CPS partner: Nuclear deal costs too high for S.A.
November 20 2009
By Anton Caputo and Tracy Idell Hamilton
San Antonio Express-News
Toshiba Inc. has shaved about $1.4 billion off its price to build two nuclear reactors, but it's unlikely to ever reach an amount within San Antonio's price range, NRG Energy executives said Thursday.
"We would expect ... the price estimate that Toshiba will come back with may be outside the affordability range for their ratepayers," Steve Winn, CEO of the NRG-owned Nuclear Innovation North America, said at a financial analysts' meeting in Houston.
At issue is the cost San Antonio's CPS Energy and NRG Energy are willing to pay contractor Toshiba to build two nuclear reactors outside Bay City.
CPS Energy has promised ratepayers and the City Council that it will pursue the deal as long as it can limit power bill increases to 5 percent every other year for the next decade.
This can be done if the total project, with financing, will cost about $13 billion, utility officials say.
To hit that amount, Toshiba's costs need to come in about $8 billion. But the Japanese contractor, NRG confirmed, estimated its price at $12.3 billion in October.
Winn said NRG and NINA are confident they eventually can negotiate Toshiba down to $10 billion or less - but not to the $8 billion CPS Energy has targeted. And he doesn't expect Toshiba's end-of-the-year price estimate, which CPS will use to produce another public cost estimate, to be anywhere near the San Antonio target.
"We expect $10.5 (billion) to $11 (billion)," he said.
Winn acknowledged his company, which will sell the power produced by the reactors on the open market, and the municipally owned CPS Energy are judging the project in different ways.
"Where we would look at it and say, what can we economically sell power for in the Texas market? ... They have two different criteria. One is how does it compete with other technologies, but the second one is how to mitigate the overall rate impact associated with building anything," Winn said.
The S.A. view
CPS Energy Interim General Manager Steve Bartley said he was surprised to hear about the remarks made at the Houston meeting but said he wouldn't comment further until he had a chance to review a Webcast of it.
San Antonio's stance on the project dominated the nuclear portion of NRG's presentation to Wall Street analysts who follow the company.
Winn said he was very forthcoming about the prices being negotiated for the mammoth deal because of the uncertainty San Antonio's position has caused with investors and analysts.
CPS Energy owns half the project but is looking to sell some - and maybe all - of its stake. The mayor's and City Council's faith in the deal has been severely tested with the recent news that Toshiba is asking for $4 billion more than CPS Energy has planned.
NRG and NINA executives said their companies were "prepared for any outcome with San Antonio," but wanted a decision soon.
If CPS Energy does sell all or a significant part of its ownership, NRG expects to have a say in the buyer, NRG executives said.
Also Thursday, the City Council was given a letter from Toshiba, faxed the day before to CPS Energy chief Milton Lee, which reiterated the $1.4 billion cost estimate reduction achieved since Toshiba's October estimate.
The closed-door session was the first time Lee and Bartley met with the full council since news broke that the utility had kept the $4 billion cost estimate increase under wraps. When the increase was leaked, the council postponed a vote on $400 million for nuclear financing.
After Bartley briefed the council on CPS Energy's Japan trip, council members spent a good deal of time venting their pent-up frustration, several said.
The Toshiba letter was so dense with jargon that it had to be explained to the council in plain English, Councilman Ray Lopez said, noting it didn't specify what dollar figure the $1.4 billion was reduced from.
"We assume it was the higher number, which they're reluctant to say," Lopez said.
He and other council members said they were comfortable waiting until Dec. 31, when Toshiba is contractually obligated to produce a formal cost estimate.
But the council - and the public - never will see Toshiba's new number. It will give CPS Energy its new figure by Dec. 31, which the utility will crunch internally, adding owners' costs and license fees, a contingency amount plus financing.
That figure will be presented to the CPS Energy trustees "hopefully no later than" Jan. 15, Bartley said.
"We're prepared to take appropriate action depending on that number," Lopez said. But he acknowledged the utility still has credibility issues with the council.
"Can we have confidence in whatever number they come back with?" he asked.
Councilman John Clamp, too, said he was prepared to wait until the new cost estimate came out, but after reading Winn's remarks on the San Antonio Express-News Web site Thursday afternoon, expressed exasperation.
"It seems to me that in terms of nuclear energy, we are not playing to win, we are playing to lose - and we are doing a very good job," he said.
Whatever happens, he is keen to protect the investment CPS Energy has made so far.
"I'm going to respect the process, like the mayor has asked us to do," he said. "But I, for one, don't want to lose our extremely valuable water and land rights."
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