Fuel Purchase Saved Northwest $40 Million & Tens of Millions
More Through 2028
Energy Northwest’s history of strategic fuel purchases for Columbia Generating Station has resulted in some of the lowest fuel costs in the nation for Northwest beneficiaries of nuclear power.
On May 15, 2012, Energy Northwest announced to the region its most beneficial fuel purchase to date – an agreement between the Tennessee Valley Authority, the U.S. Enrichment Corporation and the Department of Energy to turn depleted uranium (also called uranium tails) into low cost enriched uranium product for further future processing into nuclear fuel.
According to the Bonneville Power Administration, the fuel agreement is now showing a more than $40 million savings to the fiscal 2014 - 2015 rate case, and will save customers tens of millions more through 2028. Every $40 million in savings lowers the rate case by approximately one percentage point.
In early 2012 the Energy Department invited the Bonneville Power Administration and Energy Northwest to participate in an agreement to enrich uranium tailings for use as fuel in Columbia Generating Station.
The motivation for this federal initiative was a need by the Energy Department to supply the National Nuclear Security Administration with U.S.-origin uranium and enrichment for the production of tritium for national security purposes. The only enrichment production option for the NNSA was the one U.S. facility allowed under international treaty to supply such material – the Paducah Gaseous Diffusion Plant in Kentucky, owned by the Department of Energy, and under lease to the U.S. Enrichment Corporation. (USEC plans to replace the Paducah facility with a more efficient facility in Piketon, Ohio, under a program known as the American Centrifuge Project.)
To obtain the material required by NNSA, DOE chose to approach Energy Northwest and the Tennessee Valley Authority with a fuel procurement option that would provide fuel for Energy Northwest while also providing fuel, for tritium production, to TVA.
Low-Cost and Predictability
After several months of negotiations between all parties, CEO Mark Reddemann recommended that the agency’s executive board award a contract for enrichment of services to the U.S. Enrichment Corporation not to exceed $706 million; enter an agreement with the Energy Department for a combined transaction value not to exceed $5 million; and contract for the sale to TVA of a portion of the uranium received from USEC for approximately $730 million. The fuel produced by the process, most of which would be sold to TVA, would be managed as two different commercial commodities – uranium hexafluoride at the natural enrichment level, and separative work units, or SWU, used to enrich the fuel from the natural enrichment level to that used in commercial reactors.
Contracts were signed in May 2012, through which Energy Northwest purchased nine years’ worth of fuel for Columbia at a cost significantly lower than the then-current market price as well as future forecasted market prices.
Within the year the Paducah facility had enriched the uranium for future use as fuel in Columbia Generation Station, and for supply to TVA. The cost of this fuel was well below other market options, and predictable through 2028. Beginning in 2015 the agency will start selling the larger portion of the enriched uranium to TVA.
Adding Up Customer Savings
The actual cost to EN was $687 million, which provided fuel that was valued conservatively, as of March 20, 2015, at $878 million ($622 million due from TVA for its portion, plus a retained fuel value of $256 million at current spot market prices).
After deliveries are made to the Tennessee Valley Authority by Energy Northwest, and TVA contractual payments are received by Energy Northwest, the remaining uranium that will be used by Columbia Generating Station through 2028 will have been procured at a cost of about $65 million ($687 minus $622). The March 20, 2015 spot market value of this retained fuel, which will be used in Columbia’s reactor between 2019 and 2028, is $256 million. This means Northwest electricity customers have an inventory of nuclear fuel procured at approximately 25.4 percent of the March 20, 2015 spot market price.
As added benefit, if Energy Northwest were to enter into contracts for delivery of this material at a future date, the current long-term contracts would be at prices totaling approximately $332 million. This means that today ratepayers of the Northwest have $191 million in savings compared to the spot market, and $267 million compared to the long-term market. (Prices for natural uranium and uranium enrichment services have dropped since 2012. However, uranium costs are projected to rise in the future, increasing the value of contracted fuel.)
In short, Northwest ratepayers received nine years of fuel well under market value – hence the more than $40 million saved this rate case and tens of millions more through the life-cycle of the fuel, through 2028.
Low-Cost and Low-Carbon
Columbia’s electricity generation plays a key role in reducing regional carbon emissions. In 2013 Columbia prevented the emission of about 4.2 million metric tons of greenhouse gases.
As a result of the enriched uranium processing in Paducah, Ky., Columbia’s carbon footprint will increase by five to 10 percent beginning in 2019. Despite the increase, Columbia will still provide among the lowest carbon output among all other energy resources for the electricity it generates.
The electricity used for the uranium enrichment process in Paducah was purchased from the Tennessee Valley Authority under a TVA power contract. Using TVA's fuel mix (which includes coal, hydropower and nuclear) in the carbon calculation for the uranium fuel purchased under this transaction, Columbia's carbon footprint will range between 92 and 103 pounds per megawatt hours.
For comparison purposes, according to a 2012 report from the Washington State Department of Community, Trade and Economic Development, CO2 emitting resources in our state had the following generation emission rates:
Generation Emission Rates in Washington
These reported emissions are for generation only – for which Columbia is zero; they do not include the CO2 emissions associated with fuel procurement for petroleum, coal and natural gas.
Columbia continues to make a significant contribution to decreasing CO2 emissions in Washington state and the Northwest. The 2012 uranium tails transaction allows Columbia to contribute low-carbon generation with low-cost and guaranteed fuel prices through 2028 – a win-win for Washington ratepayers and the environment.