The Paducah Sun
The Paducah Sun
Thursday, June 22, 2000
Paducah, Kentucky

Paducah plant stays open for now, with conditions

By Joe Walker
BARKLEY THIELEMAN/The Sun--Good news after day's end: Day shift employees leave the Paducah Gaseous Diffusion Plant on Wednesday. USEC directors were meeting at the time to decide the fate of the plant.

Area economic vitality and about 1,400 jobs are safe for now with a company decision to upgrade the Paducah Gaseous Diffusion Plant and keep it running.

The USEC Inc. board of directors voted Wednesday to close Paducah's sister plant near Portsmouth, Ohio, in June 2001 after the anticipated finish of upgrade work at Paducah. USEC expects approval by the Nuclear Regulatory Commission next March allowing Paducah to enrich uranium to the level needed in nuclear fuel, making it a stand-alone plant. It now sends product to Portsmouth for finishing.

Testing for enriching at a higher "assay" would be done from March until June. USEC spokeswoman Elizabeth Stuckle said the changes include "minor modifications" to the plant, some of which are already done.

"There is much more regulatory work to be done than there is physical work," she said.

The company will keep operating its transfer and shipping activities at Portsmouth for four or five more years after closure. By then, facilities for the work which fills cylinders and prepares them for shipping to fuel fabricators are expected to be completed at Paducah.

Although USEC officials would not confirm it, a critical factor in Paducah's survival apparently was a plan to cut power costs during summer months. The plant routinely is idled during hot weather because of soaring electricity prices.

Jack Conway, a top official in Gov. Paul Patton's office, said he and Patton met last week in Bethesda, Md., with USEC President and Chief Executive Officer William Timbers.

He said Timbers told Patton that future power costs were a key consideration in deciding which plant would close. Paducah has long been deemed more efficient than Portsmouth.

"Power was a crucial issue because it makes up approximately 50 percent of the production cost," Conway said. "We were told that USEC was in the final stages of negotiating a new power contract with the Tennessee Valley Authority that was very favorable."

Conway said prices were being negotiated "somewhere in the neighborhood of 2 cents per kilowatt-hour." That represents a reduction in recent power cost of about 3 cents per kwh. Each penny saved per kwh saves at least $25, or more than a fourth of the production cost of a unit of enriched uranium. Together, the plants produce about 7.5 million units annually.

Stuckle said the firm is "aggressively negotiating" a new, long-term contract with TVA.

She said there was no single factor leading to the decision to keep Paducah open, but the board considered short- and long-term power costs, operational performance and reliability, design and condition of the plants, and risks of not meeting customer orders on time. Other factors related to levels at which the plants can enrich uranium, financial results and new technology.

TVA spokesman John Moulton said he did not think a new contract had been signed with USEC. He would not comment on negotiations, but said, "We want to do all we can to keep USEC as a customer and save the Paducah plant."

Indications are that USEC and TVA have an oral agreement that could soon lead to a contract, which was one of four reasons why Paducah was favored, Conway said. The others were USEC's good relationship with the community and state and local government officials, a more productive work force than Portsmouth, and greater efficiency.

Word spread quickly after the board's late-afternoon decision was announced at the Paducah plant, where anxiety had been high for months, said David Fuller, president of Local 5-550 of Paper, Allied-Industrial, Chemical & Energy Workers International Union.

"I still wish there were some way both plants could operate, but this is good news for Paducah," Fuller said. "This is happiness tinged with sadness because the president of the local at Portsmouth is one of my best friends."

The key for Paducah's short-term future is to meet the upgrade schedule, he said. "I think the long-term future is very, very complicated and problematic. There are still inherent problems with national security and domestic supply. Those things make our ability to compete really iffy."

The board said it will cut about $55 million in fixed production costs in fiscal 2002 as Portsmouth production ceases. Power costs should increase because USEC no longer will be able to sell excess electricity at Portsmouth, but the new Paducah contract should partly offset that.

Both plants are now running at near 25 percent capacity because of sagging market prices and an abundance of uranium USEC is importing from Russia. After the Portsmouth plant closes, the Paducah plant will run at roughly 50 percent capacity in 2002, depending on customer orders, the company said.

USEC expects net income to be $30 million to $35 million next year and $45 million to $50 million in 2002. But the outlook is hurt by global oversupply, aggressive competitor pricing and other factors. The firm said the future hinges on timely completion and approval of the Paducah upgrade, negotiation of the TVA pact and an agreement to lower Russian prices starting in 2002.

Timbers said the market glut and the Russian uranium make cutting USEC production "a difficult but necessary action."

USEC is trimming another 625 jobs at the two plants starting July 14, including 275 here, which will reduce Paducah employment to about 1,400. No more cuts are expected at Portsmouth before the plant shutdown.

Staff writer Bill Bartleman contributed to this report.