Nuclear expansion could cost $18.2 billion

A new informal cost update puts the price of CPS Energy's nuclear project at
$18.2 billion, about $5 billion more than the utility has said is affordable
for San Antonio.

The update, obtained by the San Antonio Express-News, is based on numbers
provided by the South Texas Project Nuclear Operating Co., which operates
the existing nuclear plant outside Bay City and is a key player in the
proposed expansion.

The new estimate lists the cost of building two reactors at nearly $13.9
billion. That sum jumps an additional $4.3 billion when financing charges
and cost escalation are figured in.

It's the highest cost estimate, informal or otherwise, from any of the
companies involved.

CPS Energy executives presented the numbers to the board of trustees in
closed session last week. It comes in advance of the official cost estimate
from construction contractor Toshiba Inc., which is due next week.

CPS Energy is expected to use Toshiba's number to create its new public
estimate and release it in mid-January.

The utility's board and the City Council ultimately will decide San
Antonio's future in the project based on that number.

"I'm going to reserve judgment until the official 2009 cost estimate and
methodology is produced," Mayor Julián Castro said. "But the numbers that
are presented do not encourage me about the viability of the project,"

The informal cost update was based on information provided by Toshiba to
STPNOC, board Chairwoman Aurora Geis said.

It wasn't meant to be public because it is informal and lacks the pricing
methodology Toshiba will provide with its official estimate, she said.

Acting General Manager Jelynne LeBlanc-Burley said the numbers were
presented to help familiarize the board as it begins planning the capital
budget and makes a decision on whether San Antonio will take part in the
nuclear project.

"It was informal information from our operator that we received to walk the
board through some exercises," she said.

LeBlanc-Burley said she believes the project continues to be valuable, but
that doesn't mean it's right for San Antonio. That decision, she said, will
be made after Toshiba delivers the official cost estimate.

"This particular project will be evaluated on its merits, and it may not be
the best opportunity for this community," she said.

Geis said the board wanted the update because it needed to be informed of
the latest numbers.

"After what we just went through, they better tell us if there is a whiff of
what the estimate could be," Geis said, referring to the fiasco caused by
October's revelation that a cost estimate $4 billion higher than CPS' public
number was kept from the utility's board and the City Council.

That debacle and damage to the utility's credibility have cost two
high-level utility executives their jobs and prompted Geis to announce that
she'll step down.

It also has caused CPS to reconsider its role in the project. Earlier this
month, the utility filed a lawsuit against its partner in the deal, NRG
Energy, that asks the court to clarify CPS Energy's rights if it pulls out.

CPS said during a series of public meetings this past summer that the
project would cost $13 billion. At that price, it could be done with bill
increases of no more than 5 percent a year, utility executives said. Those
bill increases would translate into base rate increases of about 9.5
percent.

City Council has to approve any rate increases or borrowing for the nuclear
project.

Councilman John Clamp said he would wait on the official number from Toshiba
to make up his mind and would remain "skeptical and cautious" about the
informal number from STPNOC.

"If that number (from Toshiba) comes in at that level, then staff and CPS
board and council are going to have serious discussions," he said. "Somebody
is not getting the message. The city of San Antonio is saying give us a good
estimate - that's not working. And we're saying we need to get the estimate
down - that's not working."

The estimate CPS expects to receive from Toshiba by next week will include
detailed methodology that's supposed to help the utility track cost
fluctuations between now and 2012. According to the project's timeline,
that's when the federal government is expected to grant a license so
construction can begin. At that point, Toshiba would have to agree to a
fixed-cost contract.

Tom Smith of the consumer advocacy group Public Citizen has been critical of
CPS for months for low-balling the nuclear project cost and said that the
$18.2 billion figure finally puts CPS' estimate "in line with the cost of
the other nuke plants that are being proposed for Texas."

If the latest cost update is right - construction will be $13.9 billion, not
counting financing and cost escalation - that puts the nuclear project at
the break-even point with natural gas, according to the results of an
analysis released by CPS last week.

That means the projects are a toss-up when compared as long-term
investments. Natural gas is considered the most likely alternative to meet
the city's future energy needs if it opts out of the nuclear plan.

While the nuclear decision needs to be made soon, natural gas offers the
benefit of time, said Cris Eugster, CPS' chief sustainability officer,
something the utility was unable to quantify in its analysis.

That's because San Antonio doesn't need power until about 2023 and natural
gas plants can be built in three to five years.

The city could wait as long as eight years before making a decision on its
next power plant, he said. This could give other technologies like wind and
solar time to become more cost-effective.

Councilman Reed Williams agreed there is value in waiting to make a
decision, especially when the city won't need power for more than a decade.

Williams wouldn't comment on the most recent nuclear cost update because it
was leaked from a closed session. But he said the nuclear project probably
is too uncertain for San Antonio.

"It's too much of a risk profile to take for a municipal utility," he said.