The Paducah Sun
The Paducah Sun
Paducah, Kentucky
Thursday, December 05, 2002

USEC Announcement

By Joe Walker jwalker@paducahsun.com--270.575.8650

The leader of USEC Inc. says the obstacles seismic and facility-wise that kept Paducah from getting a test gas centrifuge plant will still exist in two years when the community vies for a commercial plant employing 10 times as many people.

Chief Executive Officer William "Nick" Timbers announced Wednesday in Washington, D.C., that the 50-job test plant will be built in Piketon, Ohio, in 2004, largely because Piketon already has a two-building centrifuge complex and does not pose an undue earthquake hazard.

Paducah has no such building and is on the northern fringe of the New Madrid Fault zone, meaning substantial extra costs in bracing a new centrifuge building for an earthquake. Although Timbers deems confidential the dollar differences in the two cities' situations, he said they were too much for Paducah to overcome.

"Those issues that apply today will be applicable in 2004," he said. "One has to be realistic that the decisions made today do have a bearing on the evaluations that will occur in 2004."

That year, the roughly $60 million test plant is expected to be built to prove the ability of 240 machines that spin at high speed to separate the useful and non-useful isotopes of uranium for use in nuclear fuel. USEC expects the testing to help generate the $1.5 billion in financial backing that USEC will need to build a 500-job commercial plant at Piketon or Paducah.

USEC has targeted 2004 also for a decision on which community will get the commercial plant, using about 12,000 cylinders. Besides cost savings, using the Piketon plant allows USEC to keep pace with the aggressive schedule needed to have a commercial plant running by 2010 in Piketon or by 2011 in Paducah, Timbers said.

Regardless of the winning community, the 1,250-employee Paducah Gaseous Diffusion Plant will operate until 2010 to 2012, he said. USEC wants to replace the plant with centrifuge technology, which uses only about 10 percent of the power of the outdated, energy-intensive process used at Paducah for 50 years.

Timbers said he spoke Wednesday with Kentucky Sens. Mitch McConnell and Jim Bunning, and Rep. Ed Whitfield to assure them the plant has plenty of life left.

"I made it very, very clear that we have a commitment, even under the best of circumstances of developing the centrifuge program, that we will be running the Paducah Gaseous Diffusion Plant for eight to 10 years," he said. "We'll be investing in that community approximately $500 million a year in payroll (at least 1,000 employees), products and power."

He said USEC will work with the Department of Energy and others to develop new business opportunities for the Paducah plant, which is "still the heart of our (enrichment) business."

USEC made the test plant decision after two months of reviewing economic incentive packages from the governors of Ohio and Kentucky. Timbers said each state presented good proposals.

"Specifically, the contributions in the proposal by the state of Kentucky were very aggressive and very supportive of the state's interest," he said. "They went a long way, but there was a considerable degree of territory to make up to recognize the existing building at the Ohio site, and some of the seismic considerations, as well. Those were the major financial factors that came into consideration."

The Department of Energy built the Piketon complex, which some estimate worth $300 million, in the late 1970s and early 1980s with the idea of replacing gaseous diffusion technology. But the project was abandoned in 1985 because centrifuge proved 30 percent more expensive than diffusion and the complex would have taken another $8 billion to finish, said John Longenecker, who headed the program as former Department of Energy deputy secretary of enrichment.

Longenecker, who now does consulting work for nuclear power firms that buy from USEC, predicted earlier this week that Piketon would get the test plant because of the building and seismic issues. But he also said there is "a 50-50 chance at best" that financially troubled USEC won't find the backing for the commercial plant and will have to ask for federal help.

USEC's annual earnings have dropped from $78 million two years ago to a predicted $9 to $12 million at the end of this year. The drop is partly because USEC is spending $150 million from earnings over the next five years to pay for the test centrifuge work, which Timbers said will prove to the financial world that USEC is serious about switching to much more efficient technology.

He said financing for the commercial plant must be in place by 2007 and will probably involve a combination of debt and equity instruments, and perhaps partnerships. "There is five years to work out that arrangement."

USEC is trying to outpace Louisiana Energy Services, a consortium that wants to build a centrifuge plant a few years earlier in Tennessee. L.E.S. is led by foreign enrichment firm Urenco and the United States' three largest nuclear power firms.