UPDATE 1-CPS Energy share in new NRG nuclear units may fall

November 19, 2009

By Eileen O'Grady

HOUSTON - Steve Winn, head of NRG Energy's (NRG.N) nuclear development joint venture, said on Thursday that a higher cost estimate to build two new reactors in Texas may force its partner, CPS Energy of San Antonio, to cut its ownership interest in the project below 20 percent.

Winn, chief executive of Nuclear Innovation North America (NINA), told an NRG investor meeting that an updated cost estimate for two new reactors may exceed the target municipal utility CPS Energy has said it would raise customer rates.

"It's probable that the estimate may come outside of their range," Winn said.

NINA, a joint venture formed by NRG and Toshiba Corp (6502.T) is a 50-50 partner with CPS Energy in the expansion plan at the South Texas Project, Texas largest nuclear station.

NINA is negotiating with a third partner to take a 20 percent stake in STP Units 3 and 4, reducing the equity held by NRG and CPS to 40 percent each.

Last month, the San Antonio utility board voted to halve that stake to 20 percent to 25 percent to more closely match the city's need for future power.

Winn said Thursday he expects San Antonio's final equity stake may fall to between zero and 20 percent.

Unlike NRG, CPS Energy must consider not only the long-term economics of its investment, but at "near-term rate shock" for customers, Winn said.

NRG expects CPS Energy and San Antonio city leaders to determine the utility's level of participation in the next few months.

"We are prepared for any outcome from San Antonio," said NRG chief executive David Crane. "We would just like to know what that is."

NINA is working to reduce the "overnight" cost of the two new units to less than $10 billion from a 12.1 billion estimate, said John Bates, NINA chief operating officer.

The overnight cost generally excludes financing expense.

Toshiba also has proposed increasing the output of the new STP reactors to 1,500 megawatts, from 1,350 MW, at an additional cost of $70 million, NRG said.

Last week, officials from NRG and CPS Energy met with Toshiba and Fluor Corp (FLR.N) officials in Japan to get a better grasp of the price tag to build the reactors at the existing nuclear station in Matagorda County, about 200 miles (322 km) southeast of San Antonio. NRG and CPS Energy are the largest owners of the existing two-unit STP station.

The STP expansion is a finalist to receive critical financial incentives from the U.S. Energy Department and is using the only nuclear design which has been certified by the U.S. Nuclear Regulatory Commission.

Winn said NRG hopes to announce the third partner for the STP project in the next month, pending further negotiation, clarity on the CPS Energy investment and more details of the DOE loan guarantee.

(Editing by Marguerita Choy)
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