The study was done to help USEC steer clear of market storms.
By Joe Walker firstname.lastname@example.org
The study released Wednesday documents previous concerns expressed by Nashville, Tenn.-based Paper, Allied-Industrial, Chemical and Energy (PACE) Workers International. PACE represents more than 1,100 employees at the Paducah plant ó the only remaining uranium enrichment operation in the nation ó and a closed sister plant in Piketon, Ohio.
PACE officials said they offered the report to avert a potential national disaster. They called on greater oversight by Congress and the Department of Energy during the next three years, a critical business period for USEC as it must secure financing of a $1.5 billion gas centrifuge plant.
"If Congress and DOE regulators wait for USEC to be in the eye of the storm, it will be too late," said Gerald Johnston, the union's Region 8 vice president. "Sound public policy should seek to steer USEC around the pending storm, rater than allowing USEC to drift directly into it."
The study calls for USEC to cut high dividends to reduce debt and build equity to finance the gas centrifuge plant. It says USEC doesn't plan to reduce $45 million in dividends paid yearly or a $500 million debt incurred when it was privatized in 1998. Meanwhile, the company is plagued by $36 million in annual interest, a "junk bond" credit rating and low profitability for at least two more years under older, cheaper uranium contracts, the study says
USEC called the study misguided and a continuation of public relations that began during an extended strike at the plant earlier this year. Johnston led union bargaining for much of that time.
"It's essentially the same collection of misinformation they have been putting out for years," said USEC spokeswoman Elizabeth Stuckle. "It sounds like the old, unsuccessful union campaign to re-federalize the company."
She said the union is wrong because USEC is beating the milestones in a USEC-DOE agreement to deploy gas centrifuge. The company will decide by the end of the year whether Piketon or Paducah gets the nod for the 500-job plant. Piketon has the edge because it is the site of a 50-job demonstration plant to be operational in 2005.
"Our debt levels are modest and we can fund the construction of the (demonstration plant) from internal cash flow," she said.
Key points of the study:
USEC's only two current sources of profitability are the sale of natural uranium given by the government when the firm was privatized, and a nuclear disarmament agreement to buy discounted enriched uranium from Russia. The cheaper Russian uranium helps the company offset higher Paducah plant production costs, which roughly break even with the current market price of $105 per unit.
Paducah would cease breaking even amid rising electrical rates, dropping market prices and increased imported uranium that could displace and lower Paducah production. USEC is in an ongoing court battle claiming European competitors' American prices are unfairly cheap because they are governmentally subsidized.
Under the "perfect storm" scenario, USEC would be forced to halt operations at Paducah and would be unable to finance construction of a new plant amid a flood of cheap imports. USEC would fail to meet an agreement with the Energy Department to keep the Paducah plant running until 2010 and build a gas centrifuge plant by that time. It would probably lose control of the Russian deal, and direct sales by the Russians would drive prices even lower.
The U.S. energy policy requires maintaining energy security to fuel domestic power plants that provide 20 percent of the nation's electricity. In the "perfect storm," that could continue only if the government resumed Paducah plant operations or subsidized USECís losses.
"There would still be virtually no incentive for investors to finance the new plant, and the U.S. government would most likely have to guarantee or underwrite that construction as well," the study states. "While this is the worst-case scenario, it can be triggered by an adverse outcome in either or both trade cases."