WALL STREET JOURNAL

FEBRUARY 27, 1997

TRASH AND CASH
A NUCLEAR - WASTE FIRM IS SUED FOR PAYING A REGULATOR TOO LITTLE

Trash and Cash

A Nuclear-Waste Firm Is Sued For Paying A Regulator Too Little

Utah Official Got $600,000, Says He Is Owed Millions For 'Consulting Services'

Company Calls It Extortion

By Bill Richards

Staff Reporter of THE WALL STREET JOURNAL

CLIVE, Utah-Larry Anderson figured he had a deal - actually, an extraordinary deal for a public official - and he wants a court of law to uphold it.

For 10 years, Mr. Anderson was a top Utah environmental regulator, ultimately earning about $60,000 a year to oversee the disposal of nuclear waste in his state. During much of that time, he says, he was quietly accepting $600,000 in cash; gold coins and real estate from Khosrow Semnani, whose company runs a huge nuclear waste disposal site 15 miles west of Salt Lake City..

Mr. Anderson' s beef is this: The payments stopped in 1995, two years after he lost his government job in a political shuffle. That, Mr. Anderson, says in a lawsuit, is a breach of his verbal agreement with Mr. Semnani. And given all the site application and consulting services he performed while a regulator, he says, Mr. Semnani and his company, Envirocare of Utah Inc., owe him $5 million more.

The Countersuit

Mr. Semnani doesn't deny making the payments, but in a counter-quit alleges that Mr. Anderson was illegally demanding and extorting the money by threatening to hold up permits the company needed. Mr. Semnani paid money because he was afraid for his business, says Rod Snow, a lawyer who is pursuing the suit for Mr. Semnani.

That a businessman and a regulator are acknowledging this kind of activity is most unusual, even for Utah, a state that has seen its share of business shenanigans. Both plaintiffs have problems: Utah law prohibits officials from accepting more than $50 from people they regulate, and it doesn't allow extortion as an excuse for making such payments. While the suits filed in state court in Salt Lake City late last year, haven't come up for trial, they have set in motion a federal criminal investigation. No one has been charged, and Messrs. Anderson and Semnani won't comment. But the claims and counter claims have puzzled even a senior investigator, who says, "If you can figure out what these guys are trying to do, let us know."

The allegations haven't received widespread attention, but they are rolling the industry, because regulators could pull Envirocare's license if they determine it was fraudulently obtained. That, in turn, could bollix up this country s fragile nuclear-waste disposal system.

Since the splitting of the atom, scientists and policy makers have debated where to put nuclear leftovers - under the sea, in underground salt domes, even on the moon. In 1980, Congress ordered states to set up their own dumps or, enter multi state compacts to share dumps for low-level waste - mostly rubble from cleanups of contaminated nuclear-bomb and commercial-power plants. But so far, only three sites for low-level waste are operating: Envirocare's C!ive, Utah, site; another run by Chem Nuclear Corp. in Barnwell, S.C.; and a third operated by U.S. Ecology Inc. in Hanford, Wash. Meanwhile, low-level waste is piling up at research facilities, hospitals and utilities.

With so few alternatives, dumpers are anxious. If the Clive site wasn't available, we'd have to find another option - which doesn't exist today, says a spokesman for the Oak Ridge Reservation in Tennessee, which has already shipped about 15 tons of low-level radioactive waste here. The former nuclear-bomb factory plans to send at least 30 more tons of debris to Clive by 2001.

Last month the Natural Resources Defense Council, an influential environmental group, called on the Nuclear Regulatory Commission to shut down Clive, saying that the allegations in the lawsuits show the sites license was corruptly obtained. The NRC did a safety check and found no serious violations, so it has allowed the dump to keep operating. But senior NRC officials say they will re-examine the issue if criminal investigators find wrongdoing. In a separate review this month, Utah's Bureau of Radiation Control, where Mr. Anderson used to work, ruled that Envirocare's license appears valid. But the agency is evaluating the license, which is up for renewal this year. The state could revoke the license if it determines that the application included false information or that Mr. Semnani broke the law.

A Successful Company

In many respects, Envirocare has been tremendously successful; the rapidly growing, closely held company says it generated about $80 million in revenue last year. Mr. Semnani started the company with a single contract a decade ago to dispose of waste from an abandoned Salt Lake City uranium mill. It was a smart bet. Now at his Clive site, tons of low-level radioactive waste pour In daily. Last year, enough debris arrived to carpet 65 football fields a yard deep. Long lines of rail cars stretch across the desert, waiting for a spot on the track leading to the site.

A Nuclear -Waste Firm is Sued

According to the lawsuits, Messrs. Anderson and Semnani met when Envirocare began seeking a permit for the dump in 1981. It turned into a fruitful relationship for both. Mr. Anderson set up a corporation, named Lavicka Inc., and he says that Mr. Semnani agreed to pay him $100,000, plus 5% of all revenue from the site. In return Mr. Anderson says in his lawsuit, he would provide "such expertise as was necessary for the application process."

Mr. Anderson was, indisputably, a powerful ally for Envirocare - enough so that even six years ago, his own staff complained that he was showing favoritism. That complaint led to an investigation by his agency. One of the areas of inquiry: Mr. Anderson had rejected a proposal by Nuclear Fuel Services, a Norcross, Ga. company, to convert a mothballed uranium mill in Garfield County, Utah, into a disposal site for low-level radioactive waste. Many Garfield residents favored the proposal, which would have meant jobs and tax revenues, but according to a memo prepared after the investigation, Mr. Anderson vetoed the site without visiting it. "Mr. Anderson said this was his bailiwick, ' the memo stated, and he declared that low-level radioactive waste in the state would go only to Envirocare.

The memo also noted that Mr. Anderson "listens to Mr. Semnani more than he listens to his staff" and routinely reduced penalties his inspectors had recommended for violations by the Clive operation. Pointing out that Envirocare had hired Mr. Anderson's son-in-law to work as an inspector at the Clive site, the memo stated that the regulator "has lost objectivity where Envirocare is concerned."

But Kenneth Alkema, former director of the Utah Division of Environmental Health and Mr. Anderson's former boss, says the concerns weren't pursued beyond the initial investigation because there wasn't any evidence of wrongdoing by Mr. Anderson. (Mr. Alkema lost his job in the same 1993 political upheaval that ousted Mr. Anderson. After working out of state, Mr. Alkema returned to Utah in 1995 to work as Envirocare's top lobbyist.)

Mr. Anderson performed another vital service in 1991, when he urged the Northwest Compact, an eight-state group in the West with jurisdiction over radioactive shipments, to grant Envirocare a license to handle low-level radioactive waste. Until then, Envirocare's Utah license limited the company to handling only naturally occurring radioactive material, a much narrower category with several competitors and relatively modest profit margins. By contrast, disposing of the huge stockpiles of low-level waste is far more profitable, and Mr. Semnani has no competitively priced rival.

According to documents and interviews, Mr. Anderson aggressively lobbied his Northwest Compact colleagues at a meeting in August 1991. A transcript of the meeting shows Mr. Anderson arguing heatedly against objections from U.S. Ecology to expanding Envirocare's license. When U.S. Ecology's attorney urged more study of the proposal, Mr. Anderson pushed for quick approval for Envirocare.

"We have strung them along because of' U.S. Ecology's concerns for a year now," Mr. Anderson told colleagues. When another compact member raised questions about whether Envirocare had jumped the gun and was already taking low-level radioactive waste, Mr. Anderson replied by chanting, "No, no, no."

David Stewart-Smith, Oregon s representative on the compact, recalls that Mr. Anderson's support of Envirocare "bordered on advocacy." He and other compact members now say that in light of Mr. Semnani's payments, the board's unanimous decision to grant the license may have been too hasty. "If the board had any indication of the current allegations, we would have backed way off until we learned the lay of the land," he says.

James Haskins, Mr. Anderson's attorney, won't comment about the compact's decision. But Charles Judd, Envirocare's executive president, says that "anything that had to do with radioactive-waste disposal before the compact, Mr. Anderson was speaking for Envirocare." The compact will "absolutely" review Envirocare's license at its next meeting in March, Mr. Stewart-Smith says.

Meanwhile, Envirocare has benefited from several other regulatory decisions in which Mr. Anderson played an important role.

Public and Private Land

A key element of the NRC's strategy has been to recommend that low-level waste dumps be put on public land, thus ensuring there would be an accountable party in case the company fails. Operators are also asked to sock away money for closing down and cleaning up the sites in the Brent of leakage. At U.S. Ecology's Hanford dump, which takes both low- and high-level waste, the company has had to put aside $24 million for eventual shutdown and another $24 million for long-term maintenance. Chem Nuclear, which also takes high-level waste, has set aside $80 million for the "perpetual" care at Barnwell.

Mr. Anderson permitted Mr. Semnani to build his dump on land Envirocare owned. The state's license requires that the company with its low-level waste, post an $8 million bond, to be used for a cleanup in case the site closes or the company fails. It isn't clear who would cover any remaining liability.

The Hanford and Barnwell sites also are required by their respective states to bury low-level waste in specially constructed containers. Mr. Semnani's Utah license allows Envirocare to simply mix the same kind of waste with dirt and bury it, a less expensive, more-controversial procedure.

Such provisions have cut Mr. Semnani's costs. A barrel of low-level waste that would cost generators about $3,800 to bury at Hanford and $2,400 at Barnwell costs as little as $150 to dispose of at Clive, according to the three companies. Envirocare far out paces its competitors, taking about 350,000 cubic yards of low-level waste last year compared with about 12,000 at Barnwell and 3,000 at Hanford.

State records show Envirocare has benefited in other ways. Between 1989 and 1996, more than 100 safety violations were med by state inspectors at the Clive site. Records show that senior state regulators, including Mr. Anderson, routinely reduced or eliminated penalties for most of the violations.

The pattern apparently continued after Mr. Anderson's departure from government. Last year, the U.S. Environmental protection Agency complained in a letter to Utah's Department of Environmental Quality that state regulators cut penalties on 32 violations assessed against Envirocare's Clive operation in 1995. "The proposed penalty does not appear to adequately reflect the severity of the violations, [the company's] recalcitrance and recidivism, or the economic benefits derived from the violations," the EPA's letter says.

A Lawsuit's 'Impact'

Mr. Semnani stopped paying Mr. Anderson in 1995 - an action that, according to Envirocare's lawsuit, provoked a threat from Mr. Anderson's lawyer, Mr. Huskiness. Last May, Mr. Huskiness wrote Mr. Semnani's lawyer to warn of the "impact" of a lawsuit, "regardless of any judicial outcome." Five months later, he filed the suit.

It isn't clear what Mr. Anderson hopes to accomplish. If the payments are determined to be illegal, Mr. Anderson couldn't claim Utah he was cheated by Mr. Semnani. As for Mr. Semnani, he likely will have to explain why he never raised his concerns about the extortion threat until after the first lawsuit was filed. (Mr. Semnani's lawyers say he didn't go to investigators earlier because he was afraid that some other Utah official might exact retribution.) Meanwhile, friends say that Mr. Anderson, 66 years old, has recently had a heart attack and is also suffering from prostate cancer.

As the legal fights continue, though, Envirocare booms. "We're jammed,'' Mr. Judd says, powering his car through the mud on a tour of the 900-acre Clive dump.

"So far, we're a very successful business," Mr. Judd says. "Of course, if we lost our license, we'd be out here herding sheep."