Week of February 16, 2004
Snapshot from the Field
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$125M in State Incentives
by JACK LYNE, Site Selection Executive Editor of Interactive Publishing
PIKETON, Ohio Gov. Bob Taft (R) raised his clenched fists aloft in Piketon, Ohio, and exulted, "Great news for Pike County!" That news was also decidedly big: USEC (www.usec.com) had just announced that it had chosen Piketon as the site for its US$1.5-billion uranium enrichment plant. And that decision will bring as many as 500 well-paying jobs to an Appalachian region where the poverty rate often tops 25 percent.
Two factors in particular drove USEC's decision: a move to a new technology and a site that wouldn't move.
Dubbed "the American Centrifuge," the Piketon project will be the first-ever U.S. commercial operation utilizing centrifuge technology.
"The new decade of the American Centrifuge will bring Piketon a new deal - cutting-edge technology, world leadership in uranium enrichment and a new period of opportunities for us to work together," USEC President & CEO William H. "Nick" Timbers said at the Piketon press conference.
The "new deal," though, is in some ways old: Piketon was once home to a working uranium enrichment plant for USEC, the only U.S.-based producer of enriched uranium. But cost pressures prompted the facility's shutdown in 2001. Some 900 workers were laid off, and the Ohio production was shifted to USEC's other plant in Paducah, Ky.
Now, though, the mothballed Piketon plant is reopening. And that, in turn, signals the eventual closing of the 1,200-employee Paducah plant.
"We are going back to the future, back to a plant with a proud history and a proud work force," U.S. Rep. Rob Portman (R) commented in Piketon. "You've just given this facility a new lease on life," added Portman, part of the Ohio congressional delegation that lobbied for the project.
Centrifuge Process Will DramaticallyCost considerations dictated the terms in the Piketon plant's new life lease.
Drop Enrichment Plant's High Power Costs
Centrifuge technology in particular will cut expenditures. USEC's Paducah plant enriches uranium by using gaseous diffusion technology. So, too, did the Piketon plant. Gaseous diffusion has been the U.S. enrichment industry's preferred technology for 50-plus years.
That hasn't been the case, though, in Europe. Some European firms have used centrifuge technology for decades, enriching uranium by spinning it at high speeds in hundreds of large cylinders.
"This represents the first of what I hope will be a new generation of nuclear power construction projects in the United States," Timbers said.
If that new generation comes, centrifuge technology's huge savings will surely be a major catalyst.
Electric power costs at USEC's Paducah operation, for example, make up a little more than half of total production expenditures, Timbers explained. And that's a whole lot of electricity. At peak production, the Kentucky operation can use 2 billion watts of electricity a day. That's more power than the entire state of Texas uses in a day.
Centrifuge technology, though, will use only about 5 percent of the power required for gaseous diffusion, said Timbers.
Piketon's Centrifuge InfrastructureSignificantly, the Piketon operation already has substantial centrifuge infrastructure in place. That proved a deciding factor, Timbers said.
Was Installed by DOE in the 1970s
"The Piketon site provides us with the best opportunity to bring the American Centrifuge plant online quickly and efficiently," he said.
Ohio's centrifuge infrastructure dates back to the 1970s. Back then, the U.S. Dept. of Energy (DOE) still owned and operated both the Piketon and Paducah plants. It had built them in the early 1950s to produce enriched uranium for atom bombs.
In 1976, the federal agency selected the south Ohio site for its first centrifuge plant. By the early 1980s, the DOE had completed most of the $4.4-billion project. But that big investment barely registered in reality. The DOE briefly tested its centrifuge operation, then altogether abandoned it in 1985. Instead, the agency pursued another technology, atomic-vapor laser isotope separation.
Then the Cold War melted down. That prompted the DOE to sell both its plants to USEC in 1998. The agency, however, kept a finger in the nuclear-energy pie. It still owns both sites and leases them to USEC.
By 1999, atomic-vapor technology had also been abandoned. Building an atomic-vapor plant, USEC explained, would take too much time and money, with too little profit.
Nineteen months ago, the company began pursuing centrifuge technology. USEC in June of 2002 signed a framework agreement with the DOE to introduce the process in the U.S.
Seismic Site ConsiderationsDeciding where to introduce centrifuge technology had a lot to do with site-related cost and safety concerns.
Two earthquake fault lines, the New Madrid and the Wabash Valley, run near Paducah, Timbers explained. That made building the new plant in Kentucky a far more expensive option.
"The Ohio proposal," said Timbers, "offered assurances concerning seismic conditions," as well as "the right mix of economic benefits, existing infrastructure and scheduling advantages."
One "economic benefit" is Ohio's $125-million incentive package of tax breaks, outright grants and low-interest loans. How that compared with the Bluegrass State's offer, however, remains unknown.
"Kentucky made a competitive offer, but USEC ultimately decided Ohio was a better fit," Gov. Ernie Fletcher (R) commented after the site announcement. State officials said that Kentucky's offer to the Bethesda, Md.-based company was one of the state's largest ever, rivaling Toyota's $147-million package in 1986.
Kentucky officials, however, said that they were honoring USEC's confidentiality agreement on incentives. Ohio apparently went public because some of its incentives must be approved by state lawmakers or regulatory boards. None of Kentucky's subsidies required such approvals.
And the facts strongly suggest that two other factors - Ohio's centrifuge infrastructure and Kentucky's fault lines - well outweighed incentive considerations.
$50-Million Test PlantSeveral steps, though, remain before the Piketon plant becomes a reality.
Will Go Online Next Year
One big one is securing a plant license from the U.S. Nuclear Regulatory Commission (NRC). USEC plans to submit its application in August of this year.
The company must also build its $50-million, 240 worker Piketon prototype plant. USEC plans to get that operation online by 2005. The test plant will provide cost, performance and scheduling data essential in building the permanent plant.
The NRC has already ruled that the prototype would produce no significant environmental impacts. USEC, an agency report noted, will "provide adequate safeguards and protection for the health and safety of workers, the public and the environment."
The 500 new jobs, on the other hand, will have a major economic impact. Workers' pay will average $50,000 a year, Timbers said. That's almost twice the area's average, according to the Ohio Dept. of Development (www.odod.state.oh.us).
USEC plans to begin permanent plant construction in 2006, going online in 2010. Using the modular centrifuge technology will also make the plant readily expandable if demand merits greater output.
But for the Paducah plant, 2010 will signal the operation's shutdown. While Kentucky officials expressed disappointment, they added that they were grateful to have six years to prepare.
Several hundred of USEC's Paducah workers will qualify for other jobs maintaining the closed plant, the company said. Others may land jobs in site contamination cleanup. Paducah officials' long-term plan is to develop the closed site into an industrial park.
The Piketon project, however, could still face another obstacle: USEC's financial health. Low earnings, plummeting stock and junk-bond credit ratings prompted the Ohio plant's 2001 shutdown. Though USEC's finances are now stronger, 2002's $707.8 million in sales still marked a $14.7-million loss.
Bush Budget Could Boost ProjectThe Ohio project, however, may get a boost from the Bush administration's proposed fiscal-2005 budget.
That plan proposes a 65-percent increase in the Ohio plant's "cold standby" program, which prepares shuttered enrichment plants for rapid startup. Piketon's proposed $132 million represents a 65-percent increase.
The Bush budget also includes some $51 million to build a Piketon waste-conversion plant, which would process earlier production byproducts. That operation will employ 150 DOE workers.
Those funding hikes, Bush officials say, are part of the administration's effort to reduce foreign energy dependence. USEC sounded a similar theme in Ohio.
"Increasingly, America is recognizing the need to boost the use of nuclear power to support our energy independence and to protect national security," said Timbers.
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