- The Washington Times - Wednesday, February 13, 2002

The only U.S. company that produces fuel for nuclear-power plants faces a bleak financial future and could go bankrupt within six years, according to a confidential report prepared for the Nuclear Regulatory Commission.
USEC Inc., based in Bethesda, is suffering from high operating costs and a failure to invest in new, more-efficient technology that would allow it to compete with foreign companies, the report states.
"USEC's financial condition may not allow the expectation that the company can remain in business for an additional five years" after 2003, when the NRC will conduct a regular review of its five-year operating permit, the report states.
The NRC regulates the nuclear-power industry.
USEC spokesman Charles Yulish dismissed the assessment as part of a "cottage industry of reports predicting USEC's demise," he said.
USEC was created in 1998 through the privatization of the U.S. Enrichment Corp., the former government monopoly in charge of turning uranium into nuclear fuel. It operates a single plant, in Paducah, Ky., which is owned by the Department of Energy. It recently closed another facility in Ohio.
The company also administers a program called "Megatons to Megawatts" that funnels Russian uranium recovered from dismantled nuclear warheads to electric utilities. The failure of USEC would leave American utilities completely dependent on imported uranium to run their plants, said John Longenecker, a nuclear-industry analyst and former Department of Energy official who was involved in the privatization of USEC.
"If USEC were to go out of business, the Russians would meet the [American] demand easily," he said. "We ought to have a debate about that."
Though the NRC prepared the report with outside consultants in August 2000, the document has remained under wraps, labeled "sensitive and proprietary information." At the time, the NRC said the study of USEC's finances could be expanded, but that it probably lacked the legal authority to do so.
But nuclear-industry analysts said little has changed in the last 18 months that would change the report's assumptions.
"USEC is the high-cost supplier," Mr. Longenecker said. "And that's the vendor that usually exits the market first."
The company uses an outdated technology to "enrich" uranium into nuclear fuel. The company's financial weakness means it does not have the means to invest in new facilities that would make it more competitive, the NRC report states.
USEC's profits, which hit $9.5 million in the last quarter of 2001, are due largely to the liquidation of its inventories rather than efficient operations, the report adds.
As a result of its finances, USEC faces tougher terms from its creditors.
The company currently has a $150 million credit line for which it does not have to put up any collateral. Now, its creditors are demanding that it put up "certain assets" as security for the money, according to documents it filed with the Securities and Exchange Commission in January.
The NRC also has imposed tough financial conditions on USEC.
Federal regulators want to make sure that USEC takes care of lingering byproducts from the fuel-manufacturing process if the company abandons the Paducah plant.
The NRC required the company to pay an "insurance deposit" of $21.4 million to cover any clean-up costs, according to SEC documents.
"It's like saying if you have a $200,000 insurance policy, you don't just pay premiums, you pay $250,000 up front," a nuclear-energy industry source said.
Steven Toelle, USEC's director of regulatory affairs, dismissed such interpretations of the NRC's move.
"This requirement is made of all sorts of facilities in the nuclear industry," he said.
Financial markets recently have reached similar judgments about USEC, whose stock is now worth one-third of its value at privatization in June 1998.
Standard & Poor's rates the company's debt as junk status. On Jan. 23, the investment service put USEC on a "creditwatch negative" list, meaning its credit rating stands a good chance of being lowered in the next three months.
Most critically for USEC, the prices it receives for the uranium that it enriches into nuclear fuel are not enough to meet its cost of production, the report states.
Though prices have risen over the past year, USEC is still locked into contracts that put it at a disadvantage, according to Scott Sprinzen, an S&P; analyst.
"Market prices are improving, but the prices in their contracts are getting worse," he said.
USEC stock fell 5 cents to $5.84 on the New York Stock Exchange yesterday.

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