November 5, 1999
Signs of DOE-USEC rift apparent
By Joe Walker
The landlord and tenant of the Paducah Gaseous Diffusion Plant are at odds over the need for $200 million in federal tax revenue to help USEC Inc. offset paying Russia significantly more money for enriched uranium than the cost of producing it.
In fact, USEC may be poised to bail out of the agreement that many say is a huge money loser for the corporation, said 1st District U.S. Rep. Ed Whitfield, R-Hopkinsville. USEC Chief Executive Officer William H. "Nick" Timbers Jr. told The Columbus (Ohio) Dispatch earlier this week that USEC wants to continue the deal, but it can't afford to "subsidize national security" by paying government-negotiated prices for the Russian uranium.
The squabble renews a year-old debate about the wisdom and ethics of having USEC, a publicly owned company, as the agent for more than a million tons of uranium blended down from dismantled nuclear warheads. Although the plan was designed to aid nuclear disarmament, it has huge job loss implications for Paducah and its sister plant in Portsmouth, Ohio.
Under an agreement with the Clinton administration, USEC is buying more than a million pounds of enriched uranium from Russia during the next 20 years in five-year renewable contracts.
The deal is worth about $8 billion. Blended down from material in dismantled nuclear warheads, the uranium roughly equals the production of one of the plants.
Moreover, USEC is paying Russia, a competitor, about $20 more per unit of enriched uranium than Paducah's and Portsmouth's production costs, according to informed sources. USEC leases the plants from the Department of Energy.
Whitfield thinks that by requesting $200 million from the department, USEC is ready to exit the agreement. In 1997, a year before privatizing, the corporation signed a pact to receive about 30 metric tons of the uranium at roughly $86 per enriched unit. The contract allows USEC to give 30 days' written notice to step down, obligating it to buy the uranium for that year and the next year, he said.
"Nick Timbers evidently has decided they want to give notice Dec. 1 to buy it for the rest of this year and another year," Whitfield said. "Then they would be out as executive agent."
What concerns Whitfield is that the government is bound to buy the uranium under a deal worked out by Vice President Al Gore.
"The question becomes, if the executive agent resigns as it has the right to do, is the government going to have to pay for it anyway?" he said. "I think lawyers for DOE and the Justice Department will have to look at it to decide the consequences."
Whitfield said he initially opposed the $200 million request but wonders if paying it would ultimately be better for the nearly 1,600 workers at the Paducah plant. When USEC privatized, it promised to keep both plants open until 2005 unless certain market conditions arose, such as a profit margin slipping below 10 percent for 12 straight months or the long-term market price per unit of enriched uranium dropping below $80.
USEC also pledged to limit job cuts at the plants to 500 for the first two years.
"We keep asking about that (layoffs) because the two years are up in July," Whitfield said. "They're just not making any comment about it. It's my belief that they already know and if they do, to be fair to the employees, they should make it public now so they can seek other opportunities."
Whitfield's remarks followed letters exchanged by Energy Secretary Bill Richardson and Timbers a week ago.
Richardson wrote Timbers, saying he had not provided enough proof to justify his request for about $100 million annually for the next two years. He said data and assumptions were questionable.
"In fact, some of your production may well exceed the cost of buying Russian material," Richardson said. "In short, we believe the true financial need may be much lower, or zero."
Timbers responded that USEC had provided enough data. Follow-up meetings were held between Timbers and DOE Deputy Secretary T.J. Glauthier, he said, and between the chief financial officers of USEC and DOE.
USEC then filed written responses to questions, Timbers said, and the results more than support the need for the money. "In every case, the costs to USEC of the Russian HEU (highly enriched uranium) transaction at above market prices exceeds USEC's request to the U.S. government," Timbers wrote.
World market prices for enriched uranium have steadily fallen to about what USEC is paying Russia. USEC's contracts to sell at the old, higher prices are running out, and its new contracts basically equal what it pays the Russians, leaving little or no profit margin, according to sources previously interviewed by the Sun.
USEC went public in July 1998 in a stock deal worth about $1.9 billion. So far this year, it has repurchased about $100 million of the stock in an effort to bolster prices, which have slipped $5.50 a share since privatization began.
Timbers told shareholders in a meeting Wednesday that for USEC to keep receiving the uranium, it must do so "at a fair profit ... and certainly not at a loss," The Columbus Dispatch reported.
USEC may not legally bail out of the agreement until Dec. 31, 2000, Whitfield said.
"The disappointing thing about this is, they (USEC managers) knew very well the terms of this contract going in and definitely should have understood the market place well enough," he said. "I think you can definitely be critical of the management of USEC for not anticipating what would happen."