Thursday, February 24, 2011

By Tracy Idell Hamilton
San Antonio Express-News

CPS Energy could end up buying additional nuclear power from the proposed plant expansion at the South Texas Project if the terms are favorable, CEO Doyle Beneby told the Express-News editorial board Thursday morning.

Beneby said NRG Energy, which owns a majority stake in the yet-to-be built pair of plants, approached him "informally" recently about acquiring more power from the plants, as either an increased equity stake or a purchase power agreement.

CPS and NRG were once equal partners in the expansion, but a leaked, higher cost estimate ultimately torpedoed the deal, leading to a $32 billion lawsuit that was ultimately settled with CPS owning just 7.6 percent of the project.

Beneby told the editorial board that the U.S. Department of Energy had recently alerted the utility that the federal loan guarantee necessary for the project had successfully cleared another internal hurdle and that a decision to award the project billions in guarantees could come in as little as two months.

Beneby said he’ll seek approval from the CPS Energy Board of Trustees "to sit down and hear what they have to say."

He acknowledged the potential political ramifications of re-engaging a company CPS loudly and publicly accused of acting in bad faith.

But "it’s a totally different situation this time," Beneby said. "We’re leading this time."

He said Mayor Julián Castro, who sits on the CPS board, has been briefed "all along the way," as has board Chairman Derrick Howard.The board will consider the matter Monday.

The former Exelon executive emphasized CPS’ position of strength going into any negotiations, rattling off a laundry list of reasons.

"We have leverage," he said. "We already have 200 megawatts from the project. We don’t need this deal."

The price of natural gas is expected to remain at historic lows as deposits in the Eagle Ford and other shale formations across the country are mined, he said, putting further downward pressure on the price NRG can seek for its nuclear power.

NRG, on the other hand, is under a good deal of pressure to sell the plants’ output, something it has had difficulty doing thus far.

If CPS and NRG can come to an agreement, Beneby said, other local municipalities and utility co-ops NRG has been wooing might follow suit, he said.

Beneby didn’t rule out discussing an additional equity stake in the project, but said his bias is toward a purchase power agreement that would lock in the cost of power, making it free from the risks of cost overruns or delays.

Additional equity also risks overleveraging the utility with nuclear power, he said, which is already 45 percent of the utility’s generation portfolio.

The diversity of CPS’ generating fleet is one of its strengths now, keeping prices among the lowest of all major cities in the country.

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