Politics stands in the way of nuclear plant's future

PIKETON, Ohio -- Three dozen 43-foot-tall centrifuges swirl quietly in a cavernous building in southern Ohio, ready to turn uranium hexafluoride into the enriched fuel that can power America's nuclear power plants.

They stand like stacks of poker chips on a table — the ante for what could be a $2 billion national gamble on nuclear energy.

Energy company USEC wants federal loan guarantees to allow it to build 11,000 centrifuges here, which would spin out enough fuel to power about three dozen nuclear power plants non-stop.

But while plenty of politicians whose districts could benefit from the project support it, the Piketon plant remains stymied by a political standoff. Many Republicans who back the project — called the American Centrifuge Project — have savaged the Obama administration loan program that would pay for it, while the Obama Energy Department, burned by Republican criticism, has voiced tentative support for the plan but won't authorize federal money for it without congressional approval.

For almost a year, congressional Republicans have criticized the administration's $535 million loan guarantee to now-bankrupt solar panel maker Solyndra. The administration, they say, is unfairly picking "winners and losers" in energy.

Both sides say they want the project to move forward. Both support short-term "bridge" funding to keep the project going until the financing can be worked out. Both say the other side has to make the first move.

The stakes are high: It's an election year, and Ohio is a swing state. USEC estimates the project at its peak will generate 3,158 jobs in Ohio, and 4,284 elsewhere. Pike County, home to the centrifuges, has a 13% unemployment rate — the highest in Ohio. The median household income is about $40,000. The average job at USEC pays $77,316.

Centrifuge parts are stacked up in Piketon. "It's as shovel-ready as they come," says spokeswoman Angela Duduit.

Indeed, the project has enjoyed bipartisan support. A USA TODAY review of DOE records shows that no fewer than 46 members of Congress — 32 Republicans and 14 Democrats — have pressured the Obama administration to approve the loan guarantee for USEC. "Quick action is paramount," said one bipartisan letter. "It is imperative that this application move forward now," said another.

The congressional support comes from states such as Ohio, Pennsylvania, Tennessee, Kentucky, West Virginia, Missouri, Alabama, Indiana, Maryland, North Carolina and South Carolina— an almost exact overlay of the states that would benefit from the 7,442 jobs the company says would be created.

USEC executives have also funneled another $461,000 through its political action committee to members of Congress from both parties. Since 2005, when Congress first authorized the Department of Energy's loan guarantee program, USEC has invested $15.6 million on lobbying, congressional records show.

Intense security

USEC's Piketon campus, situated in a lush valley at the foothills of the Appalachian Mountains, is so vast that its perimeter security road is 7 miles long. The plant's operators — three-fourths of whom are recruited right off U.S. Navy nuclear warships — take golf carts or bicycles to move around the plant.

The centrifuges are surrounded by a barbed-wire fence — which sits inside an already secure building. Razor wire hangs like Christmas garland from the rafters.

What's remarkable about the American Centrifuge Project, USEC says, is that the process uses only 5% of the electricity of the old gaseous diffusion process formerly used at the site, and which USEC still uses at its sister plant in Paducah, Ky. That alone can reduce greenhouse gas emissions by 10 million tons a year, USEC says.

But the project has had setbacks.

Last June 11, a shift supervisor overseeing a test "cascade" of a few dozen centrifuges routinely started a water pump. That action tripped a circuit breaker, which shut down a motor control center. A backup generator failed to start promptly, and USEC — not immediately realizing the severity of the incident — didn't make a formal incident report to federal regulators until three weeks later.

That account of events was contained in a Nuclear Regulatory Commission report released April 12. The report found five violations, which it described as "less serious" issues with "relatively inappreciable potential safety or security consequences."

The immediate cost to USEC was $9 million, the cost of six centrifuges that had to be scrapped when they crashed during the power outage. The remaining centrifuges have been operating without uranium ever since.

USEC, which is spending $15 million a month just to keep the test project running, lost $540 million overall last year. Its stock price closed Thursday at 83 cents a share and near an all-time low, down from a high of $23.91 five years ago.

That means a company worth less than $120 million is seeking $2 billion in financing.

DOE has kept the door open for the loan guarantee, but has questioned the company's capacity to complete the project and repay the loan. It is sensitive to the criticism brought on by the debacle with Solyndra, a California solar power maker that received $535 million in loan guarantees before going bankrupt.

The concern is echoed by at least one USEC investor.

Robert Clutterbuck, a Cleveland hedge fund manager who owns part of USEC's debt, said he doesn't doubt the political support. "The bad news is, we believe over the last seven months that it has become abundantly clear that the huge stumbling block to that is the size … or the lack thereof, of USEC," he told company executives in a conference call last month.

The DOE has supported other centrifuges. In 2010, it gave a conditional $2 billion loan guarantee to Areva, a conglomerate whose majority shareholder is the French government, to build centrifuges in Idaho. But that project is temporarily stalled because of a cash situation one executive called "growing pains."

"Basically, we went in with an application that was based on a proven technology that's been in use in Europe for nearly three decades," said Sam Shakir, president of Areva Enrichment Services. "There was no question about the technology, its viability or its economics."

That helped Areva sell $5 billion in preliminary orders for uranium, he said. Still, "The size of the market is large enough for multiple suppliers to be playing in."

But to critics, the USEC project doesn't make economic sense no matter who's running it.

Autumn Hanna of the Taxpayers for Common Sense calls it "another Solyndra" that "keeps getting handouts from the Hill."

Peter Bradford, a former member of the Nuclear Regulatory Commission who now teaches energy policy at Vermont Law School, said the project is unnecessary and expensive.

"It's not as though the world's uranium market is in scarcity, and it's not as though we're building new nuclear units at such pace that there's any conceivable possibility of a shortage," he said. He estimates global demand for uranium is down 5% to 15% since the March 2011 tsunami and partial meltdown at the nuclear plant in Fukushima, Japan.

USEC executives say the Japanese incident may depress uranium demand for two to four years. "That's been the trigger for a lot of weak-kneed people in Europe — and Japan, frankly — to say we don't need nuclear," Chairman James Mellor told shareholders at USEC's annual meeting Thursday.

But with 60 nuclear plants under construction worldwide, the long term outlook is positive, he said. "People aren't going to be able to maintain their lifestyles — their two TVs, their microwave ovens — without nuclear energy."

The company controls 25% of the $8 billion global enriched uranium market, through its Paducah plant and an exclusive arrangement with DOE to enrich weapons-grade Russian uranium through the "Megatons to Megawatts" program.

Indeed, the Bethesda, Md.-based company and the federal government enjoy a close working relationship: USEC was once a part of the DOE until Congress privatized it in 1998, and the centrifuge technology is owned by the DOE and leased to USEC.

Rising hopes

Jeff Albrecht got the call at 5 a.m.: Sen. Barack Obama was hungry. The Ramada didn't offer a hot breakfast, but Albrecht, the owner of the Portsmouth, Ohio, hotel where Obama was staying on a campaign swing through southern Ohio, whipped up something special.

"He had six eggs, a big, big, huge helping of home-fried potatoes, six strips of bacon, a bowl of oatmeal and two slices of wheat toast," Albrecht recalled. So he took the opportunity to bend the senator's ear.

"He looked me in the eye and said, 'I'm familiar with that project, and I support it,' " Albrecht recounted.

After Obama was elected president, Albrecht obtained a $3.5 million bank loan to renovate his hotel and convert it to a Holiday Inn.

Obama's 2013 budget proposes $150 million for the project, but Albrecht thinks that's not enough. "We don't want anymore welfare. We don't want unemployment subsidies. We want jobs."

Stopgap funding

With the loan guarantee in limbo, USEC has kept the test project running with stopgap funding. Last year, with support from key members of Congress, the DOE agreed to take title of the depleted uranium — a complicated transaction that freed up $44 million for the company.

USEC says it can't continue to keep the project operating after May 31 without more government money. "We've pulled rabbits out of the hat, but the hat's only so deep and there are only so many rabbits," said Paul Jacobson, a USEC vice president.

To keep the company afloat while it considers the loan guarantee, the Obama administration supports another $256 million in research grants over two years. That would help USEC move up to 120 centrifuges, a large enough test cascade that the company hopes it will allow to get either the loan guarantee or private financing.

House and Senate committees have set aside $100 million for the project — but that money won't be available until October, and USEC says it will have to shut down the project by June without additional money.

Energy Secretary Steven Chu has all the authority he needs to make that immediate grant, Republicans say. Chu has said he wants a strong signal from Congress before releasing the money.

Republican House Speaker John Boehner, who as a member of the Ohio delegation has personally pleaded with Obama to green-light the project, hasn't given that signal. "The speaker believes the president should keep his word to the people of Ohio," said Boehner spokesman Michael Steel.

The fallout from Solyndra has some in Congress doing some soul searching about their involvement in those decisions.

"A cloud, a big black cloud came over after Solyndra," said Rep. Mike Simpson, R-Idaho, at a recent congressional hearing. He admitted that he put "undue influence" on DOE to approve a $2 billion conditional loan guarantee for Areva and said members of the Ohio delegation were doing the same thing.

The Solyndra question has put some USEC supporters in a pickle. Facing congressional scrutiny over Solyndra, Chu pointed out that many in Congress had supported loan guarantees for projects benefiting their districts.

Among them is Rep. Scott DesJarlais, R-Tenn., whose district abuts USEC's Oak Ridge operations. DesJarlais had written Chu to support the USEC loan guarantees but has now withdrawn that support, saying USEC should seek alternative funding.

USEC's biggest champion in Congress, Rep. Jean Schmidt, R-Ohio, was defeated in a primary election last month. Her likely successor in the heavily Republican district, Brad Wenstrup, hasn't made up his mind. "Certainly there's short-term value, but he wants to make sure there's long-term value as well," said Matt Dole, a Wenstrup consultant.