Nucleonics Week
11/5/09 – P. 6
USEC reports third-quarter loss, says DOE 'believes' in ACP
USEC President and CEO John Welch said November 3 he expects the company to finish the year with a strong fourth quarter, after it reported November 2 a third-quarter net loss of $6.2 million, compared to an $8.4 million net profit for the year-ago period.
During a conference call with investors and the media, Welch said DOE wants USEC’s American Centrifuge Plant, or ACP, to succeed for various policy reasons and that the department has told him it "believes in" the technology USEC is trying to demonstrate at the ACP being built in Piketon, Ohio.
Welch said DOE's independent engineer concluded in a proprietary report on the ACP that the technology and design "are proven and robust" and are "ready for USEC to transition to production." He said the engineer "wants to see production-ready machines operating" and expressed concern about the impact of USEC demobilizing construction at the plant. USEC said it would take that action after the department said in August it would delay making a decision for six months on USEC’s application for a $2 billion loan guarantee that would help finance the plant's construction. The engineer said the biggest risk to the project's success is financing, Welch said.
USEC has addressed the technical and financial recommendations from DOE's engineer, he said, and will include a "revised and improved financial structure" when it updates its loan guarantee application early next year. Welch said USEC continues to consider strategic options, including sale of the company, and has hired a financial adviser to "explore strategic alternatives." But in a statement also released November 3, Welch said the company still believes that investing in the ACP "is a path to long-term value for our shareholders."
Following a quality stand-down this summer, which USEC initiated after discovering some ACP production-ready centrifuge machines had been assembled incorrectly, the company has reassembled about a dozen of the machines with updated components, Welch said. Ten have been installed and are spinning at ACP and about two dozen will be reassembled by the end of November, he said. USEC said it still expects to begin operating the production-ready machines in a lead cascade early next year.
Separately, USEC said November 2 it has named Gerald Prudom technical director of the ACP. He will coordinate all technical aspects of the project. Prudom will oversee activities at the site in Piketon, Ohio, where USEC is building the ACP and running a lead test cascade, and at a site in Oak Ridge, Tennessee, where USEC is developing, manufacturing and testing centrifuge machines.
'Challenging' quarter
Welch called the third quarter "challenging and intense" for the economy overall, USEC’s utility customers, and USEC itself. USEC said its sales volume of separative work units, or SWU, a standard measure of uranium enrichment, dropped 10% from a year ago, while the average prices billed to customers rose 6%. Revenue in the just-ended quarter fell 7% to $549 million. Revenue from uranium sales in the quarter dropped to $467 million from $490 million last year. The average price USEC billed its customers more than doubled for the quarter, but sales volume was 75% lower "due to the mix, timing and terms of uranium contracts," it said in an earnings statement. Revenue from USEC’s government contracts segment was $56.1 million, an increase of $5.3 million over last year, it said.
USEC said it expects 2009 net income to range from $50 million to $65 million and SWU sales to be about 40% higher in 2009 than in 2008. The average SWU price billed to customers in 2009 is expected to be about 8% higher than in 2008, USEC said. The company expects in December to receive a $70 million pre-tax payment from the US government's distribution of antidumping duties as a result of the recent settlement of a trade case involving USEC and Eurodif. The statement warned that the timing of such payments is uncertain, however, and that any delays to a later quarter "would materially impact our 2009 net income and cash flow from operations guidance."
The fourth quarter could also be stronger because of the impact of demobilizing construction at the ACP. When USEC halted design work in September, Welch said, the plant's design was 80% complete. The company incurred a special charge of $2.5 million in the quarter related to severance payments and short-term health coverage, it said.
USEC is still developing a future spending plan for ACP. Welch said USEC’s spending rate was about $45 million per month for the first nine months of 2009, but could drop to $7 million to $9 million per month during the fourth quarter. USEC said the spending rate "will vary depending on available funds" and whether DOE provides the $45 million it offered when it announced it would delay its decision on USEC’s loan guarantee application. The Office of Management and Budget submitted an amendment to the fiscal 2010 budget for DOE in September seeking $30 million to support the ACP. That plan would have taken $15 million from the Defense Nuclear Nonproliferation account out of funds for denuclearization of North Korea and another $15 million from Generation IV nuclear energy systems within the Nuclear Energy account. But Congress declined to approve those funds. DOE maintains it does not have the authority to provide the money without congressional direction, while USEC and at least one member of Congress, Representative Zack Wamp of Tennessee, have said DOE has the money and the authority to provide the funds to USEC without Congress getting involved.
Between the $70 million in anti-dumping duties, internally generated cash flow from operations, and money available under a revolving credit facility, USEC said its expects to have sufficient cash on-hand to meet its needs for at least 12 months, assuming the credit facility will be renewed before it matures in August 2010.
USEC said it will evaluate the scope and scale of the ACP, the deployment of machines over a longer time period, alternative financing structures, and the cost and feasibility of remobilizing at a later date. Spending and staffing could be reduced even further and USEC could terminate the project if it experiences further delays or the chances of receiving a loan guarantee decrease substantially.
USEC said it has long-term contracts with committed customers totaling $3.4 billion for SWU output from ACP.
Maureen Conley, Washington
NRC issues orders to USEC in settlement agreements
The Nuclear Regulatory Commission announced on August 19 that it had issued confirmatory orders to the Paducah Gaseous Diffusion Plant, in Paducah, Ky., as part of settlement agreements for three unrelated issues involving damaged equipment, classified information, and employee discrimination.
The Paducah plant is the only operating uranium enrichment facility in the United States. Owned by the Department of Energy, it is leased and operated by the United States Enrichment Corporation, a subsidiary of USEC Inc.
In the first issue cited by the NRC, operators at the Paducah plant concealed damaged equipment and falsified records while moving a uranium hexafluoride cylinder. In the second issue, classified information was mishandled when a package was sent to an unapproved mailing address. The third issue involved discrimination against an employee, stemming from a U.S. Department of Labor decision that USEC had retaliated against a former manager, a finding that concerned the NRC because of the potential effect that such retaliation would have on the willingness of other employees to raise safety concerns.
In each case, USEC requested the use of the alternative dispute resolution (ADR) process to resolve its differences with the NRC and to discuss corrective actions. The NRC's confirmatory orders document the company's commitments to the agency reached through the ADR process.
As part of the settlement agreements, the NRC said, USEC agreed to a number of corrective actions and enhancements, including procedure revisions, improved oversight, and an incorporation of lessons learned into training. The company also agreed to a review of the events and a sharing of information with other USEC facilities. Some of the actions agreed to by the company go beyond what would have been required under the traditional enforcement process, according to the NRC.
In consideration of the commitments made by USEC, the NRC said that it would not propose a civil penalty, issue a notice of violation, or take other enforcement action on the three issues. The agency added, however, that it would evaluate the company's adherence to the commitments during future inspections.
The ADR process, which includes the use of a mediator, can be requested in place of traditional NRC enforcement. The NRC said that this process is often more effective than is traditional enforcement in developing long-term corrective actions.
The Paducah plant, which employs about 1200 people, produces low-enriched uranium fuel for commercial nuclear power plants. The plant was opened in 1952 as part of a federal program to produce high-enriched uranium to fuel military reactors and produce nuclear weapons.
Enrichment at Paducah was originally limited to low levels, and the plant served as a feed facility for other defense plants in Oak Ridge, Tenn., and Piketon, Ohio, where the enriched uranium was processed. In the 1960s, Paducah, along with its sister plant in Piketon, began to enrich uranium for use in commercial nuclear reactors.
In May 2001, USEC completed a plan to consolidate its uranium enrichment operations at Paducah, and in June 2002, transfer and shipping operations were also consolidated at Paducah.
