as Executive Vice President and Chief Operating Officer of USEC, the company being extraordinarily assisted.
Of that group, only Poneman remains at his post, though a letter to the White House from 2008 Obama campaign adviser Dan Carol, reported by Politico on Nov. 11 called for his ouster as early as 2009: "At a minimum, Poneman and Kelly need to leave" as they are "scaring away the talent we need," wrote Carol. The leak of this letter now, by an anonymous government source, bodes ill for Mr. Poneman.
Spurgeon was removed by President Obama at the start of 2010. Aldy left the Obama White House later in 2010, after serving for only one year.
In September of 2010, Poneman and Triay visited Piketon for a gala event with state and local politicians, in tents outside the black-glass USEC office building. Ines Triay resigned her post over the July 4, 2011, holiday, citing the proverbial "family reasons," but the timing of her unexpected departure coincided with DOE's receipt of the scathing draft GAO report, which declared her uranium barter arrangement illegal.
Apparently, Poneman and Triay worked together as a regular nuclear disaster squad—not addressing disasters but worsening them. On Nov. 22, Congressman Ed Markey (D-MA) sent a letter to Secretary Chu about the horrendous situation at Hanford, Washington, including an accusation that Poneman and Triay collaborated in suppressing Hanford whistleblowers.
I'm beginning to understand why Rick Perry might want to block the Department of Energy from his memory.
The Trouble with Triay
One of the highest-level appointments of a Hispanic woman of the incoming Obama Administration, Ines Triay was assumed by many to be a harbinger of new progressive environmental leadership. Triay was placed in charge of the multi-billion dollar program to clean up the nation's Cold War-era nuclear sites, including notorious radio-toxic messes at Hanford and Piketon.
In fact, Triay represented the most right-wing elements of American shadow government. She had come to the U.S. in 1961 at age three as a boat-person refugee from revolutionary Cuba, and achieved academic prominence within the Cuban exile community of south Florida—the same community in which support for the Nicaraguan Contras was organized in the 1980s. With a Florida PhD. in physical chemistry, she rose through the ranks at the nuclear weapons laboratory at Los Alamos, New Mexico. Her confirmation as an Assistant Secretary of Energy was marred by accusations of political influence from the right, owing to large campaign contributions she had made to the Republican Senator from New Mexico and powerful Chairman of the Senate Appropriations Subcommittee on Energy and Water, Pete Domenici.
That same subcommittee, under the chairmanship of Diane Feinstein (D-CA), is now deciding on round two of the USEC bailout package along lines originally proposed by Triay—a $300 million additional federal outlay, funded partly through the uranium barter. The Energy and Water Appropriations bill was scheduled for a Senate vote on Nov. 17, but now is delayed until after Thanksgiving.
In both the first and second rounds of the USEC bailout scheme, Secretary of Energy Chu has acted like an automaton, implementing the orders given by his inferiors. Within days of receiving the Triay memo in 2009, relayed to him through Daniel Poneman, Chu sent letters mimicking the memo, informing Congress of his determination to bail out USEC through the uranium barter, but failing to ask for congressional authority or an appropriation to do so.
He also failed to tell Congress that the cleanup work being funded was premature in the regulatory process, or that the centrifuge technology in development had already been pegged as lacking commercial potential.
Likewise, when the loan office turned down USEC for the second time in October of 2011, the company's agents at the second-rung of the Department of Energy struck a deal for a second infusion of funding that need not be paid back like a loan. Once again, Chu relayed the package as negotiated to Congress—half to be funded through the uranium barter already found to be illegal, and half through a new congressional appropriation, requested on an emergency basis to make 2012 budget deadlines.
At the end of October, when USEC announced a new deal with DOE, including $150 million to come from mysterious "existing funds" at the agency—existing funds that DOE refused to identify—the reference was to the uranium barter, claimed as outside the realm of congressional appropriations.
Broke and Broker
So let's total up the recent government bailout packages for private company USEC Inc. Not counting the billions of dollars dumped on USEC in gifts of uranium, transferred assets, no-bid contracts, and various federal subsidies attending its privatization, USEC was offered a $45 million payment for "technology development" in 2009 (not all of it paid), along with a no-bid cleanup contract for up to $200 million. In its 2011 third-quarter 10-Q statement filed with the SEC, USEC also acknowledged receiving an additional $50 million from DOE for unspecified and previously unanticipated contract services. USEC is requesting $150 million in uranium, immediately, to fund a "Research, Development and Demonstration" project that it had previously committed to complete on its own, for a hypothetical plant that has no chance of ever opening for business. On top of that, DOE and USEC are asking for another $150 million from 2012 congressional appropriations, at a time when federal funding is suspected of being kinda tight.
That's a recent total of up to $595 million, none of it to be repaid. A pretty good percentage on turn-down of a $2 billion loan! The modus operandi, as the potentates of Grand Fenwick would appreciate, is to continually demand a federal loan guarantee, and insure through belligerence that you get rejected!
All this for a company that produces shockingly little. Half or more of the enriched uranium fuel that USEC provides to utility customers comes from old Soviet nuclear warheads, with the uranium downblended to reactor-grade at Russian facilities. USEC only acts as a broker for that uranium, a service it used to provide at substantial profit as a sweetheart concession from the U.S. government, until the Russians threatened to withdraw from the treaty arrangement if USEC's profits weren't radically cut. The deal terminates entirely in 2013.
A declining share of USEC's uranium product is enriched at the government-owned gaseous diffusion plant at Paducah, Kentucky, which consumes an enormous amount of electricity, for which USEC cannot afford to keep paying. Paducah is scheduled to close next May, a deadline that Steven Chu has defended in verbal engagement with Kentucky's Senator, Mitch McConnell.
Meanwhile, all the uranium bartered to bail USEC out of its difficulties has dramatically distorted the uranium market, constituting a form of dumping, artificially lowering the price of uranium. This has had negative feedback effects on USEC earnings, mired deep in negative territory throughout 2011. The barter has also worsened unemployment among American uranium miners, outweighing any jobs maintained on the USEC payroll. Only 8% of the uranium fuel used in U.S. nuclear reactors is currently mined in the United States, due largely to USEC's dependence on raided U.S. stockpiles and Russian supply.
Since USEC will have access to no enrichment facility as soon as May, and since its new plant remains a pipe dream with cracked pipes, it is generally expected that USEC, which inherited a uranium supply monopoly, will soon be nothing more than a uranium broker, entirely an office operation. The billions of federal dollars spent on USEC bailouts will have netted a few extended cubicle jobs in beltway Maryland.
The USEC Hustle
The hustle for a new USEC bailout aims at staving off a pre-election bankruptcy (stock price down 78% in 2011), though the FOIA documents reveal a deeper problem: DOE staff acting like naive facilitators for an insider corporation judged too rigged to fail.
A 2009 memo by DOE Public Affairs director Dan Leistikow demonstrates that DOE was well-aware that USEC was inflating if not fabricating jobs numbers associated with the proposed "American Centrifuge Plant." Despite that awareness, DOE allowed USEC to continue using the "4,000 Ohio jobs" sales pitch uncorrected, even while USEC has attacked DOE for denying a loan guarantee. The baseless 4,000 number is still the one commonly cited by the news media today, on the assumption that DOE would have long ago corrected it, if it weren't true.
After the loan guarantee denial decision was finalized on July 27, 2009, the "rollout" process for announcement of that decision was turned over to Administration operatives—principally Joseph Aldy and Daniel Poneman--who did not work in the Loan Programs Office and had not been part of the due-diligence review. Aldy did not even work for DOE and had only a few months experience in government. Aldy and Poneman shuttled drafts of DOE's rollout statement between them, in stages removing harsh explanations for the denial decision, and replacing them with booster comments about USEC's shining future. This undercut the denial decision, making it seem irrational, while forestalling realistic planning for project failure in Ohio.
DOE's statement underwent major revision after a tip-off allowed USEC to preempt DOE with the media, as USEC would do yet again with the second denial in October of 2011. According to a July 27, 2009, e-mail by Matt Rogers of DOE, USEC CEO John Welch delayed DOE's denial announcement: "[Welch] needs some time with his board to define the path forward and how they announce to the market." DOE thus timed its denial announcement to considerations of effects on USEC stock price. But Welch wasn't so concerned about stock price, he was stalling for time to get a jump with the media and Ohio politicians.
The Loan Programs Office asked USEC to withdraw its application on July 27, as the lack of evidence for qualification was painfully apparent. It stymied the DOE staff that USEC did not automatically comply, as any loan applicant would if told that the alternative to withdrawal was denial. But USEC played a shrewder game, using the crucial week of agreed postponement to marshal lobbying forces , including Ohio Democrats Governor Strickland and Senator Sherrod Brown, for an immediate compensatory aid package.
By the time USEC delivered its answer of a refusal to withdraw, the political operatives outside the loan office—Poneman, Aldy, and Triay—were ready to give USEC everything it wanted: a $245 million aid package plus an indefinite extension of the loan guarantee review, so the scam could be run all over again. Triay's August memo to Chu concretized the government capitulation. Not a peep of protest came from Chu.
And the scam was run all over again, in 2011, with a string of deadlines for DOE decision issued by the applicant USEC, a final demand for material compensation, a preemptive release to the media, and DOE's mimicry of the deal as USEC had described it, with a total take upped to $300 million in federal funds, half to be provided immediately through the uranium barter. The loan guarantee review has also been left open, to permit endless future iterations.
USEC re-framed both denial decisions as positive DOE commitments to move forward with the technology, when that was not at all the result of DOE technical and financial reviews. In both cases, perhaps for political reasons connected to that old Ohio electoral magic, DOE felt compelled to play to USEC's lead with the media. Don't try this at home with a mortgage lender: Preempting a home loan denial with a news release that alleges the bank's commitment to future approval is not guaranteed to bring positive results.
For U.S. Aid, Wage War on the U.S.
It's not that the Obama Administration "could not say no" to applicants, as has been the accusation. When the Administration did say no, in USEC's case, the message was massaged to sound like a yes, with hundreds of millions of dollars in compensatory payments attached.
Many have misread the Solyndra problem as one of the Obama Administration's commitment to "green energy," or a failure to foresee changes in energy markets. The Washington Post editorial board gets it right when it says "the Department of Energy's loan guarantee program is the real Solyndra scandal."
But the Uranium-Triay Affair reveals that the scandal reaches far beyond the Loan Programs Office. Twice, after that office accurately assessed USEC's commercial non-viability and refused to award the company a loan guarantee, the Deputy and Assistant Secretaries of Energy, with direct White House involvement, intervened to offer USEC huge compensatory packages which would never have to be repaid.
And to date, despite reports by watchdog agencies like the Government Accountability Office, the scandal has received virtually no attention by either the media, Congress, or law enforcement agencies.
GAO, it must be said, pulled its punch. It only accused DOE of violating the Miscellaneous Receipts Act, which sounds practically like a misdemeanor. More explicitly, DOE personnel violated the Antideficiency Act, aimed at protection of the U.S. Treasury, which forbids an official from diverting federal funds from one congressionally authorized purpose to another. That's exactly what Ines Triay and her companeros did. The Antideficiency Act carries penal sanctions, meaning jail time, a fact which I have reason to believe was brought to the attention of Ines Triay just prior to her July resignation.
Other laws were callously broken. Of lasting impact on the stakeholders at Piketon, budgets were blown and major cleanup decisions were made before any of the mandatory public participation processes could be implemented. And so this Appalachian community will likely be stuck with a massive 90-acre waste cell, placed to please the tenant who won't be around—USEC Inc.
When Solyndra requested a second loan guarantee to stave off bankruptcy, it was flatly denied. It seems they should have taken a page from The Mouse that Roared, waged war on the U.S. government, and made a set of extortionist demands. Then, like USEC, they might have gotten some material aid from the U.S. government, if not cold hard cash.