DOE Calls in the experts

By: Andrea Jennetta, Publisher
Fuel Cycle Week, 03/03/11 V10:No.414

ACP logoIs the U.S. Department of Energy gearing up to  take “official action” on USEC’s (NYSE:USU) loan guarantee application on the American Centrifuge Plant?

It would appear so.

On Monday, DOE announced that it plans to award a $250,000 sole source contract to Bates White Economic Consulting (BWEC), a Washington, D.C.-based economic consulting firm, to “assist the Loan Programs Office within the DOE with a financial, business plan analysis and associated market analysis” of USEC’s American Centrifuge Project application.

“The services of BWEC is [sic] considered unique due to their expert knowledge of nuclear fuel supply chain from mining to processing of yellow cake to uranium enrichment and fabrication of fuel rods,” DOE explained in the Feb. 28 special notice on the federal government’s Business Opportunities website.

According to its website, BWEC specializes in “advanced economic, financial, and econometric analysis and excel[s] at complex matters that require sophisticated problem solving and deep empirical analysis.”

FCW Contributing Reporter Dan Yurman has observed that Glenn George, a partner at Bates White, is a possible team leader. He acted as an advisor on all four of the nuclear reactor loan guarantee applications considered by DOE. Plus he’s a nuclear engineer, served in the nuclear Navy, and seems to be an all around impressive individual with a background in nuclear and finance.

The only reason to mention his (and BWEC’s) credentials is to make the point that when it comes to USEC and the ACP loan guarantee application, the Energy Department really needs to be prepared. Regardless of the final outcome of the evaluation, everyone—EVERYONE—will be criticized.

With a “yes” decision, DOE is saying there are enough positive vectors in terms of USEC’s enrichment order book and ability to execute, despite financial weakness and questionable technology.

With a “no” decision, DOE is saying there are justifiable doubts about USEC’s finances and technology, and that granting the loan guarantee is too risky for U.S. taxpayers.

See? There is plenty to criticize either way. But the “yes” outcome has the added fun of the credit subsidy cost. If Mizohu USA is right about a tiny credit subsidy cost of 2.5%, said cost will be a proverbial drop in the $2 billion bucket (FCW #410, Feb. 3).

If it’s higher, who knows whether USEC will be able to pay it? USEC announced last week that it is close to reaching agreement on terms with the Energy Department’s Loan Guarantee Program staff. This suggests that full due diligence is essentially done, and that the LGO is readying a financial package for review by the credit committee. This is where it gets perilous.

I think the nuclear industry will have a really good idea of whether USEC is going to get the ACP loan guarantee if DOE takes that next step. The credit committee includes DOE and OMB officials, and an estimated range of credit subsidy costs will be a major topic of discussion. The official credit subsidy cost won’t be set unless and until Energy Sec. Steven Chu issues a conditional commitment.

Now, out in the real world, lenders don’t send financial packages to their investment firms’ risk committees unless they already believe the packages will be approved. FCW’s hunch is that Bates White’s role is to find areas of weakness in the draft financial package and beef them up before it goes to the credit committee.

Once under review, any questions or issues that arise will go to the economic consultant for fixing.

As with all things USEC, no doubt there will be many more plot twists. Stay tuned.

Publisher’s Note

Ah, indeed. Just as we were preparing to send FCW to layout, U.S. Energy Secretary Steven Chu issued a formal determination that the proposed transfer of approximately 2,000 MTU per year in calendar years 2011, 2012 and 2013 to Portsmouth site cleanup contractors “will not have an adverse material impact on the domestic uranium industries.”

Unless I am mistaken, conversion is one of those domestic industries. To say that Converdyn is not affected—or that a 20-cent drop in the price/kgU for conversion service is no big deal—is mind-boggling. The material that DOE is releasing is UF6, not U3O8.

Now, FCW understands that the transfer amounts, which will be limited to no more than 450 MTU of natural uranium per quarter, are within the limits set in DOE’s excess uranium inventory management plan.

Nevertheless, in our market, perception is reality. Spot price indicators dropped last week as investors worried about China’s involvement in the spot market. But this week they started to tick back up above the $70 mark—until today. You’ll see from Evo Market’s chart on page 2 that we are back below $70. Next week, FCW will cover market reaction to the latest move by DOE to formally adopt USEC as a ward of the state.

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Cory Douglas said...

Another huge bailout for this alledgedly public corp!