Three years on, uranium fuel transaction continues to yield Northwest ratepayer savings

Three years after the conclusion of a $687 million nuclear fuel transaction, Northwest ratepayers are reaping the rewards. Energy Northwest’s 2012 low-cost, below-market nuclear fuel purchase – enough unenriched fuel to last through 2028 – generated more than $40 million of dollars in current Bonneville Power Administration rate case savings, and will save tens of millions more through 2028.

The fuel will be used in Columbia Generating Station, the Northwest’s only commercial nuclear energy facility, generating 1,170 megawatts of electricity, which is sold at-cost to BPA. Ninety-two Northwest utilities receive a percentage of its output. In December, Columbia marked 30 years of commercial operation, and broke its third consecutive generation record.

Background

EN Uranium Product

Cylinder yard at DOE facility in Paducah, KY.

Contracts were signed in May 2012 between Energy Northwest, the Tennessee Valley Authority, the U.S. Enrichment Corporation, and the Department of Energy that began the process of turning depleted uranium into low-cost nuclear fuel. The depleted uranium, also called uranium tails, was enriched and a portion (about 10 percent) will be delivered to Energy Northwest’s fuel fabrication vendor in North Carolina next month. Energy Northwest is selling the bulk of the enriched uranium to TVA for use in nuclear plants, which will defray a large portion of Energy Northwest’s costs.

The uranium tails program was similar to a 2005 pilot project that reduced fuel costs for Columbia Generating Station by more than $100 million. The 2012 transaction is showing even more savings based on current spot market and forward market pricing.

Energy Northwest has a long, successful history of transacting in commodities to obtain the nuclear fuel needed to operate Columbia, and our fuel costs are among the lowest of all U.S. nuclear plants.

Columbia is licensed to operate through 2043, so we will need a continuing inflow of nuclear fuel for nearly 30 years. The price for most of that future fuel supply is unknown, and represents a source of financial uncertainty, or financial risk. We have extensive experience and capability in understanding the various markets in which we transact to ensure a stable and reasonably-priced fuel supply. Energy Northwest typically enters into contracts for components of nuclear fuel many years before fuel is needed to reduce the price risk of the fuel, to capitalize on advantageously priced opportunities, and to ensure that all necessary fuel processing is complete before the fuel needs to be loaded into the reactor.

Inside the nuclear fuel cycle

Taking a closer look at the nuclear fuel cycle helps to understand the benefits of our uranium tails fuel transaction.

Fuel Cycle v2

While the enrichment cost (listed in $/SWU, or separative work units) is a large part of nuclear fuel costs, the cost of uranium cannot be ignored while evaluating the benefits of fuel contracting. Unlike enrichment costs, uranium costs are projected to rise in the future, and are up 35 percent since last summer, increasing the value of contracted fuel. Any analysis of the transaction that doesn’t look at the whole is incomplete, at best.

Seeing the benefits

In the latest transaction, Energy Northwest kept both feed (UF6) and enrichment services (SWU).

The remaining material will be sold to TVA under a fixed price, long-term contract (2015-2022) for a net present value of approximately $622 million.

The cost to Energy Northwest for the material retained for our own consumption (feed + SWU) was about $65 million.

SWU1v2

The spot market value of this material, based on March 20 prices, was $256 million, a difference of $191 million.

SWU2

In the forward market, that same material was valued at $332 million, as of Feb. 28, a difference of $267 million.

SWU3

In both cases, just looking at the SWU row would lead one to believe Energy Northwest entered into a bad deal. But because of the well-below market price purchase of feed, the benefit of the total transaction becomes very apparent.

As mentioned above, Energy Northwest avoids purchasing nuclear fuel through the spot market because of the volatility and price risk involved.

Prior to the uranium tails program, Energy Northwest had enough fuel in inventory or under contract to meet its fuel reloading requirements through 2019. With the additional fuel, Columbia’s fuel costs will be reduced and predictable through 2028.

Benefit to ratepayers

Bonneville Power Administration markets more than one-third of the electricity consumed in the Pacific Northwest. The power produced at 31 Northwest federal dams and Columbia Generating Station is sold to more than 140 Northwest utilities. Every other year, BPA establishes a rate case that covers a two-year period; currently we are in the 2014/2015 rate case. During the formal rate proceeding, expected increases are outlined as well as mitigating factors that can slow the rate of increase.

Because of this strategic fuel transaction, Northwest ratepayers are seeing a $40 million savings in the current rate case. Not bad. Every approximately $20 million in savings lowers rate case increases by one percentage point.

Successful risk management

The benefits EN and BPA sought – less financial risk due to future fuel cost uncertainty, and lower fuel costs on an expected-value basis – are still being achieved.

The transaction increased rate stability by removing eight years of cost risk from Columbia’s fuel budget, and the transaction continues to have positive value, resulting in lower rates. BPA’s ratepayers will benefit from this transaction for many years, as shown above.

Managing risks in power production is important, though not generally talked about, perhaps as being too “inside baseball.” But by managing risk effectively, the result can be stable, predictable and affordable electricity rates. In evaluating this uranium tails nuclear fuel transaction, Energy Northwest and BPA successfully turned uncertain fuel prices into current and future savings for Northwest electric customers through 2028.

(Posted by John Dobken)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s