USEC's American Centrifuge Project Lives Again

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

The U.S. Department of Energy agreed to push back the final review of USEC's American Centrifuge Plant loan guarantee application by six months to allow the company to address the problems in its initial application.

The move represents a change of heart for the DOE, which told USEC in late July that the ACP application would not meet the requirements for the loan guarantee program, encouraging it to withdraw the application and resubmit over the next 18 months. This announcement was met with outrage by USEC, which accused the Obama administration of going back on its promise to support the project. Even more incendiary were the implications of job losses should the project be forced to demobilize--as many as 2,000 according to USEC--leading employees to descend on Washington, DC by the busload to protest the DOE's decision.

The Department cited the need for further testing of USEC's ACP technology as the cause for its initial rejection. In addition to extra time, the DOE outlined for the company the specifics it hoped to see in the application. "USEC's operating experience on its 'lead cascade' must demonstrate high confidence that machine reliability is commensurate with its facility operating plan," said DOE Undersecretary for Science Steven Koonin. "We have discussed with USEC specific test results that would give such confidence, and we look forward to working with them to that end."

Though the new deadline is clearly a victory for USEC, the company has still been forced to halt construction operations for the ACP. One of its contractors, Fluor, confirmed that 100 jobs had been shed at the site with more likely to come.

Nonetheless, this extension represents more than just a second chance for USEC to secure a chunk of loan guarantee money. With the exception, the additional time, and the guidance toward meeting regulations (not to mention the $45 million toward ACP research and development offered by the DOE last week) the DOE has shown a willingness to usher the project toward realization.

Nuclear Buzz Political Tug-of-War Threatens Constellation-EDF Joint Venture

This article originally appeared in Fuel Cycle Week #338, 8/5/09

By Nancy E. Roth, Managing Editor, Fuel Cycle Week

Rising tensions between the Constellation Energy Group and Maryland regulatory and political authorities have generated sensational headlines in recent months. But last week the rancor quotient spiked when the Maryland Public Service Commission announced that it was extending its review of the proposed $4.5 billion nuclear joint venture with Èlectricité de France to Oct. 16, well beyond the deal’s Sept. 17 closing date. Constellation and EDF had asked that the ruling be delivered before the negotiated date, which Constellation described as “firm.”

The shouting match began on June 11, when the PSC affirmed its authority to determine whether Constellation’s plan to sell the French state-owned utility a 49.99% stake in its nuclear assets was “consistent with the public interest, convenience and necessity, including benefits and no harm to consumers.” The PSC has no jurisdiction over Baltimore-based Constellation, but it does regulate the energy group’s wholly owned subsidiary, Baltimore Gas and Electric. Since the PSC took up its review in February Constellation has disputed the commission’s claim of jurisdiction over the matter.

Constellation swiftly filed a lawsuit to overturn the regulator’s decision, but in early July a judge dismissed the case, suggesting that such steps in the PSC’s regulatory process were not subject to reversal in court. This has left the energy holding company with no recourse until the PSC delivers the final result of its review, which Constellation may then appeal.

Scoring a “Big Win” for Ratepayers

Perhaps what is most vexing from the perspective of the embattled energy group is that it had worked assiduously to avoid this very scenario last December while negotiating the terms of its joint venture with EDF (FCW #305, Dec. 17).

Specifically, the two companies crafted the deal to comport with a $2 billion comprehensive settlement package Constellation had signed with Maryland Governor Martin O’Malley (D), the Maryland Public Service Commission and the state legislature in 2008. The settlement was to resolve several points of contention in a dispute regarding the terms of the 1999 deregulation of the state’s electricity market.

The specific provisions of the settlement, as listed in documents on O’Malley’s website, are still being negotiated, including about a dozen “ring-fencing” measures to insulate BGE from potential financial pressure by its parent company.

For example, under the proposed provisions, BGE is to be protected if Constellation files for bankruptcy. Constellation may not allocate any costs of its UniStar joint venture with EDF to the utility. In addition BGE must give all Maryland residential customers a one-time 10% credit on their electric bills, and suspend all increases in delivery or distribution fees until 2011. Any rise thereafter is capped at 2.5%.

Not listed, however, is a provision amending state law to accord “safe harbor” to certain Constellation transactions. The law would specifically exempt business agreements involving less than 20% of Constellation stock and 20% of its board of directors from PSC review. The two companies clearly had the safe harbor criteria in mind when they drew up the terms of last December’s deal. It gave EDF a 9% stake in Constellation and allowed it to contribute a 9% share (one member) to Constellation’s board of directors.

In an April 24, 2008 press release O’Malley and other state officials trumpeted the settlement as a “big win” that “delivered on [the governor’s] promise to BGE ratepayers.”

“Safe Harbor” Denied

But in its June statement the PSC ruled that the safe harbor pro- vision “does not immunize the [Constellation-EDF] transaction from all public interest review.” Rather, Maryland law “directs us to determine whether EDF will have the power to exercise any substantial influence [over the policies and actions of Baltimore Gas and Electric Company].”

The primary grounds for the finding lie in “EDF’s post-closing ability to control the flow of dividends from Constellation Energy Nuclear Group to [Constellation Energy Group],” which, according to the PSC, “could affect substantially the decisions CEG and BGE make as to the financing and financial structure of the utility.”

O’Malley put it more succinctly in a June 18 videotaped speech in support of the PSC on his website. “We know that BGE is a cash cow for Constellation Energy. We know that BGE pays more than half of all dividends paid into Constellation Energy and has a huge impact on Constellation’s bottom line,” he said, adding that this was why the government “stepped in to look out for the public interest."

In response to the PSC’s announcement of the extended review deadline, Constellation pronounced itself “disappointed” in a July 30 statement, noting that since the review began in February, “Constellation Energy, BGE and EDF have produced in excess of 15,000 pages of documents, provided unprecedented access to senior corporate officers for hours of depositions and testimony, and submitted numerous briefs and expert testimony. ... We believe that the parties have all of the information reasonably necessary to review the EDF transaction.”

The PSC also acceded to five antinuclear groups’ joint request, backed by the Maryland Office of People’s Counsel, that it hold evening public hearings on the deal to take comments on the deal.

Israel Asks U.S. To Support N-Plant Without NPT Signature

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

Israel is seeking American support for plans to build a civilian nuclear plant without signing the Nuclear Non-Proliferation Treaty. Prime Minister Binyamin Netanyahu's government hopes to follow the "Indian model," allowing the international community to monitor its civilian nuclear facilities without revealing the details of its other nuclear capabilities.

The request comes six months after a report commissioned by the Infrastructure Ministry suggested a nuclear plant would be the best option to meet Israel's expanding energy needs.

Israel occupies a unique position that sets it apart from the various other Middle Eastern nations pursuing nuclear energy programs. The nation's plans to develop a civilian reactor in the southern Negev region fizzled out in the 1960's. However, the Negev hosts the mysterious Dimona facility, widely believed to be a production site for nuclear warheads. Israel maintains a policy of nuclear ambiguity, refusing to confirm or deny its nuclear weapons capabilities or arsenal. The general consensus among the international community holds that Israel does in fact have nuclear weapons, a theory supported by its continuing refusal to sign the NPT.

As with India, the United States possesses the critical sway needed to secure an NPT waiver. But nuclear transparency is a big issue in the United States these days. Israel's request is complicated by America's ongoing faceoff with Iran, whose ostensible pursuit of a civilian nuclear program is feared to hide a weapons agenda. Furthermore, the Obama government is showing signs of a departure from the unwavering support for Israel's ambiguity policy upheld by previous administrations, illustrated by Assistant U.S. Secretary of State Rose Gottemoeller call for Israel to sign the NPT during an international conference in May.

The U.S. has not yet responded to the Israeli request.

DOE Nixes Loan Guarantee; USEC to Demobilize $3.5B ACP

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.