The Energy Northwest Executive Board voted Thursday to spend $711 million to buy fuel it will not use until 2021 to 2028 in an unusual deal to supply its nuclear power plant near Richland.
It would sell some of the fuel to the Tennessee Valley Authority for $731 million.
The deal has some risk, but Energy Northwest believes it is in a unique position to get a below-market price for the fuel.
The bottom line for the board is the deal would save ratepayers money on their electricity during the next 20 years, said board member Kathy Vaughn, who represents the Snohomish County Public Utility District.
Energy Northwest has no immediate need for the fuel, but it told its employees after the board meeting that the deal, if finalized, has the potential to stabilize fuel prices and save ratepayers from tens of millions to hundreds of millions of dollars through 2028.
However, the board and Energy Northwest officials also briefly discussed the possibility that the agreement could trigger a congressional hearing and open the door to a possible lawsuit.
"Perceived winners and losers will not go unnoticed," said Dale Atkinson, Energy Northwest vice president of employee development and corporate services.
DOE approached Energy Northwest about the deal, said executive board Chairman Sid Morrison. Energy Secretary Steven Chu plans to defend it vigorously, Atkinson said.
The purchase is contingent on the Tennessee Valley Authority, which has seven nuclear power reactors, agreeing to a deal under negotiation that would reduce the risk to Energy Northwest.
DOE proposed the deal to help keep a gaseous diffusion plant in Paducah, Ky., operating.
The plant is in danger of shutting down this year because its technology is outdated, but DOE lacks the budget for decommissioning it, according to the board's discussion.
The Paducah gaseous diffusion plant, owned by DOE and operated by U.S. Enrichment Corp., enriches uranium to produce a product that can be fabricated into fuel for use in nuclear power plants.
Instead of using newly mined uranium, DOE's leftover depleted uranium, also known as "tails" would be used for the Energy Northwest fuel.
The tails are a byproduct of enriching uranium and would be recycled to get a second round of enriched uranium.
Uranium naturally is composed of mostly uranium 238 isotopes and 0.7 percent uranium 235 isotopes. To be used as fuel, the percentage of uranium 235 must be increased, producing enriched uranium.
DOE has more than 770,000 tons of depleted uranium, which traditionally has been considered waste, stored at Paducah and Portsmouth, Ohio.
DOE is restricted to offering the depleted uranium from tails for enrichment only to federal entities, which limits the deal to the Bonneville Power Administration, which Energy Northwest is working with, and the Tennessee Valley Authority. However, the Tennessee Valley Authority lacks the borrowing capacity to finance the project now, Atkinson said.
That made only Energy Northwest eligible for the deal. It already has used enriched uranium fuel produced from depleted uranium tails in a pilot project in 2005, reducing fuel costs by more than $100 million, according to Energy Northwest.
"The pilot project proved it could be done," Morrison said.
The uranium essentially would be free to Energy Northwest, but the enrichment process would be more expensive than it would be for uranium that is not depleted.
Energy Northwest would pay U.S. Enrichment $706 million for enrichment services and DOE up to $5 million for handling tanks storing the uranium tails as uranium hexaflouride and heating the uranium to a gaseous form for enrichment by U.S. Enrichment.
It also will have financing and interest charges for the project, which will increase the cost above the $731 million Energy Northwest proposes charging the Tennessee Valley Authority for some of the fuel.
But the financial structure of the deal would save ratepayers about $80 million in the first four years and could save money through lower fuel prices later on, said Brent Ridge, vice president and chief financial and risk officer.
The executive board approved the purchase in a 9-1 vote, with board member Marc Daudon of Cascadia Consulting Group in Seattle opposed.
Executive board members asked about the risk, including the risk that the Tennessee Valley Authority would not take the fuel or the risk that the price of uranium might drop.
Even if Energy Northwest should end up with all of the fuel, the deal still looks good, Ridge said. One of the reasons the deal is attractive is the current low interest rates.
However, the executive board did require that the Tennessee Valley Authority agree to a performance bond and the board said Energy Northwest would not agree to a two-year, opt-out option for Tennessee Valley Authority if all its reactors are shut down.
The agreement now must be approved by the Tennessee Valley Authority, before it can be signed.
The deal may not be popular with Congressional leaders that have uranium miners among their constituents, but it should be popular with Kentucky Congressional leaders because of the continued work it will provide Paducah, according to Energy Northwest officials.