| Fukushima to San Antonio
Even if you are not among the crush of avant-garde shrewdly cramming Japanese in order to be on a first named basis with the radioactivity arriving from the Land of the Rising Sun, you may, nevertheless, find yourself pondering the meltdown that is launching those particles in our direction.
Then, once you have learned that the corporation whose irresponsible behavior is most responsible for that situation, Tokyo Electric (TEPCO), has been given a sweetheart deal to join the syndicate that is expanding the nuclear complex known as the South Texas Project (STP), despite its long and public record of cutting corners on plant safety, surely you will recognize the need to understand what the push towards more nuclear power has meant for the Americans who call San Antonio home.
The macro-economic environment that our public utility (CPS) entered in 2009 was (and is) characterized by the dynamics of industry trying to outperform mature economies. In the United States, even in the best of times, we no longer expect growth to average much above three percent a year. In Japan, even such modest numbers are a fantasy. For a nation whose economy has produced a stagnation dubbed "the lost decades", any real growth at all would be heartening. While Japan and the USA may remain blue-chips, they are no longer growth stocks. The low-hanging fruit has all been picked. To satisfy the demands for high returns, these societies have supplemented normal business acumen with new areas of heightened profit: technological revolution and overhaul, investment in overseas "growth" markets (typically "emerging" or "third world" nations), financial chicanery, and privatization. In regards to overseas investment, Japan has, at the highest levels of business and government, formed a consortium of six of its most powerful corporations. What they are exporting to emerging and Third World markets is nuclear development. With a moribund and withered domestic nuclear industry emasculated by Three Mile Island coupled with the largest demand for energy on the planet offering almost unlimited profit potential, the United States fits neatly into the description of an emerging or Third World market. NRG Energy, of New Jersey, is the American face on this invasion. Their job, in a financial environment reluctant to take a flyer on risky nuclear deals in an uncertain market, is to "privatize" by leveraging their existing relationship with a public utility to provide the heavy lifting necessary to both pay for the project and the political cover to get the Federal loan guarantees without which the entire idea is a dead letter. These are the interlocutors with which the representatives of the people of San Antonio have decided to joust.
Steve Winn heads the syndicate created by NRG energy to get this deal done. It's called "Nuclear Innovation North America" (NINA). Mr. Winn is a top man in his field, formerly a senior vice-president at Lehmnann Brothers, whose specialty was financing energy deals. This top pro earns his money by getting the best deal for the stockholders of NRG.
San Antonio is, when ranked by population, among America's top ten cities. As cities go, it is an above average place to live. Some decades ago, inspired by the abundance of natural gas hereabout, the city leaders decided our public utility, CPS, would rely, almost entirely, on gas. Unfortunately, when that deal went sour because our supplier of choice would not deliver at the promised price, it was determined that we would never again put all our eggs in one basket.
This resolved into our (CPS') involvement in the original development of the STP project that produced the reactors known as STP 1 and STP 2. These were eventually completed way behind schedule and fantastically over cost. If we flash forward to current time, with those reactors approaching the halfway point in their life expectancy, we find once again our city leaders pondering which direction to go to meet the expanding energy needs generated here by our steady growth in population.
Before the public was consulted, and hearings held, a consensus was formed among the city's aristocracy. These included our public utility, our mayor and city council, the media including the editor and reporters of our only real daily paper, the usual Chamber of Commerce types, and those that see nuclear energy as clean and not contributing to global warming. Most of all, electricity generated by nuclear reactors was touted as the cheapest alternative.
Once this decision was made, the hard sell was on. Predictions of population growth were used to heighten the urgency of acting: buy now. Unless we did this deal quickly, the lights would go off, and our jobs would become tumbleweed. The second part of the hard sell was the "come-on" price. A neat number, a cool ten billion, plus the obligatory three billion additional for financing, was floated. Despite its having been around this track before, the pro-nuclear group assured the public that these numbers were written in stone.
Suffice to say, that in the whole wide world, the only people who believed that the first "price" would actually be the real price, and that a nuclear project would be completed on time and on budget, were the "Happy Talk Chorus" (HTC) cheerleading this deal in San Antonio.
Perhaps, because no firewalls were ever erected between the public utility and the private developer in the initial deal, and in a general atmosphere where "public" is increasingly a dirty word; the initial plan developed by CPS was not received with incredulity: San Antonio was going into the energy business. We were going to buy
a full fifty percent interest, even though this would be way more electricity than even the most alarmist cheerleaders had claimed we would need. When questioned about a plan that had San Antonio buying more energy than she needed, the boosters blithely assured the public that excess capacity could easily be disposed of on the energy market. Little was said about the wisdom of a public utility going into the energy business; and less about the fact that it seemed that, once again, most of our eggs were going into a single basket. Perhaps discussion of these points was limited because another overriding problem made them moot. San Antonio simply did not have 6.5 billion dollars to buy a half share of the then 13 billion dollar project.
As the months passed, and the anti-nuclear crowd argued for alternative energy, those that had decided, in advance, for expanding the South Texas Project, began to retreat from the full level of partnership first proposed. The share we could afford to buy got progressively smaller. First it went to 40%, then 20%, and finally 10%. At all times, based on a continuing faith in the "come on" price of 13 billion, each ten percent was valued at 1.3 billion.
At the same time, rumors began to appear, out of town, that the real cost of building nuclear reactors in Texas was known to Mr. Winn and his bosses at NRG. Nonetheless,
The Happy Talk Chorus in San Antonio pushed ahead with the final plan of buying in at the fantasy price of 1.3 billion per ten percent.
The assets San Antonio controlled included the land and water rights at the proposed site. No water, no nuclear. NRG, and its instrument, NINA, couldn't build an outhouse unless they got those rights from San Antonio. In addition, as if holding all the aces was not enough, CPS agreed to supplement its tender with cash. This cash was steadily handed over to NINA, in advance, even though the percentage of ownership that CPS would assume was still up in the air.
The problem for NRG, and Mr. Winn at NINA, was how to get those water rights (and as much cash as possible) out of San Antonio after the truth about the come-on price was made public. The foil they chose was San Antonio's mayor, Julian Castro. With the city council on the verge of authorizing the final one hundred million in cash, an agent of NRG contacted the mayor's office and officially informed him the original cost estimate was just a fantasy number. San Antonio may be off, off, off Broadway, but you can't beat the drama caused by this little bird singing in the midnight hour, or the performances of the members of the HTC as they (to a man), suddenly and self-righteously transformed themselves overnight from confident cheerleaders to indignant victims.
Predictably, rather than admit that the entire aristocracy that comprised the HTC had made an awful error, the CEO of CPS and a board member were forced out. As scape-goating goes, the script of polite society was followed meticulously, and both individuals were praised for their service as they were thrown under the bus. With this tawdry bit of business accomplished, the Happy Talk Chorus, having escaped its own responsibility, now proclaimed a "new era" of truth and transparency at CPS, and renewed the push for nuclear expansion.
The high-point of the drama came in a hysterical law-suit filed by CPS against NRG and NINA. In the suit, CPS charged that San Antonio had been deliberately defrauded
because NRG had known all along that the project would cost much more than the come-on price, demanded thirty-two billion in damages, the right to withdraw from the project, and their four hundred million in cash returned. They did not get one red cent in damages,
were not allowed to withdraw from the project, did not get their cash refunded, and their claim that the water rights were worth two billion was reduced to one billion. Despite this total defeat, the "media" and "journalists" here, all charter members of the original consensus and active members of the HTC, broadcast the result to the people of San Antonio as a victory.
The chief beneficiary of this new consensus was our designated knight on a white horse, the mayor, Julian Castro. Rather than being seen as a tool used by NRG to chivy San Antonio out of full partnership (after all, the last thing they wanted to do was actually sell at the come-on price), he was seen as a hero for pulling CPS back from the brink of disaster. Although he actually did no negotiating, he was also credited with the final deal into which San Antonio was forced to enter.
Until the recent disaster in Japan and the resulting failure of safeguards at the six reactors run by TEPCO at Fukishima, the deal credited to Mr. Castro, but more properly the result of the skill of Mr. Winn and his lawyers, was hailed in San Antonio as "a great deal" and Mr. Castro as "a hero". NINA did agree to kick-back almost one hundred million to San Antonio on the condition that blue-state San Antonio agrees to join the other elements of the nuclear coalition in lobbying the Obama administration for loan guarantees. That would reduce our cash outlay to three hundred million and together with the reduced one billion dollar value assigned to our land and water rights, would produce a final cost to San Antonio of 1.3 billion. However, if the deal doesn't fly, San Antonio will have to kiss its cash good-bye.
Yet, we did not get the 10% share that was the rate before our "victory" in court. We only got 7.6%, which reflects the more honest price for the reactors, but is a third higher
than the come-on rate. The excited "buy now" estimates of future energy needs have been scaled back to make the smaller purchase look more significant. We are now told that where once we needed to buy 40%, 7.6% is adequate.
CPS has a new chairman for the new era of transparency. He has no experience in running a public utility, or in representing any public interest, and is actually a highly successful corporate flak. Up until Fukishima, he had actually re-started negotiations
with NINA to buy an even larger share, despite the fact that he was hired at a time CPS was charging NINA of defrauding San Antonio.
Subsequent to finalizing the 7.6% sale to CPS, NINA cut TEPCO a sweetheart deal.
They were allowed to buy a 10% share in the project for only 180 million dollars. That TEPCO got a larger share for one-tenth the price that CPS was snookered into paying has barely been mentioned in San Antonio. What once would have been a cause for clearing
leather now doesn't rate a yawn in Texas.
Since San Antonio paid in full and in advance for its share, no other investor has paid anywhere near the rate CPS termed "a great deal". Aside from the slice slipped to TEPCO, NINA has not been able to interest anyone else in injecting cash into the syndicate, after they burnt through San Antonio's cash, they declined to spend their own money, and work at the site was drastically reduced.
For the fourth quarter of 2010, NRG declared a loss. For the entire year, this leading energy conglomerate declared a profit of only 485 million dollars. In other words, if it were not for the four hundred million advanced by the public utility CPS, the private energy giant NRG would barely have shown any profit at all for 2010.
The events at Fukishima today may very well lead to San Antonio tomorrow. Of the six members of the powerful consortium designed to revive the Japanese economy by exporting nuclear construction to Third World markets such as the United States, two;
Toshiba and TEPCO are already involved in Texas. TEPCO, Asia's largest utility, has been welcomed with a sweetheart deal that makes a mockery of the people of San Antonio, despite its long and well-documented record of cutting corners on safety. The clouds of radioactivity spreading from its most recent failure at Fukishima have shined a new light on the Texas project.
CPS has backed off buying a larger share, pending future developments.
In fact, the entire project in Texas is now in doubt. This is not because the people of San Antonio, or Texas, are up in arms. It's because of Fukishima.
In an April 13th, 2011 article, Reuters reported that prospects for completing the project are bleak. It quoted the CEO of NRG Energy, David Crain, as saying "the project's odds of success have dropped substantially". He went on to say that even if they get loan guarantees, it will be "an uphill battle". Translation: unless they can find more "investors" like the HTC in San Antonio, they can't build the reactors. They are certainly not going to use their own money. These remarks are consistent with reports since the March 11th disaster in Japan. None of these reports even mention San Antonio, recognizing that the people here, thanks to the Happy Talk Chorus, have been played,
and are not players worth noting.
For San Antonio and its hardworking ratepayers, most of whom slog through on very modest incomes, this is a disaster. The unthinkable may very well happen. Our entire
four hundred million may go straight down the toilet. CPS had to borrow that money.
Electric rates in San Antonio, deal or no deal, have been projected to rise up to forty percent in the next ten years.
Mr. Crain's remarks of the 13th were not reported in San Antonio.
San Antonio Citizen
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