USEC Inc. (NYSE:USU) today provided an update on the American Centrifuge
project and the ongoing cooperative research, development and
demonstration (RD&D) program. USEC is successfully executing the RD&D
program with the Department of Energy (DOE) to reduce the technical
risks and improve the future prospects of commercial deployment of the
American Centrifuge technology.
During the RD&D program we have built plant control systems, assembled
AC100 centrifuge machines and conditioned the machines with uranium gas
in our existing lead cascade. Importantly, the RD&D program continues to
operate on schedule and on budget. The company has taken a non-cash
charge of approximately $1.1 billion for previously capitalized costs
related to the American Centrifuge project during the period of 2007
through late 2011. This action has no effect on the RD&D program or the
assets that have been transferred to DOE. More information on the
non-cash charge is contained in our annual report on Form 10-K filed
with the Securities and Exchange Commission and posted on our website.
“We’ve seen solid performance from our team working on the RD&D program
and the program remains on budget and on schedule,” said John K. Welch,
USEC chief executive officer and president. “We are pleased to see
continued broad-based, bipartisan support for the American Centrifuge
project due to its importance in meeting national and energy security
goals, and the opportunity to create more jobs.”
Welch added, “Our American Centrifuge team is on track to meet program
goals and we remain committed to moving forward with commercialization
of the technology. We believe that is the path to USEC’s long-term
competitiveness in the uranium enrichment business and the best way to
maximize value for all stakeholders.”
The RD&D program is being conducted under our Lead Cascade license
issued by the U.S. Nuclear Regulatory Commission. We have operated
centrifuges as part of our lead cascade test program for more than one
million machine hours since August 2007. Through the lead cascade test
program, we demonstrate the performance of centrifuge machines,
demonstrate the reliability of machine components, obtain data on
machine-to-machine interactions, verify cascade performance models under
a variety of operating conditions, and obtain operating experience for
our plant operators and technicians.
In June 2012, we entered into a cooperative agreement with DOE to
provide cost-share funding for the RD&D program. The cooperative
agreement provides for 80 percent DOE and 20 percent USEC cost sharing
for work performed during the period June 1, 2012, through December 31,
2013, with a total estimated cost of $350 million. DOE’s total
contribution would be up to $280 million and our contribution would be
up to $70 million.
The cooperative agreement is being incrementally funded, and $177.8
million of DOE funding has been provided. Most recently, $44.4 million
was provided this month by DOE transferring the separative work unit
component of low enriched uranium to USEC that DOE had previously
acquired from us in 2012 in exchange for the transfer of quantities of
our depleted uranium tails to DOE. The remaining obligated funding has
not yet been authorized and is subject to congressional appropriations,
congressional transfer or reprogramming authority to permit the use of
DOE funds previously appropriated for other programs, or other sources
available to DOE. Although we have adjusted our program spending to
accommodate changes to the timing and amount of federal funding, we
remain on schedule and budget to complete the RD&D program by the end of
2013. The amount of federal funding made available to date is expected
to fund RD&D program activities through mid-June 2013, and we will
continue to work with Congress and the administration to fully fund the
RD&D program through December 2013 and achieve the remaining program
milestones.
Under the cooperative agreement, we and our newly created subsidiary
American Centrifuge Demonstration, LLC (ACD) are carrying out the RD&D
program. ACD has put in place a program management and enhanced program
execution structure, which includes a board of managers who oversees and
directs the management of the RD&D program. The seven-person board is
comprised of two independent managers, two managers appointed by USEC,
and one manager appointed by each of Babcock & Wilcox Technical Services
Group, Inc., Toshiba America Nuclear Energy Corporation and Exelon
Generation Company, LLC.
The RD&D program is responsible for 1,175 direct jobs, including 470 in
Ohio and 430 in Tennessee. Approximately 320 jobs have been added in
recent months as a result of the program. The RD&D program also supports
jobs at 169 companies from 28 states.
The cooperative agreement includes technical milestones for the RD&D
program. The first two technical milestones have been achieved and
certified by DOE. On March 15, 2013, we amended the cooperative
agreement with DOE to provide for additional incremental funding. As
part of that amendment, we added four new milestones related to specific
testing requirements associated with the test program we developed with
DOE for the RD&D program. The original remaining milestones have a
milestone date of December 31, 2013, tied to the completion of the RD&D
program. The new milestones have milestone dates beginning as early as
May 15. In addition, the cooperative agreement contains non-binding
performance indicators that are designed to be achieved throughout the
RD&D program and ensure that the RD&D program is on track to achieve the
milestones and other program objectives.
Under the agreed upon test program, construction activities for the new
demonstration cascade required the suspension of machine operations for
several months since late 2012. During this period we have removed
existing cascade support equipment, constructed new infrastructure
equipment and will soon be conducting integrated systems testing.
Manufacture and assembly of AC100 machines is continuing and may
continue through the end of the program. Centrifuge operations and
testing is also continuing at our test facility in Oak Ridge during this
construction period. The new plant systems and other equipment have been
installed and testing has begun, AC100 machines are being installed and
we expect to operate the demonstration commercial cascade in the second
half of 2013.
We are working with our strategic suppliers to maintain the
manufacturing infrastructure developed over the last several years.
However, we are constrained by our reduced level of spending. The RD&D
program provides for the continued production of AC100 machines, which
helps our suppliers gain additional cost experience and familiarity with
the manufacturing process. Although we have delayed high-volume
production of the AC100 machines, our strategic suppliers have
demonstrated flexibility and initiative to keep the project moving
forward. However, we face challenges with ensuring the ability and
willingness of our strategic suppliers to continue at low rates of
production for a prolonged period of time absent greater certainty on
funding for the project and a definitive timeline for full
remobilization.
Significant additional financing is needed to complete the American
Centrifuge Plant (ACP). Potential sources of financing include:
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We applied for a $2 billion loan guarantee for the project under the
DOE Loan Guarantee Program in July 2008. We continue to pursue a DOE
loan guarantee and are planning to update the DOE loan guarantee
application for the project during 2013.
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We have also had discussions with Japanese export credit agencies
regarding financing up to $1 billion of the cost of completing the
ACP, with such potential financing predicated on the project receiving
a DOE loan guarantee.
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We also expect to need at least $1 billion of capital for the project
in addition to the DOE loan guarantee and the Japanese export credit
funding. The amount of additional capital is dependent on a number of
factors, including the amount of any revised cost estimate and
schedule for the project, the amount of contingency or other capital
that DOE, Japanese export credit agencies or investors may require,
and the amount of the DOE credit subsidy cost that would be required
to be paid in connection with a loan guarantee. We currently
anticipate the sources for this capital to include cash generated by
the project during startup, available USEC cash flow from operations
and additional third party capital. We expect the additional
third-party capital would be raised at the project level, including
through the issuance of additional equity participation in the project.
We have no assurances that we will be successful in obtaining this
financing, and if successful, our ultimate ownership share of the
project will likely be reduced as a result of raising equity and other
capital to deploy the project. USEC issued its annual report on Form
10-K today and the report provides additional information on the
company’s efforts to commercialize the American Centrifuge technology,
including risks and uncertainties. The Form 10-K can be found in the
Investor Relations section at www.usec.com.
An informational video has also been posted on the USEC website that
provides a visual update on the RD&D program. The video can be accessed
at http://www.usec.com/video/american-centrifuge-investing-americas-energy-future.
USEC Inc., a global energy company, is a leading supplier of enriched
uranium fuel for commercial nuclear power plants.
Forward Looking Statements
This news release contains “forward-looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934 – that is,
statements related to future events. In this context, forward-looking
statements may address our expected future business and financial
performance, and often contain words such as “expects”, “anticipates”,
“intends”, “plans”, “believes”, “will” and other words of similar
meaning. Forward-looking statements by their nature address matters that
are, to different degrees, uncertain. For USEC, particular risks and
uncertainties that could cause our actual future results to differ
materially from those expressed in our forward-looking statements
include, but are not limited to: uncertainty regarding the timing,
amount and availability of additional funding for the research,
development and demonstration (“RD&D”) program and the dependency of
government funding on Congressional appropriations; restrictions in our
credit facility on our spending on the American Centrifuge project and
the potential for us to demobilize the project; limitations on our
ability to provide any required cost sharing under the RD&D program;
uncertainty concerning our ability through the RD&D program to
demonstrate the technical and financial readiness of the centrifuge
technology for commercialization; uncertainty concerning the ultimate
success of our efforts to obtain a DOE loan guarantee and other
financing for the American Centrifuge project and the timing and terms
thereof; potential changes in our anticipated ownership of or role in
the American Centrifuge project, including as a result of the need to
raise additional capital to finance the project; the impact of actions
we have taken or may take to reduce spending on the American Centrifuge
project, including the potential loss of key suppliers and employees,
and impacts to cost and schedule; the impact of delays in the American
Centrifuge project and uncertainty regarding our ability to remobilize
the project; changes in U.S. government priorities and the availability
of government funding, including loan guarantees; and other risks and
uncertainties discussed in our filings with the Securities and Exchange
Commission, including our annual report on Form 10-K, which is available
on our website at www.usec.com.
We do not undertake to update our forward-looking statements except as
required by law.
