The Paducah Sun
The Paducah Sun
Wednesday, June 21, 2000
Paducah, Kentucky

USEC examines 2 sites again

By Joe Walker jwalker@paducahsun.com--270.575.8650
Two years ago, the USEC Inc. Board of Directors clearly thought the Paducah Gaseous Diffusion Plant performed better than its sister plant near Portsmouth, Ohio.

Whether new board members agree could be evident after the board meets today at USEC headquarters in Bethesda, Md., reportedly to decide to close one of the plants amid financial trouble. Although USEC has not confirmed it, various reliable sources say senior managers have recommended to the board that the Portsmouth plant be closed.

One utilities industry source said that makes sense, considering that he has run closure studies on the two plants for the past six years.

"We've never come up with a credible Paducah plant closure scenario unless power costs went haywire," the source said, asking not to be identified. "It's always been Portsmouth."

Speaking on condition of anonymity, other sources in the uranium enrichment industry say Portsmouth has made great strides in the past year to improve its labor climate and production efficiency, two areas in which Paducah reportedly had held a distinct advantage.

"Now I think you're back to just straight economic factors," one source said, explaining that power costs and reliability could be the deciding issues. Each plant uses as much electricity as a major city, and power accounts for more than half the cost of production.

The sources, who have extensive knowledge of the plants, asked not to be named because of their relationships with both facilities. Sought out by the Sun because of their neutrality and experience, they gave these observations on the power issue:

 Portsmouth has almost four times as much power available at prices about 25 percent lower than Paducah. Portsmouth's fixed costs of about 2 cents per kilowatt hour also are an advantage over Paducah's variable costs averaging about a cent higher. Each cent per kilowatt hour translates to at least $25 per unit of enriched uranium, or more than a fourth of the production cost of a unit.

 USEC's biggest worry at Paducah is wide swings in power costs throughout the year. The plant routinely is idled during the summer because of soaring electricity bills. Negotiations with the Tennessee Valley Authority for a new contract could solve a lot of that problem, depending on how much production is foreseen for the Paducah plant if it stays open. Electric Energy Inc. of Joppa, Ill., now supplies most of the plant's electricity.

 Paducah has a plus in that it uses equipment called freezer-sublimers to store enriched uranium for use when cheaper power becomes available at night and on weekends.

 Portsmouth's supplier, Ohio Valley Electric Corp., is faced with $200 million to $300 million in nitrogen oxide emission controls at two plants. USEC's contract obligates it to pay its share of those costs.

 Because of its contractual arrangement at Portsmouth, USEC can sell excess power to bolster badly sagging profits. The firm must decide if closing the plant and selling more excess power makes financial sense. Another question is whether the Department of Energy, which owns the plant, will decide to keep the money. Both plants have government power contracts to buy at heavy discounts.

The two plants are different because Paducah enriches uranium to a certain level and sends it to Portsmouth to complete the process for use in nuclear fuel. USEC wants to upgrade Paducah to make it a stand-alone plant. Approval by the Nuclear Regulatory Commission is expected no earlier than spring 2001. USEC also is spending significant money making seismic improvements at Paducah.

Portsmouth has about 400 more employees than Paducah, which means that closing Portsmouth would save more labor costs. Paducah is the larger producer, a significant factor in maintaining a reliable supply of product should a deal to import about 500 tons of enriched uranium from Russia fall through, sources say.

Reliability was a major concern of the USEC board, according to transcripts of meetings leading to USEC privatization in July 1998. A group including Lockheed Martin, which then ran the plants for USEC, offered to buy the company and rearrange the plants so that half the production could be taken down if needed.

Board members, who eventually rejected the bid, expressed worries about restarting equipment at Portsmouth. They noted the "extreme difficulty" of keeping equipment running there.

"It seems to me that Paducah is the better run of the two plants," said William Burton, then a board member. "It certainly has been ... far closer to meeting and exceeding its production goals than Portsmouth."

William Rainer, board chairman in 1998, said USEC had never recovered from shutting down much of the Portsmouth plant four years earlier to provide power for other customers. There were seal problems, leaks and solidified uranium related to restarting equipment called "cells," he said.

"We've been unable to reach our cells-on-line goals for years," Rainer said of the Portsmouth situation.

But sources said Portsmouth has worked aggressively to improve equipment reliability in the past year. They said Paducah still has the advantage, although Portsmouth has pulled much closer in terms of two major performance indicators: percentage of cells running and electrical efficiency in enriching uranium.

For decades, Portsmouth was perceived to have a much poorer labor-management climate than Paducah. The image was magnified by a strike and a long absence of a union contract.

By contrast, Paducah was known for its labor-management cooperation and was named one of Industry Week magazine's 10 Best Plants three years ago.

"I think that has equalized now," one source said of the labor climate. He pointed to Portsmouth's reducing a "vast backlog" of union grievances and receiving a labor-management award for using federal mediation to substantially improve relations.

An important wild card in deciding to close a plant is the environment. Both plants use vast amounts of coolant in their huge production facilities. Known as R-114, the coolant must be phased out because it has been banned as harmful to the atmosphere.

USEC reportedly has enough coolant to last until September 2001 unless the current leak rate is dramatically slowed. Although the firm has not commenced upgrades, leakage at Portsmouth is much worse than Paducah, one source said. Another said the mechanical changes required at Portsmouth are more extensive.