San Antonio balks at Toshiba nuclear deal
One of the very first new nuclear power plants proposed to be built in the U.S. in over 30 years just hit a brick wall. It’s the same brick wall — absurdly high cost — being hit around the world (see “Nuclear Bombshell: $26 Billion cost — $10,800 per kilowatt! — killed Ontario nuclear bid” and “Turkey’s only bidder for first nuclear plant offers a price of 21 cents per kilowatt-hour“).
The San Antonio Express News reports today:
The estimated cost of two new nuclear reactors proposed by CPS Energy has gone up as much as $4 billion, prompting the City Council to postpone Thursday’s vote on the project’s financing until January.
CPS officials and Mayor Julián Castro, flanked by every council member except David Medina, held a hastily arranged news conference Tuesday afternoon announcing the delay.
CPS interim General Manager Steve Bartley said the utility’s main contractor on the project, Toshiba Inc., informed officials that the cost of the reactors would be “substantially greater” than CPS’ estimate of $13 billion, which includes financing.
The San Antonio Current notes that “After what can only be considered a sustained Certified Sales Event by CPS Energy matched by Mammoth Media Buildup,” the City Council was set to vote for the $400 Million bond issue this Thursday, which would have put the city “on an irreversible date with” the Toshiba nuke.
Occasional guest CP blogger Craig Severance not only tipped me off to this, but in fact predicted this price rise last month in a post, “San Antonio: New Economy Leader or Nuclear Guinea Pig?” that offers some saner and cheaper clean energy alternatives, which I’ll reprint below.
If you want to see an especially painful press conference from a Mayor who had been putting his foot on the nuclear accelerator, watch this:
Even before the latest jump price jump, the city was planning “a 9.5 percent base rate increase to cover the nuclear expansion and the utility’s other capital projects.” Such preemptive rate increases years before the plant would even deliver a single kilowatt hour are inevitable when you pursue nuclear power these days, as Florida has painfully found out (see “What do you get when you buy a nuke? You get a lot of delays and rate increases….”).
New nuclear plants are so expensive they are likely to provide electricity at some 15 cents per kilowatt hour (see “Nuclear power, Part 2: The price is not right“) — or possibly more than 20 cents/kWh (see “Exclusive analysis, Part 1: The staggering cost of new nuclear power“). The precise answer — 50% higher than average U.S. electricity prices or more than 100% higher — is hard to know since it is all but impossible to find a utility willing to stand behind a firm price in a rate hearing.
Some city Council members are now rethinking their commitment to the nuke:
For Council members, the vote delay was not a negotiation tactic. Councilman Justin Rodriquez had been lined up in the “aye” column for the $400-million vote but said the news reveals a serious “chink in CPS’s armour.” That it is, perhaps, “a mixed blessing.”
“We need to take a step back and look at all the options, including continued investment in renewables,” Rodriquez said.
Perfect timing to review a fact still lost on most residents — and, apparently, many of our elected officials — that we have alternatives capable of delivering the needed 500 megawatts by 2020.
Developed by a team of international energy experts, the report, San Antonio: Leading the Way Forward to the Third Industrial Revolution lays out in broad brushes a way to meet future energy needs, save utility customers a collective $3 billion by 2030, and create, on average, 10,000 jobs a year in a stimulated “green-collar” revolution.
It’s not a bad report, other than the use of uber-high-priced hydrogen storage when other strategies would be far cheaper — see these Craig Severance posts, “The Holy Grail of clean energy economy is in sight: Affordable storage for wind and solar” and “The dynamic duo: Hybrid solar/gas plants provide low-cost, low-carbon power when needed“).
Severance is co-author of The Economics of Nuclear and Coal Power (Praeger 1976) and a former Assistant to the Chairman and to Commerce Counsel, Iowa State Commerce Commission. He’s been prescient on this San Antonio plant and has also advanced superior alternatives. Here is his September analysis:
Photo: Mural at Construction site in beautiful downtown San Antonio, TX
SAN ANTONIO, TX — San Antonio’s new Mayor Julian Castro, in office just three months, has inherited a dilemma. The nation’s 7th largest city is suffering from almost 8% unemployment. With limited resources, the Mayor and City Council are searching for ways to create local jobs. At the same time, the City, through its
municipal utility City Public Service (CPS), is burning through hundreds of millions of dollars on just paperwork, to prepare to spend billions on a new nuclear power plant project some 200 miles away at Bay City, TX.
Should the Mayor and the City Council question the wisdom of rushing ahead with the nuclear project, or approve CPS continuing to spend hundreds of thousands of dollars a day to prepare applications for CPS to buy a 40% share of two new reactors proposed for the South Texas Project? CPS says the two new reactors, to be co-owned with NRG Inc., would help the utility meet power demands projected for 2020 and beyond – over 10 years away.
$400 Million Bond Issue. The issue comes to a head next month, when the City Council must approve or disapprove CPS issuing $400 million in bonds to continue its spending on the project. The monies will not be used to actually begin construction — that would be years away — but to prepare the enormously complex engineering, design, and environmental applications required for a new nuclear power project.
Local citizen groups, however, say a far better use of such monies would be to help CPS fund aggressive energy conservation, Smart Grid, and solar energy programs to help citizens cut utility bills. Such programs would immediately create local jobs — and cut electric growth so the nuclear projects would not be needed.
“First in U.S.” CPS and NRG, Inc. are rushing the proposal, as they say the South Texas Project expansion will be the first new nuclear plants to be built in the U.S. in over 30 years. They hope to be first in line to receive Federal Nuclear Loan Guarantees under an $18.5 Billion program authorized by Congress.
Many San Antonions question the wisdom of rushing to be the guinea pig for the nuclear industry, which has a history of massive cost overruns. They challenge whether it is even a good idea to be first. Why not let someone else find out whether the nuclear industry has learned how to build plants on-budget?
Nuclear Debate Held Wednesday, September 16th. With so much at stake, San Antonio civic leaders have taken extraordinary measures to open up the process to public scrutiny. The San Antonio News Express , led by Editor Robert Rivard, has for months run articles on the nuclear proposal. Open meetings have been sponsored by the utility in many neighborhoods.
As a peak event in this public discussion, The San Antonio Clean Technology Forum, led by civic leader Michael Burke, organized a sold-out luncheon debate this past Wednesday, attended by 400 of San Antonio’s leading citizens. Tables were sold to major companies and organizations, and all news media were invited.
The Clean Technology Forum invited myself and Dr. Arjun Makhijani, President of the Institute for Energy and Environmental Research, to debate the wisdom of the new nuclear project. Supporting the project were Steve Bartley, CPS Interim General Manager, and Patrick Moore, who is a paid spokesperson for the nuclear power industry. Mayor Julian Castro keynoted the event, which was gracefully moderated by Bob Rivard, Express-News Editor.
View the Actual Debate. The video of the full debate can be viewed here:
I encourage readers to view the full debate to hear the exchange for themselves, as it was quite lively. Each speaker had only 12 minutes, followed by audience Q&A and a 2 minute close, so it’s not too long.
Due Diligence Needed. With hundreds of millions in spending already underway, and billions more to come, the proposal for San Antonio to buy 40% of the South Texas Project expansion is well overdue for an independent “Due Diligence” evaluation. In other words, does the project actually make business sense? This was the approach I took in my speech, with six common Business Tests applied. (See here for the 2 page handout with details of these points.)
Business Test #1: Financial Stress. If you approach your banker for a $100,000 home improvement loan, the questions asked do not center around whether you like the improvements, how beautiful they are, or even if they will raise the value of your house. Rather, the first question is can you support a project of such size? Do you have enough income, and assets, to back up such a huge project?
For the same reason, it does not matter if anyone likes nuclear power,or if they think it’s a cool technology. It doesn’t even matter if they think it might be a way to reduce carbon dioxide emissions. The first question is CAN the utility do the project — without severely stressing the financial viability of the utility, and the City of San Antonio itself?
CPS estimates its 40% share of the 2,700 Megawatt (MW) project will cost $5.2 Billion. This is a really low estimate by national standards, and other estimates place this closer to $9 Billion. Just the likely cost overruns are greater than the entire $3.1 Billion Net Worth of CPS.
Proposals to build new nuclear power plants place them among the costliest private construction projects in the history of the world. For this reason, Wall Street investment banks in 2007 specifically singled out new nuclear power plants as too risky for loans, unless backed by Federal Loan Guarantees.
These same banks are still loaning money for natural gas power plants, wind farms, solar plants — but nuclear power has been deemed a crap shoot, now requiring Federal Loan Guarantees.
A Federal Loan Guarantee might work, but an important question has arisen. If San Antonio gets a Federal Loan Guarantee based on the $5.2 Billion estimate, but the project actually costs $9 Billion – where will the City raise the extra money, when Wall Street has already said it will NOT loan money for nuclear?
Another question concerns nuclear’s impact upon the City’s bond ratings. The bond rating agency Moody’s has — two years in a row — taken the extraordinary measure of warning utilities that if they pursue new nuclear power plant projects, their bond ratings are likely to be downgraded.
In its June 2009 Special Report, Moody’s coined a new Wall Street technical term for new nuclear power: “Nuclear’s ‘Bet the Farm’ Risk.
“Bet the City” Risk. The municipal utility CPS contributes $282 million to the San Antonio City Budget — the largest source of revenue for the City. Because the City is so dependent upon CPS, not only is the new nuclear project a “Bet the Farm” risk, it is a “Bet the City Risk”.
Business Test #2: Is Decision Rushed? Other types of power plants only require 3 to 5 year lead times, so San Antonio actually has a lot more time to decide. The City could wait 5 more years — until around 2015 — to make a decision to build a new power plant, to meet a 2020 need. However, the very long lead time for nuclear power is forcing the City’s hand right now.
If there was ever a time to avoid making a huge spending commitment on a speculative10 year forecast, it is this next 10 years. Everything is changing about how we use energy over this next 10 years – nothing is “Business as Usual” right now.
The nuclear project is like investing billions right now, for a Hummer factory to start selling Hummers in 10 years. Is that wise?
Business Test #3: Does the Proposal Match Actual Customer Needs? An amateurish business plan starts with somebody’s idea for a cool product, then tries to find a way to get people to buy it. Business plans that actually work start with identifiying a customer need, then work backward to design a product that exactly matches that customer need.
The proposal for San Antonio to buy 40% of two new nuclear baseload power plants is the former type of business plan. Half of the output won’t even be needed by San Antonio for decades — that’’s like buying 4 new cars, and sticking 2 in the garage till your kids grow up. CPS says it will try to find buyers for the extra power — thus placing San Antonio at risk of losing money on those outside sales.
Another flaw is that the forecast shows only peak load capacity will be needed by 2020 – which occurs only a few hours of the day or year. Yet, the proposal is to build nuclear plants, which run 24/7. What will they do with the kWh’s generated off peak? More excess power sales will be needed, into a Texas market that often pays close to zero cents per kWh when massive wind farms are running
Business Test #4: Competition. All business plans must evaluate the competition. For a power plant, this means two things — the competition about what type of plant to build, and also the competition for selling kWh’s into the open market, if you need to do that.
Another type of power plant San Antonio could build might be a natural gas power plant (of course, it can wait until at least 2015 to decide to do so, as noted above under “Rushed Decision”).
As noted under #3 “Matching Needs”, CPS admits it will have to sell excess power to other Texas utilities, as it is buying too much power plant. The price these utilities are willing to pay for power in the Texas market is greatly affected by the price of natural gas.
The CPS natural gas price forecast is dangerously out of date. CPS assumes very high natural gas prices of around $10 to $12 per million BTU. Today’s price, however, is closer to $4, because of massive new finds of U.S. natural gas. The Energy Information Administration (EIA) now forecasts natural gas prices will stay around $7 per million BTU for years to come, and under $9 all the way to 2030.
CPS has thus overestimated natural gas prices by about 30-40%. This skewed its analysis against building a natural gas plant. It also vastly overestimates how much other utilities in the Texas market may be willing to pay for kWh’s that CPS will need to sell to them.
Business Test #5: Revenue Forecast.
Any project must have adequate revenue to support it. As noted under Test #4 “Competition”, overestimating natural gas prices has led CPS to the belief it can sell excess kWh’s to other Texas utilities, at high enough prices to cover the costs of the nuclear plant.
In reality, expert opinion indicates CPS has no chance whatsoever to recover all its costs in the ERCOT market, and will lose money trying to sell the excess power to other Texas utilities.
The losses, of course, would have to be made up by San Antonio ratepayers — who have no other choice but to buy from CPS.
OR do they? If CPS starts raising electric rates, what will people do? Those who have the means, will invest in energy efficiency and cut their kWh’s used. They might even choose to generate their own power by installing solar electric, or combined heat and power generation on site.
CPS revenues – even from its own customers — may therefore fall.
This does not help CPS save money on generation. Almost all of a nuclear plant’s costs are fixed – very little is saved if fewer kWh’s are purchased.
Selling fewer kWh’s than forecast, CPS would therefore have to raise rates even higher.
The ones left holding the bag will be the poorest customers, who have no ability to insulate their (mostly rental) properties, to buy more efficient air conditioners, or generate their own electricity.
A spiral could ensue where CPS would try to collect higher and higher electric rates, from poorer and poorer customers.
Business Test #6: Are Cost Estimates Realistic?. As I have covered nuclear cost estimates in many articles in Energy Economy Online, I refer readers here to simply read the “Electricity – Nuclear” column of this website.
Steve Bartley told San Antonio leaders it will be another 2 1/2 years before CPS can come up with its ’final” cost estimate for the project. In the meantime, it will take hundreds of millions of dollars spent on nothing but paperwork and applications, to get to that point.
My own estimate is that if nuclear cost escalations resume at even half recent levels, the CPS share will cost over $9 Billion, not the $5.2 Billion now estimated by CPS.
This implies total nuclear costs of around 16 cents per kWh from the proposed project. Since CPS won’t be able to sell kWh’s into the Texas market at anywhere near such rates, actual rates charged to San Antonio ratepayers will need to be even higher, because losses from outside power sales will need to be charged to CPS ratepayers.
Prudent Way Forward: Start With What You’re Already Doing. CPS calls its new nuclear project its “Plan A” proposal. However, a true ”Plan A” should start with what you are already doing.
CPS has already committed to having about 1200 MW of wind and solar capacity by 2020 – more MW’s than it wants to buy of the nuclear plant (1,080). Yet, CPS won’t count the billions it will spend on renewable MW toward meeting Peak Load needs — for the usual excuses “the wind doesn’t blow all the time, the sun doesn’t shine all the time”. So CPS is proposing spending even more billions of dollars — on the nuclear projects.
For a very modest extra cost, however, CPS could firm up the wind and solar output it is already adding, so that it could count those MW’s toward Peak Load.
For instance, for about $500 Million — about the same amount CPS is spending just on nuclear project paperwork – CPS could firm up with storage about 1,000 MW of wind farms it will already own, to provide about 500 MW of dispatchable peak load capacity from wind.
This is only about 1/10 of what CPS proposes spending on the nuclear project — and can meet the 2020 CPS demand need with no need for the nuclear project.
Don’t Go Where There are No Guardrails. While experts were called in to debate these issues, the real decision rests more on common sense.
If you are driving just to get from one place to another, and have several choices of routes, and one of them is a switchback mountain highway with glare ice conditions and no guardrails, you know that is a road you want to avoid.
While you might make it over that road, the consequences of failure are catastrophic — so you simply don’t go there.
The Congressional Budget Office estimated in 2003 that the chances of a utility defaulting on its bonds (in other words, going bankrupt) from attempting to build a new nuclear power plant are “far greater than 50%”. Wall Street came to similar conclusions — and won’t loan money on new nuclear plants.
Other choices — energy efficiency, solar rebates, Smart Grid, small modular power plants – simply do not pose this risk of going bankrupt.
Common Sense: Since there is a significant chance of going bankrupt if San Antonio tries to build new nuclear plants — shouldn’t the nuclear option simply be ruled out? Now?
Time Out Needed. Should San Antonio continue to spend more hundreds of millions on paperwork for applications for a nuclear power plant project that will probably end up being canceled anyway?
Would not a better use of those hundreds of millions be to create new energy economy jobs in San Antonio — energy auditors, insulation and solar contractors — all much needed local jobs?
I’m pretty fiscally conservative. If I”m going to spend hundreds of millions of dollars, I’d want to get something concrete for that kind of money.
Dr. Arjun Makhijani put it simply at our Wednesday evening meeting in San Antonio – ”If you in a hole, what’s the first thing you should do?”
The audience responded clearly: ‘Stop Digging!”
Getting Back to What Makes San Antonio a Great City. CPS Interim Manager Steve Bartley commented at the Debate that every time he holds a town meeting these days, the nuclear project sucks all the air out of the room.
He can try to talk about the great things CPS is doing for wind and solar and energy conservation, but all the discussion ends up focusing on the nuclear project.
San Antonio citizens are clearly not comfortable with this project.
I’ve said many times a utility manager’s job ”shouldn’t be too interesting”. Nuclear power plant projects are huge mega-projects with too many things that can go wrong, with catastrophic financial consequences.
Nuclear projects are also passionately opposed by many citizens. This controversy can “suck all the air out of the room”, and cause rankor in the City for years to come.
Those years of fighting will harm the heart and soul of San Antonio.
San Antonio is well known for being a City that approaches its problems with a “Can-Do”, nonpartisan attitude. The nuclear projects are just one choice among many. If they were dropped, San Antonio citizens and community leaders could work together in a cooperative consensus-based approach to develop the City’s energy future.
As Mayor Castro said at the Forum, the City works by putting into place the systems that make a great city run. People working together is the greatest such “system”. I personally have seen that San Antonio can do this very well.