Author Archive

December 5, 2009

By REBECCA SMITH
Wall Street Journal

Spooked by escalating costs, a city-owned utility in San Antonio is considering backing out of a venture with NRG Energy Inc. to build two next-generation nuclear reactors in Texas.

CPS Energy is expected to make a final decision next month, after it gets an updated cost estimate from Toshiba Corp., which will oversee construction of the two reactors. The project is one of the furthest along in a new crop of nuclear proposals, but it is proving unpopular with city officials.

The cost of the reactors, estimated at $10 billion to $12 billion before financing costs, is causing concern at a time when the utility is making big investments in renewable energy and pollution controls. Nuclear-reactor costs also look high right now against competing types of generation, such as gas-fired plants.

The San Antonio city council was poised to approve a $400 million bond issuance in late October, but held back when new numbers came to light that indicated the nuclear project could cost more than expected. Like most municipal utilities, CPS has an appointed board that reports to elected city officials, whose approval is needed for rate changes or bond issuances.

The political ruckus that ensued led to the Nov. 27 resignation of the utility’s interim general manager, Steve Bartley, and deputy general counsel, Robert Temple, who tendered his resignation, effective Dec. 15.

A utility spokeswoman said she expects the utility to decide by Jan. 15 whether to proceed with its investment in the South Texas Project, Units 3 and 4, where CPS already owns Units 1 and 2 with NRG Energy.

City officials say the cost estimate from Toshiba for the two-reactor project ballooned to $12.1 billion last summer from a preliminary estimate of $8.6 billion in 2007, catching them off guard. Utility documents show its board was working with a figure of $10 billion. NRG says that it is confident it will be able to get the cost below $10 billion, before about $3 billion in financing costs are added.

Even at $10 billion, the price might be “outside the affordability range for CPS,” said Steve Winn, president and chief executive of Nuclear Innovation North America LLC, the nuclear-development company 88%-owned by NRG and 12%-owned by Toshiba that would hold at least a 40% stake in the project.

Mr. Winn said his company is talking with investors who could replace CPS, if it decides not to proceed. CPS was expected to take a 20% to 40% interest that could cost it $2 billion to $4 billion, before financing costs were added.

Mr. Winn said NRG is working with Toshiba to reduce the cost. One problem is that the project involves $3 billion worth of equipment purchases from Japanese vendors, and a falling dollar and strengthening yen have pushed up those equipment costs.

Even if the final cost is about $10 billion, some city officials feel the project is too costly. “Based on the numbers I’ve seen, I don’t think it’s the right decision to proceed,” said Councilman Reed Williams. He said it made economic sense for CPS to build gas-fired plants or buy electricity from others.

Outside the nuclear arena, CPS plans to spend more than $5 billion on modernization efforts, including $871 million on energy-efficiency programs, $2.5 billion on renewable-energy projects and $2.1 billion on environmental upgrades to power plants. To finance the investments, it is proposing to raise rates through bill increases every other year for the next decade, totaling about 25%.

CPS’s skittishness about the cost of nuclear energy is understandable. The first two units at South Texas Project were supposed to cost less than $1 billion but ended up costing more than $5 billion. With that history seared into its memory, San Antonio officials have been sensitive to anything suggesting they could, again, get blindsided by escalating costs.

A change in leadership also appears to be having an effect, with San Antonio’s 35-year-old mayor, Julian Castro, who was elected in May, expressing reservations about the wisdom of a big nuclear investment. The city already has invested $300 million in the project.

NRG hopes to win permission to begin construction in 2012, and to put units into service in 2016 and 2017. “The project will go forward regardless of CPS’s decision,” said Mr. Winn, adding that he did not believe the matter would affect NRG’s ability to garner important federal loan guarantees for the project.

Write to Rebecca Smith at rebecca.smith(at)wsj.com

For Immediate Release
October 19, 2009

Groups propose a 10-point alternative plan that would cost less and create local jobs

Download this release in pdf format for printing.

(San Antonio) At a press conference today, activists and energy experts called for San Antonio City
Council to vote against nuclear expansion because they have not compared the costs and benefits of a
comprehensive green plan to building additional reactors. The group presented a 10-point plan that could
provide more energy at lower cost and create thousands of local jobs.

“San Antonio could meet its energy needs at less cost through a combination of energy efficiency,
renewable energy with storage, and geothermal energy while putting local people to work,” said Amanda Haas
of the Esperanza Peace and Justice Center. “The STEP and Mission Verde plans, if enacted, will help us move
towards a sustainable energy future. However, the only plan before the City Council is a plan for more nuclear
reactors. We call on City Council to halt the push for nuclear reactors which would leave a legacy of radioactive
waste and instead pursue a safer, green energy future that will create thousands of local jobs in San Antonio
instead of exporting them to Bay City and Japan.”

“We have developed a 10-point plan that studies show would be cheaper than building the nuclear
reactors,” said Tom “Smitty” Smith of Public Citizen’s Texas office. “These alternatives would include more
weatherization, retrofits, building codes, lighting, solar, wind with storage, geothermal, biomass, natural gas
and combined heat and power. In combination, these resources could more than meet San Antonio’s energy
needs at costs below that of the additional reactors. The demand for electricity is down by 7% nationally from
2008-2009 and many new federal programs may decrease the demand for electricity even further. CPS’s own
projections for electricity demand have fallen. City Council should develop a comprehensive alternative plan
and see which is cheaper before they vote on what could be $6.5 billion dollar mistake.”

Two independent studies on CPS and the Federal Energy Regulatory Commission data have shown
that alternatives are far cheaper than a nuclear plant. While CPS is making big commitments to weatherization,
they have been typically spending more money than others to achieve the same result. CPS is spending two to
three times more per saved megawatt than other utilities in Texas or Houston. In Houston the city teamed with
its local utility and did a neighborhood-by-neighborhood retrofit program that saved 14.6% of the energy usage
in each home for $1,000, a fraction of what CPS is spending. A recent study for CPS found the cost of
efficiency was about half the cost of the proposed nuclear reactor. If CPS builds the nuclear plant and the
energy is too expensive to sell it could send the utility into a nuclear death spiral.

As an example of the kinds of energy savings that could be obtained, Bob Spermo of Bullseye Home
Energy Audits reviewed the results of a home energy audit he performed on a local home and found that the
homeowner could save energy in her home through insulation in the attic, solar screens, radiant barriers, and
replacing old air conditioners with more efficient ones. In other newer homes it makes sense to tighten up
leaking ducts and do blower door tests to look for leaks.

“Solar panels are a cost effective way to capture the power of the sun and to save energy. The City has
adopted a goal of installing solar on 50,000 homes and 6,000 businesses by 2020. If they were to do this it
would cut the need for 250 MW of energy and create 1,000 new jobs, according to the City’s Mission Verde
Plan.” said Dustin Aubrey of Nova Star Solar. “The cost of solar panels is declining rapidly. If the city council
would make a large scale solar PV commitment and make CPS do it, we could be one of the nation’s most
solar cities.”

Houston has recently agreed to a 25-year solar power purchase agreement at a price of 8.2 cents per
kilowatt-hour for the first year. Houston’s NRG Energy Inc. (NYSE: NRG) will foot the $40 million bill to
develop, build and own the 10 megawatt solar farm in northwest Houston. This is less than the projected price
of energy from the nuclear plant which is 8.5 cents per KWh.

“One of the cheapest ways to save energy is to pull the energy from underground. Texas is blessed
with steady temperatures in rock below the ground surface that can be captured and circulated through heat
exchangers in our homes and offices, reducing dramatically the energy we need for heating and cooling,” said
Charlie Lonsberry from Southwest Mechanical, who installs geothermal systems. “Many San Antonio homes
use geothermal energy for heating, hot water, and cooling – and they’ve been doing so for years. Geothermal
can also be done on a large scale to produce electricity.”

“City Council hasn’t done a good job of looking at the alternatives. They have relied entirely on CPS’s
cost estimates, which are often old or biased, and as a result they are making a decision without adequate
analysis of alternatives. Our 10-point plant would be cheaper than building new nuclear reactors,” said Peggy
Day of the Alamo Group of the Sierra Club. “The City Council should examine the alternatives before voting to
fund the bonds for further nuclear development. Not only will this decision affect the cost consumers pay, but it
also has grave moral consequences. We will create waste that will be radioactive and can cause cancer or birth
defects for 10,000 years. 60 years after the dawn of the nuclear age we have yet to figure out what to do with
the waste. What right do we have to leave this toxic mess behind?”

For more information on the alternative plan see www.energiamia.org

• Costs of Current and Planned Nuclear Power Plants in Texas; A Consumer Perspective
  Clarence Johnson for Public Citizen, Texas Office, April 2009
• Assessing Nuclear Plant Capital Costs for the Two Proposed NRG Reactors at the South Texas
  Project Site Arjun Makhijani, Ph.D. March 24, 2008

Should not be Issued by Department of Energy

18 Groups From 4 States With Reactors Up for Loan Guarantees Speak Out in Opposition;
DOE Liberalization of Rules Would Expose Taxpayers to Billions of Dollars in New Defaults.

For Immediate Release
October 22, 2009

Contact:
Karen Hadden, Executive Director, SEED Coalition,
512-797-8481 or
Eliza Brown, Clean Energy Advocate, SEED Coalition,
512-637-9482

Austin, Texas Taxpayers will be put at significant new risk for billions of dollars in loan defaults if the U.S. Department of Energy (DOE) moves ahead with plans to issue its first set of controversial taxpayer-backed conditional loan guarantees for new nuclear reactors, according to 18 national and state-level public interest groups from the four states where utilities are most likely to receive the loan guarantee hand-outs: Maryland, Georgia, Texas and South Carolina.

In a joint statement issued today, the groups charged that “The [DOE] Loan Guarantee Program faces fundamental problems that fatally undermine the program’s integrity as it seeks to bail out the nuclear industry, including a lack of control over the prohibitive and uncontrolled cost of new reactors, excessive and unjustified secrecy, and an inability to properly secure the loan guarantees.” They called on DOE to put the issuance of loan guarantees on hold given the unacceptable financial risks placed on the taxpayer, the poor track record of the DOE with past loan guarantees and the lack of transparency in the loan guarantee decision-making process.

DOE has identified four nuclear utilities as prime candidates for conditional loan guarantees: Unistar Nuclear in Maryland (for one reactor at the Calvert Cliffs site), SCANA in South Carolina (for two reactors at the V.C. Summer site), Southern Company in Georgia (for two reactors at the Vogtle site) and NRG Energy in Texas (for two reactors at the South Texas Project).

“If the DOE issues loan guarantees to NRG for the South Texas Project, the risks placed on the U.S. taxpayer are numerous,” stated Karen Hadden, Executive Director of the SEED Coalition. “One STP site-specific issue that causes us great concern is use of the ABWR rector design. NRG is requesting numerous departures from the pre-approved design which has never been built in the U.S. and has had serious problems in Japan.”

“There is also the increased financial risk of guaranteeing a loan to NRG, which has a bond rating just above “junk” grade according to Moody’s. The company declared bankruptcy in 2003,” Hadden said. “NRG has not found the additional investors it needs for the reactors. San Antonio’s municipal utility, CPS Energy, voted unanimously last week to reduce its 50% stake in the project to between 20-25%. How can the DOE put U.S. taxpayers at risk by guaranteeing a loan to fund reactors when the buyers aren’t firm? There are no buyers for the 810 MW share that CPS no longer wants and can’t afford, and no one will want high dollar nuclear generated energy when cheaper options are available.”

According to the statement from the groups: “Given that DOE has the authority to hand out only $18.5 billion in loan guarantees and that the current estimated price tag for a single reactor is $9-15 billion, it is clear that DOE will not be able to fully back all of the new nuclear reactors currently under consideration.” The Nuclear Regulatory Commission (NRC) has stated that it will not approve any new license applications for several years from now.

Eighteen state and national groups have signed on to the statement, including the Nuclear Information and Resource Service, Public Citizen, Friends of the Earth, the South Carolina Chapter of the Sierra Club, the Southern Alliance for Clean Energy (SACE), and the Sustainable Energy & Economic Development (SEED) Coalition (Texas). (A full listing of groups can be seen on the statement itself, at www.NukeFreeTexas.org)

A number of the groups have also raised legal challenges on the state and/or federal level against the reactor projects, charging that they fail to comply with safety and environmental laws. The organizations contend that DOE loan guarantees for the highest-cost energy option, nuclear power, would be a diversion of resources from cleaner, cheaper options that the nation must urgently pursue.

“With five contentions admitted for a hearing by the Atomic Safety and Licensing Board (ASLB) Panel and seven more contentions pending, the citizen legal intervention at STP has been the most successful in the country thus far,” said Hadden. The ASLB Panel admitted four water-related contentions, ruling that STP had failed to adequately analyze the environmental impacts of radioactive contaminated water and water availability. The Panel also ruled that STP failed to consider the impacts of a radiological accident at one unit on the operations at the other units.

“It hardly makes sense for the DOE to force the U.S. taxpayer to help fund more nuclear reactors in this country when the NRC recognizes that nuclear plants could become weapons for terrorists and are vulnerable to air attacks with potentially catastrophic effects,” said Hadden. On August 14th, the Intervenors filed seven more contentions regarding STP’s failure to comply with a new NRC fire safety rule which says each licensee must “develop and implement guidance and strategies intended to maintain or restore core cooling, containment, and spent fuel pool cooling capabilities under the circumstances associated with loss of large areas of the plant due to explosions or fire,” including those that would occur from the impact of a large commercial airliner. However, the Intervenors’ contentions that STP has failed to meet the fire and explosion regulatory requirements, STP’s submittal, and related documents are considered classified by the NRC and are not available to the public.

“The licensing process is likely to be delayed as a result of additional contentions,” said Hadden. “Delay and construction problems led to the first reactors at STP coming in six times over budget and eight years late.”

In their joint statement, the 18 groups criticized the DOE for weakening the terms of loan guarantees to favor borrowers, at the expense of taxpayers. Recently, for example, DOE proposed “to modify [its] regulations so as to eliminate the taxpayer as the primary claimant to fixed assets after a default, in order to make the loan guarantees more attractive to investors – such as the French and Japanese export-import banks. Thus, what seems to be cooking in DOE’s secret loan guarantee laboratory is a ‘Son of Synfuels’ give-away, where securing loans for private nuclear companies takes precedence over protecting taxpayers. Public interest opponents of the use of the taxpayer-backed loan guarantees to subsidize new nuclear reactors therefore demand that DOE suspend the issuance of conditional loan guarantees as DOE has not demonstrated that it has in place a transparent process for protecting U.S. taxpayer-financed nuclear loan guarantees against default.”

The loan guarantees would put U.S. taxpayers – rather than investors – on the hook to pay back the loans should any of the projects default. According to a May 2003 Congressional Budget Office (CBO) report, the risk of default on loan guarantees for new nuclear plants is “very high – well above 50 percent.” The shift of liability to taxpayers underscores not only the necessity of public review and scrutiny of the loan guarantee program, but also begs the question of how effectively and to what degree DOE can mitigate financial risk to taxpayers through program administration.

Further, DOE has been criticized by the Government Accountability Office (GAO) and the DOE Inspector General for not setting up the necessary controls to manage the government’s significant financial risk exposure. The GAO reported in July 2008 that “rather than taking and completing key steps to better ensure that the loan guarantee program would be well managed and accomplish its objectives, DOE focused on soliciting preapplications for proposed projects.” The report concluded that DOE is not “well positioned to manage the loan guarantee program effectively and maintain accountability because it has not completed a number of management and internal control activities key to carrying out the program.”

Imprudent loan guarantee administration is not a new experience for DOE. Failure to properly assess financial risk in a similar loan guarantee program in the late-1970s and early-1980s, forced DOE to cover significant losses on the risky synthetic fuels industry. Loan defaults on these projects led to a $15 billion loss for U.S. taxpayers.

The full text of the joint statement can be found here:

Loan Guarantee Statement 10/22/09

June 30, 2009

Victoria Advocate

Exelon Nuclear won’t decide whether to build a Victoria County plant for at least three years – and possibly as many 20.

The company bought itself a two-decade window to weigh its options by announcing Tuesday it will seek an early site permit instead of a construction and operating license.

Exelon planned to decide by early next year whether to build locally. Unforeseen U.S. economic woes, unpredictable energy prices and a lack of ample federal loan guarantees threw a reactor-sized wrench into those plans, Exelon spokespeople said.

The decision to file the early site permit, though, gives nuclear supporters hope. The move shows Exelon hasn’t given up wholly on building locally, they say.

"The fact they’re willing to move forward with this early site permit means they still have strong confidence in Victoria and in this site," said Dale Fowler, president of the Victoria Economic Development Corp. "I view that as very positive."

Even so, Fowler and Mayor Will Armstrong said the move disappoints. The economic boom of breaking ground on hundreds of new jobs and homegrown energy is delayed for years.

An early site permit, if granted, gives a federal stamp of approval to the proposed Victoria County location. The Nuclear Regulatory Commission will evaluate factors such as site safety, environmental impact and emergency planning.

"Once they get the early site permit, then they could apply for a license to build and operate a nuclear power plant," said Victor Dricks, a Nuclear Regulatory Commission spokesman.

The early site permit, and construction and operating license, each require about three years of federal study. If Exelon one day chooses to build the plant, some data from the early site permit can be used toward the construction and operating license.

"It could expedite that second licensing process," Dricks said.

Exelon spokespeople said Tuesday’s announcement does not reflect disinterest in this region.

"Victoria is a great site for a nuclear power plant," said Bill Harris, Exelon’s Victoria-based spokesman. "Economically speaking, now’s not the time."

Craig Nesbit, another spokesman, added, "We are not walking away from Victoria. We are simply extending the decision time, giving ourselves more time to let things settle out a bit."

The company renewed recently its water reservation agreement with the Guadalupe-Blanco River Authority.

Exelon extended its agreement – a reservation of 75,000-acre-feet of water per year – for another year, said Bill West, the river authority’s general manager. The one-year agreement costs Exelon $1.1 million.

Exelon won’t likely reserve the costly river water for extended periods beyond its one-year agreement, Nesbit said.

"In order to do an early site permit, we have to have a fairly competent water supply," the Exelon spokesman said. "We’re going to continue talking with the Guadalupe-Blanco River Authority. We have water reservations through next June. If the river authority has other uses for that water after that, they’ll use it elsewhere."

Exelon could turn to other river authorities or the Gulf of Mexico for needed water, Nesbit said. The Guadalupe River, however, is the company’s best option.

West would not speculate about other water customers the river authority could sell to, or how Exelon’s decision will affect regional water planning.

"We’ve got some time to work on it," West said.

In the meantime, Exelon continues its hostile bid to take over NRG Energy, which proposes to build two new reactors in Bay City. The city is home to the South Texas Project, an operational nuclear power plant.

NRG Energy is one of four likely recipients of $18.5 billion in federal loan guarantees, the Energy Department announced in May.

NRG stockholders meet in mid July to further discuss the takeover attempts.

Nuclear opponents say that while the economic sky fell on Exelon’s attempts to build locally, problems bubble in other areas.

"There are major water issues regarding the Victoria site," said Jim Blackburn, Goliad County’s Houston-based environmental lawyer. "The decision gives Exelon time that frankly does not surprise me they need. I think they’re aware of the serious concerns at the Victoria site, specifically as they relate to water."

San Antonio Business Journal
Monday, February 23, 2009

Environmental groups throughout Texas are lining up to oppose the South Texas Nuclear Operating Co.’s plans to build two additional reactors at its plant near Bay City, Texas.

The Nuclear Regulatory Commission has filed notice in the Federal Register giving citizens the ability to challenge the proposed reactors. Groups have 60 days to oppose the proposed expansion of the nuclear power plant. The Nuclear Regulatory Commission must still grant a license to build the new reactors.

Environmental groups planning to formally oppose the project include the newly formed Bay City-based South Texas Association for Responsible Energy (STARE), the Sustainable Energy and Economic Development (SEED) Coalition, and Public Citizen.

The South Texas Nuclear Operating Co. is owned by NRG Texas LLC (44 percent), San Antonio-based CPS Energy (40 percent) and Austin Energy (16 percent). The company currently has two nuclear-power generating reactors in operation near Bay City, which is 90 miles southwest of Houston.

NRG and CPS Energy are pursuing the proposed expansion, which will generate more than 2,600 megawatts of electricity, cost $6 billion to build and create enough electricity to power more than 3 million homes, according to a 2008 report by the Texas Comptroller for Public Accounts. Austin Energy has declined to participate in the expansion.

“New reactors would saddle homeowners and taxpayers with additional debt for infrastructure, more radioactive waste that would sit in our community, and more risk of nuclear accidents, health impacts and radioactive exposure,” contends Susan Dancer, executive director of STARE. “These are among the many reasons we will intervene in opposition to more nuclear reactors.”

“There are cleaner, more affordable ways to generate electricity," says Cindy Wheeler of the Consumers’ Energy Coalition in San Antonio. “With the economic downturn, we shouldn’t generate power that’s not needed. San Antonio has reduced energy use by 16 percent over the past two years.”

CPS Energy officials say the utility must look for ways to meet the energy needs of customers.

“At CPS Energy, we constantly look at all viable options to provide our customers with reliable, cost-competitive electricity that’s produced in an environmentally responsible manner,” says CPS Energy spokeswoman Theresa Brown Cortez. “Currently, we use low-sulfur coal, renewable sources such as wind and solar, nuclear energy, natural gas as well as energy efficiency and conservation to meet our customers’ electrical needs.”

CPS Energy officials say its staff will continue to evaluate options for generating electricity to meet the future needs of ratepayers.

“As we’ve indicated on numerous occasions, a decision on CPS Energy’s participation in expanding (the nuclear power plant) won’t come until later this year,” Cortez says.