U.S. Enrichment Corp., which produces fuel for nuclear power plants, is having its own sort of meltdown.

Disillusioned investors have wiped out 95 percent of the company’s market value since 2007. Standard & Poor’s has saddled it with a dismal CCC-plus credit rating. And USEC’s chief executive John Welch says that “clearly we’re coming to crunch time here.”

When USEC was created by the U.S. government in the 1990s, the idea was to privatize the job of uranium enrichment. USEC leased an old Energy Department plant and under a program known as Megatons to Megawatts, it has blended down highly enriched uranium taken from 17,698 Russian warheads under a U.S.-Russia treaty.

Two decades later, however, the Bethesda-based firm is still struggling to stand on its own two feet. Its deal for inexpensive supplies from dismantled Russian nuclear weapons runs out at the end of 2013. A contract for electricity from the Tennessee Valley Authority expires in May and USEC’s outdated plant — which devours as much electricity as the city of Nashville — will be unable to compete with other companies.

USEC says it needs government help. It wants to build a new, more efficient facility that would house thousands of 43-foot-tall centrifuges. But the two-month budget measure Congress passed in December blocks a $150 million Energy Department grant that USEC needs to continue development. And USEC’s application for a $2 billion Energy Department loan guarantee has been stalled for nearly four years, despite lobbying by the entire congressional delegation from Ohio, where the company wants to build the plant.

Ohio is a battleground not only for USEC, but for President Obama and House Speaker John A. Boehner (R-Ohio). Obama needs votes in the swing state, and USEC says the American Centrifuge Project would provide 4,000 construction jobs and 400 long-term jobs.

While campaigning in 2008, Obama wrote to Gov. Ted Strickland that “under my administration, energy programs that promote safe and environmentally sound technologies and are domestically produced, such as the enrichment facility in Ohio, will have my full support.” He added, “I will work with the Department of Energy to help make loan guarantees available for this and other advanced energy programs that reduce carbon emissions and break the tie to high cost, foreign energy sources.”

Boehner wrote a glowing letter on Oct. 27, 2009, in support of the USEC loan guarantee. But in December, he insisted that the two-month budget measure should not include authorization for the Energy Department to direct $150 million to USEC because that would be an ­earmark. He says he supports passage of free-standing legislation that would let Congress weigh the grant on its merits.

The political fallout: Boehner blames Obama for failing to approve the loan guarantee. The Obama administration, burned by bad publicity over its loan to a now-bankrupt solar panel maker named Solyndra, says USEC’s credit rating is too low to qualify for a loan guarantee and blames Boehner for blocking the grant.

For now, USEC is getting nothing. Some experts and a few lawmakers, including Rep. Edward J. Markey (D-Mass.), say that’s exactly what should happen.

“Boehner deserves credit for at least forcing this out in the open,” said Henry Sokolski, a former Pentagon official and executive director of the Nonproliferation Policy Education Center, a Washington-based nonprofit group. “So let’s have a debate, because I think if we have a debate this could look foolish.”

“The U.S. government sold USEC to the private sector and should now treat USEC like it treats other private-sector companies,” said Matthew Bunn, a nuclear expert and associate professor at Harvard University’s John F. Kennedy School of Government. “I think USEC shouldn’t be given any special preferences.”

The only concrete help for USEC recently has come not from Washington, but from Russia. Techsnabexport (Tenex), USEC’s Russian counterpart and a unit of a subsidiary of the State Atomic Energy Corp. (ROSATOM), has agreed to provide a 10-year supply of low-enriched uranium (LEU) to the company.

But the Tenex deal will provide a fraction of the uranium USEC obtained from dismantled nuclear weapons.

Under the new agreement, USEC will essentially act as a broker for Russia’s commercial enrichment firm, which has been seeking access to the U.S. market. USEC will also explore the possibility of a joint Russian-American enrichment plant in the United States.

Fuel from the USA

It’s a tough time to be in the business of selling fuel to nuclear power plants. The Nuclear Energy Institute says that there are 63 nuclear plants under construction (26 in China). USEC executives, seeking support, quote optimistic forecasts of a near doubling of demand for uranium enrichment services by 2030.

But those prospects are decaying. Japan has postponed its plans for nuclear expansion and closed down plants damaged by last year’s earthquake and tsunami. Germany has closed eight of its 17 reactors and will shut down the rest by 2020. U.S. nuclear power plans have been scaled back because of high construction costs and competition from new supplies of cheap shale gas.

In December, Luc Oursel, the new chief executive of French nuclear giant Areva, said he was suspending work on the $3.2 billion Eagle Rock enrichment plant west of Idaho Falls, Idaho, even though the Nuclear Regulatory Commission had given Areva a license and the Energy Department had given it a $2 billion loan guarantee. The company, which is largely owned by the French government, plans to use centrifuge technology, but says it will start construction in late 2013 or 2014 instead of this spring.

“If Areva has decided it doesn’t pay, why are we throwing money at it?” Sokolski said. “If Areva is inclined to say no, why is Congress inclined to say yes?”

There are only a handful of firms in the uranium enrichment business. In addition to Tenex, Areva and USEC, there is Urenco, which opened a plant in New Mexico in June 2010. The British, Dutch and German governments each own one-third of the firm.

“Completion of the new facilities poses a significant threat to USEC’s competitive market position because both facilities plan to use the lower-cost centrifuge technology, and both have applied to double the capacity of their U.S.-based facilities,” an S&P report said.

Nonetheless, USEC and its supporters argue that a U.S. company with commercial U.S. technology is needed.

“We do believe that having more suppliers is going to be helpful from a competitive supply standpoint,” said Marshall Murphy, spokesman for Exelon’s nuclear power business, a USEC customer.

Energy Secretary Steven Chu has said that the United States also needs “indigenous” enrichment technology to provide enough tritium for nuclear weapons and highly enriched uranium for U.S. naval reactors on submarines and warships. The TVA uses about 2 percent of USEC’s enriched uranium to power a process producing tritium, a hydrogen isotope with a half life of 12 years. U.S. agreements with foreign-owned enrichment facilities in the United States bar them from doing anything to promote military purposes, the Energy Department says.

“As President Obama has said, while we envision a world without nuclear weapons, until that day comes we must ensure that our deterrent is safe, secure and effective,” Chu wrote in a Dec. 1 letter to Sens. Dianne Feinstein (D-Calif.) and ­Lamar Alexander (R-Tenn.).

But Bunn said — and the Energy Department concedes — that the United States has the ability to make enough tritium for many years and fuel for naval reactors to last several decades. “I don’t see it as a huge issue,” Bunn said. Markey has argued that USEC could produce, within a few months, enough tritium to meet U.S. needs for another half century.

Sokolski adds that the limits on foreign suppliers are largely set by the U.S. government, which could alter agreements to allow European-owned facilities in the United States to provide the military with whatever small amounts of uranium might be needed. In addition, the government has its own uranium stockpiles.

Chu said that U.S.-origin fuel also gives the United States greater clout in the Nuclear Suppliers Group, the multilateral organization that tries to limit enrichment and reprocessing technology. As a senior Energy Department official put it: “They don’t listen to us because we’re charming, but because we’re a big player.”

However, USEC’s effort to wave the American flag could run into opposition because of the firm’s agreement to explore a venture to open the U.S. market to a Russian enrichment plant. Many lawmakers oppose such a move, citing Russia’s aid to Iran’s nuclear program despite U.S. and European sanctions.

Decades-old technology

All these would be moot points if USEC were thriving. But it isn’t. Its Paducah, Ky., facility, leased from the government, uses a decades-old method of enriching uranium known as gaseous diffusion.

The process requires vast quantities of electricity, nearly 50 times as much as Urenco’s New Mexico plant. At its peak, the company consumed the equivalent of two nuclear power plants’ output. Today, operating at much lower volumes, USEC still uses as much as 1,650 megawatts of electricity, which accounts for 70 percent of its costs, the company says.

USEC’s electricity contract with the TVA expires May 31. Natural gas is now cheaper, but USEC can’t buy enough to replace TVA’s supplies. In a Securities and ­Exchange Commission filing, the company said that the “extension of Paducah . . . operations may not be economic.” USEC has proposed enriching a portion of the Energy Department’s stockpiles of depleted uranium — assuming that taxpayers would pay for enrichment services too expensive to be commercially viable. But that would require legislation.

USEC has been planning for years to build a more efficient American Centrifuge plant in Piketon, Ohio. It broke ground in 2007 and has a couple of dozen commercial-scale centrifuges operating there. Its initial plan was to have 11,520 of them arrayed in 96 “cascades.” In each centrifuge, gaseous uranium hexafluoride is fed into a rotor that spins at high speed. Centrifugal force pulls the heavier U238 molecules closer to the wall of the rotor. Since one centrifuge can’t do the job alone, they work in cascades so that the final product contains about 5 percent enriched uranium.

Other companies use centrifuges, too, but USEC’s version, developed at an Energy Department laboratory, has not been used commercially.

At the pilot plant last summer, six centrifuges were damaged when the main and auxiliary power systems failed. Environmental groups accused USEC of waiting 19 days to notify the NRC because it hoped its federal loan guarantee would be approved. USEC Senior Vice President Philip G. Sewell says the company told the NRC promptly but only later realized it had been a “reportable event” that required written notification. Sewell says the power outage was compounded by “operator error” and the final plant “would have a lot of redundancy to make sure” a power outage “didn’t happen.”

An independent engineer’s report conducted for the Energy Department’s loan program and obtained by The Washington Post also cited problems with cooling water pumps, valves, vacuums and centrifuge controls as well as “inadequate training.” It said that a key cooling water valve wasn’t installed properly. It said that a breach at one centrifuge machine was “a more serious crash mode than any other witnessed during the USEC program.”

The report called the number of problems “surprising” and said it indicated “a lack of nuclear plant ‘atmosphere’ or ‘culture,’ in which testing is obsessive and finding ‘faults’ by personnel is rewarded if it leads to a stronger environment.”

USEC has invested $2.1 billion of the projected cost of $4.5 billion. Now “highly leveraged,” according to S&P, USEC needs help to finish. Babcock & Wilcox and Toshiba have agreed to invest $200 million if the loan guarantee comes through.

But the company’s finances are too weak to meet the standards for a federal loan guarantee, the Obama administration says. That leaves the disputed Energy Department grants, which would total $300 million over two years.

An administration official said that the grants would put USEC in a stronger position to obtain a loan guarantee later, assuming the technology works. He said he was puzzled that Boehner called the grant an earmark because money has already been appropriated for the Energy Department and only requires an authorization to redirect it to USEC.

Ohio Sens. Sherrod Brown (D) and Rob Portman (R) have introduced a measure to provide USEC the first $150 million. Rep. Ed Whitfield (R-Ky.) is leading efforts on the House side. Rep. Jean Schmidt (R-Ohio) has introduced a bill that would authorize grants for companies that didn’t yet qualify for loan guarantees.

On Friday, the Energy Department and USEC agreed to an accounting maneuver that freed up $44 million to continue work on the new plant through March. The department assumed liability for part of USEC’s stockpile of radioactive waste known as “tails” in return for part of USEC’s inventory of enriched uranium.

Markey says that Republicans in favor of helping USEC that way are guilty of hypocrisy after criticizing loan guarantees for Solyndra. Solyndra’s technology, he says, at least was proven.

“When it’s assistance for solar panels, Republicans hit the roof, but when it’s a bailout for nuclear energy, apparently the sky’s the limit,” Markey said. “USEC’s centrifuges should be pulled off life support before another taxpayer dollar is spun down the drain.”

‘Unable to sustain’

Boehner, in his Oct. 27, 2009, letter to Obama, expressed “disappointment” about the Energy Department’s “hasty decision” to deny the $2 billion loan guarantee for USEC. He said he hoped “we can . . . make this priority a reality.”

More than two years later, USEC’s reality is bleak. Its strategy for survival is to close the Kentucky plant, liquidate its valuable uranium inventories, play broker for the Russians and continue operations at a subsidiary that provides dry casks for spent nuclear reactor fuel. “We’re working as hard as we can to keep it going,” said Robert Van Namen, a senior vice president at USEC.

“While our preferred path is to deploy the American Centrifuge and extend operations at the Paducah plant, USEC is actively engaged in exploring its options and has been for some time,” USEC’s Welch said. “If the federal government is serious about enriching uranium in the U.S. with U.S. technology . . . then Congress and the administration should proceed now with the demonstration program on the American Centrifuge technology.”

While waiting for funds from Congress, USEC has scaled back work on the American Centrifuge plant and warned employees of possible layoffs. S&P issued a report in December on what would happen if USEC declared bankruptcy. “Without the ACP plant, USEC is unable to sustain its market share and remain a viable competitor,” wrote S&P analysts Michael Silverber and Maurice Austin.

That prospect might not trigger the reaction USEC seeks.

“I am deeply skeptical about the argument that there is something important for national security about having USEC as one of the enrichment programs,” Bunn said. “The reality is that the United States economy relies on foreign sources for things a lot more important to the country than uranium enrichment.”