March 14, 2011

By Tracy Idell Hamilton, Staff Writer
Houston Chronicle

The ongoing nuclear disaster in Japan may signal the death knell for the long-planned addition of two nuclear reactors at the South Texas Project.

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, 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 any time 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 6.7 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, 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 workforce that is struggling to maintain control of the … 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. … Our thoughts and prayers go out to them."
There will be plenty of time, in the days and weeks to come, he said, "to assess the impact on nuclear development in America."

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

STP, outside of Bay City in Matagorda County, just a few miles from the coast, is the only such plant 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, said spokesman Buddy Eller. 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 one hurricane, storm surges and earthquakes.

He said the two proposed reactors, Toshiba-designed, would have similar safety features built in.

thamilton(at)express-news