The Paducah Sun
The Paducah Sun
Friday, January 19, 2001 Paducah, Kentucky

USEC head vows future in Paducah

By Joe Walker
BARKLEY THIELEMAN/The Sun--Chamber reassured: William Timbers outlines some possibilities for the Paducah Gaseous Diffusion Plant.

This area's largest industrial employer is not headed for bankruptcy or forced sale as some predict, and has made the Paducah Gaseous Diffusion Plant its center of operations, said USEC President and Chief Executive Officer William "Nick" Timbers.

"Pundits have predicted our demise," he said. "That will not happen."

Timbers gave his views Thursday in an interview and later as speaker at the Paducah Area Chamber of Commerce's annual dinner. He said the Paducah plant is foremost in the plans of the slumping company.

"What's significant for us here tonight is that we've put down a stake in this community that we will consolidate our production here in Paducah. We have made substantial investments in upgrading the Paducah plant, and we see a productive future for it," he said. "The decision to choose Paducah was mostly based on economics, but be assured that this community's support did not escape our attention."

Timbers denied critics' claims that USEC is headed for bankruptcy. Although the company is not seeking a buyer, the board is looking at many options to maximize the value of the firm, he said.

"If that is the sale of the company to somebody else, I'm sure that the board will take that approach," he said. "If there is not sufficient value provided, I'm sure the board will take that into consideration."

Although some advocate the government's buying USEC back only three years after it was privatized, Timbers said those chances are slim.

"I can't predict what Congress or the administration will do at any point in time," he said. "However, I'd say that prospect is extremely unlikely."

Planned for several months, his visit to Paducah came just a few days after the atomic workers union accused USEC of moving away from Paducah plant production and toward being solely a broker of Russian uranium for use in nuclear fuel.

Leaders of the union, representing more than half the Paducah plant's 1,500 employees, said USEC is poised to buy even more Russian uranium, which will mean the demise of the plant as early as 2003. Timbers denied that.

"We just went through a long, difficult, arduous evaluation about how we're going to produce enriched uranium, and our decision was to commit to this plant, to this community and to these employees that this is where we're going to produce this material," Timbers said. "The Russian material is not going to supplant our domestic production."

He said the union warnings "have no basis" and are a disservice to employees and community. USEC's huge investment upgrading the Paducah plant should be evidence "of what our intent is," Timbers said.

Under a nuclear disarmament agreement, USEC is buying about 60 percent of its marketable uranium needs from Russia, leaving the Paducah plant to produce the other 40 percent in a glutted market. World market prices have dropped 32 percent and demand 18 percent since USEC was privatized in 1998. USEC is paying more for the Russian uranium than it can sell it for, Timbers said, and is offering to buy more of it if Russia lowers prices.

Last year, a proprietary Nuclear Regulatory Commission report said the Paducah plant could be in serious trouble by 2003. Another confidential report, newly prepared for the U.S. utilities industry that buys from USEC, says virtually the same thing, according to industry experts familiar with the report.

The two reports accompany a drastic slide in USEC stock: from $14.25 per share in 1998 to about $5.50. Earnings per share dropped from $1.52 to 10 cents during the past fiscal year. Several shareholders have sued the firm, alleging it failed to adequately warn them about market declines and problems with the Russian deal. USEC denies the claims.

During congressional hearings last year, some lawmakers blasted Timbers for earning too much money amid the company slide. He responds that his compensation package nearly $2.5 million, including salary, bonus, stock and stock options is about average for executives of like-sized companies and, except for the $600,000 base salary, is tied to company performance as determined by the USEC board.

Although union leaders and federal lawmakers fear USEC's collapse, Timbers said the company is trying to overcome its problems by closing its other enrichment plant in Ohio and consolidating work at Paducah; signing a 10-year agreement with TVA to stabilize power prices, which make up more than half of production costs; reaching a pact with Russia to lower uranium prices starting in 2002; and sealing a deal with Enron giving utility customers the option of paying for enrichment services with deliveries of electricity.

Timbers said he expects a decision this year on an advanced technology to replace outdated, expensive gaseous diffusion used at Paducah. USEC is involved in a yearlong project with DOE to develop gas centrifuge technology at the Ohio plant, which could eventually be used at Paducah, he said. USEC also is evaluating foreign centrifuges and Australian laser-based Silex technology, similar to AVLIS.

Ditching AVLIS and focusing on centrifuge, a decades-old process, has drawn plenty of criticism from the union, industry experts and others who say USEC will be dead well before the five to 10 years it takes the company to deploy new technology. As USEC's older, higher-priced contracts expire, utilities are hesitant to sign new contracts because USEC has no advanced technology plan, critics say, and the firm's production costs are rapidly exceeding prices.

Timbers said utilities have many reasons for stalling on contracts and it is hard to say if the technology issue is a key one. They may be worried that if USEC wins an unfair trade action against foreign competitors who are selling cheap uranium, it will force prices higher, he said.

Last month, USEC and the atomic workers' union asked the Department of Commerce and the International Trade Commission to investigate the dumping of enriched uranium into the United States by USEC's European competitors, Eurodif and Urenco, and restore fair pricing.

"This dumping hurts the domestic uranium enrichment industry and undermines long-term domestic energy security," Timbers said. "That means it hurts our employees and our shareholders. We are not going to let our competitors take these sales away from us unfairly."

While strengthening core business, USEC is trying to diversify to generate more cash flow. Timbers said the company will bid on work to convert uranium enrichment waste at Paducah, as well as in Ohio and Tennessee. "We believe that we are the best suited to do this work," he said.

Timbers highlighted the Paducah plant's successes of last year, including making improvements to be a stand-alone facility; completing changes to be more earthquake resistant; meeting aggressive maintenance schedules and equipment ramp-ups for the new power contract; and removing a huge pile of contaminated scrap called "drum mountain."

Timbers also praised employees for their civic work.

"We try to give back to the community in every way we can. Many of our employees hold leadership roles within local churches, schools, PTAs, government, civic clubs and charities," he said. "They coach and mentor young people. They fight fires. They raise money, and they find a thousand other ways to contribute their time and talent to this community."