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By Geoffrey Sea
In a triple-whammy to uranium supplier USEC Inc., the last operating nuclear reactor in Japan was switched off for maintenance, Russia completed its final delivery of uranium to USEC under the 20-year Megatons to Megawatts program and USEC’s market capitalization fell below the minimum required for listing on the New York Stock Exchange (NYSE). Meanwhile, fission products of the fuel that USEC supplied for the Fukushima reactors continue to pour into the Pacific Ocean, a hot metaphor for the global dissolution of the dream of atomic power.
If the radioactive currents awaken Godzilla from his undersea lair, it would be the only scripted outcome.
The news does get worse for USEC. In contrast to Iran, which announced its centrifuge venture at the same time as USEC and has now opened a second cascade of over 3,000 third-generation machines, no USEC centrifuge has produced a gram of commercial uranium. Its untested AC-100 centrifuge machines, which are the be-all and end-all of the company, have just passed the 35th anniversary of their unfortunate invention under the Carter Administration. Meanwhile, General Electric’s state-of the-art SILEX enrichment technology is running rings around USEC’s antiquated nondeployed centrifuges by every measure.
And here’s the kicker: USEC’s eight-year overdue test array of showpiece centrifuges in Ohio, for which the federal government has had to pay 80 percent of costs, are not being tested with uranium, so they are producing no useful data. USEC cannot be trusted to run uranium after an embarrassing crash of six centrifuges at Piketon in June 2011. (USEC advertised that catastrophe as maintaining public safety with no release of radiation, failing to clarify that the machines had not been running uranium during the crash.)
The Department of Energy (DOE) loan guarantee program—fantasy material on which USEC relies at night like a castaway clutching pornography (USEC has already been turned down twice.)—is under renewed attack by even the most pronuclear conservatives. That means that the company has no imaginable way to fund construction of a new centrifuge plant, which USEC needs to remain in the enrichment industry since its old production plant in Paducah, KY, has permanently closed.
USEC should ditch the uranium enrichment business entirely and play to its demonstrated competence in fields like Internet gambling or telemarketing to members of Congress. That would be the company’s preference, too, if not for infernal federal laws and regulations that bind it to the pretense of uranium enrichment as justification for billions of federal dollars down the drain.
USEC’s stated financial plan is to supplement hypothetical DOE loan guarantee funding with a one or two billion-dollar loan from Japanese international banks, about as feasible as a fine arts grant from Bashar Al-Assad. With the Japanese defending themselves against cartoons of three-armed sumo wrestlers at the 2020 Olympics, they are not exactly hot to trot on funding a uranium enrichment plant in Ohio, the product of which has caused them only grief. Perhaps USEC will entice the Japanese by becoming an Olympic sponsor of the Hot Potato Throw or the Strontium-90 Meter Sprint?
Meanwhile, three competitors including Russian TENEX, French AREVA and Euro-American URENCO are spinning out uranium on centrifuges for old USEC customers, and even Iran may work a deal under new leadership to give up its A-Bomb aspirations in exchange for a slice of USEC’s old commercial market. Call it Atoms for Peace with a vengeance.
And it gets worse for USEC. Closure of the San Onofre and Vermont Yankee reactors, with more closures expected, means that the domestic market for enriched uranium on which USEC relies is shrinking, not expanding. That comes just as USEC’s old supply monopoly in that market has given way to a free-for-all, with the lifting of bans on the direct-marketing of Russian uranium and new domestic enrichment projects by competitors in New Mexico, Idaho and North Carolina. Since uranium supply contracts cover periods as long as a decade, USEC’s long delays in deploying new production will mean that even a hypothetical new USEC plant would come online with no market for its product. In addition, the shrinking domestic market undercuts the government’s rationale to support a new plant and invalidates the market forecasts that USEC used to obtain licenses and argue for denied federal loan guarantees. That opens up any renewed USEC commercial venture to serious legal challenges.
But it gets worse for USEC. USEC has had no quarter of net profit in years, accruing over a billion dollars in debt all told. The company’s only pockets of profit have depended on DOE-subsidized or Russian-supplied programs that now have ended.
USEC’s long intentional delay in completing a technical demonstration of its AC-100 machines—a delay necessary to forestall conclusions that the ludicrous technology is not commercially viable—have run the company up against hard deadlines. This month, USEC must renew its credit facility with a consortium of banks led by J.P. Morgan, at a time when that institution is facing major allegations of failure to conduct proper risk-analysis of applicants in jeopardy of bankruptcy just like USEC.
On Oct. 1, USEC will have just twelve months to make good on $530 million of bond debt, incurred in 2007 on the promise that the funds would be used to complete a commercial centrifuge plant with time to generate enough income from the plant to pay off the bonds. Here we are at the twelve-month marker, however, and USEC has spent the cash it received from the bonds without financing the plant. With no other means to pay off the bonds, some kind of bankruptcy shield for USEC is a necessity, though the company uses the euphemism of “restructuring” to describe that coming process.
If USEC cannot renew its credit facility, it will lose the ability to pay bills and salaries, creating an interesting nuclear safety dilemma at Paducah, where USEC has continuing cleanup responsibilities. Likewise, if USEC’s general condition keeps its share price from rising, then the company will be delisted from the stock exchange, at which point the $530 million of bond debt becomes immediately due by terms of the issuance. That would necessitate an immediate bankruptcy filing. USEC has been using the threat of potential nuclear consequences to stave off the wolves at the door, but that kind of blackmail threat grows tiresome with age and with the realization that USEC’s radioactive messes are going to wind up on the public’s hands in any case.
Needless to say, the prospect of sudden unplanned insolvency did not occur to the congressional authors of the USEC Privatization Act, the regulators at the Nuclear Regulatory Commission (NRC), or the bureaucrats at the DOE, none of whom has a plan for what to do about the nuclear materials and facilities entrusted to USEC’s care given the company’s financial meltdown. Or perhaps the prospect did occur to them and they just didn’t care. “Financial capacity” requirements of NRC and DOE were paperwork hilarities, specifically waived to accommodate USEC as soon as the company headed into trouble.
USEC had intended to cure its crushing bond debt over the summer, but then something truly terrible happened to the company: Its stock shot up.
It started as a modest pump’n’dump operation, after the share price hit an all-time low of $2.60 on July 8 (down from $641 per share in 2007). USEC needed to edge its market capitalization above the $50 million NYSE minimum to avert immediate delisting. It accomplished that by tailoring the news to fool investors, with a robust report of cash on hand while neglecting to mention in news releases that USEC had not yet paid for the latest big shipment of Russian uranium. By such chicanery, USEC managed to triple its share price in mid-July.
But then over the weekend of July 27, the USEC-TEPCO partnership at Fukushima hit a wall, or failed to hit a wall, as the case may be. Massive uncontrolled radioactive seepage into the ocean raised fears that the worst may be ahead of us, at least in terms of nuclear public relations, and that was before a typhoon hit the Japanese site on Sept. 16, making matters even worse.
Prime Minister Shinzo Abe stepped in to announce that the government was taking control of the cleanup operation, and that was misinterpreted by delusional nuclear industry investors as meaning that a nuclear revival in Japan might be imminent and that TEPCO and USEC might escape some potential liabilities for the catastrophe.
By Monday, July 29, Asian investors unfamiliar with USEC’s scamming history were hot on the stock as it looked to be rising from rock-bottom prices. They started a buying stampede, which tripped a circuit breaker at NYSE, briefly halting trading in the security on Monday afternoon. That blockade only fed the frenzy as automated trades kept upping the virtual price of the stock in a frustrated machine attempt to out-buy other machines. It was a real-life nuclear escalation as depicted in the movie War Games, where stupendous competitive human error is magnified by computer programs.
USEC stock closed on July 29 at $29.02, up 1,016 percent over its recent all-time low. USEC ‘s “phenomenal surge” made it the rising star of Internet investment pseudo-journalism as traders assumed there was some there there, when all was naught but air.
A third of the share-price rise was rapidly corrected, creating the first of three meaningless spikes on USEC’s stock chart, each with a surge-plummet profile resembling the Empire State Building. That extreme volatility (a bad bad word in the normal investment community) attracted day-traders to the otherwise worthless company, on the premise that many bucks could be made by micro-forecasting when USEC stock would entertain its bombastic highs and lows. All of this vapid financial gaming was invited and subsidized by the Obama Administration with support of both Republicans and Democrats in Congress.
As a tug of war between day-traders inflating the share price and short-sellers betting on the stock’s decline, USEC’s stock, which is supposed to be a market indicator of the company’s performance and worth, became totally detached from fundamentals. USEC itself is transforming into a company that sells only flimflam, producing and marketing no real product. Correspondingly, its stock has become a pure speculative instrument—like investing in modern art or pet rocks—a profit-making device for technologically-enabled traders, different from other financial scams only by its government endorsement and apparent immunity from securities laws. It’s Uncle Sam’s atomic unregulated cyber-casino. The theory of USEC’s 1998 privatization—that the “free market” would do a better job of guiding the enterprise than government planning—has been stood on its head, as USEC’s actual owners, its shareholders, have lost any real-world connection to the property they own.
The sentiment of investors was captured best by a one-word comment on the leading USEC shareholder message board in August: “FukUSECshima.”
Day-traders and short-sellers are the bottom-feeders of the stock market. They undermine the logic of capitalist markets since they profit off material dysfunction, and measures to restrict or ban both practices have occasionally been implemented. But USEC has become a target tool of these parasites, with short-sellers accounting for between 15 and 30 percent of all USEC shareholders in past years.
Day-traders make money not by long-term investment but by repeat trading to exploit micro-trends on a minute-by-minute basis. The extent to which they now dominate the trade in USEC stock is indicated by five days in late July when over three million shares were traded each day, although there are only 4.95 million shares of USEC stock outstanding. Were a majority of USEC shares changing hands? Of course not. Only a tiny percentage of shares were being bought and sold, over and over again, each day. The bizarreness of this pattern has become just one of USEC’s unique peculiarities, a sign that usual securities laws and rules are being violated flagrantly, with no sign of enforcement. Where are the U.S. Securities and Exchange Commission (SEC) investigations, the NYSE delisting crackdowns or the penalties imposed by USEC’s credit lenders?
Many are under the false impression that higher stock price necessarily helps a company. That is true for enterprises operating in some real marketplace with tangible assets, positive net worth and effective shareholder control. It is not true for USEC, which has crushing debts, no business plan and only paper assets, all of which remain controlled by the government despite titular privatization. USEC needed a small rise in share price to cure its NYSE listing deficiency, but the huge spike generated by forces internal to the trading world created an enormous problem for USEC on the ground.
USEC’s biggest hurdle staying in business is its bond debt. To eliminate that debt, USEC needed to buy out the bond holders with common shares in what is known as a debt-equity swap. But the July 29 share-price spike made it ten times as expensive to buy back those bonds with common shares, a price that USEC simply cannot afford. Ironically, by killing a debt-equity swap, the share-price rise may have killed the company. $530 million in bond debt that cannot be paid remains on the books, and the clock is ticking.
In this topsy-turvy environment, USEC managers probably have sat back hoping against fiduciary obligation that share price would fall, and they haven’t been disappointed. Other than two false-rumor day-trader spikes, the stock has lost all of its July 29 gains in perfect linear decline, zipping through the $16, $15, $14, $13, $12, $11 and $10 ranges to close at $9.55 per share on Tuesday, Sept. 17. That puts USEC in the worst of all possible worlds. Market capitalization is back below the $50 million minimum required for listing on NYSE, but the stock is still too expensive for USEC to afford a debt-equity swap, meaning that the bond debt along with coupon payments are coming due, imminently if the stock is delisted.
On a family trip to Puerto Rico when I was young, my father had booked discount rooms at a posh resort, as described in the advertisements, only for us to discover on arrival that the place was in dire financial distress and had been placed in foreclosure for tax non-payment, with a union picket-line in front. Its glitzy neon-mirror-ball casino, known as a hangout for local Mafiosi, was then technically owned by the U.S, government, a federally-sponsored crapshoot on the skids—perfect preparation for my current understanding of USEC.
Despite what was called privatization, the enrichment plants in Ohio and Kentucky always remained under government ownership. USEC’s centrifuges—built with a government technology license for which USEC owes an outstanding royalty of $100 million that will never be paid—were repossessed by the government in the summer of 2012, in preparation for the end of the USEC world. Even USEC’s depleted uranium waste cylinders have reverted to government ownership in a scheme that permitted USEC to cash in its waste disposal surety bonds so bills could be paid.
In effect, USEC privatization has been undone by the DOE without congressional authorization, in explicit violation of the USEC Privatization Act, raising profound constitutional questions. Even though the federal government now owns the entire USEC operation, the company remains almost wholly unregulated as to its payment of lavish executive salaries and proprietary decisions about the disposition of government property, such as its unilateral decision to close the Paducah plant. No “government stake” in the company’s management has been granted, as in the automaker bailouts, because no politician on any level wants any part of USEC’s coming collapse.
The government will be left, however, with future use decisions about the Piketon and Paducah sites. What does the Obama administration or the Congress have planned for the big empty “American Centrifuge” buildings on expensive federal real estate in Ohio’s highest-unemployment county?
Not a thing. It’s too politically sensitive. Piketon is the epicenter of the most critical swing region in Ohio, with a history of tipping presidential and gubernatorial elections. Any move by any agency of the government to apply standing federal law to USEC would bring the roof down on the fraudulent enterprise, risking a backlash against the responsible political party, amounting to acknowledgement that the many billions of taxpayer dollars lavished on USEC have been a scandal and a waste. Or so goes the “off the record” fear.
Just the energy bill for maintaining USEC on artificial respiration has been enormous—the dirtiest energy from Ohio Valley coal plants to keep the smokestacks puffing at USEC’s Paducah and Piketon operations—while the amount of total atomic power produced by USEC’s fifteen-year “advanced technology” rigmarole will in the end be zero.
On the other hand, a lame-duck administration is the time to get this done, and Ohioans would welcome some political candor, since it’s not a state secret any longer that the thousands of centrifuge jobs promised a decade ago will not be coming ever.
USEC acknowledged as much in its last bombshell 10Q filing with the SEC, submitted appropriately on the 68th anniversary of the bombing of Hiroshima on Aug. 6. There, USEC finally admitted that various problems may (read “will”) necessitate that the “American Centrifuge” project be “demobilized “ (read “canceled”) at the end of its government-funded demonstration project (read “delay mechanism”) which is scheduled to terminate in December of this year.
Assuming it remains in business, USEC will not give up its cost-free lease of the Piketon site, however. It will retain that statutory lease-hold indefinitely in hopes that “market conditions” will someday improve. (Why not? The government foots the bills.) That would be at least a decade according to widely-available data, at which time the age of USEC’s technology will be approaching half a century.
Unless the company is killed-off by creditors or regulators who find their spines, alteration of that community-killing schedule would depend on repeal of the USEC Privatization Act by Congress. And with Rep. John Boehner (R-OH), a major USEC donee whose congressional district neighbors that of Piketon, as Speaker of the House, any move by Congress to pull the plug on “the American Centrifuge” will be thwarted, no matter how condemning of the whole American system that project has become.
All that remains of USEC’s centrifuge business is runaround.