February 12, 2009
Austin Declines Participation in South Texas Project Expansion

The Austin City Council today decided to decline participation in the expansion of the South Texas Project (STP) as currently proposed.

The City of Austin currently owns a 16% share of STP, located in Matagorda County, Texas. The other owners of STP are CPS Energy (40%) and NRG Energy, Inc (44%). The STP is a two-unit nuclear facility with 2,725 megawatts (MW) of generating capacity.

Under the participation agreement that governs the ownership and operation of the STP, any owner may propose the construction of additional generating units at the site. Participation by at least 50% of the plant ownership is required to proceed with any expansion project.  All owners have the right to opt to participate, and also to decline to do so.

On November 13, 2008, NRG issued a letter proposing to license, construct, and operate two additional reactor units at STP.  

Austin Energy retained the services of WorleyParsons to evaluate the NRG proposal.  WorleyParsons has extensive experience in the nuclear industry and is strongly supportive of the resurgence of nuclear energy in the United States.  It is further supportive of the overall proposal to expand STP and has concluded that the proposed expansion project is financially viable as a whole.  However, it was the conclusion of both WorleyParsons and Austin Energy that the utility should not participate in this particular project.

A detailed risk assessment and financial analysis indicates that the potential return to the City would not be sufficient given the potential risk. Austin, as a minority shareholder in the STP, would have no control over construction costs, schedule delays, and future fuel and energy prices. The analysis indicates that investment in the proposed project could require cash outlays by the City of $2 billion or more over at least the next seven years. Such a sum would require the issuance of significant debt relative to Austin Energy’s size that could result in a downgrade of its credit rating, leading to higher future borrowing costs. The addition of 432 MW of additional baseload nuclear generation within the projected time frame is almost double the amount of additional generation Austin Energy expects to require by 2020. There also remains the additional long-term risk associated with waste disposal.

Austin Energy has developed a proposed generation plan through 2020. That proposed plan includes about 900 MW of additional capacity, including a 200 MW expansion of the utility’s natural gas-fueled Sand Hill Energy Center, an additional 100 MW biomas plant, a doubling of the utility’s wind-generation portfolio to about 1,000 MW as well as 100 MW of solar capacity. The plan is under review through a public participation process that began last November. The utility expects to make final recommendations on the plan to the Austin City Council by mid to late summer.