Nuclear Developer Seeks New Partners for South Texas Project as Split with CPS Energy Nears Finalization

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--A San Antonio municipal utility's public and acrimonious divorce from a proposed two-unit, 2,700-megawatt (MW) nuclear power plant is nearly final. San Antonio municipal utility CPS Energy has been trying to separate itself from the South Texas Project units 3 and 4 for several months. Last week, a settlement was reached between CPS Energy and Nuclear Innovation North America (NINA) (New York, New York), the partnership that is developing the two-unit nuclear expansion of the South Texas Project (STP). All that remains is for the CPS Energy board to ratify the deal.

On Monday CPS Energy's board of trustees delayed approval of the settlement until final details are hashed out. "It's not a big deal," CPS Chairman Charles Foster told the San Antonio Express News. He characterized the outstanding issues as "down to nit-picking."

If true, that may be the only small thing about STP units 3 and 4, located near Bay City, Texas. Under the proposed settlement, CPS Energy will end its responsibility for STP units 3 and 4 project costs as of January 31, 2010. The utility estimates that it has already contributed $376 million to the development of the project, which will use two 1,350-MW advanced boiling water reactors (ABWR) from Toshiba.

For its part, NINA, a consortium of NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey) and Toshiba Corporation (TYO:6502) (Tokyo, Japan), would pay CPS Energy $80 million in two installments, following receipt of federal loan guarantees for STP units 3 and 4. The agreement also calls for NINA to make $10 million in payments over four years to the Residential Energy Assistance Partnership in San Antonio. The settlement would lower CPS Energy's ownership of the two STP units to 8%, about 200 MW.

"This agreement is of tremendous importance for Texas, NINA, and for the American nuclear renaissance," Steve Winn, chief executive officer of NINA, said last week when announcing the settlement with CPS Energy. "With this agreement, we can continue developing one of the leading nuclear power projects in the country.

"The strengths of the STP 3&4 project--certified technology, turnkey contract with a proven EPC contractor, exceptional site, and strong state support--will once again put us in contention for a Department of Energy loan guarantee and ensure we have no conflicts preventing new partners from joining the project," Winn continued.

The once-promising partnership between NINA and CPS Energy has frayed badly in recent months amid alleged cost overruns, accusations of bad behavior, and litigation. Last May, the U.S. Department of Energy notified NINA that its project was one of four that was shortlisted for federal nuclear loan guarantees. But squabbles broke out last fall amid alleged cost overruns for the project. In a lawsuit in Bexar County District Court in Texas, CPS Energy in late December asked for at least $2 billion in actual damages and at least $30 billion in "exemplary damages" from NINA, alleging it engaged in fraudulent and illegal behavior in an effort to drive CPS from the project.

The negative publicity and bare-knuckled litigation has not affected the permitting and engineering work that is being done for STP units 3 and 4, NRG spokesperson Dave Knox told Industrial Info in an interview. NINA applied to the U.S. Nuclear Regulatory Commission (NRC) for a construction and operating license in 2007, and a decision is expected in 2012, he said. Construction work can't begin until the NRC grants a license. Unit 3 is expected to be online in 2016; Unit 4 is scheduled to begin operating the following year. When it applied to the NRC for a license in 2007, NRG said it expected that Unit 3 would be online in 2014 and Unit 4 would be brought online in 2015.

Toshiba is the engineering, procurement, and construction (EPC) firm for STP units 3 and 4. Subcontractors include Fluor Corporation (NYSE:FLR) (Irving, Texas), Sargent & Lundy LLC (Chicago, Illinois), Bechtel Group Incorporated (San Francisco, California) and Westinghouse (Monroeville, Pennsylvania).

NINA has estimated that construction of the units will create 4,000 to 6,000 jobs while the units are being built, and 800 full-time jobs when the units become operational. A 2010 economic study estimated construction of the two units will generate more than $15 billion in business activity across the state and $3.6 billion per year in spending once the two units are operational.

The project has been seeking other investors and partners to offset the expected departure of CPS Energy, as well as the separate decision made by Austin Energy not to exercise its option to own a portion of units 3 and 4. Austin Energy, the city-owned utility serving Austin, Texas, owns a share of STP units 1 and 2, which entitled it to a share of units 3 and 4.

NRG currently owns 88% of NINA, and the energy company has been seeking to significantly lower its stake in the development partnership. NRG spokesman David Knox declined to describe the potential partners that NINA was approaching. Nor would he confirm that foreign companies were among the potential new partners. Last December, Masataka Shimizu, president of Tokyo Electric Power Company (TYO:9501) (Tokyo) told a Japanese newswire his company "may take a stake" in the two planned STP units. But NINA and NRG officials have said that until the litigation with CPS Energy was settled, it was premature to discuss bringing in any new investors or partners.

Knox pointed to published comments from David Crane, CEO of NRG, that the $10 billion project expects to hear "in about two months" from the U.S. Department of Energy on its application for federal loan guarantees. Knox said NINA expects to build STP units 3 and 4 with about $5 billion in federal loan guarantees and $3 billion in loan guarantees from Japan.

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