More bad news for USEC 

DOE fails to get the $30 million it promised last August

The Energy & Water appropriation, sent to the White House this week by Congress, does not include $30 million promised by the Department of Energy (DOE) to USEC (NYSE:USU) to help it with its plans to build a uranium enrichment plant in Piketon, OH.  It is the second time in recent months that DOE's plans to rescue the project have run into a political firewall.

In September uranium miners lobbied Congress to prevent DOE from selling surplus uranium to raise $650 million to pay for accelerated cleanup at the Piketon plant.  The governor of Wyoming weighed in saying that if a butterfly flaps its wings in Ohio, it does matter in his state, a major producer of uranium.  DOE's plan was to fund 800 nuclear waste cleanup jobs while it tried to get USEC's enrichment plant back on track. 

So far, the effrot to pay for R&D and cleanup in Piketon, OH, have failed to produce the expected results. Republican Rep. Jean Schmidt, who's district includes the plant, was livid, but that didn't stop her from voting against the appropriation bill.

DOE has also done some fancy footwork to avoid inking the "denied" stamp on USEC's application for a $2 billion loan guarantee for its American Centrifuge uranium enrichment plant. It's not that DOE didn't have good reasons to do it. The plant's technology lacked sufficient testing for reliability and there are reports of supplier problems with component quality.

USEC's finances are so slim that even if it had gotten the federal insurance policy, it wouldn't have had enough cash to pay the premium. USEC claims to have spent $1.5 billion of its own money on the plant. It began to "demobilize" it this past winter as the cash ran out and efforts to gain investors without the loan guarantee came to naught.

Had DOE pulled the "reject" pin, it would have turned to USEC's arch competitor which is French nuclear giant Areva. It has also applied for the loan guarantee for a $2.4 billion uranium plant to be built in Idaho.

What USEC has going for it was political clout and a letter from the Fall 2008 election from then candidate Barack Obama to Ohio's Democratic Governor Ted Strickland. It promised support for USEC's plant and for the thousands of construction jobs that would be generated by building the $3.5 billion facility. When DOE raised the big red stamp, USEC played its trump cards and got an extension on DOE's decision.

In August, DOE postponed its decision promising USEC $45 million for technology R&D and an 18 month grace period to get its finances in order. The ace-in-the-hole for the agency is that Areva's enrichment plant will not break ground at a site 18 miles west of Idaho Falls, ID, until it gets its NRC license sometime in 2011. If USEC's project goes in the ditch, DOE can still turn to Areva and award the loan guarantee in a time frame that appears to make sense.

This week's shocking development could be the final nail in the coffin for USEC's chances to get a loan guarantee. DOE failed to convince a House-Senate Conference committee to include $30 million of the $45 million in the agency's appropriation for fiscal year 2010. In a press release Oct 15 DOE said it is now "unable to move forward with this plan."

Interestingly, DOE also noted that all of the test centrifuges at USEC's plant have been taken off-line and disassembled due to flaws in the manufacturing process. USEC has told DOE it needs new parts to get the units to work right. The centrifuges spin at over 7000 RPM separating U235 from U238 to make commercial nuclear fuel at 3-5% U235.

USEC told the Ohio news media it hopes DOE will come up with the money from other sources and promised to replace the broken centrifuges within a few months.

Both parties are now scrambling to recover from their mis-steps and to find a way to build the plant. From a national security perspective, the loss of production from the plant in the next decade would allow the Russians to become a major supplier to nuclear fuel to the U.S.  Given the way the Russians have used natural gas as a political weapon in Europe, that prospect does not seem appealing to anyone.

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