Archive for the ‘CPS’ Category

June 28, 2010

By Kate Galbraith
Texas Tribune

Seventeen years ago, Texas turned on its last nuclear reactor, about 50 miles southwest of Fort Worth. In another decade, several more reactors could get built here — if events in Washington go the power companies’ way.

Nuclear power now accounts for 14 percent of Texas’s electricity usage (below the national average, 20 percent). The case for adding more reactors rests on a rising appetite for electricity sparked by a growing population and ever-proliferating gadgetry. And proponents point out that nuclear power, unlike coal or natural gas, is virtually free of the greenhouse gas emissions associated with global warming during its operations, although environmentalists strongly dispute the merits of the plants.

The federal government is moving ahead with a program that provides loan guarantees for the plants — a crucial step to placate financiers nervous about the economic risk of building them. Earlier this month, the Department of Energy agreed to a $3.4 billion guarantee for the expansion of a nuclear facility in Georgia, and the Obama administration recently asked Congress for more funds to help out more plants. Two proposed nuclear projects in Texas are high on the list of potential recipients.

"We’re very serious about moving ahead," says Jeff Simmons, who is leading the development efforts to add two new reactors to the Comanche Peak plant in Glen Rose, near Fort Worth. The project is a joint venture between subsidiaries of Luminant, a big Texas power generator, and Mitsubishi Heavy Industries. The companies are hoping to get a license from the Nuclear Regulatory Commission by the end of 2012 — a crucial green light for the plant.

"Before we even get the license, we will be hundreds of millions of dollars into the development of this project," Simmons says.

A second project is proposed for Bay City. Already, that site, called the South Texas Project, has two reactors, which began operating in the late 1980s. NRG Energy and CPS Energy, the San Antonio utility, have applied for a license to add two more reactors as well, although CPS recently whittled down its share of the project in a legal settlement as cost estimates ballooned.

Many hurdles remain before either project can be built, however. No new nuclear plants in the United States have been started in several decades (the Bay City and Glen Rose projects are the only ones in Texas and are among the last plants nationally to be built). Fears of another Three-Mile Island-type accident have hung over the industry, and the economics are daunting. Nuclear plants are extremely expensive to build — each new reactor can cost $6 billion to $8 billion, according to the Nuclear Energy Institute. As a result, many plant operators have convinced the government to extend the life of old plants rather than build new ones. (The four existing Texas reactors are new enough so that an extension is not an issue yet.)

Cost concerns have been compounded by the recent economic turmoil. With the credit markets still tight, financing a huge project is difficult. Also, the recession has depressed demand for electricity — which makes it less necessary to build more power plants in the near term. Texas’s electric usage last year was 1.3 percent less than forecast, and a new report from ERCOT, the state grid operator, projects that peak electricity use will grow by 1.72 percent annually between 2010 and 2019, compared with last year’s projection of 2 percent growth during those years. Also, low natural gas prices have pulled down the overall price of electricity, making it harder to justify building an expensive plant.

Economic uncertainties propelled one major nuclear plant operator, Exelon, to pull back on its plans. Last year Exelon changed its license application for a new plant in Victoria County to a less arduous application, for an "early site permit," which covers environmental and safety portions of the applications only.

"Right now we don’t plan to build a plant there. We do want to preserve the option to build there in the future," says Craig Nesbit, the vice president for communications at Exelon Generation.

Companies exploring a fourth possible Texas plant, in the Panhandle, have not yet applied for a license from the Nuclear Regulatory Commission, despite statements in 2008 that an application was planned for 2009.

The federal government holds the key to the economics, through loan guarantees. These essentially mean that the government will pick up the tab if the borrower — the plant owner — defaults. Earlier this month Southern Company agreed to a $3.4 billion loan guarantee for a reactor project in Georgia, part of a $8.3 billion loan-guarantee package for the plant announced in February. The total federal pot currently stands at $18.5 billion — enough for one more project but perhaps not more. (There is also a far smaller amount allocated to loan guarantees for renewable energy projects, which are considered risky and in need of federal guarantees because of their newness.)

As a result, there is jostling for a place in the loan-guarantee queue. The South Texas Project is third in line, after the Georgia project and a plant proposed by Constellation Energy. The Comanche Peak project is fifth in line. The Obama administration asked Congress in May to add $9 billion to the $18.5 billion program, which would mean enough for a few more projects after the Georgia one.

Environmentalists think nuclear power is a terrible idea.

"We think expanding the Texas nuclear fleet is a huge mistake because of cost and waste issues primarily — and that there are significantly cheaper alternatives that could provide the power at a fraction of the cost," says Tom "Smitty" Smith, the Texas director of the environmental and consumer advocacy group Public Citizen. Energy-efficiency and renewable energy — such as the wind power that has grown quickly in Texas — would be far more cost-effective, he says.

Smith also maintains that nuclear plants’ "zero-emissions" arguments on greenhouse gases (although potentially crucial in the forthcoming debate about national energy legislation) are a red herring. "There are enormous emissions of greenhouse gases during the mining and enrichment, construction, decommissioning and then the storage for 50,000 years of this waste," he says. (At both existing Texas plants, the waste is stored on-site.)

But in Somervell County, home to the Comanche Peak reactors, there is community support for building more. The county has used homeland security grants to buy a military-style armored truck — to defend itself and its plant if needed.

"We’ve got to have more nuclear power," says County Judge Walter Maynard. "From a selfish standpoint, it’s very viable to our local economy."

April 6, 2010

By Tracy Idell Hamilton and Anton Caputo
San Antonio Express-News

Editor’s note: This story originally appeared Sunday, April 4, exclusively in the print edition of the San Antonio Express-News.

Mayor Phil Hardberger always was privately skeptical of the rosy outlook CPS Energy executives painted as they pushed for the expansion of the South Texas Project nuclear plant.

He said he wasn’t outright opposed to the construction of two new reactors, but he was wary of cost estimates that always were lower than those for similar projects across the country.

Back in 2007, the CPS Board of Trustees was getting the hard sell from executives who warned that San Antonio could run short of power as early as 2016.

"We felt a lot of pressure to keep moving forward at all times," he said recently.

But Hardberger, an ex-officio CPS board member, saw potential trouble on the horizon, financially and politically – and he had an idea about how to limit dam? age on both fronts.

Sitting in a board meeting that fall, Hardberger wrote his idea on a yellow legal pad. He tore off the sheet and slid it over to CPS CEO Milton Lee.

The message was simple: As it pursued the nuclear expansion, the utility must promise San Antonio that it would limit electricity rate increases to 5 percent a year every other year.

Doing so, Hardberger reasoned, could give future City Council members political cover if they judged the expansion worth pursuing, while setting a limit that most San Antonians could afford.

That language was incorporated into a board resolution that, as much as anything, set the community’s expectation about the cost of the nuclear project.

So, last year, when CPS pushed for a 9.5 percent increase, not 5 percent, just two weeks before the council was set to vote for $400 million more for the project, the switch angered council members and the public.

CPS officials tried to explain. While the rate boost would be 9.5 percent, once savings from the Spruce 2 coal plant came online sometime in 2010, the overall bill impact would be just 5 percent, they said.

That explanation did little to mollify the council or ratepayers, and CPS executives’ apparent inability to understand their outrage typified the utility’s tin ear when it came to navigating the politics surrounding the hotly debated project.

The revelation in October that a $12 billion construction cost estimate had been kept from the CPS board – and the ensuing uproar – may have been the precipitating event that blew up the deal with NRG Energy a few months later. But CPS’ failure to get the politics right was one of several factors that undermined the utility’s efforts to stay in the project.

Others included a leadership vacuum at CPS that allowed a cadre of true believers – the utility’s nuclear development executives – to continue pushing the deal, even as the economic ground shifted beneath their feet.

By 2009, the country was wallowing in a recession that had altered the energy landscape: San Antonio’s power needs had diminished, natural gas prices were dropping and the imminent threat of carbon-emissions legislation was receding.

But it wasn’t until San Antonio elected a new mayor in May that the CPS board gained a skeptical voice questioning the assumptions of the deal. Before then, there seemed to be few checks by the board as the project moved forward, even during the bouts of heartburn brought on by CPS’ partner in the deal, NRG.

The merchant power company based in New Jersey had long nursed concerns over CPS’ ability to get public approval and pay for the equal ownership share of the project the utility insisted on, resulting in periodic friction between the partners.

CPS executives’ decision not to reveal the high cost estimate to the board amped up that friction, since NRG planned to share it with analysts at a quarterly meeting. But during that meeting, Steve Winn, CEO of Nuclear Innovation North America, a partnership between NRG and contractor Toshiba, went further.

He told Wall Street analysts that San Antonio might not be able to afford the project, a move that infuriated CPS.

Rumblings that NRG was working against the utility’s interests intensified.

Working to be first

NRG CEO David Crane defended his company’s actions.

NRG didn’t want CPS out of the deal, he said. Whatever level of investment San Antonio could support was fine with NRG, but the utility needed to decide. The uncertainty was damaging the project’s reputation, he contended.

Crane, a former Lehman Brothers investment banker, had international business contacts that helped NRG forge agreements with Japanese firms like Tokyo Electric Power Co., which signed on as a consultant in 2007, and Toshiba, which ordered from Japanese Steel the massive reactor parts no American company could make. NRG also looked to the Japanese government for loan guarantees.

With the STP expansion, NRG was reaching for a goal no less ambitious than reigniting the U.S. nuclear industry, which had stalled in the 1970s.

But with passage of the 2005 Energy Act, incentives became available for companies willing to take the risk.

In 2007, NRG became the first company in decades to file an application with the Nuclear Regulatory Commission. STP’s already-available land, water and transmission lines made it one of the most favorable sites in the country.

Still, NRG sought to reduce its risk further – an effort that led to one of the most controversial developments of the project, from CPS’ perspective.

In March 2008, without telling CPS in advance, NRG signed a deal with Toshiba to create NINA, to market and build nuclear projects throughout the U.S.

Toshiba paid NRG for the right to act as contractor on future NINA nuclear projects and for a 6 percent share of the STP expansion.

Crane said the partnership had an added benefit: As a co-owner, the contractor would have an interest in trying to keep the project’s costs in check.

The view of the deal from Navarro Street, though, was one of suspicion.

CPS Trustee Steven Hennigan, who survived Castro’s call to step down last fall, was uncomfortable with NRG, so the partnership deal with Toshiba put him on high alert.

And when, more than a year after NINA was formed, Winn and Mike Kotara, a senior member of CPS’ nuclear development team, came up with a plan to change the partners’ ownership terms from 50-50 to 60 percent for NINA and 40 percent for CPS, Hennigan’s alarm bells really went off.

But the genesis of that proposal stemmed not from NINA, but from CPS’ own financial woes, Kotara said.

In May 2008, after spending about $200 million on the project, CPS asked the City Council for a 5 percent rate increase, about a third of which would go for the expansion. But even after intense lobbying by Hardberger, the City Council approved just 3.5 percent, specifically asking that none of the increase go to the nuclear project.

"So we had another six months of drift," Winn said. "That’s when Kotara and I started talking about a 60-40 split."

That would have put some money in CPS’ pocket, but the CPS board rejected the offer, wanting to maintain its equal footing with NRG, even though the utility was dealing with almost unprecedented financial difficulties.

The world changes

For years, CPS’ finances had been strong. It didn’t need to raise rates and it had the highest credit rating of any municipally owned utility in the nation. It operated for decades with little oversight, dutifully shipping hundreds of millions of dollars every year to City Hall – enough to make up almost a third of the city’s general fund – while offering some of the lowest power rates in the country.

CPS was accustomed to the public praise of elected officials.

And while Hardberger largely had kept his reservations about the proposed nuclear expansion to himself, Castro began questioning the deal almost immediately after taking office in June.

His concerns were bolstered by the work of Councilman Reed Williams, a retired refinery executive who ran the numbers on the nuclear deal and didn’t like what he saw. Compared with the cost of natural gas, nuclear power had just a slight edge, Williams concluded, but carried more risk than he thought a city utility ought to take.

Castro’s apprehensions about CPS created an opening for NRG to court the new mayor. It saw Castro as the key decision-maker in San Antonio on the nuclear issue.

But while the mayor’s private meetings with NRG were viewed with suspicion by CPS, they weren’t always doing what NRG hoped. Indeed, Robbie Greenblum, Castro’s chief of staff, ultimately soured on the company during a late-August meeting with Winn and Crane.

But his suspicions about NRG took a back seat to the news that then-interim General Manager Steve Bartley hadn’t shared the higher cost estimate with the board. With a construction estimate from Toshiba $4 billion higher than expected, the total project cost could top $18 billion – $5 billion more than CPS had told the public.

That estimate was a negotiating tactic on Toshiba’s part, Bartley insisted at the time, and the utility never would have agreed to move forward at that price.

In hindsight, some people close to the deal believe that if the board had been properly briefed about the estimate, it might not have become the crisis that led to CPS ending its partnership with NRG.

But so much had changed from 2007 to 2009, it seems unlikely that CPS would have been able to remain a full partner in the project, even if Bartley had handled the estimate better.

The utility’s revenues were dropping from reduced power use, lower natural gas prices and shrinking off-system sales, even as it was burning through $1 million a day on the nuclear project.

CPS executives conceded they couldn’t keep rate increases to 9.5 percent every other year and still pay for the nuclear expansion and upcoming capital expenses.

At the same time, developments in the natural gas industry were making the price of that fuel less volatile and more cost-effective.

Selling more of CPS’ stake in the project – one way to reduce the utility’s costs and risks – was dependent on finding a buyer, not a sure bet, according to people familiar with the market.

"The world changed on them," Williams said recently. "And they weren’t continuing to check their assumptions."

By early December, CPS’ role in the nuclear deal was no longer tenable. The utility had lost credibility, Bartley and another executive had been forced out, Castro wanted new people on the board and relations with NRG had grown cold.

The crisis ended, for the most part, by CPS’ success in the courtroom, where it prevailed at a critical stage of its lawsuit against NRG and NINA to exit the deal. In the end the parties negotiated a settlement that, assuming the plant is built, gives CPS 200 megawatts from it, enough to power about 40,000 homes.

For its almost $400 million investment, CPS says the agreement is worth $1 billion.

Some of the credit for the settlement goes to Charles Foster, the retired AT&T executive who replaced Aurora Geis as board chair after Castro sought her resignation.

Foster inserted himself in the stalled negotiations with NRG, and along with acting General Manager Jelynne LeBlanc-Burley, helped hammer out the deal.

LeBlanc-Burley, the human-resources vice president promoted after Bartley’s departure, then helped persuade a still-skeptical City Council to pass the rate increase it needed, a move that shored up credit rating agencies’ confidence. Moody’s, which had downgraded CPS’ outlook to negative, bumped it back up to stable after the vote.

CPS is on the mend, Foster said. Its financials are strong, he said, and the utility is headed in the right direction. The search for a new CEO should be complete by June.

He acknowledged the utility still has work to do, chiefly to repair lingering perceptions that it’s not an open, trustworthy organization.

And challenges remain as the utility embarks on a period of high capital investment in aging coal and gas plants, which means convincing the public that regular rate increases will be necessary.

Williams worked unsuccessfully to get CPS to change its rate structure in a way that would reward efficiency and hopes to tackle the subject again.

He thinks the utility needs to stay focused on its core mission.

"As long as they recognize that they’re a public service company,” he said, “I think they’ll be fine."

February 17, 2010

By Cassandra Sweet
Wall Street Journal

A nuclear-power venture owned by NRG Energy Inc., Toshiba Corp. and a Texas utility resolved a legal dispute Wednesday that allows one of the first new U.S. nuclear-power projects in decades to proceed.

The agreement, between the joint venture, Nuclear Innovation North America, and San Antonio municipal utility CPS Energy, reduces the utility’s stake in the south Texas nuclear power project to 7.6%, from 50%, with the joint venture retaining 92.4%, according to CPS and NRG.

The agreement ends a $32 billion lawsuit that CPS filed in December to reduce its participation in the project, and allows development of the plant to proceed, the companies said.

The project is part of a wave of new nuclear power plant development for which the Obama administration has expressed support as a way to fight climate change and meet growing U.S. energy demand. Unlike power plants that run on fossil fuels like coal and natural gas, nuclear power plants don’t produce significant greenhouse-gas emissions that have been blamed for contributing to climate change.

"With this agreement, we can continue developing one of the leading nuclear power projects in the country," said NINA Chief Executive Steve Winn.

The agreement also resolves ownership issues that might have held up an application the companies filed for federal loan guarantees, said NRG spokesman Dave Knox. If the companies get the federal loan guarantees, NINA, which is 88%-owned by NRG and 12%-owned by Toshiba, has agreed to pay CPS $80 million and donate $10 million over four years to its residential customer assistance program.

CPS said its remaining stake in the project is worth about $1 billion. The agreement requires CPS to help with the project’s loan guarantee application, but excuses the utility from spending more money on the project. The utility has said it has spent about $370 million on the project’s engineering and permitting.

"This agreement extracts the maximum value for our community at this stage of the project’s development," CPS Acting General Manager Jelynne LeBlanc Burley said in a statement.

The settlement requires approval by the CPS board, which could make a decision as early as Monday.

The project, estimated to cost between $9 billion and $12 billion, would add two new nuclear power units to an existing nuclear reactor, expanding the facility by 2,700 megawatts, enough power for more than 2 million homes.

CPS sued NINA in December, alleging that NRG misled the utility on project costs and saying it might withdraw. In January, after initial negotiations failed, NRG Energy Chief Executive David Crane said the company would exit the project and suffer a $400 million write-off if the dispute couldn’t be resolved.

The two sides agreed before the dispute to each sell a 10% stake in the project, but uncertainty around CPS’s involvement has stymied these efforts. Tokyo Electric Power Co. said last month it’s considering purchasing a stake in the project and remains interested.

–Mark Peters contributed to this article.
Write to Cassandra Sweet at cassandra.sweet(at)dowjones.com

For Immediate Release:
Feb. 22, 2010

Contact:
Eliza Brown (512) 637-9482
Angela Bradbery (202) 588-7741

Agency Is Refusing to Adhere to an Order to Release Document That Would Help Determine Safety of New Nuclear Reactors

Download this release in pdf format for printing.

WASHINGTON, D.C. – The Nuclear Regulatory Commission (NRC) should stop balking and provide a critical document that would reveal how the owners of a Texas nuclear plant expansion project plan to deal with a fire or explosion, three public interest groups told the commission late last week.

Three administrative judges of the Atomic Safety and Licensing Board have ordered the agency to provide at least a redacted version, but NRC staffers have refused. The NRC’s lack of transparency could impact the ability to get adequate safety-related information not only about the South Texas Project (STP) but about other proposed reactors around the country as well.

Late Friday, the groups – the Sustainable Energy and Economic Development (SEED) Coalition, Public Citizen and the South Texas Association for Responsible Energy – filed a brief with the NRC. It noted that the NRC staff’s refusal to provide the information violated President Barack Obama’s new transparency policy. The groups also said the NRC is acting arbitrarily and trying to shut the public out of NRC proceedings.

"After the Sept. 11 attacks, Congress required new fire and safety standards for all new plants and the NRC developed rules to reflect this. Now, the NRC is trying to do its work behind closed doors, and its staffers are literally making up how to handle information as they go along, keeping as much secret as possible," said Karen Hadden, executive director of the SEED Coalition. "Without disclosure of this information, we can’t tell how well the NRC is doing in protecting the public."

Friday’s filing was the latest in a regulatory battle that began in April 2009 when the three groups intervened in the licensing of two new reactors at the STP in Matagorda County in southeast Texas. The groups contend that the application for a license is inadequate.

The NRC has a new rule that requires licensees to develop and implement guidance and strategies to protect nuclear plants from explosions or fires, including those that would result from the crash of a large commercial airliner. By signing non-disclosure affidavits, the groups gained access to STP’s plan to comply with this rule and nuclear industry guidance on how to adhere to it.

On Aug. 14, the groups filed new "contentions" that STP was not adhering to the new fire safety rule.

Then, in October, the NRC posted on its Web site the existence of a draft document, referred to as ISG-016, which provides guidance to nuclear plant operators as to how to comply with the new fire safety rule. The NRC maintains that it is not a public document because it contains security-related information. The agency has created a new classification of document, called "sensitive unclassified non-safeguards information," or SUNSI, and said that records in this classification, including ISG-016, are exempt from disclosure.

In November, the three public interest groups asked for the document but were turned down.

They appealed to the Atomic Safety and Licensing Board, which on Jan. 29 ordered the NRC staff to provide at least a redacted version of the document. In the order, three administrative judges chastised NRC staff for imposing unwarranted burdens on the groups and for misapplying procedures. Further, they noted that requirements to access the document should not be more stringent than the Freedom of Information Act and told the staff to go through the document, paragraph by paragraph, to identify the sensitive, non-public information, and provide the rest of the information to the groups.

The NRC appealed the order, which prompted Friday’s filing.

"It is crucial for the public to be able to participate in the licensing of new nuclear reactors that may be in its backyard," said Tom "Smitty" Smith, director of Public Citizen’s Texas office. "We cannot meaningfully participate in the licensing of the STP reactors if we can’t get adequate safety information, and that includes whether these new reactors will be able to withstand a commercial jet crashing into them."

Hadden noted that "the ability of the public to participate in licensing proceedings is particularly critical as the Obama administration is in the process of granting loan guarantees for new nuclear plants – the first to be built in the U.S. in decades."

Last week, the administration announced an $8.3 billion loan guarantee for Southern Company to build two new reactors at its Vogtle plant in Georgia, and the administration has asked Congress to expand the program from $18.5 billion to $54 billion. The owners of the planned STP reactors – which include NRG Energy, Toshiba, CPS Energy – are seeking federal loan guarantees as well.

"The NRC wants to barrel along and license these plants with blinders on and without any involvement by the public," Hadden said. "Well, the public has a right to be involved. People need to know what is being built in their communities and how safe it will be."

A copy of the groups’ filing is available at
nukefreetexas.org/downloads/intervenors_response_opposition_brief_ lbp_10_02.pdf.

The Atomic Safety and License Board order is at
nukefreetexas.org/downloads/nrc_public_order_012910.pdf.

February 17, 2010

By Tracy Idell Hamilton and Anton Caputo
San Antonio Express-News

CPS Energy expects to announce a settlement today in its $32 billion lawsuit against its partner in a proposed nuclear project, Nuclear Innovation North America.

Utility officials confirmed they are planning to make an announcement this afternoon, barring any last-minute breakdown in negotiations.

A settlement could put the proposed expansion of the South Texas Project back in the forefront for federal loan guarantees that both partners say are crucial to its fate.

The project once was considered a front-runner for the taxpayer-backed guarantees, but its chances diminished in the wake of rising cost estimates, shrinking political support and high-stakes litigation.

On Tuesday, the Obama administration announced the first of the loan guarantees, pledging $8 billion for two new reactors to be built at an existing nuclear power plant in Burke, Ga.

The settlement also could clarify whether CPS plans to stay in the project or withdraw, allowing NINA to find new partners.

CPS acting General Manager Jelynne LeBlanc-Burley declined to comment.

"We’re still finalizing the details," spokeswoman Lisa Lewis said. "But we hope to have more to share tomorrow."

NRG spokesman David Knox wouldn’t comment on the settlement announcement, but earlier in the day issued a statement that the parties were working hard to come to an agreement that could push the project back into contention for the loan guarantees.

NRG owns most of NINA.

In the wake of CPS’ lawsuit, NRG CEO David Crane had said NRG would back out of the project if the loan guarantees didn’t come through.

CPS and NRG, along with Austin Energy, are partners in the two existing nuclear reactors outside Bay City. Austin Energy chose not to take part in the two-reactor expansion, citing cost and risk.

In August, at Mayor Julián Castro’s prodding, CPS agreed to sell about half its stake in the proposed expansion.

Before those efforts began, however, news that the utility’s nuclear development team kept a significantly higher cost estimate from its board exploded into public view, upending a planned vote by the City Council to pump another $400 million into the project.

The expansion had been sold to the council and the public as a $10 billion deal, with another $3 billion in financing costs. The higher estimate kept hidden by executives was as much as $4 billion more.

CPS already has spent about $370 million on engineering and permitting and still is shelling out about $1 million a day to keep from going into default.

In December, it asked a judge to clarify its rights if it were to pull out of the deal, including the fate of the $370 million and half of the site and infrastructure, which CPS says has a value of at least $1 billion.

NRG and NINA argued that if CPS walked away, it would forfeit everything. A state judge disagreed, but sent the parties back to the table to work out the value of CPS’ investment should it choose to bow out of the project.

Negotiations, which recently moved to Austin, where they were mediated by the chairman of the Public Utilities Commission, have centered on how much that ownership is worth, in either a dollar value or a percentage of the project.

Chairman Barry Smitherman said he stepped in to help break the impasse, with the full backing of Gov. Rick Perry, because it was important for the state to get nuclear going again.