Archive for the ‘News’ Category

February 3, 2010

"Ugly" Field of Four Bailout Candidates Present Huge Taxpayer Risks With Rising Cost Estimates, Delays, Flawed Reactor Designs, and Credit Downgrades; January One of Worst Months Ever for Industry.

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WASHINGTON, D.C.// What if the federal government held a beauty contest for taxpayer-backed nuclear reactor loan guarantee bailouts … and no reactor project "beauties" could be lined up for the runway?

According to experts from around the United States, that is precisely the situation the U.S. Department of Energy (DOE) faces today with the extraordinarily weak crop of four reactor project candidates vying for loan-guarantee bailouts. The four proposed projects at the top of the list for $18.5 billion in federal bailout support are: the Southern Company’s Vogtle reactors in Georgia (widely believed to be the current front runner); the NRG reactor project in Texas; the VC Summer reactors in South Carolina; and the Calvert Cliffs reactor in Maryland.

The local experts are far from being alone in their negative assessment of the viability of the four bailout candidates. According to the independent Taxpayers for Common Sense, the four finalists all exhibit some combination of "rising cost estimates, delays related to reactor designs, and credit downgrades." Making matters even worse: The four deeply flawed reactor projects are reputed to be the best of the options available, which means that there are no viable candidates in the pipeline to justify the tripling to $54 billion in nuclear reactor bailouts proposed under the White House budget released this week.

This is the latest bad news for the setback-plagued nuclear power industry, which is coming off of one of its worst months ever in January 2010, including: a major court room squabble between NRG and the City of San Antonio over a surprise $4 billion estimated cost increase for two proposed reactors in Texas; the rejection of $1 billion in rate increases by Florida regulators that has caused the two state utilities to announce a slowdown on their nuclear projects; and a growing scandal in Vermont over carcinogenic tritium leaks into the water supply that threaten to derail state approval of the extension of the Vermont Yankee reactor.

Sara Barczak, a program director with the Southern Alliance for Clean Energy, addressing the proposed Vogtle reactors in Georgia, said:

"It is difficult to fathom how the Vogtle project, which was a poster child for cost overruns in the original nuclear ‘boom’ and bust in the United States, could be the front runner for taxpayer-backed loan guarantee bailouts. Vogtle’s proposed Westinghouse AP1000 reactor design is not even approved by the Nuclear Regulatory Commission as safe from hurricanes, tornadoes and earthquakes. In fact, even if Vogtle got the loan guarantee go-ahead tomorrow, it could still face years of costly delays in order to make the reactor design safe or to gain license approval. This situation puts taxpayers squarely behind the eight ball in terms of increased risk from the very outset."

Barczak continued:

"The bottom line here is that extremely powerful and financially savvy utilities, such as the Southern Company, have already found a way at the state level to shift the risk to those who can least afford to pay for costly new reactors and now they’re hoping for even more handouts — this time at the expense of the U.S. taxpayer. How much more burden can be piled on to the shoulders of hard working families and small businesses in Georgia?"

Karen Hadden, executive director of the Sustainable Energy and Economic Development (SEED) Coalition, addressing the embattled NRG reactor project in Texas, said:

"The fact that NRG’s South Texas Project is considered a leading candidate for loan guarantees shows just how flawed the selection process is. This project may very well be doomed at this point, given the enormous recent cost increase of $4 billion that was kept from the San Antonio City Council, and the resulting legal wrangling between the utilities proposing to build the project."

Hadden continued:

"The South Texas Project is a perfect example of how the hope of loan guarantees is the only thing propping up reactors that otherwise would not be built. Even with the loan guarantees, the San Antonio City Council has signaled to their municipal utility that ratepayers can’t afford the increasingly expensive energy from the reactor. NRG said they would not proceed with the reactor without the loan guarantees. If anyone can explain why sinking billions of taxpayer dollars into such a risky project makes any sense at all, it would be interesting to hear it!"

Tom Clements, Friends of the Earth, addressing the proposed VC Summer reactors in South Carolina, said:

"The VC Summer project is ripe for major delays and huge cost overruns. The NRC has confirmed that the AP1000 reactor design as currently being reviewed is not ‘certified’ safe, contrary to claims by the utility SCE&G. Key reactor components, including the reactor pressure vessel, will have to be made overseas, and 90 percent of the uranium for fuel would come from foreign sources, belying the notion of ‘home-grown power,’ as is now incorrectly being touted by some SC politicians. The approval by the South Carolina Public Service Commission (PSC) for the project in February 2009 and the law forcing rate payers to pay in advance (even if the project fails) is being challenged by Friends of the Earth before the SC Supreme Court, with a hearing likely in March 2010."

Clements added:

"SCE&G, which is a small utility with limited assets, has low-balled the reactor cost, still claiming that its 55 percent share of two units would include a gross construction cost of about $6.3 billion, for a total cost of about $11.5 billion for the two units, well below the estimated cost of other reactor projects. SCE&G has admitted in quarterly filings with the SC PSC that the cost had at one point increased $500 million. The PSC made it clear in a January 2010 ruling that, although it allowed an 18-month construction delay in its original decision, it will restart the delay clock every time SCE&G requests a new schedule for construction milestones. This, coupled with an almost-certain delay in issuance of a license by the NRC, is a warning sign that the project is facing great schedule and cost uncertainty."

Michael Mariotte, executive director, Nuclear Information and Resource Service, addressing the proposed Calvert Cliffs reactor in Maryland, said:

"The proposed EPR reactor at Calvert Cliffs is the most expensive reactor design ever put forward for the U.S. Constellation Energy admits costs of $10 billion (not including financing) for Calvert Cliffs, whereas PPL Electric Utility projects a cost of $13-15 billion, including financing, for an identical reactor in Pennsylvania. PPL’s estimate works out to approximately $9,000 per kilowatt-about double the cost of wind power along Maryland’s Atlantic coast."

Mariotte added:

"Serious questions remain about the unprecedented level of foreign involvement in Calvert Cliffs. UniStar Nuclear is a 50/50 project of Constellation Energy and the French utility, Electricite de France (EdF). EdF is the largest single shareholder of Constellation (about 9 percent) and has recently purchased 49.9 percent of Constellation’s existing reactors. Most of the construction money will go to EPR manufacturer Areva. Both EdF and Areva are 85 percent or more owned by the French government. UniStar Nuclear hopes to complement the loan guarantee with financing from the French government’s Export-Import Bank. The NRC Commissioners have ordered that hearings on the foreign involvement issue be held before an Atomic Safety and Licensing Board. This foreign control is pertinent since Areva’s first EPR construction – Olikulioto-3 in Finland – is well over three years behind schedule and 75 percent over budget. The second EPR, being built by EdF at Flamanville, France, is at least 20 percent over budget after only two years of construction."

BACKGROUND INFORMATION: OPPOSITION TO THE NUCLEAR BAILOUT

Widespread opposition has emerged to proposals to award currently authorized taxpayer-backed loan guarantee bailouts, as well as President Obama’s proposed $54 billion tripling of such bailouts.

As the Center for American Progress pointed out yesterday:

"One down side of the president’s budget is that it includes a misguided expansion of nuclear loan guarantees. The Obama administration proposes to triple funds for nuclear loan guarantees from $18.5 billion to $54 billion. This huge growth exposes taxpayers to billions of dollars of potential liability if the nuclear debtors default on their loans. The Congressional Budget Office found that nuclear investments are very risky, stating, ‘CBO considers the risk of default on such a loan guarantee to be very high-well above 50 percent.’ Even if this risk factor is cut in half, one in four nuclear power plants would default on their loans due to cost overruns or other factors, leaving taxpayers to pick up the tab. And there are already indications that this could occur. Taxpayers for Common Sense found that none of the four "top-tier" project proposals for the existing loan guarantee program inspire confidence. All have "rising cost estimates, delays related to reactor designs, and credit downgrades." The proposed tripling of the nuclear loan guarantee program burdens taxpayers with additional financial risk."

In a Monday article titled Obama’s nuclear loan guarantees draw opposition, USA Today wrote:

"In a letter to Obama, four groups — the National Taxpayers Union, Taxpayers for Common Sense, the George Marshall Institute and the Non-Proliferation Policy Education Center — oppose an expansion of loan guarantees for new nuclear plants: ‘With hundreds of billions in bailouts already on the shoulders of U.S. taxpayers, the country cannot afford to move forward with a program that could easily become the black hole for hundreds of billions more.’ …

At the conservative Heritage Foundation, David Kreutzer, a senior policy analyst in energy economic and climate change, warned against expanding loan guarantees in a recent post: ‘This authorized $18.5 billion in loan guarantees will help build a handful of new nuclear reactors but any expansion of subsidies, tax credits or loan guarantees is a bad idea for taxpayers, consumers and long-term industry competitiveness. Continuing subsidies reduce the incentive to contain costs, create government dependence and stifle competition and technological development within the nuclear energy industry.

Another scholar, economist Dr. Mark Cooper at the Institute for Energy and the Environment at Vermont Law School, authored a report in June that found it would cost $1.9 trillion to $4.1 trillion more over the life of 100 new nuclear reactors than it would to generate the same electricity from a combination of more energy efficiency and renewables.

Peter Bradford, a former member of the Nuclear Regulatory Commission, writes …: ‘Of 26 new nuclear reactor license applications submitted to the Nuclear Regulatory Commission since 2007, nine have been canceled or suspended indefinitely in the last 10 months. Ten more have been delayed by one to five years. The Tennessee Valley Authority has canceled plans to revive a partially built unit.’"

For additional background on the huge risks facing U.S. taxpayers from increased loan-guarantee bailouts for the nuclear power industry, see tinyurl.com/yzdm6f6 and www.cleanenergy.org/index.php?/Press-Update.html?form_id=8&item_id=155.

CONTACT: Leslie Anderson, (703) 276-3256 or landerson@hastingsgroup.com.

EDITOR’S NOTE: A streaming audio recording of the news event will be available on the Web as of 5 p.m. EST on February 3, 2010 at www.cleanenergy.org/index.php?/Podcasts.html.

Jan 29, 2010

Reuters News

HOUSTON, Jan 29 (Reuters) – NRG Energy Inc (NRG.N) CEO David Crane said on Friday the company would not pursue construction of two nuclear reactors in Texas if the project loses a federal loan guarantee due to a dispute with partner CPS Energy.

A Texas state judge on Friday ruled CPS may withdraw its financial support from the $10 billion project, but cannot expect to retain its 50 percent ownership stake, according to a court transcript.

"If you want to be in the play, you have to pay, or you can’t stay," Judge Larry Noll said. "You will eventually lose your equity share."

The judge directed the parties to negotiate a settlement addressing project ownership and withdrawal.

The dispute could be the second setback for new nuclear reactors in the United States, after FPL Group Inc (FPL.N) said this month it would halt billions of dollars in capital expenditures, including reevaluating development of two new reactors, after getting a negative rate case ruling.

In December, CPS, a municipal utility owned by San Antonio, sued NRG for $32 billion, alleging NRG misled utility officials on the estimated cost of the reactors, among other things.

CPS is a 50-50 partner with Nuclear Innovation North America, a partnership between NRG and Toshiba Corp (6502.T), to build the two reactors in South Texas. The utility has spent more than $300 million on the nuclear expansion project.

Before the judge’s ruling Friday, Crane told analysts and investors in a conference call that suspending the project could cause NRG to take a pretax write-off of $400 million.

Even with Friday’s ruling, prospects for construction of South Texas Project units 3 and 4 remain uncertain should CPS withdraw completely from the project.

Crane said the nuclear project remains economically viable. "So long as there is a real possibility that we can secure a federal loan guarantee, we will continue to exert every effort to resolve the dispute with CPS fairly and in a timely manner," Crane said.

NRG, however, will not move forward "unless we see a clear path forward to success," Crane said.

NRG spokesman Dave Knox said Friday’s ruling "gives CPS clarity on their rights if they withdraw."

If the parties can negotiate a settlement, "we can get that clear path to success," Knox said.

CPS officials agreed that the ruling helped define the utility’s rights. "Now we want an equitable solution at the negotiating table," said Jelynne LeBlanc-Burley, acting general manager of CPS Energy, in a statement.

Crane said before the CPS dispute, he thought the South Texas project was among front runners to get "the all-critical" federal loan guarantee. But now, Crane said, he did not believe the Department of Energy would risk any of the $18.5 billion loan guarantee fund on a troubled project.

CPS and NRG each applied for a loan guarantee for their respective shares of the project.

"We have reason to believe that the DOE sees a fierce dispute between the equal partners … as an extremely high obstacle to them committing a loan to the project," Crane told investors.

(Reporting by Scott DiSavino and Eileen O’Grady; Editing by David Gregorio)

January 30, 2010

By ELIZABETH SOUDER
esouder(at)dallasnews.com
The Dallas Morning News

Texas’ prospects for leading the nuclear power renaissance turned bleak Friday.

The chief executive of NRG Energy, Texas’ second-largest power generator, said he’s willing to drop plans to build two new reactors in South Texas if the company cannot come to a favorable agreement with San Antonio utility CPS Energy.

A court ruling on Friday could allow the partners to continue to negotiate, but after months of soap-opera intrigue, rumors and finger-pointing between the companies, it’s unclear whether they can work together.

NRG could find itself scrambling for another investor and hoping to find one in time to win federal loan guarantees that could be handed out any day. The lack of an investor or loan guarantee would kill the nukes.

"We absolutely will not agree to any resolution that we cannot afford," NRG chief executive David Crane said on a conference call with analysts. "We will not throw good money after bad."

The project isn’t dead yet. Crane said Tokyo Electric Power Co. is interested in buying a stake in the expansion. Other investors could be found.

But anti-nuke activists were already dancing on the South Texas Project’s grave.

"We may be witnessing the early throes of a nuclear project death!" Karen Hadden, director of the Sustainable Energy and Economic Development Coalition, wrote in an e-mail Friday to members.

In 2005, shortly after NRG bought a 44 percent stake in the South Texas Project, executives saw a "once-in-a-lifetime opportunity" to expand, Crane said. With the federal government offering loan guarantees for new reactor projects, Crane said NRG, with some partners, could afford to build them.

But both investment partners and loan guarantees are critical.

"I think that the idea that anyone would take the full risk of developing a new nuclear project, totally on their balance sheet, is a foolish thing to do, even if you have a balance sheet as big as Exxon Mobil’s," Crane said.

The South Texas Project already has two reactors. NRG operates the plant and owns 44 percent, CPS owns 40 percent, and Austin Energy owns 16 percent.

In October 2007, NRG and CPS signed a deal to jointly build two new reactors. Austin chose not to invest in an expansion.

Meanwhile, NRG officials have been negotiating with equipment makers and construction and engineering firms to set the price of the project and to share the risk.

By last autumn, NRG said, its contractors were offering around $12.1 billion, and NRG executives felt confident they could squeeze that below $10 billion.

That’s higher than NRG’s earlier estimate of $8.6 billion. The price difference led to concern among San Antonio officials, who began to wonder whether CPS could exit the deal.

"We at NRG did not appreciate that CPS signed the deal, commenced funding … without ever obtaining the City Council’s endorsement of the deal," NRG’s Crane said.

CPS sued NRG and asked the court to rule on whether CPS would retain its investment in the project if it stopped financing the expansion.

State District Judge Larry Noll in San Antonio ruled on Friday that a party may stop participating in the project and still retain the equity stake it had contributed.

That was a favorable ruling for San Antonio, after NRG stated the city would lose its investment if it walked.

But the judge issued a warning to the city: "If you want to be in the play, you have to pay or you can’t stay. You will eventually lose your equity share."

CPS spokeswoman Theresa Cortez said the company hasn’t decided if it will exit the project. Staff still must recommend to the board whether to invest in the deal, and the board must bring the recommendation to the City Council.

But NRG chief executive Crane said it will be hard to continue working with CPS.

"When you develop a project like this, you have to be able to look the person in the eyes and on some level trust them. That just doesn’t seem to exist right now," he said.

He said if NRG shuts down the project, it will take a $400 million charge.

And the legal dispute between CPS and NRG isn’t over. CPS has also sued NRG for $32 billion, which includes the value of the South Texas Plan property and punitive damages.

January 26, 2010

Scott Stroud
San Antonio Express News

The air blowing overhead in the brightly lit courtroom made it hard to hear at times. Overhead projectors illuminated PowerPoint presentations on both sides of the room up front. There were microphones and laptops, too, some plugged into outlets along the walls.

And yet, with all the electricity thrumming through, nothing burned up CPS ratepayer dollars faster than the dozen-plus lawyers squabbling over the tattered relationship between CPS Energy and NRG Energy Inc., its co-owner in the floundering attempt to build two new nuclear plants at the South Texas Project.

Relationships being what they are, the most consistent comparison made since the dispute broke into the open late last year has been divorce. It seemed too easy at first, but then on Monday, Jelynne LeBlanc-Burley, the new interim general manager at CPS, wondered why my colleague, Anton Caputo, and I sat on the NRG side of the courtroom.

I always thought bride’s side-groom’s side traditions were for weddings instead of divorces, but there you go. And the more you think about what has happened here, the more unavoidable the parallel becomes.

As with an ugly divorce, this matter now lies in the hands of the lawyers, which is not a good place for it to be. It’s there in part because neither side took seriously the possibility that the deal might fall apart.

Blame-laying is rampant now, negotiations have been sluggish, and grandstanding is commonplace. There are no children in the drama, only San Antonio ratepayers, whose energy bills ultimately will underwrite this nonsense.

The part of the rakish rogue has been played convincingly by NRG, which often seems too slick for its own good. If CPS is correct in its claim that NRG negotiated to sell part of the nuclear project to Toshiba, which also happened to be the main contractor, without telling CPS, that dalliance looks unseemly at best.

That may be when the sex appeal of CPS’ considerable dowry wore off. It also might’ve dawned on NRG during CPS’ effort to sell the public on nuclear expansion last year that suddenly the conversation wasn’t so scintillating.

The latest slickness comes from NRG President and CEO David Crane, who met with San Antonio business leaders last week and then thanked them in a letter he released to the newspaper. I’m all for transparency, but the letter, which outlined NRG’s legal arguments briefly, fits my definition of grandstanding.

It’s the kind you write when you’re losing, and that appears to be NRG’s legal status at the moment. Judge Larry Noll didn’t buy their claim that CPS should forfeit its interest in the property because he found nothing to indicate that in the contract. He’s shown no interest in all the times CPS executives told the rest of us that they would lose the millions they’d invested if they walked away, saying he only cares about what’s in the contract.

That’s good news for CPS, which has made any number of statements contradicting its legal position, but it still doesn’t clean up the mess.

As for the divorce, it’s easy to say there should have been a prenuptial agreement here, which is true as far as it goes. But this was no California celebrity marriage. It’s a billion-dollar deal that affects us all more than a little bit. The lack of vigilance by CPS on the front end remains appalling.

The whole thing reminds me why I’ve never much cared for divorce court: The proceedings are often tawdry, both sides seem like losers, and you always end up wondering what will happen to the children – or, in this case, the ratepayers of San Antonio.

jstroud(at)express-news.net

January 26, 2010

By Anton Caputo
San Antonio Express-News

Nuclear Innovation North America looked to score a quick knockout Monday as the massive nuclear lawsuit filed by CPS Energy got under way.

408th District Court Judge Larry Noll was expected to announce Tuesday whether the tactic worked.

NINA, which is being sued by CPS over the teetering proposal to build two more reactors at the South Texas Project, asked Noll for a summary judgment, a move that would give NINA a victory in the first phase of the case.

NINA, which is a partnership between NRG Energy and Toshiba, contends that CPS should lose the roughly $350 million it has invested in the project and its ownership rights if it withdraws. Its attorneys argued an abbreviated version of the case Monday.

"It is pretty clear that NRG is intent on trying to convince a judge that our customers should lose all of their investment," said CPS acting General Manager Jelynne LeBlanc-Burley, adding that she still holds out hope for a settlement.

CPS is suing NINA for $32 billion, claiming the company pulled CPS into the deal by making fraudulent claims and then orchestrated a misinformation campaign through the media to force CPS out. The claims of fraud and conspiracy will be argued in a yet-to-be scheduled second phase of the trial.

The first phase, which began Monday, focuses on the two agreements that govern the partnership. Attorneys on both sides argued those contracts clearly favor their clients’ position.

CPS attorney Ricardo Cedillo argued that the agreements support the contention that CPS should be compensated for its investment in the project and its ownership stake if it withdraws.

Cedillo said the agreements state that the partners are tenants in common with a 50 percent stake each. This form of ownership, under state law, guarantees CPS’ "undivided interest" in the project even if it withdraws, he said.

This, Cedillo told the court, could lead to some kind of diluted interest for CPS if NINA continues with the project, and eventually to a partition of some sort where CPS is compensated for the value of its stake.

Currently, the project is worth at least $2 billion because of the engineering, permitting work and infrastructure, CPS claims.

In NINA’s case, attorney Greg Coleman argued that the agreements show that a partner that pulls out gets nothing. This leaves the remaining partner with the choice to pull out as well or carry on and take on all the risk and potential gain.

"That’s how project financing works," Coleman said. "When you make a gamble … that money is on the table and it remains on the table."

NINA has also asked for a change of venue to move the trial out of Bexar County.

Attorney Lamont Jefferson argued that a Bexar County jury is not appropriate to hear the case involving the municipally owned utility because "it’s like a parent trying to discipline its misbehaving children in public."