Neither Party Can Let USEC Fail

By Kennedy Maize

Washington, D.C., June 17, 2012 — If the Obama administration is, as Republicans charge, the most anti-business administration in U.S. history, why is it doing everything it can to save publicly-traded uranium enrichment enterprise USEC from itself? Could Ohio have something to do with it?

We are shocked, shocked, as shocked as Capt. Renault was to find gambling in Casablanca, to find politics in Washington. That’s Republican House Speaker John Boehner, of Ohio, backing the Obama administration’s decision to throw another $88 million from the Department of Energy toward USEC to keep its ill-advised, unnecessary advanced enrichment centrifuge program going until, maybe, it can nail down a $2 billion federal loan guarantee promised in the 2005 energy law but so far undelivered and looking less likely every day. That’s the same John Boehner who slammed the Obama administration for its ill-advised, unnecessary subsidy for the failed Solyndra solar project.

Here’s how the Washington Post reported the story last week: “The department said Wednesday that it will immediately provide $88 million and in return take ownership of giant centrifuges used in the uranium-enrichment process. Ultimately, taxpayers would contribute as much as 80 percent of a $350 million research and development program to determine whether the technology can work and be commercially viable.”

USEC is trying to build a new, untried centrifuge-based enrichment technology at Portsmouth, Ohio, in order to bring the company’s enrichment process cost-competitive with proven centrifuge enrichment, including a facility in New Mexico. The Post, always attuned to the politics of any government action, noted, “Because those jobs are in the swing state of Ohio, the Energy Department’s efforts to rescue USEC have received bipartisan support from the state’s congressional delegation, including House Speaker John A. Boehner (R-Ohio). USEC said the project would directly employ about a thousand people in Piketon, Ohio.”

Let me elaborate. Ohio, where unemployment is below the national average, is the quintessential presidential swing state. The state’s two U.S. senators are Democrat Sherrod Brown and Republican Rob Portman, rumored to be on Mitt Romney’s short list of vice presidential hopefuls. The House delegation features 13 Republicans, including Boehner, and five Democrats. Obama won the state in 2008. No Republican has ever been elected president without winning Ohio and its 18 electoral votes.

Now, about the USEC and its centrifuge technology. Uranium enrichment – separating the fissionable U-235 from non-fissionable U-238 in natural uranium to produce material useful for weapons or reactor fuel – was a U.S. technology developed in the Manhattan Project during World War II to make the first atomic bombs. The original technology, developed at Oak Ridge in Tennessee, was gaseous diffusion, an extremely inefficient method of separating the two uranium isotopes that uses enormous amounts of electricity. But that was the dominant approach of U.S. weapons developers, which morphed into a government owned and run monopoly in the Atomic Energy Commission to make civilian reactor fuel. When Congress turned the AEC into the Energy Research and Development Administration and then into the U.S. Department of Energy, the government’s civilian enrichment enterprise moved with it.

In the 1970s, two European groups, one French and the other an Anglo-German-Dutch consortium, demonstrated and deployed in Europe a new, more efficient enrichment technology using centrifuges to separate the lighter isotope (U-235) from the heavier (U-238). The Soviet Union’s MINATOM agency came up with its own centrifuges, smaller than the European machines. Eurodif (now an Areva subsidiary) and Urenco began putting pressure on DOE’s U.S. monopoly by offering utilities cheaper enrichment services than they could get from Uncle Sam. Soviet-enriched fuel began showing up on gray markets.

To preserve its monopoly against the more efficient outsiders, the U.S. pushed to develop its own centrifuge technology. In a typical exercise of jingoism and hubris, the U.S. policymakers concluded that they could build a bigger, better centrifuge, known as the “American Centrifuge.” It would be built at Portsmouth, Ohio. The project was based on the assumption that booming reactor sales would lead to a bull market for SWUs, so the U.S. could easily recover the development costs of the new machines. That was a fundamental error. On top of that, the technology didn’t work very well.

By the mid-1980s, the U.S. centrifuge project had spent $2 billion and faced another $7 billion in development costs. In 1984, the New York Times in an editorial called on the government to pull the plug on the American Centrifuge (which soon occurred). At the same time, the newspaper asked, “Why shouldn’t the government get out of the nuclear fuel business altogether and let the decisions be made by industry?”

Getting the government out of enrichment was on the policy agenda. After much discussion, Congress in 1992 created the United States Enrichment Corp., a government-owned entity operating outside of DOE control, with the intention that it be privatized. Four years later, USEC stock began publicly trading, the company was full privatized, and it’s been downhill since.

USEC began operating with two horrendously inefficient gaseous diffusion plants, knowing it could not effectively compete with the Europeans. It also got the government to impose tariffs on the Euro-SWUs, to protect its position. Naturally enough, the Europeans moved to the U.S. to produce their SWUs, with Urenco operating a new plant in New Mexico and Areva developing a plant in Idaho.

The original plan was that USEC would operate the diffusion plants while it developed an advanced laser technology that DOE included in the privatization. The concept was to use laser beams to knock out U-235 atoms from a uranium vapor. The technology failed and USEC abandoned it. Congress had thrown in the failed large centrifuges as part of the spin-off. USEC quickly saw reviving the big centrifuges as its lifeline, but that has not been going well.

In the best of all private enterprise worlds, USEC would fail, just as Solyndra slipped into the mists of history. The stock market has clearly made its bet, as the company shares, once trading at $25 per share, are currently going for under $1. But this is not that best of all worlds. It’s the U.S. in a national election year. Neither party is willing to take any blame for putting workers on the unemployment line in the crucial Buckeye State.