Don’t Get Me Started, Regulars and Shorts

Don’t Get Me Started: EnergySolutions: To big to fail?

By John deJong

The abrupt departure of Steve Creamer, CEO of EnviroDon’tCare/Energy Pollutions (names have been changed to eliminate any greenwashing effect) prompts the question: Why?
by John deJong

dgmsWhen I think about Steve Creamer’s abrupt resignation as CEO of Energy Solutions in February, I imagine a Pat Bagley cartoon of Creamer in a cowboy hat and spurs, slowly edging away from a bubbling barrel of nuclear waste China-syndroming its way to Beijing. That’s not gonna happen. The Tribune would never print it.

But nobody knows what happens when a couple hundred thousand tons of depleted uranium stew for a couple of hundred years with the dog’s breakfast of other nuclear isotopes that EnviroDon’tCare/Energy Pollutions (EDC/EP—names have been changed to eliminate any green washing effect) has buried at its Clive site in Tooele County since 1990.

If EDC/EP has its way, much of the hundreds of thousands of tons of depleted uranium produced in this country will be headed to Utah. The only problem is that the Clive facility is licensed for low-level nuclear waste, not nuclear waste with a half life of 4.468 billion years.

The Clive site will be a stew the next time the lake rises. It won’t happen in the next fiscal quarter and it probably won’t happen in sevgenerations, but it’s going to happen.

One has to wonder why Creamer resigned so abruptly. No reasons were given for his departure. Of course, reasons for resigning are usually not announced when doing so would hurt the stock price. EDC/EP did go to pains to say that no financial shenanigans were involved. If Creamer were quitting to be the CEO of some big nonprofit, they would have told us. Who knows, he may have just gotten bored. After all, running a monopoly is pretty monotonous.

Creamer is at the age where medical concerns can have a life-changing effect. Fronting so many dodgy ventures can’t be good for your heart. Or he may have gotten a whiff of one too many barrels of nuclear waste. Calvin Black, the legendary San Juan county commissioner who wore a piece of uranium ore on a necklace and who died of cancer at 61, comes to mind.

The blogosphere provided some added insight or at least food for thought. One blogger, “go capitalism,” congratulated Creamer and EDC/EP for their prominent place as capitalists. And they are capitalists, in the classic sense. EDC/EP has a near monopoly on low-level nuclear waste in this country. Principals of EnergyDon’tCare played a pivotal role in laws and regulations that make sure that EDC/EP has the only permit to bury low-level nuclear waste in Utah and one of only three in the nation. While environmentalists were pleased, Utah might have come out ahead on nuclear waste if it had authorized a competitor. That way Utah would be in a much stronger position to negotiate the financial terms of low-level nuclear waste disposal licenses. We could even sell the rights to the highest bidder instead of awarding it to the lowest/only bidder, the way it is now.

The highest and best form of capitalism is monopoly. Having one really big machine punching out all the widgets in the world and another really big machine producing all the framitzs, one low-level nuclear waste dump and so on, truly is the best use of capital—unless you want to figure in externalities. Then it gets fuzzy. What is the cost benefit analysis of sending Italian nuclear waste to Utah? The transportation costs must be astronomical. Those Italians must be really anxious to get rid of that nuclear waste.

It might be that Creamer is edging away from a financial train wreck. EnviroDon’tCare/Energy Pollutions (EDC/EP) stock has been “underperforming”—falling 18% on the news of Creamer’s retirement, down nearly 40% from the year’s high. Net revenues were down 10%, gross revenues down nearly 15%. The profit per share did rise 10%, however. EDC/EP is relying on relatively low-margin government waste cleanup contracts to keep going until it wins the fights on disposal of depleted uranium and foreign waste at its Clive facility.

It’s interesting to note that the asset side of EDC/EP’s 2009 balance sheet carries $518 million of “good will.” Almost a third of net assets. Damn! It looks like those big media buys are getting a return on investment of about 100 to one, if the ad campaigns cost a mere $5 million. But wait, there’s more! “Other intangible assets” amount to another $310 million.

What are “other intangible assets”? In the late ’90s the price-tag of many corporate acquisitions and mergers was so far above any real or apparent value that upon completion of the deal, the resulting corporate balance sheet (assets balanced against liabilities) was so far out of balance that it was embarrassing. Embarrassing because balance sheets are supposed to balance. The solution was to inflate “goodwill” and “other intangible assets” to the point where the sheet balanced.

Goodwill can be such things as a public educated to the advantages of nuclear waste storage in their back yard. Or a legislature beholden to you because of your generous campaign contributions. And its value is anybody’s guess. “Other intangible assets” in EDC/EP’s case may be their license to bury nuclear waste and their near monopoly position as the low-level nuclear waste “stick-it-where-the-sun-don’t-shine” option of only resort.

Taken together, more than half of EDC/EP’s value is intangibles ($828 million of a total $1,511 million). That wouldn’t be so bad but EDC/EP has $505 million in longterm debt. At the current rate it will take EDC/EP 25 years to pay off that debt.

The bald truth may now be apparent that Creamer and his co-investors were taken to the cleaners by EnviroDon’tCare’s founder: Khosrow Semnani probably walked away from the deal with a couple of hundred million dollars. EDC/EP’s value was caught in the irrational exuberance of the ’00s. As with other bubbles of the ’00s, the pain of deflation will not be borne by those who inflated and profited from the bubble.

Is it possible for EDC/EP to go bankrupt? Could EDC/EP strip off the non-Utah based parts of itself, pick up its carpet bags and leave? I’m sure EDC/EP’s lawyers and our state legislature have made sure that the state of Utah has no viable claim on the assets of EDC/EP. But as a monopoly and Utah’s legislature’s best friend (thanks to generous campaign contributions), EDC/EP is not in danger of going under.

Maybe EDC/EP should be nationalized or rather “stateized”—taken over by the state and run by a private contractor. That way the benefit, as well as the risk of disposing of nuclear waste, could accrue to the citizens of Utah rather than a few favored stock holders. While Steve Creamer only made $500,000 in salary last year (that’s about $250 an hour) he still owns a good piece of the company, somewhere around 3 million shares.

A good question is whether we owe the distant future anything. Steve Creamer and his ilk seem to believe they owe it nothing past the next quarterly financial statement.

John deJong is associate publisher of CATALYST.


This article was originally published on February 28, 2010.