“Cost increases could jeopardize our ability to successfully finance and deploy the American Centrifuge project,” the company said. Without the project, “our business may not remain viable.”
USEC says the American Centrifuge is vital to national security and energy independence — it would be the only American-owned uranium enrichment plant in a nation that depends on nuclear energy to power one in five homes and businesses.
It could also help revive the site of the closed Portsmouth Gaseous Diffusion Plant near Piketon, pump hope into a beleaguered section of Ohio and place the state at the forefront of a resurgence of nuclear reactor construction being pushed by President Bush and some members of Congress.
“It’s clear that there is going to be a nuclear renaissance — the stage is set,” said USEC spokeswoman Elizabeth Stuckle. “We are going to be a part of that global expansion of nuclear power.”
USEC Inc., based in Bethesda, Md., is developing its American Centrifuge Plant at the former Portsmouth Gaseous Diffusion Plant, shown Wednesday, June 6, 2007, in Piketon, Ohio, to make fuel for nuclear reactors. (AP Photo/Al Behrman)
Credit: Al Behrman
Credit: Al Behrman
But the project hinges on commercially untested technology, the ability of a relatively small company to raise huge amounts of capital and the vagaries of the worldwide energy market.
It would also generate tons and tons of radioactive waste — enough over 30 years to fill 41,000 metal cylinders weighing about 14 tons apiece, according to the Nuclear Regulatory Commission. All of that waste — added to the 20,000 cylinders already piled up at the plant — would have to be converted to a more stable form before it can be hauled away.
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USEC, one of four major suppliers of enriched uranium in the world, wants to update the Piketon plant’s 1940s-vintage technology with centrifuges based on classified federal research. The plant would replace the nation’s only remaining enrichment facility, the USEC-run gaseous diffusion plant in Paducah, Ky., and operate on 95 percent less electric power.
The American Centrifuge would consist of 12,000 machines towering 43 feet in the air. The machines separate uranium isotopes with centrifugal force, creating a power source that can be used for electricity — or bombs.
This same centrifuge technology, leaked on the black market, enabled North Korea to successfully test its first nuclear weapon on Oct. 9. The same technology has led the United Nations to consider sanctions against Iran for refusing to suspend its uranium enrichment efforts.
ARCHIVE GRAPHIC, 2006: Southern Ohio was home to the state's largest and most important nuclear facilities — the Portsmouth Gaseous Diffusion Plant in Piketon, the Feed Materials Production Center in Fernald near Cincinnati, and the Mound Laboratory in Miamisburg. All three were operated by contractors for the U.S. Department of Energy. Badly polluted and now closed, all three are being cleaned up at taxpayer expense.
The stakes are high. If USEC fails at Piketon, it could lead to a corporate takeover or costly taxpayer bailout. It could also leave the U.S. dependent on foreign countries such as Russia for nuclear fuel, warns Ohio’s governor-elect, Rep. Ted Strickland, a Lisbon Democrat whose congressional district once included Piketon.
Russia currently supplies half of USEC’s enriched uranium.
“We now find ourselves in a position where a huge percentage of our nuclear fuel comes from Russia,” Strickland said. “We talk about being held hostage by the Middle Eastern countries for oil. Well, my God, we could be held hostage by Russia for our nuclear fuel.”
‘Show me the technology’
The plant has cleared several regulatory hurdles, and the NRC appears likely to grant USEC a construction and operating license in early 2007. In May, the NRC ruled that the new plant wouldn’t have any significant negative environmental impact.
USEC and federal officials say centrifuges are safer than gaseous diffusion because they operate in a vacuum, inhibiting leaks. Centrifuge workers also don’t have to handle uranium hexafluoride in its dangerous liquid state.
Centrifuges have been used around the world for decades, but USEC claims its super-tall, ultra-fast centrifuges will allow the United States to become the world leader in enrichment technology. Ironically, the design was first developed and tested by the Energy Department at Piketon, then abandoned in 1985.
Experts say the very qualities that make the design efficient — speed and height — also make the machines prone to costly breakdowns. Energy consultant John Longenecker, who headed the government’s former centrifuge program, said USEC’s odds of success are “less than 50-50.” He said it’s questionable that USEC will find financial backing for the largely unproven design of its centrifuges.
USEC is struggling on many fronts:
• The company announced Aug. 2 that problems in manufacturing centrifuge prototypes will delay the release of centrifuge test results by nearly a year. The delay could push back the entire project and cause further mushrooming of the plant’s costs.
The former Portsmouth Gaseous Diffusion Plant is seen in this Sept. 26, 2006, photo. At bottom right, center and left are seen thousands of cylinders containing radioactive waste.
Credit: Chris Stewart
Credit: Chris Stewart
• USEC’s ability to finance the American Centrifuge largely depends on its lucrative contract to sell diluted uranium from old Soviet nuclear warheads to utilities. A USEC monopoly on selling Russian uranium on the U.S. market will end by 2009 if the Russian government gets its way, punching a giant hole in USEC’s revenue stream.
• Electricity to run the behemoth Paducah, Ky., plant is USEC’s biggest operating cost, and it just got costlier. Paducah’s electric bill jumped 50 percent last summer, but USEC couldn’t pass on the costs to its customers because its rates are mostly locked in under long-term contracts. USEC says its gross profit margin could plunge from an estimated 16 percent this year to less than 5 percent in 2007.
• Standard & Poor’s this year slashed USEC’s credit rating deeper into junk territory, making it more expensive for the company to borrow money for the centrifuge project. S&P questioned USEC’s ability to raise the enormous sums it needs for the Piketon plant, citing the commercially unproven technology and competition from a European-controlled consortium that has already broken ground on a centrifuge plant in New Mexico.
“Whether USEC will ever really deploy viable technology is anybody’s guess,” said Richard Miller, policy analyst and lobbyist for the watchdog Government Accountability Project. “That’s my glib response to USEC: Show me.”
In its corporate reports, USEC tries to do just that. USEC announced Oct. 10 that its centrifuges exceeded performance expectations in early tests at Oak Ridge, Tenn., but full performance and reliability data won’t be available until mid-2007. USEC said it plans to start running uranium hexafluoride gas through its test machines at Piketon this month.
Officials at the $1.5 billion company insist the American Centrifuge project is in full gear. “No, it’s not dead, it’s not slowing down,” Stuckle said. “Any speculation that is negative is purely unfounded speculation.”
She downplayed the significance of project delays in interviews with the Dayton Daily News.
“There were a few components that we weren’t satisfied yet with their efficiency level and thought we could make more efficient,” Stuckle said. “So rather than rush … we chose to take time to get it right.”
Over the past couple of years, USEC has put its money on the American Centrifuge — slashing jobs, suspending its dividend and even reducing office space at its headquarters in Maryland.
USEC maintains that the American Centrifuge will not only reduce its electricity burden, but require fewer workers — 500 compared to the 1,400 at the existing Paducah plant. Demand for enriched uranium is also likely to accelerate. The government is offering billions of dollars in federal risk insurance to spur new reactor construction.
U.S. Rep. David Hobson, R-Springfield, who chairs a House subcommittee on energy, said he expects 19 applicants to seek approval for 26 new reactors next year.
Even if no new reactors are built, USEC says the American Centrifuge would still be needed to replace its Paducah plant. The company says the centrifuge buildings’ modular design will also allow for easy expansion should a resurgence take hold.
“(USEC is) facing a lot of negatives over the next few years,” industry analyst Paul Clegg said. “(But) if they’re survivors and they get to centrifuge … suddenly your gross margins go through the roof.”
Clegg said the electricity savings should make the American Centrifuge profitable. Still, because of the enormous startup costs he believes the federal government will have to prop up USEC with loan guarantees or other aid within a year.
U.S. Sen. George Voinovich, R-Ohio, said he thinks the centrifuge project will succeed. But if USEC can’t make the project work financially, Voinovich said he would oppose any government bailout.
“If it didn’t go forward, which I’m confident it will go forward, we’d have to take a look at where we are and determine whether or not we’ve got the facilities here in this country to get the job done,” he said.
Secret meetings and corporate intrigue
The United States was the first world power to unlock the mysteries of atomic power, but its uranium enrichment technology has changed little since the 1940s. The government started a centrifuge development program in 1960, and broke ground in 1979 on a centrifuge plant at Piketon that was to be the next generation of technology.
But that same year, warning lights flashed in the Pennsylvania night, and growth in the U.S. nuclear industry ground to a halt. There were no deaths or injuries, but the partial core meltdown at the Three Mile Island Unit 2 power plant set off alarms in the national consciousness about the dangers of nuclear power, and there hasn’t been a single new order for a reactor in the United States since.
In 2006 a Dayton Daily News investigation found massive contamination had occurred at the site of the former Portsmouth Gaseous Diffusion Plant, which enriched uranium near Piketon from 1954 to 2001. This graphic depicts those findings. STAFF
The government’s $3.4 billion centrifuge plant was tested and functioning at Piketon by 1985. But the Energy Department dropped the program, partly because Three Mile Island had put a chill on the industry. Officials changed course, pursuing a laser-based technology called AVLIS, short for Atomic Vapor Laser Isotope Separation.
Several years later, the government put into motion a process to get out of the uranium enrichment business altogether.
America’s biggest government privatization was hugely controversial because it turned the dangerous nuclear technology over to USEC, along with 50 years worth of federal investment. Now, years later, the fate of the centrifuge project — and the competitiveness of the country’s enrichment industry — may hinge on USEC’s ability to pull it off.
Strickland said he never bought the arguments for privatization, that it would save money and improve efficiency.
“I always felt the government, Uncle Sam, was going to pay, regardless of whether it was a private entity,” he said. “It was never a good deal for the American people.”
It was, however, a good deal for William H. “Nick” Timbers, the man picked to head USEC.
How Timbers in a few years went from earning a $325,000 salary to pulling down $2 million in salary, bonuses and stock options is a tale of secret meetings and corporate intrigue.
The Energy Department initially hired Timbers as a consultant. As a first step toward privatization, Timbers pushed for the creation of a government company: U.S. Enrichment Corp. The government company then picked Timbers as its CEO.
Although it was government-owned, USEC operated much like a private entity. Not only did the board close its meetings to the public, it kept the minutes from those meetings private — so private that even Strickland, a U.S. congressman, couldn’t get access to them.
By 1998, USEC’s board had a choice: sell the government company to one of two business groups — one of which included corporate giant Lockheed Martin Corp. — or spin off a for-profit corporation headed by Timbers. Although he stood to gain from the board’s decision, Timbers was given a waiver to attend the closed-door meetings where the alternatives were discussed.
In a decision that still rankles critics including Strickland, Timbers got the nod to head the for-profit corporation that would take over the government’s enrichment business.
“It was a deal made to enrich insiders,” Strickland said. “This was the most frustrating experience I’ve ever had with government.”
ARCHIVE GRAPHIC/JOHN HANCOCK, 2006: The Mound Laboratory, Miamisburg, 1948-1993; Feed Materials Production Center, Near Fernald, 1951-1991; Portsmouth Gaseous Diffusion Plant, Near Piketon, 1954-2001.
Stock sales at USEC’s initial public offering helped pump $1.9 billion into the U.S. Treasury. In return, USEC walked away with the government’s long-term supply agreements with utilities, a valuable stockpile of uranium, cheap leases on the Piketon and Paducah plants, and the rights to commercially develop billions of dollars worth of classified government research into lasers and centrifuges.
The company was also the government’s sole agent for Megatons to Megawatts, a historic program to keep old Soviet warheads out of the hands of terrorists by diluting them for reactor fuel.
“It’s an absolutely terrific non-proliferation program — one of the best,” said Leonard S. “Sandy” Spector, deputy director of the Center for Non-Proliferation Studies in Washington. “It has taken a large amount of weapons-grade material and rendered it unusable for weapons.”
The Russian fuel deal is central to USEC’s ability to finance the Piketon centrifuge project. USEC supplies lowenriched uranium to about 150 reactors worldwide, with about half of its supply coming from the Russian agreement. That agreement expires in 2013, and the Russians say they won’t extend it. The Russians also want the United States to drop an import duty that prevents them from selling enriched uranium to U.S. utilities without using USEC as a middleman.
USEC officials admit that the company needs the Russian deals to finance the American Centrifuge. If the import duty ends, they say, the Russians could flood the uranium market, drive down the price and make it difficult for USEC to sell its own uranium at a profit.
“This could substantially alter the economics of the American Centrifuge project and our ability to obtain financing for it,” the company said in a Nov. 2 SEC filing.
USEC and some industry analysts contend that the American Centrifuge is needed because other countries are already deploying more efficient enrichment technology.
Gaseous diffusion dates to the World War II-era Manhattan Project. Uranium must be “enriched,” or concentrated in the fission-producing uranium-235 isotope, before it can cause a nuclear reaction. Depending on the percentage of U-235, enriched uranium can power a major city — or destroy one.
Under gaseous diffusion, powdered uranium hexafluoride is heated to a gas and pushed through a series of filters to concentrate the U-235 isotope. It’s an inefficient way to create fuel for electrical power because the process itself gobbles electricity.
The Piketon plant used up to 1,900 megawatts per hour, enough electricity to power Cleveland. “We used onetenth of all the electricity used in the state of Ohio at one time,” said USEC Field Services Manager Jimmie Conn.
When Timbers was vying to be CEO of the for-profit USEC, he assured his board he would replace gaseous diffusion with the cutting-edge AVLIS. Officials of the competing Lockheed consortium doubted AVLIS would work, but Timbers prevailed.
“Most people I talked to said you’ll see Elvis before you see AVLIS,” said Miller, the watchdog who lobbied against the privatization.
In February 1999, the newly spunoff USEC reported it was making “significant progress” on AVLIS. But just four months later, with cost estimates rocketing past $2.5 billion, Timbers announced that USEC was dumping AVLIS after the company had made a $100 million investment.
Critics say Timbers sold the USEC board a bill of goods with AVLIS so he could seize power, and that the AVLIS debacle set the United States even further behind in its quest for next-generation technology.
Timbers says today that AVLIS didn’t prove commercially viable and Energy Department scientists “touted it more than it really merited.”
When AVLIS was canceled, Piketon workers could at least take comfort in USEC’s pledge to keep the plant open through 2004. But in June 2000 the company made another stunning announcement: The plant would go dark within a year. Congress, concerned about the loss of 1,200 jobs, stepped in and offered to pay USEC to keep the plant in a state of readiness called “cold standby.”
So far, the government has spent about $450 million maintaining the closed buildings. The Justice Department is investigating whether USEC overcharged the government by $6.9 million for cold standby-related services. USEC denies the claim.
Timbers continued to head USEC until his board fired him “for cause” in December 2004. He sued for wrongful termination, and received an out-ofcourt settlement of almost $15 million in February.
Neither Timbers nor USEC would discuss the termination. Asked about his current activities, Timbers said: “I’m on vacation.”
Community backs American Centrifuge
USEC shut down the Piketon plant in May 2001 and consolidated all gaseous diffusion operations at Paducah. Then, in January 2004, the company chose Piketon over Paducah for the American Centrifuge Plant.
The decision came after the state offered $125 million in incentives, and the Energy Department offered USEC its abandoned centrifuge buildings from the 1980s. It also helped that the people of Piketon seemed to want it. Despite a history of pollution and occupational illness at the old plant, 8,000 Piketon residents signed form letters to the NRC and USEC in support of putting the American Centrifuge at Piketon.
Blaine Beekman, executive director of the Pike County Chamber of Commerce, said a half-century of experience with the plant has given the community a clear-eyed view of its pros and cons.
“There is community support for it, but I don’t think it’s blind support,” he said. “Everything has its problems built into it — we’ve just learned how to live with this one.”
Still, small numbers of residents and activists continue to speak out against the new plant at public meetings, expressing fears that it could pollute the environment and sicken workers.
“I heard it at all the public meetings,” USEC spokeswoman Stuckle said. “We sat and we listened to, ‘Uncle Ned died in 1977 from his exposure,’ and we heard about Aunt Mary in ‘87, but Uncle Ned and Aunt Mary don’t have anything to do with USEC’s operation. We want to be viewed for what we’ve done since we took over operations of that plant, not what someone else did 15 years ago.”
Industry analyst Clegg said the centrifuge project is crucial for the nation’s energy independence and to fuel a nuclear renaissance. He said there’s a “very strong political argument for having a domestic source of enrichment. If we don’t, we have to depend on foreign companies that may be friendly today, maybe not so friendly tomorrow.
“We don’t want anybody to be able to hold us over a barrel,” he said. “It’s very, very important that we get this plant done, one way or another.”