Privatizing energy project enriched bureaucrats, drained federal coffersby Luke Rosiak |
Second of a three-part series. See part one here.
It started as a plan small-government conservatives could get behind: spinning off a Department of Energy project into the private sector, where it would save the government money and prosper, a nimble ship steered towards access to cutting-edge non-governmental technology by executives unencumbered by the federal bureaucracy.
It didn’t work out that way. Instead, the United States Enrichment Corp. became a revolving door where federal bureaucrats left their government jobs for a publicly traded company that paid them millions of dollars, even as it perennially begged the government for assistance in deals that tended to add to taxpayer liabilities and didn't produce any innovative technology on its own.
Scarcely three months passed after the company was privatized in 1998 before it ran to the government for an “emergency supplemental” appropriation of $325 million.
Since then, it has received virtually every form of government assistance, including loans, grants, and contracts, as well as technology giveaways and obscure swaps.
USEC’s curious position straddling the government and the New York Stock Exchange allowed its leaders to pick and choose the best from both worlds, relying on government support like a federal agency to create its product, but also functioning as a high-priced government contractor.
That made it a perennial thorn in DOE’s side, aggressively asking for money and even suing the government for breach of contract this year, saying federal officials gave the firm too little.
That suit was filed at the same time company officials hoped to win approval for a new $2 billion loan guarantee. DOE encouraged them to withdraw that application because of serious problems, yet USEC refused and managed to wrangle a quarter-billion dollars in cash out of the agency as it awaits a decision.
Enrichment at the public till
How Republicans - and some Democrats - steered billions to a failing privatized arm of the government many times the size of Solyndra, executives profited, and taxpayers lost.Part One: Feds invested billions in energy firm virtually sure to fail
Part Two: Privatizing energy project led to rich bureaucrats, drained federal coffers
Part Three: Republican leaders steered billions in pork to failing company in home states
See the whole series and view photos of the nuclear plant spanning decades, a real-time stock ticker, documents and salaries here.
DOE has also helped the company manage its books by assuming costly on-paper liability for nuclear material while allowing profit earned from those materials to go to USEC. In 2012, DOE gave $700 million worth of uranium material to USEC.
“You begin to look more and more into the repetitive grants that come through appropriations bills, the statement every year is ‘this is the last year we need any help,’” said Rep. Michael C. Burgess, a Texas Republican who is among a handful of lawmakers seeking to strike USEC funds from bills.
“It’s like a never-ending story: ‘We're right there, we just about have it,’” Burgess said.
USEC’s executive compensation structure is striking. At a company currently valued at $28 million, its CEO’s pay package totaled nearly $7 million in 2011, and a slew of deputies made nearly $2 million each.
The high compensation and chronic bottom-line losses led to a virtual revolt by shareholders, with 46 percent voting against a "say-on-pay" motion approving the salaries.
"The compensation committee attributed the votes against the company’s say-on-pay proposal primarily to dissatisfaction with the company’s total shareholder return performance," the company said in shareholder disclosures.
Though the work is done in Kentucky and Ohio, top USEC executives are based only a few miles from the Capitol in Bethesda, Md.
Phil G. Sewell, USEC's senior vice president and chief development officer, ran DOE's uranium enrichment program in the late 1980s and early 1990s before joining the company.
John E. Neumann, USEC'S vice president for government relations, worked for the House Republican Policy Committee. And USEC hired Howard Schweitzer, chief operating officer of the Treasury's Troubled Assets Relief Program, President George W. Bush's bailout of big banks.
The revolving door swung the other way, too. A former official in President Ford’s administration, Dennis R. Spurgeon, became USEC’s chief operating officer, then left to become a DOE assistant secretary during the administration of George W. Bush.
Company officials have told shareholders and creditors that without government money, they have no "viable" business plan and could soon go bankrupt. It has a junk-bond rating and no source of private financing for the new plant it wants to build. Last year, it lost more than a billion dollars.
With economic factors failing to make a compelling case for investment, USEC has pointed to national security considerations to justify continued government backing because tritium, a byproduct of uranium enrichment, and uranium itself can be used for nuclear weapons.
USEC's more efficient competitor in New Mexico, Urenco, is partially owned by the Dutch and English governments. European-licensed technologies have restrictions on using the uranium for military uses, though it is unclear how they apply to byproducts like tritium.
But the new USEC plant would produce low-enriched uranium, while the U.S. nuclear weapons use high-enriched uranium.
And specialists say that there is no need for the plant at all because the U.S. has enough tritium to last decades and that more can be obtained at any time from stockpiled uranium. The company's own filings concede that supply of enriched uranium far exceeds demand and that, even before its proposed expansion, it has accumulated a backlog of the material for which it can't find buyers.
Sen. Ed Markey, a Massachusetts Democrat who has delved more deeply into USEC issues than any other member of Congress, noted that the plans for USEC's new plant include foreign parts and worse, USEC has partnered with a Russian company that supplies Iran with its nuclear material.
"DOE itself has determined that simply using the current uranium supplier to the U.S. Navy's nuclear powered fleet of aircraft carriers and submarines would save taxpayers hundreds of millions of dollars over buying these services from USEC," noted a bipartisan coalition including the National Taxpayers Union, Friends of the Earth and the Union of Concerned Scientists that unsuccessfully implored Congress to strip $48 million in 2014 appropriations from USEC.
The privatized former government agency and its highly-paid executives said the problem is the government hasn’t played a big enough role, and that has caused technological failings and losses that totaled $491 million in 2011 and $1.2 billion in 2012, according to Securities and Exchange Commission filings.
“The government has not, as some have claimed, kept USEC afloat and you need look no further than our financial statements,” spokesman Paul E. Jacobson, a former aide to Senate Majority Leader Bill Frist, told the Examiner.