Utility warning on nuclear cost

05 November 2009

The cost escalation of a new nuclear project is the subject of an investigation by Texas utility CPS Energy, which warned that new reactors "must be affordable".


STP 3 and 4 (STPNOC)
CPS is warning that the price must be
right for South Texas Project 3 and 4
In June the project to build two Advanced Boiling Water Reactors at the South Texas Project was valued at $10 billion - or $13 billion including finance. CPS is responsible for half of the project, but the firm's reaction to a reported $4 billion cost increase has cast its involvement has been cast into doubt.


CPS's owner, the City of San Antonio, has already postponed voting on a $400 million bond issue and now CPS has announced an investigation into "how and when management became aware of a substantially higher preliminary cost estimate from Toshiba."


"Preliminary findings have resulted in two CPS Energy employees being placed on administrative leave pending the completion of the investigation," said general manager Steve Bartley.


The company stressed its support for the project - provided it can be achieved within budget. It explained "the trust our community has placed in us for many years is being tested." CPS Energy has been owned by San Antonio since 1942 and is by far the major supplier of power and gas in the area. It already has a 40% stake in two reactors at STP, and saw investing in two more as the most cost-effective way of securing new low-carbon baseload supply.


Company executives are to travel to Japan for a major meeting with reactor builder Toshiba as well as the other 50% partner NRG Energy and other companies involved in the development. "I will make sure all our partners clearly understand out position," said Bartlett, "South Texas Project units 3 and 4 must be affordable for our customers."


CPS and NRG recently agreed to find a third partner to take a 20% stake. However, the environment for nuclear investment in the USA is currently quite poor: gas prices have come down, as has demand, and there is uncertainty over future climate change legislation. However, these conditions are likely to change significantly by the time regulators are ready to permit nuclear construction.


An engineering procurement and construction deal for the 1350 MWe units was signed with Toshiba in February 2009 and the project is on the shortlist for a Deparment of Energy loan guarantee, which if granted would make it easier for project sponsors to secure finance.