Exhibit 10.3
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS. THE
CONFIDENTIAL REDACTED
PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH REDACTIONS.
      

March 2, 2006   #1012780                            
TV-05356W, Supp. No. 1

Mr. Robert Van Namen
Marketing and Operations VP
United States Enrichment Corporation
Two Democracy Center, Tenth Floor
6903 Rockledge Drive
Bethesda, MD 20817-1818
Dear Mr. Namen:
This letter will confirm arrangements agreed upon between representatives of
United States Enrichment Corporation (“USEC”) and the Tennessee Valley Authority
(“TVA”) for TVA to make available, and for USEC to take, Additional Energy as
provided for under subsection 2.2(e) of the Power Contract numbered TV-05356W
and dated July 11, 2000 (“Power Contract”). This letter also confirms related
arrangements to replace Article IV of the Power Contract with the new Article IV
attached hereto.
It is understood and agreed that:

1.   As set forth in the following table, TVA will make available, and USEC will
take, Additional Energy in the amounts of the specified additional availability
amounts at the specified prices during the specified hours of the specified
Supply Period:

              Additional         Availability   Additional Energy Supply Period
  Amount   Price
06/01/06 HE 0100 CDT to 08/31/06 HE 2400 CDT
  600 MW All Hours $ *****

(a total of 1,324,800 MWh)

2.   During the Supply Periods, the total amounts of power available to USEC
under the Power Contract will be increased by the sum of the additional
availability amounts designated by TVA in accordance with section 1 above and
USEC shall take such increased amounts; provided, however, that it is expressly
recognized that the Additional Energy made available under the arrangements
described by this confirmation will be subject to suspension as Interruptible
Baseline Energy in accordance with Attachment 2 to the Power Contract.   3.  
For billing purposes, USEC’s minimum energy takings under the Power Contract
shall be deemed to have been increased by the additional availability amounts so
designated by TVA

 

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#1012780
Mr. Robert Van Namen
Page 2
March 2, 2006

    and the Additional Energy price specified in section 1 above shall be
applied to the resulting additional minimum energy takings in accordance with
subsection 2.6(b) of the Power Contract to increase the Power Bill.   4.   From
and after the meter-reading time on June 1, 2006, the Power Contract is further
supplemented and amended by replacing Article IV thereof with the substitute
Article IV attached to this letter agreement. Further, it is expressly
recognized that the credit assurance provisions of the attached Article IV shall
apply with respect to any obligations under the Power Contract as it may be
amended, including, without limitation, the Additional Energy arrangements
provided for by this letter agreement and, unless otherwise agreed, with respect
to any subsequent Additional Energy arrangements entered into under the Power
Contract.   5.   It is recognized that TVA and USEC have agreed in principal to
Quantity and Pricing of Baseline Energy for the first annual period of Period
Two, subject to the final approval of the TVA Board of Directors and the
execution of final documents to reflect that agreement. It is further recognized
and agreed that nothing related to any failure to complete such final documents
shall excuse the performance of either party under this letter agreement.

If the foregoing satisfactorily states the understanding between us, please have
a duly authorized representative execute this Confirmation on behalf of USEC and
return by facsimile an executed copy to Mike Davis at (423) 751-3387. Also
please return one executed copy by mail to Mike Davis, Tennessee Valley
Authority, 1101 Market Street MR 2A, Chattanooga, Tennessee 37402.
Sincerely,

     
/s/ Clyde S. Harmon
  /s/ Bruce S. Schofield
Clyde S. Harmon
  Bruce S. Schofield
Sr., Manager, Origination
  Vice President, Industrial Marketing and Account Management

Accepted and agreed to as of
the date first above written.

         
 
        UNITED STATES ENRICHMENT CORPORATION    
 
       
By:
  /s/ Robert Van Namen              
Name:
  Robert Van Namen    
Title:
  Marketing and Operations VP    

[ATTACHMENT ON FOLLOWING PAGE]

 

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ATTACHMENT
ARTICLE IV
FINANCIAL RESPONSIBILITY AND INFORMATION
SECTION 4.1 – ADDITIONAL DEFINITIONS
In addition to the terms defined in Article I above, the following additional
defined terms shall be applicable for purposes of applying the provisions of
this Article IV.
4.1.1 “Commercial Credit Rating” shall mean a credit rating assigned by Standard
and Poor’s (S&P), Moody’s Investor Services, Inc. (Moody’s), or Fitch Ratings
(Fitch) (such agencies are hereafter individually referred to as a Rating Agency
or collectively referred to as Rating Agencies) to a rated entity’s unsecured,
senior long-term debt obligations (not supported by third party credit
enhancements), or if such entity does not have a rating for its senior unsecured
long-term debt obligations, then the rating assigned to such entity as an issuer
rating by S&P, Moody’s or Fitch.
4.1.2 “CRR” shall mean the customer risk rating assigned by TVA under TVA’s
credit policy for the purpose of classifying its customers, suppliers, and
vendors according to the level of risk deemed by TVA to be associated with their
financial condition. Such ratings are assigned by TVA, and updated from time to
time, as a result of quantitative financial analysis, as well as consideration
of subjective judgments about both the entity being rated and market conditions.
In the event of any change in Company’s CRR which will cause a change in the
amount of Performance Assurance, if any, that Company is obligated to provide to
TVA under section 4.5 of this Article, TVA will promptly give Company written
notice of the revised CRR and, for purposes of this contract, such revised CRR
will be deemed to be effective:

  (a)   as of the date of such notice, if the revised CRR is a higher rating
than Company’s previously effective CRR, or     (b)   5 business days after the
date of such notice, if the revised CRR is a lower rating than Company’s
previously effective CRR.

4.1.3 The following CRRs referred to as “Superior,” “Strong,” “Satisfactory,”
“Acceptable,” and “Below Investment Grade Rating,” shall be defined and assigned
to Company under the following framework:

  (a)   If a Commercial Credit Rating is not assigned by the Rating Agencies,
then TVA shall determine the appropriate CRR in its sole discretion under its
credit policy.     (b)   If a Commercial Credit Rating is assigned by a Rating
Agency or Rating Agencies, then the CRR will be deemed to be as is shown on the
chart

 

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      below, unless there are multiple Rating Agencies and their Commercial
Credit Ratings are not equivalent under TVA’s CRR system, in which case
subsection (c) will apply.     (c)   If more than one Rating Agency provides a
Commercial Credit Rating and such ratings do not provide equivalent CRRs under
the below chart, then the following will apply:

  (i)   if two Rating Agencies provide a Commercial Credit Rating and those
ratings equate to different CRRs (according to the chart below), then the lower
CRR will govern;     (ii)   if three Rating Agencies provide a Commercial Credit
Rating and those ratings equate to three different CRRs (according to the chart
below) then the middle CRR will govern;     (iii)   if three Rating Agencies
provide a Commercial Credit Rating and those ratings equate to two different
CRRs (according to the chart below) then the two equivalent CRRs will govern.

Chart Comparing TVA CRR Ratings to the
Commercial Credit Ratings of Rating Agencies

                  S&P   Moody’s   Fitch TVA   Commercial Credit   Commercial
Credit   Commercial Credit CRR   Rating   Rating   Rating
Superior
  AAA   Aaa   AAA
Strong
  AA+ to AA-   Aa1 to Aa3   AA+ to AA-
Satisfactory
  A+ to A-   A1 to A3   A+ to A-
Acceptable
  BBB+ to BBB-   Baa1 to Baa3   BBB+ to BBB-
Below Investment Grade
Rating
  BB+ or lower   Ba1 or lower   BB+ or lower

  4.1.4   “Credit Risk” shall mean:

  (a)   an amount reasonably determined by TVA as approximating all charges
applicable for a 75-day period either under this contact or any previous power
arrangement, including, but not limited to, all amounts Company owes or will owe
for power and energy made available for, or delivered during, that period and
without regard to whether or not a bill has been rendered for such amounts, less
    (b)   the amount of credit risk protection afforded to TVA by any
then-existing Performance Assurance already covering TVA’s risk of non-payment
of the amount designated by TVA;

 

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Provided, however, that during any period when Company is deemed to have a CRR
that is equal to a Below Investment Grade Rating so that the payment obligations
provided for below in paragraph b of section 4.5 are applicable, the 75-day
period provided for in (a) above shall be reduced to 45-days to reflect the
revised payment obligations provided for in said paragraph.
4.1.5 “Collateral Threshold” shall mean the dollar amount or amounts specified
in section 4.3 of this Article to reflect the amount of credit that will be
extended to Company without Performance Assurance being provided by Company.
4.1.6 “Performance Assurance” shall mean collateral in the form of either:

  (a)   a cash deposit,     (b)   a Letter of Credit, in form and substance
acceptable to TVA, issued by a financial institution which has and maintains at
least a Satisfactory CRR.     (c)   other security acceptable to TVA and agreed
to in writing by the parties to this contract, including, without limitation, a
corporate guaranty, in form and substance acceptable to TVA, by an entity which
has and maintains at least an Acceptable CRR; provided however, that such a
guaranty will only be acceptable to secure Performance Assurance equal to the
Collateral Threshold which TVA would assign to such entity if it were the party
contracting with TVA for the power supply arrangements that are provided for in
this contract.

SECTION 4.2 – CRR AS OF CONTRACT EXECUTION
As of the date that this contract was executed, Company has been determined by
TVA to have a CRR which qualifies as a Below Investment Grade Rating.
SECTION 4.3 – COLLATERAL THRESHOLD
At all times that Company has and maintains at least an Acceptable CRR, the
amount of the Collateral Threshold will be the applicable amount set forth in
the table below as corresponding to Company’s then existing CRR. At any other
times, the amount of the Collateral Threshold shall be deemed to be zero.
Company and TVA agree that from time to time exceptional circumstances may occur
that merit either an increase or a decrease in Company’s Collateral Threshold
amounts. Accordingly, at any such time, TVA may in its discretion revise the
Collateral Threshold amounts upward or downward upon 30 days’ written notice to
Company.

          COMPANY’S CRR   COLLATERAL THRESHOLD  
Superior
  $ 0  
Strong
  $ 0  
Satisfactory
  $ 0  
Acceptable
  $ 0  

 

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As set out in the above table, Company’s current Collateral Threshold is zero.
At such time, if any, that Company determined to have an Acceptable CRR or
higher, TVA will determine a Collateral Threshold appropriate to Company’s CRR.
SECTION 4.4 – FINANCIAL INFORMATION

  (a)   For TVA’s use in evaluating Company’s financial condition, at TVA’s
request, Company shall provide to TVA:

  (i)   within 120 days following the end of each Company fiscal year, a copy of
Company’s annual report containing consolidated financial statements for such
fiscal year;     (ii)   within 60 days after the end of each of its first three
fiscal quarters of each such fiscal year, a copy of Company’s quarterly report
containing consolidated financial statements for such fiscal quarter; and    
(iii)   such different or additional financial information as TVA may from time
to time reasonably request for TVA’s use in evaluating Company’s financial
condition;

provided, however, Company shall not be required to provide TVA with such
information if:

  (i)   the information is publicly available and accessible by TVA, or     (ii)
  Company is rated by S&P, Moody’s or Fitch.

  (b)   In all cases the statements to be provided under (a) above shall be for
the most recent accounting period and prepared in accordance with generally
accepted accounting principles; provided, however, that should any such
statements not be available on a timely basis due to a delay in preparation or
certification, such delay shall not be a breach of this contract so long as
Company diligently pursues the preparation, certification and delivery of the
statements. Further, it is expressly recognized that TVA prefers the financial
statements provided under (a)(i) above to be audited financial statements and
the unavailability of audited statements may be considered by TVA to be a
negative factor in evaluating Company’s CRR.

SECTION 4.5 – PERFORMANCE ASSURANCE OBLIGATION

  (a)   If at any time during the term of this contract the then-applicable
Credit Risk exceeds the then-applicable Collateral Threshold, a Performance
Assurance Deficiency in the amount of the excess shall exist. Upon written
notice from TVA of such Performance Assurance Deficiency, Company shall be
obligated to promptly provide Performance Assurance, or additional Performance
Assurance, as applicable, to TVA in an amount equal to the amount of such
Performance Assurance Deficiency.

 

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  (b)   In addition, if at any time during the term of this contract, Company is
deemed to have a CRR that is equal to a Below Investment Grade Rating, the
following shall apply:

  (i)   Notwithstanding Section 2 of the Terms and Conditions of the Power
Contract, Company shall pay by using one of the electronic methods approved by
TVA, all charges applicable under the Power Contract within ten (10) days after
the date of any bill; provided, however, if the tenth day after the day of the
bill is a non-business day, then payment shall be made by no later than the next
business day. If such charges are not paid within such period, then TVA may,
upon 5 days’ written notice, discontinue supply of power to Company. Any such
discontinuance of supply shall not relieve company of its liability for minimum
monthly charges or payment of past due amounts.     (ii)   Notwithstanding
sections 2(b) and 2(c) of the Terms and Conditions, the late payment charges
provided for in section 2(b) shall be applicable to any amount remaining unpaid
after the end of the payment period provided for in subsection (i) above.    
(iii)   Notwithstanding sections 2(b) and 2(c) of the Terms and Conditions, the
early payment credit shall be applied as follows: For any month that that
Company pays its bill in full prior to the payment date established in
subsection (i) above, TVA shall apply the amount of the Average Short Term
Interest Rate (as defined in the Terms and Conditions) to the amount of such
early payment for each day prior to the payment date for which the bill is paid.
No early payment credits shall be applicable for any payment that is not made
prior to the payment date provided for in subsection (i) above.

SECTION 4.6 – FAILURE TO PROVIDE PERFORMANCE ASSURANCE
In the event of any Performance Assurance Deficiency arising under 4.5 above:

  (a)   If Company does not fully remedy the Performance Assurance Deficiency by
the date falling 10 days after the date when TVA gives notice of such deficiency
under 4.5 above (or such later date as may be agreed upon), TVA shall have the
right, upon 5 days’ notice, to discontinue the supply of power, and may refuse
to resume delivery as long as Performance Assurance has not been provided to
fully remedy the deficiency. Discontinuance of supply under this paragraph
(a) shall not relieve Company of its liability for minimum monthly charges or
payment of past due amounts.     (b)   If Company does not fully remedy the
Performance Assurance Deficiency by the date falling 30 days after the date when
TVA gives a notice of such deficiency under 4.5 above, TVA shall have the right
to consider the contract breached and to cancel the contract upon written notice
that if full Performance Assurance is not received within 5 days (or such longer
period as may be specified) after the date of said notice, the contract shall be
deemed permanently breached and canceled; and such cancellation by TVA shall be
without waiver of any amounts which may be due or of any rights, including the
right

 

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to damages for such breach, which may have accrued up to and including the date
of such cancellation.
SECTION 4.7 – SECURITY INTEREST
To the extent Company provides any Performance Assurance under section 4.5 of
this Article, Company grants to TVA a present and continuing security interest
in, and lien on (and right of setoff against), and assignment of, all cash
collateral and cash equivalent collateral and any and all proceeds resulting
therefrom or the liquidation thereof, whether now or hereafter held by, on
behalf of, or for the benefit of, TVA, and Company agrees to take such action as
TVA may reasonably require in order to perfect TVA’s first-priority security
interest in, and lien on (and right of setoff against), such collateral and any
and all proceeds resulting therefrom or from the liquidation thereof. It is
expressly recognized and agreed, however, that:

  (a)   any security interest provided for under this section 4.7 above shall
only apply to the specific collateral that is provided as Performance Assurance
to meet Company’s obligations under this Article IV; and     (b)   by virtue of
this section 4.7, TVA will have no security interest of other preferred interest
in any other property of Company or in any other property of any other entity
providing the Performance Assurance. It is expressly recognized and agreed that
this paragraph shall not affect any security interest that may be provided for
under a separate agreement.

SECTION 4.8 – REMEDIES
Upon failure of Company to pay all charges applicable under this contract within
30 days after the date of any bill, or any shorter period for final payment or
for correcting a Performance Assurance Deficiency applicable under any provision
of this contract or any amendment or supplement to this contract, it is
expressly recognized and agreed that TVA may do any one or more of the
following:

  (a)   exercise any of its rights and remedies with respect to such failure to
pay and any of its rights and remedies with respect to Performance Assurance,
including any such rights and remedies under law then in effect;     (b)  
exercise its rights of setoff against any and all property of Company in the
possession of TVA;     (c)   draw on any outstanding letter of credit issued for
its benefit; and     (d)   liquidate all Performance Assurance then held by or
for the benefit of TVA, free from any claim or right of any nature whatsoever of
Company or other pledgor of Performance Assurance, including any equity or right
of purchase or redemption by Company or any such pledgor.