Wednesday, October 25, 2017

Do Private Uranium Investors Have a $3B Claim against Obama Administration Officials? - By Joseph Somsel

As the Uranium One scandal unfolds and North Korea nukes up, Americans rightly worry about the integrity of our regulatory and approval mechanisms related to fissionable material.  It appears that members of the Obama Administration may have used the extensive regulation and secrecy integral to US uranium operations to bankrupt a $3 billion private firm, and civil litigation, with very different and often more permissive rules of discovery and deposition, may be feasible as a mechanism of getting at the rot. Some questionable federal government actions reported here in American Thinker in 2009 could be the basis for a civil suit against former Obama Administration officials.
A good thing happened at the close of the Cold War and the collapse of the Soviet Union back in 1991.  The Soviets had tons of highly enriched uranium (90%+ U-235) that the Russians had little use for with the end of Cold War.  Some of it was in the form of nuclear warheads and bombs.  The other extensive inventory was reactor fuel from scrapped nuclear submarines.  A big worry for nuclear experts was how the weak and unstable Russian government was to maintain effective security on this near-ideal bomb making material.  The first nuclear weapon used on Hiroshima used highly enriched uranium.  This type is also considered the easiest to design and implement – the perfect terrorist weapon.
US lawmakers recognized the problem and came up with a solution.  Buy the excess enriched uranium from the Russian government, “down-blend” it with normal uranium to low levels suitable for commercial reactor fuel (about 5% U-235) and use it to power American electricity supplies.  The Russian government got some needed cash and the world had less to worry about from terrorist nuclear weapons.  They called the program “Megatons to Megawatts.”  For much of the 1990s and 2000s, somewhere between 10 and 20% of American electricity came from Russian warheads and submarine fuel.
The US had another problem – our own uranium enrichment facilities.  We, too, had a greatly reduced need for enriched uranium for our military and the production facilities built for the Cold War were looking like they were obsolete technologies.  The gaseous diffusion process first used at Oak Ridge by the Manhattan Project was much less efficient and economical compared to the new centrifuge technology coming on-line.  Future demand would come from the price-sensitive commercial nuclear power industry.
To solve both problems the two government gaseous diffusion plants (Oak Ridge, Tennessee and Paducah, Ohio) were privatized.  These plants were originally constructed by the Manhattan Project and its successor, the Atomic Energy Commission, to meet US military and later commercial needs for “separative work units” or “SWU” .  This upgrades the U-235 concentration of in natural uranium from 0.711% to a more usable level that could reach 90+% for nuclear weapons (like the bomb that destroyed Hiroshima) and for nuclear naval reactor fuel.  Commercial reactor fuel makes do with less than 5% U-235.  The balance is the more abundant isotope U-238.
The US government ultimately reaped $3 billion from the sale to a new firm, the US Enrichment Corporation (USEC) by some reports. Their 1998 IPO set the per-share price at $14.25. But to sweeten the deal for what looked like soon-to-be white elephants, USEC was made principal agent for the commercial sale of Russian down-blended uranium.  The US government retained responsibility for the decommissioning and cleanup of the plants once they closed for good.  At their IPO, they claimed to supply 75% of the US market for enrichment services and 40% of the world market.  Assets totaled over $3 billion.
USEC worked great as a commercial business “flipping warheads” until the Russians decided they had sold enough of their highly enriched uranium.  President Obama terminated the “Megatons to Megawatts” program by executive order in 2015.  The US and Russia tried to cut a deal to take over commercial sales of Russian plutonium, but a lack of commercial interest in reactor fuel using plutonium was probably a factor – the extra security required is not worth the hassle for power reactor operators.  Besides, the US government already has 33 tons of surplus weapon-grade Pu-239 it planned on burying at Yucca Mountain in Nevada.
So without a stream of Russian uranium to sell and two obsolete enrichment facilities, USEC decided it needed to build a new centrifuge plant of its own.  It had the infrastructure and experience required already for shipping and handling so there were some savings to be had plus  access to US government technology.   The Nuclear Renaissance was flowering and with new plants, a big increase in enrichment services would be needed.  Other players jumped into the US market with the announced construction of several new plants. As was discussed in our earlier article in 2009, USEC applied for a loan guarantee for construction of the new centrifuge plant. Its application was repeatedly denied while a $1.2 billion loan guarantee for a corporation wholly owned by the French government for a plant in Idaho was approved.  A Dutch/UK/German company started construction on a plant in Louisiana with no guarantee from the US government at all!  USEC had to show signed contracts for the output before loan approval.  If only Solyndra had had to meet that condition for its $535 million government loan.
Even more suspicious was that the “safety” of the USEC centrifuge design was questioned by the US government with resulting project delays.  What struck one as funny about this decision was that the reasons for the rejection were reported as secret in the industry press at the time.  Ultimately, this was dismissed as theUS Nuclear Regulatory Commission concluded no nuclear safety issues.  Of course, an actual centrifuge design is considered a secret for proliferation concerns, like the ones that A. Q.  Khan stole from the Dutch for Pakistan.  A small demonstration plant using the USEC design is now completing a three year test run, so some level of scale model approval must have occurred.  In the meantime, the market for SWUs has collapsed with the price per SWU falling from $140 in 2011 to less than $50 today.
USEC went bankrupt in 2012, although it has reorganized itself and emerged a shadow of its former self under the name of Centrus Energy.   Its principal business is as a sales agent for TENEX, the Russian enrichment concern.  But even that is limited by a 2008 law restricting Russian imports of enrichment services.  A perusal of the latest SEC 10-K filing for 2016 suggests Centrus may be worth more dead than alive, what with net loss carry-forwards exceeding their assets and non-trivial unfunded pension liabilities.  The market value of their stock bottomed out at about $9,000,000 but is at this writing showing at $32 million.
So where are the claims?  Since it went public for about $3 billion in 1998 and is now worth maybe $30 million, somebody has taken a serious haircut.  Toshiba Corporation and Babcock & Wilcox Company bought in for $200 million, for example. Assets went from $3 billion in 1998 to $716 million on a net operating loss of $67 million at the end of 2016.  Today its core business is as agent for the Russian enrichment company TENEX.  USEC once served 40% of the world market from its own production – today it handles 4% of the world market simply as agent for SWUs from TENEX.  Employment went from 4,400 in 1998 to 338 today.
That haircut can be traced, in large part, to US government decisions which oft times made little or no sense to an outside observer.  First, USEC has been denied federal loan guarantees that were granted to agencies of foreign governments in direct competition.  Second, their technology was delayed in “nuclear safety” evaluations that were considered secret.  Granted, “Megatons to Megawatts” gravy train had to come to an end someday and was formally ended by Obama by executive order. It looks to me that the USEC was deliberately killed by the Obama Administration.
Chants of “Lock Her Up” would set a very risky precedent for criminal prosecution of losing presidential candidates as would throwing outgoing administration appointees in jail.  But going the O.J. Simpson route of civil cases by private citizens stripping ill-gotten gains from bad actors in government could a meaningful deterrent to future wrong doing.  The shareholders of USEC could band together to look deeper into what role the people in the Obama Administration misused their power to affect the evaporation of their capital and the ruination of USEC.  The Clinton Foundation has deep pockets, deep enough to motivate most lawyers in private practice.  Perhaps the civil courts can affect justice faster than the Congress or federal prosecutors.
Joseph Somsel is a 45 year veteran of the commercial nuclear power industry.  He has no financial interest in the subjects of this article.