CPS’ talks on nuclear power halted

March 21, 2011

Former partner in STP expansion slows work after Japan disaster.

By Tracy Idell Hamilton
San Antonio Express-News

Nuclear Innovation North America is slowing development of two additional nuclear reactors at the South Texas Project to give federal regulators and others time to assess the state of the industry in the wake of Japan’s nuclear disaster.

Work on the proposed reactors will be limited to licensing and securing the U.S. loan guarantee upon which the project depends, according to a Monday news release from NINA, the nuclear development company owned by NRG Energy and Toshiba Corp.

In conjunction with that announcement, CPS Energy CEO Doyle Beneby said the utility would indefinitely suspend talks to buy power from the proposed reactors.

"NRG and its partners stand squarely behind new nuclear power as the most important component in our transition to a low-carbon economy," said David Crane, chairman of the board of NINA and chief executive of NRG. "However, our best course of action in this immediate period of uncertainty is to minimize project (spending), continue with those activities we can control and wait until there is more information upon which we can base our long-term decisions."

The move added a degree of finality to CPS’ announcement March 14 that the parties had agreed to mutually cease talks as the nuclear crisis in Japan unfolded.

The Obama administration last week called for a comprehensive safety review of the U.S. nuclear fleet. Any design or regulatory changes stemming from that review could affect the proposed units near Bay City.

Crane said that since STP and the stricken plants in Fukushima are different, it wasn’t immediately clear whether modifications would be necessary to the existing or planned units.

"However, as we unreservedly support our government’s proposed nuclear safety review, the prudent thing for us to do is to await the outcome of that review before committing more of our own or our partners’ capital."

NRG also remains committed to a promise to shareholders that it would make a final decision about whether to continue investing in the project by this year’s third quarter, Crane said.

Before the Japanese crisis, Crane said, the company was hoping to have clarity in four areas to decide: the status of a federal loan guarantee from the Energy Department, the Nuclear Regulatory Commission’s licensing process, an agreed-upon price to build the reactors and enough customers committed to buying the power.

Not only will uncertainty remain likely for some time in those areas, he acknowledged, "now we need to have a good idea of who the owners will be."

Tokyo Electric Power Co., which owns the crippled Fukushima plants in Japan, had been expected to invest in the expansion. Given the company’s capital needs in the wake of the disaster, that’s now in question, Crane said.

But the Japanese government might still have an interest in loan guarantees since it would support Toshiba, Crane said, though he stressed that NRG has not spoken directly to the Japanese government since the earthquake. "Presumably, (the Japanese government) would be just as motivated to support Toshiba and its exports, which creates jobs," he said.

Most U.S. analysts were bearish on the economics of new nuclear development before the Japanese crisis; since then, projections have become even grimmer.

A report from Standard & Poor’s last week projects greater costs, increased oversight and "deteriorating economics" for new plant construction.

CPS has roughly $400 million invested in the expansion and owns a 7.6 percent stake in it; that would be protected if NRG decides to stop investing, said Christine Patmon, a spokeswoman with the utility. "If other partners come in, our investment remains," she said.

After many months of relative silence between the former partners, NRG approached CPS this year about buying more of the output from the proposed reactors under a fixed-price contract.

CPS was willing to listen in large part because it needs more power to replace the 851 megawatts it will lose when its Deely coal-fired plants are retired, likely by 2018.

Beneby said Monday that CPS would continue to pursue other options, including "clean coal, natural gas and big solar."

The utility is seeking proposals to build a 50-megawatt solar installation in the area, and Beneby told environmentalists this month that he has begun discussions with companies about investing in "big, big solar, maybe a couple hundred megawatts."

Suspending discussions with NRG allows CPS to devote more resources to those options, he said.

He also said the utility would not alter either its 40 percent ownership in the existing two reactors at STP or its 7.6 percent stake in the proposed expansion.

CPS is not ruling out future discussions with NRG, Beneby said, but those would start from scratch rather than continue from before the crisis.

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