CPS Energy Recommends Expansion of South Texas Project

Wednesday, Jul 01, 2009

CPS Energy staff recommended that the company and community pursue expansion of the South Texas Project (STP) nuclear power plant as part of a diversified plan to satisfy Greater San Antonio’s long-term electrical needs.

The recommendation to the CPS Energy Board of Trustees comes after three years of detailed study of various energy options.  It also aligns with the Strategic Energy Plan, CPS Energy’s four-objective roadmap for satisfying future energy requirements.

The total estimated cost to build Units 3 and 4 – each capable of generating 1,350 megawatts (MW) – next to existing Units 1 and 2 near Bay City along the Texas coast is $10 billion, or $13 billion with financing, said CPS Energy Interim General Manager Steve Bartley.  Currently, CPS Energy and STP co-owner NRG Energy Inc., (NRG) of Princeton, N. J., are 50-50 partners in STP 3 and 4, however CPS Energy is exploring ownership options that would reduce the financial impact on customers.  This would trim CPS Energy’s share with financing to $5.2 billion.

“Any route we take will be expensive and will require bill increases,” Bartley said.  “We believe all methods of producing electricity will cost more as time goes on, so we are looking for the best way to slow cost escalation as much as possible and retain Greater San Antonio’s position as having the lowest energy bills among the nation’s 20 largest cities.  In other words, we believe it’s better to pay some sooner, that is, invest in STP 3 and 4 to avoid paying a lot more in the long run.”

With recommendation and cost estimate in hand, the Board now plans to conduct a summer-long public education and input process before making a decision on STP 3 and 4 in September.  Public meetings will be scheduled throughout the community from July through mid-September.  If approved, the proposal to expand STP would then go to the San Antonio City Council for final consideration in October.  

“Even with the recession, Greater San Antonio continues to experience steady growth, and soon we must retire some older, less-efficient power plants,” said CPS Energy CEO Milton Lee.  “Meanwhile, we have one of the most-aggressive energy-efficiency programs in the nation, and we’re nationally recognized for our advances in renewable energy, notably wind and solar.  Yet we still predict a shortfall – an electrical generation gap – around 2020.

“We’ve carefully examined many scenarios involving natural gas, coal, nuclear and even purchased power from the Texas grid to provide our community with a large-scale, long-term, cost-competitive source of electricity.  We’ve concluded that expansion of STP has the highest probability of accomplishing that important goal.”

Nuclear plants cost more to build than other power plants, Lee explained, but they offer savings over the long haul because of comparatively lower fuel costs and no emissions.  Natural gas-fired plants are less-expensive to build, but the cost of natural gas is subject to volatile fluctuations.  Coal plants with carbon capture and sequestration have yet to be built and proven on a large commercial scale, and not building a plant would mean purchasing natural gas-generated power from the unpredictable wholesale electric marketplace.

CPS Energy already relies on STP, one of the world’s top-rated nuclear power plants, to meet more than one-third of Greater San Antonio’s annual electrical requirements, Lee noted.  Nuclear-generated electricity is the least expensive among the company’s various sources of power.
 Over the past five years (2004-2008), CPS Energy customers’ electric bills were $1.86 billion lower, thanks to the availability of nuclear power versus other higher-priced fuels, he added.  In 2008, a year of higher-than-normal natural gas prices, the average residential electric customer saved $34 per month in fuel costs because of STP. 

Bartley said more nuclear-generated electricity is compatible with the Strategic Energy Plan, which calls for pursuing energy conservation/efficiency; increasing the supply of renewable energy; supplying low-cost, competitive electric power; and maintaining the company’s environmental commitment.

“We’ve made tremendous progress in all four areas of our Strategic Energy Plan,” Bartley said.  He cited the following examples:

Energy efficiency/conservation – The Save for Tomorrow Energy Plan (STEP) aims at reducing growth in electrical demand by 771 megawatts (MW) – the equivalent of a large electrical generating unit – by 2020.  To achieve this ambitious goal, the City Council recently approved a funding mechanism so CPS Energy can commit $850 million to customer incentives and rebates for the installation of high-energy-efficiency appliances, lighting, insulation, etc.

Renewable energy – Last week, CPS Energy announced a contract for 27 MW of solar-generated electricity, the largest quantity in Texas and the first increment of the company’s 100-MW goal by 2020.  That brings the total of wind, landfill gas and solar capacity under contract to 895 MW, or 17.2 percent of 2020 peak electrical demand.  This means CPS Energy is well on its way to achieving its lofty goal – renewable-energy capacity equal to 20 percent of peak demand by 2020 – that will further solidify the company’s position as a national leader.  CPS Energy already ranks number 1 nationally in wind capacity among municipally owned utilities. 

Cost-competitive electricity – CPS Energy is currently building a 750-MW coal-fired power plant with the latest in emissions-control technology at Calaveras Power Station for commercial operation in 2010.  Additional natural gas-fired generating units – powered by quick-start jet aircraft engines – are being installed at Braunig Power Station to help meet peak electrical demand.  Meanwhile, CPS Energy plans to decommission several older, less-efficient natural gas-fired power plants.

Environmental commitment – In addition to equipping its new coal plant with the latest in emissions-control systems, CPS Energy is upgrading existing coal units.  The total financial commitment for these environmental initiatives is almost a billion dollars.

“Much of our Strategic Energy Plan is focused on sustainability,” Bartley said.  “In fact, our financial commitment to sustainability through 2020 is $5.7 billion, which is more than our estimated investment in STP 3 and 4.”

NRG and CPS Energy are 50-50 partners in the proposed STP Unit 3 and 4 expansion, however both companies are optimistic about finding a third partner for a 20 percent stake, Bartley said.  Furthermore, to help defray the near-term costs of the project, CPS Energy may seek other municipally owned utilities and co-ops to purchase some of the output of the company’s 40 percent share of the plant’s electrical generation.

CPS Energy and NRG also hope to take advantage of federal loan guarantees offered by the U. S. Department of Energy (DOE) for new nuclear plant construction.  DOE recently named STP 3 and 4 as one of only four projects to qualify for loan-guarantee consideration.  Also, by virtue of selecting a design – advanced  boiling water reactor – already approved by the Nuclear Regulatory Commission, the STP expansion is positioned to avoid construction delays and cost overruns experienced during the completion of STP 1 and 2.

Funding construction of STP 3 and 4 will require increases in customer electric bills beginning in 2010 and continuing at intervals until the expansion is completed in 2016 and 2017, Bartley said. 

“We are targeting no more than 5 percent bill increases every other year or roughly half that amount annually,” he said.  “We’re well aware of the current economic downtown, so we’re trying our best to make this project affordable for our customers.  Even if we decide not to participate in STP expansion, we will still need customer bill increases to meet the demands of growth on our system.”    

Since June 2006, CPS Energy has been studying a proposal by STP partner NRG Energy to add two 1,350-MW nuclear-fueled electrical generating units next to STP’s two existing units.  NRG owns 44 percent of STP along with CPS Energy and Austin Energy, 40 percent and 16 percent owners, respectively.  STP presently consists of two 1,350-megawatt (MW) generating units.  The first unit went on line in 1988 and the second in 1989.  The sprawling STP site near the coastline in Matagorda County and the plant’s 7,000-acre cooling-water reservoir can easily accommodate additional units.

Nuclear energy has become even more attractive recently because of growing concerns over greenhouse-gas emissions such as carbon dioxide.  Congress is expected to pass legislation that will impose penalties on emissions from fossil-fueled power plants such as coal and natural gas and raise utility bills, however nuclear plants such as STP produce no such emissions.  Nuclear energy is a key element of CPS Energy’s long-range plan to reduce carbon emissions and protect the community from uncertain costs related to cap-and-trade legislation.

“We’ve been looking at every electric-supply option in view of the growth we’re experiencing in Greater San Antonio,” Bartley said.  “Furthermore, we’ve been trying to determine what new source of electricity would be compatible with our fuels diversification program that presently enables us to generate electricity using nuclear fuel, low-sulfur coal, natural gas and renewables.  Through the years, we’ve benefited from a diversified fuels mix because we don’t have to rely on any one source of fuel.  We can select from a balanced ‘menu,’ so to speak, of price and supply options.”

Source: CPS Energy