Two days before he boards a plane for some sure-to-be heated negotiating in Japan, CPS Energy’s VP of Nuclear Development, Bob Temple, spent a few minutes with the Current laying out the city’s options.
In the course of just a few months, the city’s appetite for power from a planned expansion of the South Texas Project nuclear complex in Matagorda County has nearly collapsed.
San Antonio Mayor Julián Castro pushed the utility to agree to selling down the city’s share in the project from 50 percent to 40 percent. Soon, after that, fiscal concerns had the City-owned utility’s board of directors whittling that share down again: to 20 or 25 percent. Now, after what can only be described as a wicked breach of trust, members of the City Council is seriously considering walking away from it completely.
Whether or not Temple (along with CPS co-CEOs Milton Lee and Steve Bartley) are able to talk Toshiba back down to the previous $13 billion figure, the Council and City’s appetite may have irrevocably turned on the deal. If that proves to be the case, what are our options from here?
Temple sees three paths forward: dump it, try to sell it, or put the project in the cryogenic freezer.
The summer’s hard sale for nuclear spearheaded by Bartley was about keeping the project moving in order to benefit from our front-runner status before the U.S. NRC and DOE. With the first application in 29 years we were at the head of the pack for new nukes before the NRC. Meanwhile, the DOE has the project short-listed for federal loan guarantees since we're running with a pre-certified reactor design and a location prefabricated to fit two new reactors.
But there is no reason San Antonio can’t hit the brakes and idle on the deal, Temple said.
“We could also agree with our partner to suspend the project while we sort things out,” he said. “If you don’t care when your project gets done then [the NRC will] put people on other projects where folks are trying to get it done quickly.”
But the deep freeze stops forward movement and limits our ability to roll-out other alternative projects.
That leaves us with the choice of dumping the deal and walking away or working to flush out a buyer.
The sales path is full of uncertainty; Temple likens it to selling real estate. “I’ve got some property over in Santa Fe and I’ve had that on the market since 2008 and that’s not that unique of an asset,” he said. Many across the country are in similar shape, thanks to the economic slowdown and housing crisis. Similarly, it may be a difficult time to pawn off a $6.5 billion investment.
“It’s very hard to tell, but I think there would be interest in a project like this, but it’s very unique, so we’d really have to get out in the marketplace and see.”
Thanks to previous decisions to sell down our share in the expansion, CPS has already started shopping for buyers and recently retained investment bankers and advisers to assist in that search.
The risk here is that the city would still have to keep up with our current 50-percent share of the development to keep the project moving forward and of value to potential buyers. The city would have to be prepared to pass not just one but possibly two $400-million bond issues along the way with no guarantees of a final sale.
Says Temple: “If our partner wants to continue developing the project, in order for us not to default and have our partner walk away, we’d have to continue to fund development.”
As unlikely as that scenario seems, Temple says CPS would obviously have to meet with mayor and council and “get some direction on what their level of tolerance is.”
“I don’t think it’s good for the citizens of San Antonio for us to hold a fire sale, if they want us to sell the interest. So, I’d like a little bit of time so we can get true buyers rather than walk away from it.”
Option 3 is the stop, drop, and roll. Those who have been urging the city to steer clear of the project from the beginning for the financial risk it represents tend to advocate this response.
What would walking away mean?
“We have to pay our proportion of interest up to the time we withdraw and we have to give some notice of that,” Temple said. But, beyond that, our contract with NRG Energy holds no specific penalties for walking out. It comes at the price of lost investment, however. Not only would be saying farewell to about $300 million spent on the project to date, but the value of the STP 3 & 4 site itself is worth even more, Temple says. Somewhere between $500 million and $1.5 billion.
He echoed Bartley on Toshiba’s addition of $4 billion to their estimated costs. “That’s negotiating, posturing. There is no $4 billion … They’re just throwing a number out there.”
Still, it’s a big thrown number. And CPS’ failure to share it with the Council, even as the city leaders sidled up to a $400-million bond vote, shows the level of communication and trust needed to manage a multi billion-dollar project is sorely lacking.
Not to say it can’t be salvaged. To that end, Temple flies to Japan tomorrow, followed by Bartley and Lee on Tuesday. Negotiations are scheduled for Thursday and Friday, before the triad returns to Alamo City.
If they come back with the right numbers for San Antonio (and the right contractual provisions that allow Toshiba to account for inflation), nukes could roll again come January — especially if Council fails to use this time to forge a reasonable alternative strategy to weight it against, both in terms of cost and risk.
South Texas political blogs
Jon's Jail Journal
B and B
Dig Deeper Texas
The Walker Report
Grits for Breakfast
San Antonio Politics (Express-News)
Off the Kuff
South Texas Chisme
Rhetoric & Rhythm
Did we miss your favorite?
Email it to us