CPS Energy may make history with new nuclear reactors


Vicki Vaughn
San Antonio Express-News

Six months ago in Alabama, the owners of a nuclear plant fired it up after it had been shut down for more than a generation - 22 years.

The restart of the Brown's Ferry plant was a historic event because no refurbished nuclear reactor had been taken on line since 1996. But Brown's Ferry soon could be eclipsed by a move far more momentous - the construction of a new nuclear reactor. And San Antonio's CPS Energy plans to be in the vanguard of the action.

CPS Energy recently joined New Jersey-based NRG Energy Inc. in filing the first application in more than 30 years to build nuclear reactors from the ground up. They want to add two new reactors to the South Texas Project in Matagorda County.

 San Antonio's need for more electricity will be acute by 2016, and nuclear power presents the best option for more power, CPS Energy officials say.

The utility's board meets Oct. 29 to consider whether the city should invest in more nuclear power, which now provides 38 percent of the city's electricity. Approval of the plan seems likely because Mayor Phil Hardberger says he has decided to throw his support behind the South Texas Project after mulling the matter for months.

"It is a very hard decision," Hardberger said. But he's in favor of expanding the South Texas Project because "it has proven its worth. While it cost a great deal more than was estimated, I don't think you'd find anybody in San Antonio today who'd say that it was a really bad decision."

The South Texas Project began to produce electricity in 1988, eight years behind schedule. Plagued by construction delays and cost overruns, the plant's cost ballooned from less than $900 million to more than $6.5 billion.

By 2006, though, the South Texas Project had the lowest production cost reported by nuclear power plants nationwide in a study that year of plants that report to federal regulators, according to trade publication Nucleonics Week. And the South Texas Project also bested all 33 two-unit U.S. plants in output last year, generating 21.37 billion kilowatt-hours of electricity.

Granted, the South Texas Project has lived down much of the criticism leveled at it. But if two reactors are added, the big unknown is how much they will cost - and what that will mean for utility bills in San Antonio.

NRG has estimated that adding two new reactors will cost about $6 billion, but that "sounds low," said Jone-Lin Wang, an economist and senior director with Cambridge Energy Research Associates, an energy consulting firm in Boston.

The cost of building a new reactor ranges from $2,200 to $5,000 per kilowatt, Wang said. "Because of the volatile cost of the basic components, the additions to the plant could push the cost more toward the high end."

The costs of building any large project anywhere in the world - nuclear or not - "have gone up substantially over the past year, even in the past six months," Wang said. "Steel, copper, cement and skilled labor - all of those markets are in a very tight situation."

While there are nuclear plants that have been built recently in China and Japan, their cost offers only a sketchy guide to the likely price tag of new U.S. reactors. And because no one has built a nuclear plant from scratch anywhere in the United States since January 1978, "the cost remains the big question," Wang said.

The two new reactors at the South Texas Project will produce a combined 2,700 megawatts of electricity a year, NRG has said. Using CERA's estimates, an expansion of the South Texas Project could cost between $5.9 billion and $13.5 billion.

"It'll be expensive," Hardberger acknowledged, and that's his key concern. "Probably the bottom price is going to be what the last one cost us ($6.5 billion), and it could be $2 billion more than that."

But officials at NRG and CPS Energy are optimistic that the cost of a new plant won't spiral out of control. First, the infrastructure - land, utilities - are already in place.

Just as important in reining in costs are new, generous federal subsidies and tax breaks that favor the builders of the first new nuclear plants.

The 2005 Energy Policy Act provides loan guarantees for new reactors and tax credit for the first ones built. Another carrot on the stick: risk insurance to cover licensing delays.

"The rules favor the early movers," said Stephen Goldberg, assistant to the director of the Argonne National Laboratory, which is managed by the University of Chicago, Argonne LLC, for the Energy Department.

"With the loan guarantees and the risk insurance, the financial risk is significantly reduced."

That's why CPS Energy wanted to move quickly to join NRG in signing the licensing agreement, said Mike Kotara, the utility's executive vice president of energy development.

Yet critics of nuclear power are blasting the incentives, saying they put too much of a burden on taxpayers.

"Without taxpayer support, no utility would build a new atomic reactor, and no financial institution would invest in a new reactor," the Maryland-based Nuclear Information and Resource Service said in a statement. (The group favors expanding renewable energy and conservation as the best solutions for Texas' and the nation's need for more power.)

CPS Energy and NRG say their application will be sped up because they're asking the Nuclear Regulatory Commission to approve a reactor design already in use in Japan. And two reactors of the same design are under construction in Taiwan.

"There are other designs, but none have been built," economist Wang said. "So the trade-off is that it isn't the most advanced design, but it's the one with a substantial track record."

What also could help CPS Energy and NRG is that the Nuclear Regulatory Commission has streamlined the licensing process. The new rules "are a big improvement over the historical process," said Goldberg of the Argonne Lab.

Delays in nuclear construction can be quite costly. A two-year delay can add as much as $1 billion in interest costs for a 3,000-megawatt plant, Florida-based FPL Group estimated in a study completed this year.

If NRG and the city of San Antonio's licensing process runs smoothly and there are no supply bottlenecks, "you're still talking about a good four years of licensing and another five years of construction," Wang said.

"So you're looking at 2015 or after."

 CPS Energy officials have said 2016 is a realistic date for new units at the South Texas Project to open.

CPS Energy's partnership with NRG in the new reactors would mean that the city would get almost half of its electricity, 48 percent, from the nuclear plant, Hardberger said.

There must be some guarantees that CPS Energy customers won't be hit with soaring utility bills during the construction process. Hardberger has asked for an agreement between CPS Energy and the city that the utility can't request more than a 5 percent increase in electricity rates in a two-year period until the reactors are up.

Because CPS Energy is a city-owned utility, the San Antonio City Council must approve any rate increase.

Nuclear power "is one reason why we have the cheapest rates of any city in Texas," Hardberger said. "We have a very good chance, if we move with some direction and clarity, to be one of the first in the country to build new nuclear."

The mayor wants forums to allow residents to comment about the new reactors, but he believes that San Antonians will reject other options. The city's most recent strategy has been relying on coal - not pricey natural gas - to fire its generating plants because coal is plentiful and relatively inexpensive. CPS Energy's Spruce 2 plant, set to open in 2010, is part of that strategy.

But the era of building coal-fired plants is ending, the mayor believes. "I just don't think," he said, "the world is going to stand for many more coal plants."

Here's how a nuclear plant works:

  • Heats water to make steam, which drives a turbine, which spins a generator to create electricity.
  • Uses uranium fuel to produce heat by splitting uranium atoms in a process called fission.
  • The uranium fuel is packaged in pellets and placed in tubes, which are inserted into the reactor.
  • One fission triggers another until there is a chain reaction.
  • Rods inserted among the tubes holding uranium control the nuclear reaction; they're inserted or withdrawn to slow or to accelerate the reaction.
- Source: Nuclear Energy Institute

Where San Antonio's power comes from
How San Antonio's electricity is generated:

  • Coal: 42 percent
  • Nuclear: 36 percent*
  • Natural gas/fuel oil: 17 percent
  • Wind, other: 5 percent
* Percentage fluctuates, according to CPS Energy - Source: CPS Energy, annual report for fiscal year ended Jan. 31, 2007

Q&A with San Antonio Mayor Phil Hardberger


Vicki Vaughn
San Antonio Express-News

San Antonio Mayor Phil Hardberger has decided to endorse a proposal by the staff of CPS Energy to be a partner in adding two nuclear reactors to the South Texas Project, a nuclear plant in which the CPS already owns a 40 percent share. Hardberger shared his views with a reporter in a recent telephone interview.

Q: Was this a hard decision to make?

A: Yes. It was not a slam dunk. It was a very hard decision. And I cannot say with 100 percent certainty that I'm right. Ask me in 2025.

Q: What is the estimated cost of building two nuclear reactors?

A: It'll be expensive. You have one good guide mark - the last time we built our two the cost was about $6.6 billion. There are a couple of influences on that price with the new one. We already have the infrastructure; we have the land and the water. We didn't have any of that the first time. And the technology is more certain. The negative is that construction costs keep going up.

Having said all that, the price is going to be what the last one cost us and it could be $2 billion more.

The last reactor project we did 25 years ago cost a good deal more than was estimated. But I don't think you'd find anybody in San Antonio today who would say that was a really bad decision. It has proven its worth.

To go a little further in my thinking: Our options are to do nothing and wait for Spruce 2 (a coal-fired plant) to come online in 2010. But that's not a viable option. We're going to run out of power in 2016. We need to be well into the construction phase (of the nuclear addition) by the time Spruce 2 comes online.

Q: Isn't it cheaper to build coal or natural-gas fired plants?

A: But then you are the total captive of the world market. Everything OPEC does affects you. You are stuck - just as we're stuck when we drive into a gas station. Whatever is the price at the pump, we pay. We don't get a vote on it.

I am still concerned about rates, and there's a proposition I put on the table I'd require for my support. I have proposed that in a two-year term (CPS) cannot ask for more than 5 percent increase. That will continue until the (plant addition) is online.

Q: Are you concerned about safety issues and the storage of spent fuel?

A: You do have the spent fuel problem and some lingering fears of Chernobyl and Three Mile Island. Those are not unfounded fears, but the technology has greatly increased and I do not think the danger now is particularly great. A coal-fired plant or gas plant can blow up. I think nuclear is at least as safe, and with the new technology, it would be safer.

Q: Will the public be weighing in on this?

A: Yes. We've suggested that CPS have some public forums to that people can be brought up to speed. The more input the better. There are some time constraints on this one, because the first plant in the country to start is going to get many more dollars in subsidies.

I believe at the moment we are sitting in first place (to get a license). We have a very good chance, if we move with some direction and clarity, to be one of the first in the country. It will put us in an enviable position.

Q: So you just returned from a five-city tour of China. Did that affect your outlook?

A: China needs huge amounts of electricity, so they're building coal plants quickly. But pollution is everywhere. We were in five cities and I couldn't see more than a couple of blocks ahead of me in any of them. It's like L.A. was on its worst day.

Q: Was that a big factor in your decision to endorse the addition to the South Texas Project?

A: The convincer was past experience. It's not as if we haven't gone down this road before. We're glad we did (invest in the plant), even though there were some bad moments. That was the real clincher.

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