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Remarks by John K. Welch,
President and Chief Executive Officer
Annual Shareholders' Meeting of USEC Inc.
Bethesda, MD
April 25, 2006
This morning I want to take a few minutes to tell you about exciting developments in the nuclear industry and the steps we’re taking to continue to be a leader in fueling the world’s reactors.
A renaissance is underway in the nuclear industry, and the signs are everywhere. The industry is operating its existing fleet of reactors at record levels.
In 2004, nuclear power generation set a new record in the United States, and nuclear utilities nearly matched that performance again in 2005. Over the past decade, improved performance has added the equivalent capacity of about 20 new large reactors.
In 2007, our power provider TVA is scheduled to restart the Browns Ferry 1 nuclear plant, and USEC is providing the fuel for the initial core. Several major American utilities are preparing applications to build new plants. The NRC expects to receive about a dozen construction and operating license applications during 2007 and 2008, with additional applications for new plants coming over the following decade.
More than two dozen plants are under construction around the world. Another 40 are on order or in the planning stage.
This global expansion of nuclear power truly is a renaissance, and it is being driven by several factors:
With 20 percent of electricity in the United States generated with nuclear power, and more than one-third in the EU and Japan, nuclear power is strategically important to the global economy.
A critical element for the expansion of this nuclear renaissance is a stable supply of nuclear fuel – from uranium mining, to enrichment, to fabrication of the fuel assemblies. Utilities need to be confident that the fuel will be there if they are going to invest billions of dollars in new plants.
The nuclear industry must have a domestic enrichment technology so as not to become overly dependent on foreign enrichment sources. There must be long-term security of supply. And it is critical that there be stability in the enrichment market.
The nuclear industry needs the assurance of an American domestic enrichment capacity, and USEC will be there to provide it. In return, USEC needs the assurance of a stable market so that we can recoup our substantial investment in new centrifuge enrichment technology.
About one-third of the world’s enrichment capacity relies on 50-year-old technology that is very energy intensive. In order to stay competitive in the world market, we must replace that technology with a more efficient process. The nuclear renaissance underscores the urgency of that need.
As you know, USEC has chosen the American Centrifuge technology for our future. The task of moving from gaseous diffusion to this new method is, in essence, the building of a bridge to a new era for USEC. Building that bridge presents a challenge all its own, separate from the new technology.
We are building a plant whose construction cost exceeds the current market cap of the entire company. To get the job done, we must maximize our assets, find new revenue opportunities, and save wherever possible, especially in the face of rising energy costs.
The price we pay for electricity is going up along with the cost of most fossil-fuel energy. In 2005, electric power accounted for about 60 percent of production costs at our Paducah plant. We just signed a one-year agreement with TVA to pay approximately 50 percent more for electricity beginning June 1. Clearly, this will have a substantial impact on our production costs.
We have taken several steps to mitigate these higher prices, including reducing our workforce and cutting overhead. In addition, we are extending our valuable uranium supplies by underfeeding the Paducah enrichment process and evaluating other steps.
We have a couple of positives working in our favor:
As we go through this transition period to the next generation of enrichment technology, aggressive and focused management of today’s business is critical. We will take the difficult, but necessary, steps to reach our goal of becoming a highly efficient provider of nuclear fuel for a vibrant and growing nuclear power industry.
Let me take a minute here to bring you up to date on the status of the American Centrifuge. We continue to demonstrate the technology at Oak Ridge, Tennessee.
We expect to install the first machines of the Lead Cascade this summer at our facilities in Piketon, Ohio, with operations beginning soon after installation. By October, we anticipate having satisfactory reliability and performance data to meet our next milestone with the DOE.
An important component of the American Centrifuge demonstration is to refine our cost estimates for building the commercial plant. Throughout 2006 we will be working closely with our team of suppliers – Boeing, Honeywell, Fluor and ATK Space Systems – to develop estimates for building the thousands of machines that will populate the plant by the end of 2011.
We must also work with investors and financial institutions to complete and execute a financing plan to make this great undertaking possible.
We expect the NRC license for the commercial plant by early next year. During 2007, we intend to begin infrastructure construction at the plant. And in 2009, we anticipate beginning uranium enrichment operations at the plant, scaling up to initial production capacity in 2011.
In conclusion, we know the challenges we face, we understand the business environment and we are implementing plans to deal with these issues. This is necessary groundwork, and it will be key to our success.
I’ve had the opportunity to meet many of the USEC employees who will be leading and working in this effort. This is a strong and talented team – and it is the right team to accomplish the goals we’ve set out.
We are committed to making the American Centrifuge project a success through:
The American Centrifuge will be the strong foundation for USEC to build solid returns for our shareholders for many years to come.
Thank you for attending today’s meeting.