This article originally appeared in Fuel Cycle Week #337, 7/29/09
By Dan Yurman, Contributing Reporter, Fuel Cycle Week
Shocking the American nuclear industry this week, the U.S. Department of Energy turned down USEC’s (NYSE:USU) application for a $2 billion loan guarantee in support of its American Centrifuge Plant. For political and economic reasons USEC was considered the frontrunner for the loan guarantee for its uranium enrichment plant in Piketon, Ohio.
After the announcement USEC’s share price on the New York Stock Exchange dropped 33% to $4.13, with a 52-week high of $7.24, and Jefferies & Co. cut its USEC rating to “hold” from “buy” according to Dow Jones. At market close on July 27 the company’s total stock capitalization rested at $436 million. The American Centrifuge Plant will cost roughly $3.8 billion—nearly nine times the company’s current value.
But the DOE has left the door open for USEC to reapply in 18 months, after spending a government grant of $45 million to improve its American Centrifuge technology. It has, however, asked USEC to withdraw its current application.
The decision leaves AREVA as the only applicant for the loan guarantee that Congress slated for fuel-cycle facilities. The French nuclear leviathan’s planned $2.4 billion Eagle Rock enrichment plant in Idaho will use proven technology identical to that going into its nearly completed Georges Besse II plant in Tricastin, France. But the Energy Department has shown no indication that the Idaho facility would win the coveted financial support. Jarret Adams, a spokesman for AREVA, had no comment on the denial of the loan guarantee to USEC.
Technology: Not Ready?
DOE had said it would base its evaluation of loan guarantee applications on several criteria, including finances, technology and the applicant’s ability to complete the project. The department was also determined not to award a loan guarantee to an applicant that might default for technical or financial reasons.
Clearly, the ACP technology topped DOE’s shortlist of concerns about USEC. In a conference call with journalists on Tuesday, DOE executives said the department had strong reservations about whether USEC’s technology is ready for market.
Mark Rogers, a DOE official who participated in the evaluation of USEC’s application, said the company had only completed the final design of its centrifuge technology three months ago—and has only tested 38 units based on the design. The plant will require 11,000 units.
In its press statement detailing its decision the DOE said that its evaluation found that the technology required more development, and, in an unprecedented move, added that it was offering USEC $45 million to fund 12-18 months of additional R&D. This signals that the Obama administration is not quite willing to nail the funding door shut for USEC’s project.
It also may be an effort to soften the blow to the Piketon labor force that has counted on the jobs the USEC facility would offer. The department said that USEC could withdraw its application and apply again once it had spent the government’s money and proven to DOE’s satisfaction that the technology can reliably deliver product with 11,000 centrifuges.
But Elizabeth Stuckle, USEC’s vice president for corporate communications, disputed the department’s contentions. “This technology is ready,” she told FCW. “Since August 2007 we’ve clocked 235,000 hours of solid experience with it.”
Finances: Not Solid?
Rogers also noted in the press conference that DOE could not verify whether USEC had sufficient financial resources to complete the plant, plus start and sustain commercial operations. So far it has spent roughly $1.5 billion developing the project and last winter it halted work on its $1 billion engineering, procurement and construction contract with Fluor to preserve cash. Moody’s gave USEC a credit rating of B3, while Standard & Poors assigned it a B-minus rating.
Indeed, USEC has been burning through cash at a rapid rate. According to its published financials, the firm had $805 million in March 2008, but as the firm spent money on its American Centrifuge plant, its cash reserves sank: in June 2008 it had $504 million; in September 2008, $359 million; and by December 2008, $249 million. Included in these figures are the firm’s commitments to R&D spending at an average of $30M per quarter over the past 12 months.
Even more alarming, are the figures for 2009. As of March USEC had just $38 million in cash on hand. Worse, receivables increased from $154 million last December to $259 million last March. Not only has the company been bottoming out in its ability to pay its bills, but the money owed to it by other firms increased by $105 million in just three months. Also, in the past 90 days earnings per share dropped from $0.16 to -$0.02.
USEC’s proposed American Centrifuge facility, which would have an estimated capacity of 3.8 million SWU, is the largest of three centrifuge enrichment plants now being either planned or built in the U.S. At $3.5 billion, it is also the most expensive. By comparison, the National Enrichment Facility in New Mexico will produce 3.3 million SWU and cost $2 billion; AREVA’s Eagle Rock will also generate 3.3 million and is projected to cost $2.4 billion.
Stuckle told FCW that the department’s assessment of USEC’s finances was flawed. “We believe we are in a strong financial position to accept this loan guarantee,” she said.
USEC has not yet decided whether to accept DOE’s $45 million, added the spokeswoman. But in any case, she insisted, “We are not withdrawing our application.”
No Impact on Fuel Supply
The government’s decision will not affect supplies of enriched uranium in the U.S. The American Centrifuge plant was not a production facility despite a press release from USEC in May 2009 in which it listed the customers who had signed contracts for its product.
Exelon Vice President of Communications Craig Nesbitt told FCW the firm’s supplies of nuclear fuel are based on long-term contracts from a variety of vendors. Although USEC named it as a potential key customer for the American Centrifuge plant, Exelon’s Nesbitt said a decision to scrap the ACP would have “no impact” on the utility’s ability to obtain nuclear fuel for its reactors. With 11 plants that include 19 reactors, Exelon is the largest nuclear utility in the U.S.
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