First of a three-part series.
A chronically failing nuclear energy company using a technique one-twentieth as efficient as its competitors' has wrangled billions of dollars in cash, materials and research from the Department of Energy in deals that dwarf the Solyndra loan scandal.
The United States Enrichment Corp. has facilities in Kentucky and Ohio, home states of Senate Minority Leader Mitch McConnell and House Speaker John Boehner, respectively.
The company has received support from those lawmakers, as well as from professed small-government stalwart Sen. Rand Paul, who also hails from Kentucky. All three men are Republicans, but USEC has also enjoyed backing from prominent Democrats, including President Obama.
USEC’s goal is to enrich uranium to produce fuel for nuclear power plants. But for the last 15 years, the company has relied on a World War II-era technique called gaseous diffusion.
Originally created as a federal agency, USEC was born in 1998 when President Clinton and the Republican-led 105th Congress privatized it in hopes that the new operation could spur technological innovations.
Instead, USEC executives got a $325 million “emergency supplemental” appropriation only three months after being after the privatization, and saw hefty raises.
Federal money kept USEC’s 1,000-employee Paducah, Ky., site operating long after it was clearly a losing proposition, bolstered by USEC promises that with a little more time and government money,it would bring modern technology to the market.
Enrichment at the public till
How Republicans - and some Democrats - steered billions to a failing privatized arm of the government many times the size of Solyndra, executives profited, and taxpayers lost.Part One: Feds invested billions in energy firm virtually sure to fail
Part Two: Privatizing energy project led to rich bureaucrats, drained federal coffers
Part Three: Republican leaders steered billions in pork to failing company in home states
The Paducah site is owned by the Department of Energy, which allows its use by USEC free of charge. The site opened in 1952 and was taken over by USEC in 1998, selling its output to both the government and private-sector clients.
At its inception, the government gave USEC laser technology that government researchers spent $2 billion developing and which USEC was supposed to give the final push to market. USEC spent only $100 million trying to advance it before abandoning it in 1999.
The company then turned to a 1980s technology that the government had also spent billions developing and tried to modernize it. DOE gave the firm exclusive rights to the technology in exchange for $100 million, which will only have to be repaid if a new plant, known as the American Centrifuge Project, is actually built.
The ACP would consist of 96 arrays of large centrifuges that would enrich uranium to levels sufficient for use as nuclear reactor fuel without requiring the enormous amount of electricity that the Paducah plant did.
In 2002, company told the Energy Department it would have the centrifuge project open by 2009 at a cost of $1.5 billion. It would be built in Piketon, Ohio, on the site of another gaseous diffusion plant that USEC leased from the federal government and had previously shut down and which, like Paducah, it leases for free from the government.
By 2012, however, after repeated delays and cost overruns, USEC had not even broken ground on the promised facility and said the earliest date it could open would be 2017 — at a cost of more than $4 billion, but only if the government provided a $2 billion loan guarantee.
But repeated failures of test centrifuges, which would have been dangerous had they actually been processing uranium, and other flaws made DOE hesitant.
Standard & Poor's gave USEC a junk bond status as it churned through federal funds with nothing to show for it. In July, it performed a reverse stock split to avoid being booted from the New York Stock Exchange. Now it's asking for a $2 billion government loan guarantee.
Another reason for the government’s hesitancy may be the fact that it doesn’t need what USEC produces to maintain the U.S. military’s nuclear forces.
"If and when we need enrichment for military purposes, a very small plant less than one-tenth the size of the commercial plant that USEC has been proposing would be adequate. That could be a government-owned facility," said Frank N. von Hippel, a former assistant director for national security in the White House Office of Science and Technology during the Clinton administration.
"The U.S. Navy has enough" highly enriched uranium "for 75 years, and probably could, and will, get more as more is declared excess for weapons,” added von Hippel, who is now a Princeton professor, referring to nuclear-powered ships.
DOE deferred a decision on the loan guarantee and instead agreed in 2011 to give the company $280 million through the end of this year to further develop and prove the feasibility of the technology to be used by the centrifuge project.
In the meantime, another company, Urenco, opened a new centrifuge in New Mexico in January that uses only five percent as much power as USEC’s Paducah unit and produces low-enriched uranium used at nuclear reactors to produce power in America. In addition, General Electric built a test facility in North Carolina that uses lasers to enrich uranium.
In May, in the absence of government money for its old plant, USEC began winding down the gaseous diffusion plant in Paducah.
“DOE has concluded that there were not sufficient benefits to the taxpayers to extend enrichment. I am extremely disappointed,” USEC Vice President Robert Van Namen told shareholders in an online statement.
More than $500 million in bonds USEC took out with the 2009 opening date for the centrifuge plant in mind will come due in 2014, which will could result in bankruptcy or a “restructuring” without a new infusion of cash.
USEC stock has steadily plunged so far that in July, it conducted a 25-to-1 reverse stock split to avoid being delisted from the New York Stock Exchange.
The company is worth $28 million, according to stock exchange figures, which is about half the minimum required for a company to be on the exchange. Being booted from the stock exchange would cause the bonds to become due immediately under the terms of the agreement.
Even as DOE put a down payment on the centrifuge project with its payments towards the $280 million, which will continue through the end of this year unless it changes its mind, USEC implied supporting the project amounted to throwing money at a product that would never exist.
“The economics of the American Centrifuge project are severely challenged by the current supply/demand imbalance in the market for low enriched uranium ... At current market prices USEC does not believe that its plans for American Centrifuge commercialization are economically viable,” USEC told investors Tuesday. “USEC needs to develop and validate a viable business plan,” it added.
Even if it were to obtain the government’s $2 billion loan guarantee, the company would still need $2 billion more to build the plant. “USEC does not currently have any funding in place” to accomplish that, the company said Tuesday.
"We acknowledge this is an issue that needs to be addressed, and we're engaged in some talks about restructuring," spokesman Paul E. Jacobson said. "The issue is, frankly, unresolved at this time."
Last month, USEC added new members to its board of directors at the behest of the holders of the $530 million bond due next year. Their backgrounds are in managing bankruptcies, the company announced.
But USEC was far from done with asking for federal money, and for at least the remainder of the year, DOE isn’t done giving it.
As it asked for more funding for the centrifuge project, the company noted that $3 billion in previous taxpayer funds “will only pay off if the” $4 billion plant is built.
The DOE did not return the Washington Examiner’s request for comment.
For the first time, on top of the $280 million and potential $2 billion, USEC on Tuesday said it would need “additional government support.”