TXU Sheds Coal Plan, Charts Nuclear Pat

Wall Street Journal (Posted by Cyrus)

Expansion Efforts IncludeLarge Plants in Texas;Rivals Likely to Follow
By REBECCA SMITHApril 10, 2007; Page A2

(See Corrections & Amplifications item below.)

TXU Corp. has scrapped plans to build a large fleet of coal-fired power plants in Texas but hasn't altogether abandoned its expansion efforts. Instead, it hopes to build the biggest nuclear-power plants in the U.S.

TXU has shifted its focus to nuclear power at a time when three other organizations -- NRG Energy Inc., Exelon Corp. and Amarillo Power -- have said they, too, may build nuclear plants in Texas. If all the plans materialize, Texas could have more reactors than any other state in a decade's time, built in a deregulated market where missteps would be borne by shareholders or the federal government, not residents and consumers. Before deregulation, ratepayers would have been on the hook for any blunders by the power companies and might have had to pay higher electric bills as a result.

Texas could provide a proving ground for the expected nuclear renaissance because developers will proceed only if the economics appear bulletproof. That is because utilities in Texas no longer have monopoly territories. If customers don't like one supplier's price, they can pick another.
Nuclear power has gained favor because it doesn't rely on fuels that emit global-warming gases, like coal, or have volatile pricing. But cost overruns and accidents in decades past put development on the back burner until recently. Nuclear energy provides roughly 19% of the nation's power; coal provides about half.

At 1,700 megawatts apiece, the reactors selected by TXU, designed and manufactured by Mitsubishi Heavy Industries Ltd., of Japan, would be half as big in terms of capacity as the Westinghouse Electric Co. reactors at TXU's Comanche Peak nuclear plant, 80 miles southwest of Dallas. Company officials hope economies of scale will render the reactors capable of making electricity more cheaply than other reactors.

Executives for Mitsubishi said they believe their plants can be built in the U.S. for $1,500 per kilowatt of capacity, about 40% less than some other industry estimates, giving customers a shorter period of time before their investment is in the black. "It's at the low end of what everyone has been talking about," said Craig Nesbit, spokesman for Exelon's nuclear unit. "I'd say a lot of ears would perk up, if that happened."

TXU wants two to five new reactors, but that is subject to change. TXU's directors accepted a $32 billion buyout offer in February from a private-equity group led by Kolhberg Kravis Roberts & Co. and TPG, formerly Texas Pacific Group. If TXU is taken private, the new owners might alter TXU's investment plan. As part of that agreement, TXU agreed to cut back on its planned construction of coal-fired plants, unpopular with local residents and environmentalists.
NRG, of Princeton, N.J., wants to add two 1,350-megawatt reactors to its South Texas Project, which has two units currently, at an estimated cost of $3.5 billion apiece. Exelon, of Chicago, is hunting for a site able to meet tough criteria for safety, water and transmission access. It expects to have narrowed possibilities to two sites by summer. Because Texas is poorly interconnected with other states and electricity demand is rising briskly, the state will need much more generation in coming years unless it embraces conservation measures.

TXU's pact with Mitsubishi, announced last month or after the buyout, could face bumps. Mitsubishi's reactor design -- the U.S. Advanced Pressurized Water Reactor -- hasn't been certified for U.S. use, unlike reactors from General Electric Co. and from Westinghouse, controlled by a consortium led by Japan's Toshiba Corp.

Nor does TXU have permission to build yet. Both Mitsubishi and TXU say they are working on the necessary applications to submit to the Nuclear Regulatory Commission in 2007 and 2008, respectively. TXU wants a new reactor in operation in 2015.

NRG is the furthest along. Executives say they will have an application for a construction and operating license ready to submit to the NRC this autumn -- one of the first nationally -- that will rely on GE's advanced boiling-water reactor approved by the NRC a decade ago and now being updated. NRG hopes for an in-service date of 2014.

NRG Chief Executive David Crane says he isn't worried about overbuilding in Texas because he thinks a shortage of skilled laborers will slow construction projects to a pace that will let the market absorb additions. His firm is moving to capture federal incentives estimated at $250 million to $400 million annually.

TXU says its goal is to build reactors at a 30% discount, per unit of capacity, to what rivals spend. That is the same goal it espoused last year when it announced plans to build 11 coal-fired plants. The TXU claim has led to some skepticism by rivals, who view it as a publicity stunt. TXU says it will achieve savings through "lean manufacturing" techniques, but other firms are expected to do likewise. In the past, some nuclear plants cost 10 times as much as initially projected. Nobody wants to go through that pain again.

The fact that Mitsubishi was the vendor selected by TXU came as something of a surprise. Previously, TXU Chief Executive C. John Wilder had said TXU would tap a Westinghouse design, the AP1000 pressurized water reactor, which received final design certification from the NRC in early 2006. That is the reactor selected for about a dozen of the 20 nuclear projects announced so far in the U.S. Exelon is considering it for Texas but hasn't decided.
One TXU manager said TXU picked the Mitsubishi reactor because "the size made it a better value." TXU expects longer stretches between refueling shutdowns, giving it more power to sell.
It is too early to tell how the public will react, but many environmental groups are rethinking their position on nuclear power. Jim Marston, an attorney for Environmental Defense in Austin, says his group has reservations, "but we think global warming is so severe and the time for action is so short that we're willing to take another look at it."

Write to Rebecca Smith at rebecca.smith@wsj.com1
Corrections & Amplifications:
Nuclear reactors designed by Mitsubishi Heavy Industries are one and one-half times as big as existing reactors at the Comanche Peak nuclear power plant in Texas. This article incorrectly says the Mitsubishi US-APWR units are half as big as the Comanche Peak reactors. In addition, a chart with the article showing the states that generate the most power with nuclear energy should have used the unit of billions of kilowatt-hours instead of the incorrect unit of quadrillions of kilowatt hours.

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