Nuclear cost estimate rises by as much as $4 billion

October 28, 2009

By Tracy Idell Hamilton and Anton Caputo
San Antonio Express-News

The estimated cost of two new nuclear reactors proposed by CPS Energy has gone up as much as $4 billion, prompting the City Council to postpone Thursday's vote on the project's financing until January.

CPS officials and Mayor Julián Castro, flanked by every council member except David Medina, held a hastily arranged news conference Tuesday afternoon announcing the delay.

CPS interim General Manager Steve Bartley said the utility's main contractor on the project, Toshiba Inc., informed officials that the cost of the reactors would be "substantially greater" than CPS' estimate of $13 billion, which includes financing.

He said utility officials found out about the increase "within the last week and a half or so."

But the mayor said he only learned the news Monday night after an aide asked Bartley about rumors of a cost estimate increase.

Castro said he didn't know whether CPS would have divulged the increase to the council before its vote Thursday had his aide not directly questioned utility management.

"One would hope otherwise, but the evidence seems to suggest that they were less than proactive," he said.

The council was poised to approve $400 million in bond financing Thursday. CPS has already spent roughly $280 million on the project's engineering and planning.

Several council members said they were surprised and shaken by Tuesday's news.

"I'm just glad it came today and not Friday," Councilman Ray Lopez said.

Bartley said CPS believes Toshiba's cost estimate to be a negotiating tactic and is not an acceptable price.

By delaying the council vote, he said, "We are sending a clear signal to Toshiba that their preliminary cost estimate must come down."

Bartley will lead a team to Japan next month to negotiate with the company.

He would not confirm the $4 billion figure, but several council members who were briefed by the mayor Tuesday did.

Castro was asked how much would be too much to spend on the nuclear expansion. He answered not with a dollar figure but with a rate increase parameter of no more than a 5 percent bill increase every other year.

"What we're looking for is to stay within that range," he said.

The council still will likely be asked next spring to approve a 9.5 percent base rate increase to cover the nuclear expansion and the utility's other capital projects. Reductions to other charges on the bill would keep the overall increase to 5 percent, CPS officials have said.

The potential $4 billion jump in cost for the expansion isn't the first for a project that was estimated at $5.4 billion, including financing, when NRG Energy - which is partnering with CPS - applied to the federal government in 2007 for a license to build the reactors.

NRG spokesman Dave Knox said Toshiba's latest cost estimate is "part of the back-and-forth of negotiating." If NRG thought the latest figure was the actual cost, "we wouldn't be spending money on the project," he said.

Toshiba must offer up a firm cost estimate in January, Knox said, "and that's the important number."

Councilman John Clamp said the increase put the council in a "precarious situation," even if it is just a negotiating tactic.

"You don't play poker with billions," he said.

Councilwoman Jennifer Ramos said the unexpected news makes an idea she and Clamp have been pushing, of creating a council committee that oversees public utilities, even more of a priority.

"So that in the future, we're always in the loop," she said.

CPS board chairwoman Aurora Geis acknowledged that the board had not heard the increased cost figure, but she said trustees generally are not aware of every twist and turn in negotiations.

"We're not in day-to-day management," Geis said. She reiterated the board's support for CPS management's recommendation to pursue the nuclear expansion and said she was not concerned with the council delaying the vote.

"We understand that we need council support," she said.

Leaders of COPS/Metro Alliance, a group that represents many of the city's poorer neighborhoods and had been negotiating with the utility to add more money to its low-income weatherization program, said they would continue to press their case.

"It confirms the fears we had in the beginning," that rising costs associated with the project would hurt low-income ratepayers, Father Walter D'heedene said. "But we will still focus on weatherization."

Opponents of the nuclear plan said Tuesday's news reinforced their position that nuclear is a bad choice for the city's future energy needs.

"It's what we've said all along," said Leticia Vela, a member of anti-nuclear group Energía Mía. "For us, this is like, 'we told you so.'"

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