The Paducah Sun
The Paducah Sun
Paducah, Kentucky
Monday, August 20, 2001

Bush choices may save USEC
Russian uranium costs, whether USEC is the sole agency, and other factors are believed key to the Paducah plant's future.

By Joe Walker

Union leaders say the future of Paducah's 1,500-employee uranium enrichment plant and its broad economic outreach is in the hands of the Bush administration.

They say they hope White House officials will decide by September or October whether the plant will continue as the nation's sole producer of enriched uranium that is used by nuclear power plants. If not, the country will depend solely on foreign uranium mostly coming from Russia in a deal brokered several years ago to foster nuclear disarmament.

"The bottom line is the plant here is at risk," said Philip Potter, Washington, D.C.-based policy analyst for the Paper, Allied-Industrial, Chemical and Energy Workers Union. "If you shut Paducah down, then the Russians have the only surplus capacity in the world, certainly in the short term, and that makes us virtually 100 percent dependent on the Russians."

He said American nuclear plants need about 11 million units of enriched uranium annually to produce electricity for roughly 20 percent of the population 40 percent in the South, Midwest and Northwest.

Half that supply comes from Russian uranium derived from dismantled nuclear warheads and purchased by the U.S. Enrichment Corp. for about $90 per unit. Three million to 4 million units come from the USEC-run Paducah plant at a cost of about $105 per unit, and the rest from European competitors whose production costs range from about $60 to $100, Potter said.

In short, the Russian uranium displaced plant output and drove production costs up so much that USEC shut down its other plant in Ohio in June, he said. Meanwhile, European sales increased, driving the market price down.

"The combination of those factors certainly made the diffusion plants uneconomic," Potter said. "As long as the (market) price stays in the 80s or low 90s, it's going to be tough to break even at Paducah."

USEC has offset that somewhat by blending the Russian and Paducah plant prices. The big problem comes in late 2002 and early 2003 when most of USEC's higher-priced, long-term contracts with utilities expire, he said.

Those contracts, inherited by USEC from the Department of Energy, are for $110 to $130, giving the company a good profit margin even with Paducah's higher production costs, Potter said. But in a market swollen with uranium, world prices have dropped considerably since those deals were struck.

"USEC got all those contracts when it was privatized, and it's been living off those contracts. That's been a significant part of its profitability," he said. "If you're looking at a chart and you go out to 2003, it looks like you go off a cliff."

The new price has to be in the $100 to $105 range, given the plant's production costs, to make it worthwhile to replace those contracts, Potter said. "If it doesn't replace them, then it's certainly not going to continue to run a plant at a loss for material it doesn't need, or that it can't sell at a profit."

Potter visited Paducah last week during a break in the union's contract talks with USEC. Discussions have been rocky since Aug. 2 when the union local, representing about 700 plant workers, soundly rejected USEC's offer for a new, five-year contract.

Discussions could resume sometime this week, but nothing is set, said David Fuller, president of the union local. Its members are working under the old contract that expired July 31, and could strike by giving USEC a day's notice.

"Obviously, there are a lot of people that have reason for us not to strike, including us," Fuller said.

USEC wants the contract to expire after a year if the company does not achieve three major financial goals related to the Russian uranium. Potter said the union agrees the Russian deal is critically important to the plant, but it "has no place" in contract language. Instead, he said, it should become part of USEC's agency agreement between the United States and Russia.

The union tried to get a written agreement with USEC making it clear "that the executive agency was tied to the continued operation of the plant meaning if they didn't continue to operate, they had to give up the agency," Potter said.

USEC spokeswoman Elizabeth Stuckle said the firm has offered in writing to include in the contact a guarantee of a minimum production level at the Paducah plant as long as USEC remains sole agent or an advanced technology plant is operational several years from now. Union officials say that would not be enforceable if the Russian deal and market conditions made USEC do otherwise.

"We certainly would have no objection if the government were to require that any executive agent must have domestic production capacity in operation," she said. "If the government were to impose such a requirement, we would applaud it. That would be in the best interest of USEC, the Paducah plant and community."

USEC wants to remain sole agent of the Russian uranium to control its flow into the United States and help keep prices competitive. It also wants government approval to lower Russian prices and buy Russian commercial uranium, at a significant markup, some say. All those issues are under review by the Bush administration.

Like the union, USEC wants a decision soon, Stuckle said, adding that it "could have serious impact on USEC, the Paducah plant and the Paducah community."

The issue grows more complicated because nuclear utilities are lobbying for another agent to receive some of the uranium. Otherwise, USEC will have market control to drive its prices up, ultimately causing nuclear power costs to increase and be passed on to consumers, they argue.

If another agent is allowed to buy some of the Russian material, it will hurt USEC and perhaps the plant and community with cheaper prices, Stuckle said.

Potter said the union will remain diligent in seeking measures to protect workers against world market forces over which they have little control.

"All the people who live in Paducah are caught in the middle of it," he said. "You don't want to be a pawn. You don't want to be powerless. You want to have some say over the outcome here."