The Paducah Sun
The Paducah Sun
Paducah, Kentucky
Sunday, August 05, 2001

USEC: Russian deal key
Union, industry oppose price cut, sole agent issues

By Joe Walker jwalker@paducahsun.com--270.575.8650

As about 700 Paducah Gaseous Diffusion Plant union members keep working amid strike talk, their employer, USEC Inc., is lobbying strongly in the nation's capital to control the price and flow of $8 billion in Russian uranium, equivalent to 25,000 nuclear weapons.

USEC wants to remain sole agent for the uranium, which it resells to U.S. nuclear power plants. It also wants to secure better prices and get government approval to buy Russian commercial uranium, aside from the material taken from dismantled warheads.

Some nuclear power firms identified by Nuclear Fuel magazine as Duke Power, Southern Co., Entergy and Exelon Nuclear are lobbying to bypass USEC by adding an agent from their industry, whose 100 plants use the uranium to produce 20 percent of the nation's electricity.

Oliver Kingsley, Exelon's president and chief nuclear officer, visited the Paducah plant Friday with USEC President and Chief Executive Officer William Timbers. USEC described the visit as one of many by its customers and not to try to sway Kingsley's views about the Russian deal.

Condoleeza Rice, the president's national security adviser, is reviewing the Russian matter, including USEC's tentative agreement with that country for better prices. Some say a decision may be imminent. Nuclear Fuel has reported that although the White House is considering having another agent, many analysts think it could delay a decision until next year, even after the November 2002 elections.

USEC is hoping for an answer by the end of the year, when its old, five-year contract with Russia expires. The firm says Russia agreed in May 2000 to terms for better prices.

On Thursday, the plant's energy workers union overwhelmingly rejected USEC's proposed contract, which would have ended after a year if any one of three goals related to Russian uranium purchases failed. The two sides plan to resume bargaining Wednesday, but union leaders say that unless USEC takes the Russian issue off the table, there could be a strike at any time.

Not only has the issue spurred contentious bargaining, it is vital for the future of the plant, its 1,500 jobs and the spinoff revenue that has long brought economic vitality to the area.

Broader still, U.S. nuclear fuel production is at stake because the Paducah plant is the only one in the nation that enriches uranium. The 325-employee Honeywell plant in Metropolis, Ill., is the only plant in the country that makes raw product for USEC.

Some experts notably Thomas Neff, a Massachusetts Institute of Technology nuclear researcher credited with designing the Russian deal say USEC's proposed new prices for Russian uranium could give it a profit markup of 50 percent or more. Neff says that and other factors could lead to a monopoly and drive up the price of electricity in the nation.

USEC Senior Vice President Philip Sewell says Neff is misguided and inaccurate. Despite the heavy consequences of USEC's nuclear disarmament role, the underlying economics are complex and easily misunderstood, he said.

"Obviously, if it's important to USEC business, it's important to that plant because that's where our business lies right now," he said. "So it's a significant issue to the community."

In a 20-year deal, USEC is buying about half its uranium needs from Russia at prices well below what it costs the Paducah plant to produce the other half. Sewell said "blending" the two costs holds USEC expenses down and extends the life of the plant, whose technology is outdated and burns as much electricity as a major city.

He gave these views regarding another agent:

If another agent buys more Russian uranium than USEC is buying now, the added supply in a market with stagnant demand for at least 10 years will force prices down, cut USEC's profits and hurt the plant. Should a USEC customer buy from a new agent, USEC will lose that market share, creating "a double whammy."

If another agent takes part of USEC's Russian supply, it will upset the Russian-Paducah cost mix, also hurting the plant. Boosting plant production won't help because it would mean much higher power costs. Also, the added supply would force market prices down, resulting in a "triple whammy."

Not everyone agrees with USEC logic. Exclusive control over Russian and domestic uranium, combined with a successful trade action against foreign nuclear fuel suppliers, "would give USEC monopoly power over the U.S. nuclear fuel supply and drive up electricity prices in the United States," Neff wrote in the June issue of Arms Control Today magazine.

USEC wants permission from the Commerce Department to buy newly produced Russian commercial uranium, also at low prices. "If it does so, the more likely outcome is the shutdown of Paducah, making the nation largely dependent on Russian supply for its nuclear power plants," Neff wrote.

Comparing USEC to a "middleman," Neff's article said having another agent can cut the cost to utilities, and ultimately consumers, by 90 percent. It would create competition and give the U.S. government more options in dealing with USEC and Russia, he wrote.

Another option is providing federal subsidies to USEC perhaps $200 million to $300 million annually for the roughly 12 years remaining in the Russian deal in return for USEC's giving Russia fairer prices, withdrawing the trade action and promising to keep the Paducah plant running, Neff wrote.

In the July-August issue of Arms Control Today, Sewell responded to Neff's "inaccuracies and distortions," saying USEC is not a monopoly because it doesn't have enough uranium to supply all U.S. nuclear power plants. The rest must come from foreign suppliers, he said.

Sewell wrote that the actual profit margin from the Russian uranium "is far, far lower" than the 50 percent markup claimed by Neff, whose figures don't account for other costs, including having a large uranium inventory in case of Russian shipment interruptions, four of which have occurred in the last seven years.

Union leaders say they failed to get USEC to commit to running the plant at a specified production level, even if the union supported the Russian initiatives. That is one reason workers vigorously oppose including the Russian issue in the contract, said David Fuller, president of Paper, Allied-Industrial, Chemical and Energy Workers Local 5-550.

Last year, USEC denied union claims that it wanted to close the plant and become solely a broker of uranium.

"Instead of a commitment to the community and union," Fuller said, "we have a situation set up where the workers and the community are going to take it on the chin by another USEC scheme."

USEC spokeswoman Elizabeth Stuckle took issue with Fuller.

"Any statement that USEC refused to promise certain production levels is not true," she said. "In fact, USEC offered and was prepared to commit to certain production levels as part of an overall agreement to support implementation of a new marked-based Russian contract and USEC's role as sole executive agent."

In explaining why the Russian deal means plant jobs, Stuckle likened it to a government defense contract.

"If the contract is reduced, we will have fewer resources to pass on to our employees," she said. "On the other hand, if we have a larger contract, we will have more resources to pass on."