High-level government officials are
listening, and asking the questions, this week as the campaign by business
interests for a softening of the laws and rules laid down amid the 2002
corporate scandals gets a serious hearing.
An array of companies and business leaders have been making
the case that the requirements spawned by the crisis of corporate malfeasance
are overly onerous and costly — and hurt the competitiveness of U.S. financial
markets by driving some companies away from them.
Treasury Secretary Henry Paulson and Christopher Cox, the
chairman of the Securities and Exchange Commission, are acting as moderators
for panel discussions at an unusual conference on the issue being convened
Tuesday by the Treasury Department. The panelists are a cavalcade of
heavyweights: legendary billionaire investor Warren Buffett, General Electric
Co. Chairman Jeffrey Immelt, brokerage founder and CEO Charles Schwab, former
Federal Reserve Chairman Alan Greenspan and New York Mayor Michael Bloomberg.
Treasury officials say the purpose of the gathering in
Washington, with blue-ribbon participants on both sides of the issue, is to
begin a discussion that could lead to policy changes.
In November, a high-profile committee of business, legal and
academic figures put forward proposals in November to clip back corporate
governance rules, class-action lawsuits against companies and auditors, and
criminal prosecution of companies by the government.
A second group, formed by the U.S. Chamber of Commerce, is
unveiling its report and recommendations Wednesday.
It calls for "quick and decisive adjustments in the U.S.
legal and regulatory framework ... to ensure that U.S. investor and business
interests are best served in the global marketplace." Among its key
recommendations: Public companies should stop issuing quarterly earnings
guidance and policymakers should seriously consider proposals to reduce the
liability of accounting firms in litigation over company audits.
Some experts, including Lynn Turner, a former SEC chief
accountant, have warned against a softening of the rules, saying that would
erode investor protection.
And Wall Street powerhouse Goldman Sachs took issue with the
business campaign's premise.
"The regulatory climate does matter. ... Nonetheless, we
do not think this is the main problem," Goldman Sachs said in a recent
research paper. "Instead we see the growth of capital markets outside the
U.S. as a natural consequence of economic growth and market maturation
elsewhere. The U.S. has in fact been losing market share for several
decades."
Paulson, who headed Goldman Sachs before coming into the
administration last summer, gave the campaign traction when he said last fall
that "the right regulatory balance should marry high standards of
integrity and accountability with a strong foundation for innovation, growth
and competitiveness."
In December, culminating an intense months long lobbying
campaign by a passel of companies, the SEC tentatively adopted a plan giving
corporate managers more flexibility in assessing the strength of internal
financial controls under the Sarbanes-Oxley law.
The internal-controls provision of the sweeping anti-fraud
law, enacted in 2002 at the height of the scandals that engulfed Enron Corp.,
WorldCom Inc. and other big corporations, is a key target of the business push
against regulations. Companies have complained to the SEC that the rules are
overly burdensome and costly, especially for smaller businesses.
In the same week that the SEC acted, the Justice Department
restricted its prosecutors' ability to crack down on companies that withhold
confidential information during criminal fraud investigations, in new
guidelines that tempered the aggressive legal tactics authorized after the
scandals.
The private-sector Committee on Capital Markets Regulation,
which issued its proposals in November, is headed by Glenn Hubbard, the dean of
Columbia University's business school and a former economic adviser in the Bush
administration, and John L. Thornton, chairman of the Brookings Institution
think tank and a former Wall Street executive.
Bloomberg and Sen. Charles Schumer, D-N.Y., released a report
in January saying that the burden of tough regulation is contributing to New
York City's loss of its competitive edge in the financial services industry to
cities like London and Hong Kong. Unless remedies are made, they warned, New
York's — and thereby America's — leadership in global finance will be eroded,
reducing jobs and chilling the U.S. economy.
Copyright 2007 The Associated Press. All rights reserved.
This material may not be published, broadcast, rewritten or redistributed.
THE CHAMBER'S PLAN
The U.S. Chamber of Commerce, which has been campaigning
against what it views as excessive financial regulation hurting U.S. markets'
competitiveness, is issuing a report this week by its Commission on the
Regulation of U.S. Capital Markets in the 21st Century.
The report urges "quick and decisive adjustments in the
U.S. legal and regulatory framework ... to ensure that U.S. investor and
business interests are best served in the global marketplace."
Among its key recommendations:
• Congress should enact legislation to expressly give the
Securities and Exchange Commission the authority to issue rules and exemptions
for various categories of public companies under the Sarbanes-Oxley law,
enacted in 2002 in response to the wave of corporate scandals. In addition, the
SEC should be restructured and its examiners should be required to keep
confidential their communications with financial institutions.
• Public companies should stop issuing earnings guidance or,
as an alternative, move away from giving quarterly earnings guidance with an
earnings-per-share number toward annual guidance with a range of projected
per-share numbers.
• Policymakers should seriously consider proposals to reduce
the liability of accounting firms in litigation over public company audits.
• Retirement savings plans should be multiplied by connecting
all businesses with 21 or more employees that lack a plan to a financial
institution that will provide one.
The commission is headed by Arthur Culvahouse, the chairman
of law firm O'Melveny & Myers, who was a White House counsel in the Reagan
administration, and William Daley, a Commerce secretary in the Clinton
administration who is now a vice chairman of JPMorgan Chase. Members include
executives of major investment, accounting and law firms, and from the
insurance industry, venture capital and a state employees pension fund.
PIKETON, Ohio – Three dozen 43-foot-tall centrifuges swirl
quietly in a cavernous building in southern Ohio, ready to turn uranium
hexafluoride into the enriched fuel that can power America's nuclear power plants.
They stand like stacks of poker chips on a table — the ante
for what could be a $2 billion national gamble on nuclear energy.
Energy company USEC wants federal loan guarantees to allow it
to build 11,000 centrifuges here, which would spin out enough fuel to power
about three dozen nuclear power plants non-stop.
STORY: Nuclear centrifuge project to move ahead
STORY: USA TODAY review uncovers support for energy loans
But while plenty of politicians whose districts could benefit
from the project support it, the Piketon plant remains stymied by a political
standoff. Many Republicans who back the project — called the American
Centrifuge Project — have savaged the Obama administration loan program that
would pay for it, while the Obama Energy Department, burned by Republican
criticism, has voiced tentative support for the plan but won't authorize
federal money for it without congressional approval.
For almost a year, congressional Republicans have criticized
the administration's $535 million loan guarantee to now-bankrupt solar panel
maker Solyndra. The administration, they say, is unfairly picking "winners
and losers" in energy.
Both sides say they want the project to move forward. Both
support short-term "bridge" funding to keep the project going until
the financing can be worked out. Both say the other side has to make the first
move.
The stakes are high: It's an election year, and Ohio is a
swing state. USEC estimates the project at its peak will generate 3,158 jobs in
Ohio, and 4,284 elsewhere. Pike County, home to the centrifuges, has a 13%
unemployment rate — the highest in Ohio. The median household income is about
$40,000. The average job at USEC pays $77,316.
Centrifuge parts are stacked up in Piketon. "It's as
shovel-ready as they come," says spokeswoman Angela Duduit.
Indeed, the project has enjoyed bipartisan support. A USA
TODAY review of DOE records shows that no fewer than 46 members of Congress —
32 Republicans and 14 Democrats — have pressured the Obama administration to
approve the loan guarantee for USEC. "Quick action is paramount,"
said one bipartisan letter. "It is imperative that this application move
forward now," said another.
The congressional support comes from states such as Ohio,
Pennsylvania, Tennessee, Kentucky, West Virginia, Missouri, Alabama, Indiana,
Maryland, North Carolina and South Carolina— an almost exact overlay of the
states that would benefit from the 7,442 jobs the company says would be
created.
USEC executives have also funneled another $461,000 through
its political action committee to members of Congress from both parties. Since
2005, when Congress first authorized the Department of Energy's loan guarantee
program, USEC has invested $15.6 million on lobbying, congressional records
show.
Intense security
USEC's Piketon campus, situated in a lush valley at the
foothills of the Appalachian Mountains, is so vast that its perimeter security
road is 7 miles long. The plant's operators — three-fourths of whom are
recruited right off U.S. Navy nuclear warships — take golf carts or bicycles to
move around the plant.
The centrifuges are surrounded by a barbed-wire fence — which
sits inside an already secure building. Razor wire hangs like Christmas garland
from the rafters.
What's remarkable about the American Centrifuge Project, USEC
says, is that the process uses only 5% of the electricity of the old gaseous
diffusion process formerly used at the site, and which USEC still uses at its
sister plant in Paducah, Ky. That alone can reduce greenhouse gas emissions by
10 million tons a year, USEC says.
But the project has had setbacks.
Last June 11, a shift supervisor overseeing a test
"cascade" of a few dozen centrifuges routinely started a water pump.
That action tripped a circuit breaker, which shut down a motor control center.
A backup generator failed to start promptly, and USEC — not immediately
realizing the severity of the incident — didn't make a formal incident report
to federal regulators until three weeks later.
That account of events was contained in a Nuclear Regulatory
Commission report released April 12. The report found five violations, which it
described as "less serious" issues with "relatively
inappreciable potential safety or security consequences."
The immediate cost to USEC was $9 million, the cost of six centrifuges
that had to be scrapped when they crashed during the power outage. The
remaining centrifuges have been operating without uranium ever since.
USEC, which is spending $15 million a month just to keep the
test project running, lost $540 million overall last year. Its stock price
closed Thursday at 83 cents a share and near an all-time low, down from a high
of $23.91 five years ago.
That means a company worth less than $120 million is seeking
$2 billion in financing.
DOE has kept the door open for the loan guarantee, but has
questioned the company's capacity to complete the project and repay the loan.
It is sensitive to the criticism brought on by the debacle with Solyndra, a
California solar power maker that received $535 million in loan guarantees before
going bankrupt.
The concern is echoed by at least one USEC investor.
Robert Clutterbuck, a Cleveland hedge fund manager who owns
part of USEC's debt, said he doesn't doubt the political support. "The bad
news is, we believe over the last seven months that it has become abundantly
clear that the huge stumbling block to that is the size … or the lack thereof,
of USEC," he told company executives in a conference call last month.
The DOE has supported other centrifuges. In 2010, it gave a
conditional $2 billion loan guarantee to Areva, a conglomerate whose majority
shareholder is the French government, to build centrifuges in Idaho. But that
project is temporarily stalled because of a cash situation one executive called
"growing pains."
"Basically, we went in with an application that was
based on a proven technology that's been in use in Europe for nearly three
decades," said Sam Shakir, president of Areva Enrichment Services.
"There was no question about the technology, its viability or its economics."
That helped Areva sell $5 billion in preliminary orders for
uranium, he said. Still, "The size of the market is large enough for
multiple suppliers to be playing in."
But to critics, the USEC project doesn't make economic sense
no matter who's running it.
Autumn Hanna of the Taxpayers for Common Sense calls it
"another Solyndra" that "keeps getting handouts from the
Hill."
Peter Bradford, a former member of the Nuclear Regulatory
Commission who now teaches energy policy at Vermont Law School, said the
project is unnecessary and expensive.
"It's not as though the world's uranium market is in
scarcity, and it's not as though we're building new nuclear units at such pace
that there's any conceivable possibility of a shortage," he said. He
estimates global demand for uranium is down 5% to 15% since the March 2011
tsunami and partial meltdown at the nuclear plant in Fukushima, Japan.
USEC executives say the Japanese incident may depress uranium
demand for two to four years. "That's been the trigger for a lot of weak-kneed
people in Europe — and Japan, frankly — to say we don't need nuclear,"
Chairman James Mellor told shareholders at USEC's annual meeting Thursday.
But with 60 nuclear plants under construction worldwide, the
long term outlook is positive, he said. "People aren't going to be able to
maintain their lifestyles — their two TVs, their microwave ovens — without
nuclear energy."
By Jay LaPrete for USA TODAY
Jeff Albrecht, owner of a Holiday Inn, invested $3 million to
upgrade his hotel after President Obama's promise to support the USEC project.
The company controls 25% of the $8 billion global enriched
uranium market, through its Paducah plant and an exclusive arrangement with DOE
to recycle weapons-grade Russian uranium through the "Megatons to
Megawatts" program.
Indeed, the Bethesda, Md.-based company and the federal
government enjoy a close working relationship: USEC was once a part of the DOE
until Congress privatized it in 1998, and the centrifuge technology is owned by
the DOE and leased to USEC.
Rising hopes
Jeff Albrecht got the call at 5 a.m.: Sen. Barack Obama was
hungry. The Ramada didn't offer a hot breakfast, but Albrecht, the owner of the
Portsmouth, Ohio, hotel where Obama was staying on a campaign swing through
southern Ohio, whipped up something special.
"He had six eggs, a big, big, huge helping of home-fried
potatoes, six strips of bacon, a bowl of oatmeal and two slices of wheat
toast," Albrecht recalled. So he took the opportunity to bend the
senator's ear.
"He looked me in the eye and said, 'I'm familiar with
that project, and I support it,' " Albrecht recounted.
After Obama was elected president, Albrecht obtained a $3.5
million bank loan to renovate his hotel and convert it to a Holiday Inn.
Obama's 2013 budget proposes $150 million for the project,
but Albrecht thinks that's not enough. "We don't want anymore welfare. We
don't want unemployment subsidies. We want jobs."
Stopgap funding
With the loan guarantee in limbo, USEC has kept the test
project running with stopgap funding. Last year, with support from key members
of Congress, the DOE agreed to take title of the depleted uranium — a
complicated transaction that freed up $44 million for the company.
USEC says it can't continue to keep the project operating
after May 31 without more government money. "We've pulled rabbits out of
the hat, but the hat's only so deep and there are only so many rabbits,"
said Paul Jacobson, a USEC vice president.
To keep the company afloat while it considers the loan
guarantee, the Obama administration supports another $256 million in research
grants over two years. That would help USEC move up to 120 centrifuges, a large
enough test cascade that the company hopes will allow it to get either the loan
guarantee or private financing.
The Democratic-controlled Senate approved that funding last
year, but the Republican House rejected it. Obama has proposed $150 million in
his 2013 budget, but that money won't be available until October. USEC says it
will have to shut down the project by June without more money.
Energy Secretary Steven Chu has all the authority he needs to
make that immediate grant, Republicans say. Chu has said he wants a strong
signal from Congress before releasing the money.
Republican House Speaker John Boehner, who as a member of the
Ohio delegation has personally pleaded with Obama to green-light the project,
hasn't given that signal. "The speaker believes the president should keep
his word to the people of Ohio," said Boehner spokesman Michael Steel.
The fallout from Solyndra has some in Congress doing some
soul searching about their involvement in those decisions.
"A cloud, a big black cloud came over after
Solyndra," said Rep. Mike Simpson, R-Idaho, at a recent congressional
hearing. He admitted that he put "undue influence" on DOE to approve
a $2 billion conditional loan guarantee for Areva and said members of the Ohio
delegation were doing the same thing.
The Solyndra question has put some USEC supporters in a
pickle. Facing congressional scrutiny over Solyndra, Chu pointed out that many
in Congress had supported loan guarantees for projects benefiting their
districts.
Among them is Rep. Scott DesJarlais, R-Tenn., whose district
abuts USEC's Oak Ridge operations. DesJarlais had written Chu to support the
USEC loan guarantees but has now withdrawn that support, saying USEC should
seek alternative funding.
USEC's biggest champion in Congress, Rep. Jean Schmidt,
R-Ohio, was defeated in a primary election last month. Her likely successor in
the heavily Republican district, Brad Wenstrup, hasn't made up his mind.
"Certainly there's short-term value, but he wants to make sure there's
long-term value as well," said Matt Dole, a Wenstrup consultant.
