South Texas Project get challenges about rates and costs
The headlong Texas land rush into a future robust with new nuclear reactors, at one time rivaling China in the number of planned new construction projects, could be slowing down. Elected officials and citizens groups in Texas are asking tough questions about costs and safety.
In the case of the South Texas Project (STP), CPS Energy, the San Antonio municipal utility that is an investor in the first two units, is getting a “whoa there” tug on the reins from the city’s mayor. Julian Castro, newly elected Mayor of San Antonio, told CPS on Aug 6 he wants the utility “to take a closer look at the nuclear option.“
What Castro, (left) who at 34 is the youngest mayor of a major American city, is really saying is the CPS does not have his back, politically speaking, since anti-nuclear opposition groups have sprung up.
They want the mayor to submit the CPS deal to a popular vote, which would be disastrous for CPS, the rate payers, and NRG. The mayor is not anti-nuclear. He just doesn't want to get his butt shot off by irate voters who might think CPS is out in front of his political headlights. He's telling CPS to make the case for nuclear so he can agree with it.
“We need to make this as transparent as possible, within the confines of a business deal. And the public process, up to now, I believe, is not what the public expected.”
CPS CEO Milton Lee agrees telling the San Antonio Express on Aug 20, “CPS Energy has done a lousy job of explaining its reasons for wanting to increase its investment in nuclear energy.”
That frames with Mayor’s problem, but is there more to it?
What’s the deal with NRG?
CPS is proposing to sign a deal with NRG, the developer of STP units 3&4, to invest in 40% of the capacity of the two plants and re-sell 20% to other utilities to reduce the cost of the juice the utility sells to customer at home. For the Mayor’s part, he says that re-selling electricity “goes beyond the utility’s core mission.”
CPS points out that they’ve already signed contracts with customers for half of the electricity they plan to sell from the new NRG reactors. CPS manager Steve Bartley told the San Antonio Express Aug 13 . . .
“If you can get customers to say they’re interested in buying before the project is completed, it doesn’t get any better than that. These folks are showing interest 11 years before the power will be there.”
Mayor Castro told the newspaper he knows about the contracts. He says a key issue for ratepayers is a series of rate increases that will come with the investment.
While NRG hasn’t put a price tag on the 40% share, CPS has already spent $276 million as up front money on engineering and permitting costs for the two new reactors. The final cost to CPS of the expected $10-13 billion project could be as much as $5 billion.
The utility must come to the city council in September to ask permission to issue $400 million in bonds to pay for new costs. The bonds will be repaid through a series of biannual rate increases of about 5% each through 2016 which is when the first reactor is expected to enter revenue service.
Less Powerpoint, more Q&A in public meetings
The utility is responding to the Mayor’s concerns by spending more time listening and less time flogging slide presentations at public meetings. The utility is also highlighting its efforts at promoting energy conservation.
The Mayor says he wants dialog not one-way communication. One of his reasons for stepping out now is that he sits on the board trustees for the utility.
Also, he came into office reportedly with a low confidence rating from the business community and a history of “flip flopping on issues” according an Aug 9 editorial in the San Antonio Express. The Mayor now takes an unexpectedly bold course to bolster his standing with key rate payers in that same business community.
“This is not talking down. This is engagement with the community. We want folks and the city council to get the information they need and to believe that have a role in the process.”
The Mayor may be getting more than he bargained for. Pressure on CPS is also coming from citizens groups. One called Energia Mia turned out in force holding a news conference ahead of one of CPS’ public meetings.
About 50 people showed up wearing T-shirts with anti-nuclear slogans. Cost is the hot topic for the group, which is a coalition of neighborhood groups, but some are also worried about contamination from nuclear waste. Local problems with Kelly Air Force base have the groups riled about environmental issues and they’ve developed a “you’ve seen one you’ve seen them all” attitude about large facilities.
In an effort to reclaim control of the political messaging, the Mayor is holding his own town meetings in the city council chambers. He’s limited CPS to a five minute summary level presentation and then will open the floor to questions. He will lead the meetings.
Slashed Investment could make NRG nervous
One of the “alternatives” Castro has tossed out is to reduce the investment by CPS in NRG from 40% to 20%. This would eliminate the utility’s plan to re-sell 20% of the power it buys from NRG to reduce the cost of electricity to San Antonio rate payers.
To counter criticisms about cost, NRG points out that Toshiba, which will build two GE-Hitachi 1,350 MW ABWR reactors, has a 12% stake in the project and a commitment to cost control through an agreement to sign a fixed price contract to build them.
NRG expects the NRC to issue a license to the project in 2012 at which time it will break ground. By then it needs all of it investors lined up to pay for the new reactors.
CPS' CEO Lee thinks his utility will prevail in its plans to invest in 40% of the project. He says that natural gas prices are too volatile and when the price soars into the stratosphere, the costs get passed on directly to rate payers.
He points out the reactor site has the water and transmission and distribution infrastructure to support four units. Plus, he points out Matagorda County is a willing host for the new plants. Ultimately, Lee thinks people will opt for a steady and predictable rate structure from nuclear energy compared to gas costs.
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