CPS halts talks on buying nuclear power

Tuesday, March 15, 2011

Japan nuclear crisis might be death knell for proposed STP expansion.

By Tracy Idell Hamilton
San Antonio Express-News

CPS Energy CEO Doyle Beneby announced Monday that the utility and NRG Energy, the majority partner in the expansion, have mutually agreed to suspend talks over CPS possibly buying power from the two proposed reactors, which were scheduled to be licensed and begin construction in 2012.

Tokyo Electric Power Co., which owns the crippled Fukushima Daiichi plant in Japan, was expected to invest in the STP expansion if the project was awarded a federal loan guarantee.

In addition, NRG has said it would also rely on loan guarantees from the Japanese government to build the new reactors.

It now seems unlikely that either entity will be in a position to invest in the U.S. nuclear industry anytime soon.

CPS’ recent renewed interest in buying additional power from the plant was seen as an important step forward for a project that, while wounded, had continued to lumber forward.

After a nasty lawsuit and war of words between the once-equal partners, NRG has had a difficult time finding new investors and selling the 2,700 megawatts the new units would produce, in part because of the reduced demand for power and the persistent low price of natural gas.

NRG said earlier this year that it would make a final decision about whether to continue investing in the project near the Texas Gulf Coast by the third quarter of this year.

Recent events seemed to buoy the expansion’s chances.

Loan guarantees had moved forward within the Department of Energy. The Nuclear Regulatory Commission’s environmental review found no impacts that would preclude it from issuing a license for construction and operation. Talks with CPS spurred hope that small utilities and municipalities might also buy power from the units.

CPS is a 7.6 percent owner in the proposed expansion and spent about $400 million before it broke off its partnership with NRG, an investor-owned utility. CPS would get $80 million from NRG if the project is awarded a federal loan guarantee.

But as the grim news from Fukushima Daiichi continued on day four of the crisis, calls intensified from U.S. lawmakers and others to slow down the much vaunted, but long troubled nuclear renaissance.

Neither Beneby nor a spokesman for NRG would assess the likelihood that the project is dead.

"Until more information is available, it makes sense to put our discussions on hold," Beneby said. "My first thoughts are for the people of Japan … and also to the Tepco work force that is struggling to maintain control of the Fukushima nuclear facilities in such extreme conditions."

David Knox of NRG said for now the company is focused "on our friends and partners in Japan right now. We work with them quite closely and our thoughts and prayers go out to them."

There will be plenty of time "to assess the impact on nuclear development in America," he said.

Better off financially

Some industry analysts, however, have already begun predicting the expansion’s demise — and are describing it as a favorable financial prospect for NRG.

"Given the lower overall probability of STP (expansion)," UBS Utilities said in an analyst report Monday, "we see positive implications for NRG shares."

Others think ongoing efforts to stop the expansion from being licensed could prevail.

One contention that the anti-nuclear group SEED Coalition has raised, and which was recently accepted for a full hearing by the Atomic Safety and Licensing Board, is that of "co-location."

"We’re seeing now the nightmare that can result from locating plants so close together," said Karen Hadden, SEED’s executive director. "It’s time we wake up and recognize the inherent dangers of nuclear power."

Others say the Japanese crisis is practically irrelevant.

"This almost doesn’t change the fact that new nuclear looks to be a bad investment," said Paul Fremont, a managing director at Jeffries and Company, an industry analyst. "Constellation (Energy) walked away and said keep your loan guarantee, it’s not economic to build."

Ellen Vancko, the Union of Concerned Scientists’ nuclear energy and climate change project manager, wouldn’t speculate on STP specifically, but she reiterated Fremont’s assessment of the industry as a whole.

"The nuclear industry has been in trouble long before last week," she said, citing declining energy demands, low natural gas prices and Congress’ failure to put a tax on carbon.

Even if the U.S. nuclear industry moves forward, Fremont said, "I would still say the future of (STP) is seriously in doubt."

CPS owns 40 percent of the two existing reactors at STP; NRG owns 44 percent and Austin Energy 16 percent.

Beneby said Monday he’s been in close contact with the nuclear operating company that runs the site and that he is comfortable with the existing plant’s safety systems.

STP, which is outside of Bay City in Matagorda County, just a few miles from the coast, is the only one in the country with three safety backup systems rather than two, a spokesman said Monday.

STP 1 and 2 are Westinghouse-designed pressurized water reactors that came online in 1987 and ’88, respectively, making them two of the most recent commercial units in the country, spokesman Buddy Eller said.

The six units at Fukushima Daiichi are GE and Toshiba-designed boiling water reactors, circa 1971-79.

Eller, while shying away from direct comparisons between the designs, noted that, unlike the Fukushima plant’s backup generators, which were destroyed by the tsunami, all of STP’s emergency power sources are in separate, water-tight concrete buildings designed to withstand a Category 1 hurricane, storm surges and earthquakes.

A Category 1 hurricane has wind speeds of 74-95 mph.

"For us, safety is always our highest priority," Eller said. "I can’t get into every level of detail, but we have redundant safety features built in, plus a very integrated, very coordinated emergency response, with multiple drills on all types of disasters."

He said the two proposed reactors, Toshiba-designed advanced boiling water reactors, would have similar safety features.

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