 |
|
Remarks by Robert S. Eby,
Director, Technology and Process Engineering,
USEC Inc.
At a Meeting of the East Tennessee Economic Council
Oak Ridge, TN
September 14, 2007
Thank you for having me here today. It is a real pleasure to be here and to have the chance to discuss USEC’s work in East Tennessee.
Now is an exciting time for USEC as we begin our integrated testing phase of our American Centrifuge uranium enrichment technology. Since 2001, we have been developing and testing our improved design of the U.S. centrifuge technology in Oak Ridge. The work done to date has led to a set of prototype machines that are now installed and operating in a cascade configuration in our Ohio demonstration facility.
Upon successful completion of these tests, our strategic suppliers will begin manufacturing the machines that will make up our commercial enrichment plant in Ohio. The largest portion of that manufacturing work will occur in Oak Ridge.
Until recently, Boeing had been our supplier for many of the components that make up the centrifuge machine. Since 2004, they have assisted us with designing and manufacturing components for our development and prototype centrifuges. With their decision in July to shutdown their Oak Ridge operations, we wanted to find a way to keep USEC’s presence in Oak Ridge. As many of you know, we have selected BWX Technologies, a firm with a long history in this community, to assume Boeing’s role going forward.
I would like to take a few moments to thank some of the people who secured incentives for our manufacturing work and who influenced our decision to stay in Oak Ridge.
At the federal level, Congressmen Zach Wamp and Jimmy Duncan were extremely supportive.
At the state level, Matt Kisber and his staff at the Tennessee Department of Economic and Community Development and John Bradley, senior vice president for economic development at TVA played a large role in getting the state involved in supporting our work.
At the local level, former Oak Ridge mayor David Bradshaw, current mayor Tom Beehan, City Manager Jim O’Connor, Oak Ridge Economic Partnership’s Kim Denton and ETEC’s Jim Campbell all worked tirelessly to assist us.
Let me assure you that staying in Oak Ridge is important to USEC. Few other areas of the country have the right mix of qualified candidates with the skills we need for a classified, complex nuclear technology development and commercialization program.
While we started in 2001 with just a few employees in Oak Ridge, today our centrifuge program is a significant contributor to the local economy. In 2007, we will add 45 new positions for a total of about 200 USEC employees in the area. Our contractors will have a total of more than 170. The total number of jobs associated with the program will be more than 400 in 2009 when manufacturing begins in earnest.
In 2006, our financial contribution to the local economy from salaries and benefits, payments to contractors, local procurements and local tax revenues totaled more than $50 million, and overall we are making over $100 million in capital investment within the city limits.
That will only grow as we ramp up our manufacturing.
We’re also giving back to the community through our support of the new Oak Ridge high school and other local donations. Soon you will start seeing a larger USEC presence in the community. We have recently setup a committee at our Oak Ridge offices to guide our charitable giving in the East Tennessee area and to increase employee volunteering activities. To me, this reflects the maturity of our operations here. You’ve become a part of our family, and I hope we’ve become a part of yours too.
I would like to spend the rest of my time walking you through our efforts here, in Ohio and around the country to deploy the American Centrifuge technology on a commercial scale. I’ll update you on our current status, discuss the steps to deploying and financing the commercial plant, and touch a little bit on what we see for the future of our work in Tennessee after the commercial plant begins operations.
First, our transition to BWXT as our lead manufacturer.
BWXT is one of four strategic suppliers for the program. They will manufacture all the classified, critical components that make up the centrifuge machine, aside from the rotor.
While BWXT has been a leading employer in the area through their Y-12 subsidiary for many years, their new local subsidiary BWXT-Clinch River will soon become a large presence as well.
BWXT has more than 50 years of experience in manufacturing critical nuclear-grade materials and components for commercial nuclear reactors and the nuclear Navy. When we looked for a group that could fill Boeing’s large shoes, they were at the top of the list.
While it is disappointing to see Boeing leave after three decades in the community, I want to thank them for their help in getting our program to where it is today. Their expertise and advice has assisted the maturation of the American Centrifuge from a research and development project to a commercial venture.
I am pleased to report that many of Boeing’s workers will transition to BWXT and will continue working on our project, ensuring that their valuable experience will continue to play an important role in our project as we ramp up manufacturing activities. If all goes as planned, the transition between the two companies for the workers, facilities and machinery will be completed by the end of this year.
While BWXT is the newest member of our team, we have several other strategic suppliers working just as hard to deploy the plant on time and on budget.
Alliant TechSystems, or ATK, will manufacture the rotor tubes. They are a world leader in manufacturing carbon fiber composites for aircraft and space systems. They will use this experience to create unique carbon-fiber composite materials to fabricate our rotors at their West Virginia facility. The components and rotors will then be delivered to Piketon where a dedicated staff from Honeywell will assemble, balance and install the machines in the plant.
When I talk about “building the plant,” I should clarify that the buildings that will house the hundreds of cascades of machines and associated equipment, for the most part, already exist. When DOE began deploying U.S. centrifuge technology in the 1980s, they built two large process buildings and a machine-assembly building at Piketon. When DOE canceled the plant in 1985, these buildings were shuttered, secured and kept in good condition awaiting a new use to come along.
So most of the “building” will occur inside the existing process buildings and will involve installing large amounts of piping to connect the machines, new plant systems, and other equipment. Fluor is handling these balance-of-plant tasks. They will also design and build a feed/withdrawal facility to handle feeding and extracting the uranium gas from the cascades.
In the past month, we have also announced two other major supplier contracts. One is with Hexcel to produce the carbon fiber ATK will use to make the rotors. The other is with Major Tool and Machine for the manufacturing of the steel casings that house the centrifuge machine. These companies, together with our strategic suppliers, form a manufacturing infrastructure that we will utilize to build additional machines if we decide to expand the plant’s capacity after 2012.
USEC has been facing what any nuclear company in the United States faces over the next several years. We are rebuilding an infrastructure and set of skills that were abandoned in the late ‘70s and early-‘80s after Three Mile Island. It is no easy task, but we have to do it to ensure the country’s future energy security. Getting this manufacturing capacity in place is a key to rebuilding U.S. superiority in nuclear power technologies. If we want nuclear to be part of our future, we all have to act now to assure that the infrastructure, training and skills are there to support the new build necessary to keep nuclear part of the energy mix.
I am quite pleased to report that we have begun the next phase of our American Centrifuge program, an integrated testing phase where full-size prototype machines have been connected in a closed-loop configuration that we call the Lead Cascade test program. This first cascade consists of less than 20 prototype machines housed in one of the process buildings at Piketon. Because our centrifuges are the most efficient in the world, with an output much greater than the next best competitor’s machine, we need far fewer machines in a cascade to produce low enriched uranium.
The cascade will provide valuable information for the development of the first series of plant production centrifuge machines, the AC100 series.
In 2008, USEC will deploy a cascade of several dozen AC100 machines within the demonstration facility. These first AC100s will operate in a closed loop configuration like the existing prototype machines installed now, but by late 2009, we may transition them to commercial service to produce the first product for sale from the commercial plant.
After we freeze the design in 2008, our strategic suppliers will begin manufacturing and assembling the AC100 machines for the commercial plant. We expect the AC100 to have a performance of 350 SWU, or separative work units, per machine per year.
To put this in perspective, the next highest performance machine operating in the world today, Urenco’s TC-21, achieves less than 100 SWU a year.
Combining our data from the prototype cascade with the high-volume, high-quality manufacturing expertise these suppliers bring will deliver an AC100 with the intended SWU performance level at a target cost that is less than the prototype machine, all while maintaining a high degree of reliability through quality manufacturing.
Construction on the commercial American Centrifuge Plant began in May. Fluor is evaluating the existing structures and infrastructure and will be upgrading them as necessary. They will also begin construction on the feed/withdrawal facility some time next year.
While our work in 2008 will focus on finalizing the AC100 and ramping up manufacturing, 2009 will begin our concerted efforts of assembling and installing the centrifuge machines. We plan to be in a position in 2010 to assemble and install roughly 400 machines a month for the next several years. By 2012, we expect to have approximately 11,500 machines installed in the plant for a total capacity of approximately 3.8 million SWU a year. For comparison, our Paducah gaseous diffusion plant produces approximately 5 million SWU a year.
Because the centrifuge technology is modular, we can begin producing usable product from each cascade of machines installed. This will allow us to begin generating cash-flow from the plant’s operations even before it is fully completed, a real plus when you consider we are a $2 billion company trying to build a first-of-a-kind $2.3 billion plant.
So how will we pay for it? So far, USEC has funded our entire program through internally generated cash flow and by accessing our bank credit facility, more than $465 million through June of this year. We expect to spend another $225 million during the remainder of this year and around $600 million next year. So we will need to access the capital markets to raise additional funds as we proceed with the commercial plant’s construction.
To assist us with the debt component, USEC is working to secure a federal loan guarantee under a DOE program created to support the deployment of innovative energy-efficient technologies. Transitioning to the American Centrifuge Plant from our energy-intensive gaseous diffusion plant will reduce our electricity demand by the equivalent of a 1000-megawatt plant. This will translate into immense reductions in the green house gasses emitted by our operations. A loan guarantee would help assuage some of the concerns of the financial markets about this first-of-a-kind technology.
While our cost of production increased in 2006 due to a new contract with TVA that doubled our electric rates at Paducah, we have been able to secure a new, five-year contract with them that allows us to lock in with some certainty our major cost for operating Paducah until American Centrifuge is fully online. Our new rates over the term didn’t go down, but we now know that they won’t skyrocket in a year or two either. With electricity making up 70 percent of our production cost, this predictability removes a large amount of risk from our future operations.
We have also been working with the U.S. government and members of congress to find a way for USEC to generate substantial value for the government and ourselves through the re-enrichment of high assay depleted uranium “tails” now stored at the Paducah and Piketon gaseous diffusion plants. This material is the by-product of the government’s uranium enrichment operations and is still stored at the plant sites.
With the price of uranium so high, it now makes economic sense to enrich this material either back to the level of natural uranium for use as feed material or to the level of low enriched uranium. Utilizing spare capacity at the Paducah plant through 2012, we would slowly introduce this material into our cascades along with our normal feed material and increase the level of enrichment work done by the plant. We could then harvest the extra uranium generated and make it available to a tight market.
All of these components will position us to fund the deployment of the American Centrifuge Plant, ensuring the country’s utilities have access to a U.S. owned and operated uranium enrichment facility to fuel their existing and future reactors.
So what does the future hold?
USEC will continue to conduct research and development on the American Centrifuge technology here in Oak Ridge even as the initial 3.8 million SWU plant is built. Enhanced analytical tools and computer aided design and manufacturing methods open the door to cheaper, more productive machines as USEC seeks to enhance its capability in centrifuge technology and develop a next-generation machine.
We will also be assessing the progress of utilities in the United States and around the world in their deployment of Generation-III reactors. If the renaissance comes as so many are predicting, we will be positioned to capitalize on the increase in demand for SWU and uranium and will expand the plant to meet the demand from signed contracts.
Before DOE canceled their gas centrifuge plant in 1985, they envisioned it consisting of eight process buildings. The additional land at Piketon is still available for our future expansion. And, the more machines we build, the better the economics of the per-machine costs because we will have already paid for the manufacturing infrastructure to be installed.
With modular deployment, that expansion could be incremental as we sign additional contracts and build additional buildings and cascades of machines. We would hope to have an improved machine design by then as well to supersede the AC100.
But that’s the future. Right now, we are focused on achieving each interim goal in our path to commercial deployment of the technology.
As you’ve heard, we are excited about the progress of the American Centrifuge program. While the Lead Cascade is just one step in a longer journey, it is one that marks the transition from development to commercialization. For those of us in Oak Ridge working to rebuild U.S. nuclear technology superiority, it shines as a beacon of better things to come.
Thank you.