Plans for an enriched future1 March 2002
A more economical advanced uranium enrichment technology is a necessity for our national energy security. By Dennis Spurgeon
We have a strategic vision for where we want to go and the path to get there. To get there, three things must happen and are already happening:
• We are increasing productivity and efficiency at our enrichment plants and broadening our base of activities. This serves to further improve the foundation of our financial strength and thereby support our ability to raise capital and obtain financing needed for future investments in an advanced enrichment technology.
• We are directing our business actions towards the establishment of a stable enrichment market that would allow us to make a profit and provide the financial stability that both customers and investors seek in this company.
• We are moving forward in the demonstration of US centrifuge enrichment technology.
First, USEC must have the financial posture and capital strength to deploy advanced technology. Towards that end, we have taken, and are continuing to take, strategic actions to increase our productivity and efficiency:
• We have consolidated our enrichment processes at the Paducah plant and have ceased production at the Portsmouth plant.
• We have significantly decreased our workforce both at the plants and at headquarters.
• We have negotiated a long-term competitively priced electricity contract for Paducah.
• We have increased our plant operating efficiency.
• We are currently reviewing the way we do business and how to significantly lower our costs further.
We are also looking at a variety of ways to increase our productivity and efficiency. And we are looking at how we prepare and deliver our product. Our studies will continue over several months with the goal of making improvements in calendar year 2002.
Second, there must be a stable enrichment market that would allow us the opportunity to make a profit. We must be able to implement a reliable business plan and be able to predict our revenue with a degree of certainty. Similarly, our customers must also be able to predict their costs. A market that fluctuates unpredictably is not helpful to either of us.
Third, we must move forward with an advanced technology programme. USEC has a strategic commitment to US centrifuge technology, and we have evaluated and invested in this technology for over two years. We stand ready to go forward with a second-generation centrifuge machine. Meanwhile, we will continue to develop third-generation SILEX at a pace consistent with its stage of development.
USEC owns exclusive rights to the SILEX technology for uranium enrichment that is owned by Silex Systems in Australia. This is a third-generation laser enrichment technology that has the potential for low capital cost in addition to low operating costs. SILEX is showing promising results but it requires an additional development step, and process efficiency has not yet been proven.
US centrifuge technology, which was developed by DoE, is a proven, workable technology. Years have passed since work on this technology was terminated by DoE. Since that time, new developments have occurred that will improve the economics. With new materials and manufacturing processes, we expect its capital costs will be less than competing centrifuges we have evaluated.
We are going forward with the world's best centrifuge technology. But, we don't have to spend years and millions developing it, improving the technology to achieve better performance - at more than 300 SWU per machine per year, it's good enough! To achieve that performance, the machine needs to be larger than competing technologies, and larger means more expensive. However, while the USEC machine will cost about twice as much as the latest generation of competing technology, it will produce about four times as many SWU. USEC will need only one rotor, one upper suspension, one lower suspension, one casing, one motor, and so on, while the European technology needs nearly four of each of the parts of a centrifuge machine to achieve the same output. This results in a lower capital cost per SWU for our machine.
USEC conducted centrifuge development work over the last two years at the East Tennessee Technology Park site in Oak Ridge. Much of this work was done in partnership with UT-Battelle under a DoE-approved Cooperative Research and Development Agreement (CRADA).
We made significant progress during this private sector and government partnership. USEC designed a new centrifuge machine, taking advantage of commercial advances in materials of construction and manufacturing methods in the design to achieve the same 300 SWU performance demonstrated by DoE's machines, but at substantially reduced cost.
USEC has worked well with UT-Battelle under the CRADA. We expect DoE to approve an extension of this CRADA so USEC can continue to spend its own money employing UT-Battelle expertise. We also expect DoE to allow USEC the use of essentially abandoned facilities in Oak Ridge to build and test these centrifuges.
Going forward, this isn't a development programme. It is a demonstration programme. The technology development was done over a 25-year period at a cost of more than $3 billion. More than 1300 machines were installed and operated at Portsmouth. 120 of these machines operated for nine months. 720 of them operated for a month. Hundreds of similar machines operated for years in Oak Ridge. These machines produced 200 SWU per year. Advanced machines at that time produced at a rate of more than 300 SWU per year.
USEC is not developing new centrifuge technology. It is merely replicating that which was demonstrated by DoE in 1985, but with improvements and at a lower cost. Commercial manufacturing approaches can be used to make the centrifuge machines. The machines built under DoE had parts from 41 states. This made production difficult to manage and quite expensive.
A more efficient process would involve one highly automated manufacturing facility using US automotive industry manufacturing techniques and the more cost-effective procurement of parts and materials.
The USEC team represents the nation's largest, strongest and most experienced resource in terms of centrifuge expertise and experience. Our Chief Scientist began working on centrifuges in 1960. In fact, USEC has more than 150 employees with centrifuge experience. Our team was able to resurrect the documentation behind the DoE design. We have successfully converted drawings and computer codes to modern computer programmes. We've designed a modern centrifuge. We're ready to build it and test it.
Our roadmap to the deployment of US centrifuge is clear. It looks like this:
First, USEC will demonstrate centrifuge performance in Oak Ridge. Further, we will license, construct and operate a "lead cascade" of centrifuges at a gaseous diffusion plant. Based on appropriate return on investment and strong programme economics, we will then license, construct, and start up a commercial plant. We then will incrementally expand the commercial plant to replace gaseous diffusion.
Subsequent to USEC's centrifuge demonstration programme, enrichment performance risk will be eliminated. Cost, schedule and regulatory uncertainties will be significantly reduced. USEC can afford to pay for the technology demonstration, but commercial plant deployment is a billion-plus-dollar undertaking. However, with the lead cascade operational and deployment risks reduced, partnering and financing opportunities should be attractive to all those with an active interest in this exciting technology venture.
We intend to deploy a centrifuge plant through incremental expansion at a rate to be determined. That rate of expansion will depend on technology performance and economic projections, market conditions, other supplies such as Russian HEU, funding availability and partnering options, and of course the cost of expansion.
USEC will continue to incrementally expand centrifuge technology to enable closure of higher-cost gaseous diffusion production and meet USEC's production requirements.
As an important strategic vision of this company, USEC has developed a clear and definitive step-wise approach for the deployment of an advanced technology. As part of our implementation of this approach, USEC will also maintain an open, watchful posture in terms of the full range of alternative opportunities for new or related technologies that may be available to us in providing low-cost nuclear fuel.