Nuclear

To the Editor:

Issue 1 and Volume 113.

I am writing regarding the article, “Nuclear New Build Cost Visibility and Predictability” by David Haarmeyer (October 2008).

I am the Deputy General Counsel for CPS Energy, the other 50 percent owner of the South Texas Units 3 & 4 Project. I want to call attention to an error in a sentence in the referenced article, as follows: “NRG Energy and their partners have signed EPC agreements with E&C and vendor partners, in which they leave significant portions of the total plant price open to escalation.”

First, neither NRG nor CPS Energy has signed EPC agreements—NRG’s subsidiary NINA (Nuclear Innovation North America) and Toshiba’s subsidiary Toshiba America Nuclear Energy have signed an MOU securing certain EPC terms and we are in the final phases of negotiating an EPC Agreement that could be executed by all of the parties as soon as the end of this month.

Second, our draft EPC agreement, unlike the Southern and SCE&G agreements, do not “leave significant portions of the total plant price open to escalation.” As Mr. Crane indicates, we are using an Open Book Methodology; however, we have agreed to a structure for that which (1) assures transparent and competitive pricing for the owners, (2) is rigorous in its methodology and (3) is designed to reduce risk and exposure to the labor and commodity markets. Unlike the Southern and SCE&G agreements (as I understand them), which fix very little, have some aspects floating with indices and the remainder open, before Department of Energy gives final approval for its loan guarantees for our project, NINA and CPS Energy will have a firm, fixed price for the project which leaves only a very small portion of the contract open to escalation. To say more would violate confidentiality restrictions agreed to with our vendor and would be untimely since we are still finishing our agreement; however, instead of locking down 10 percent of the project costs, the South Texas Project 3 & 4 Agreement will fix a significant amount of the contract price and risk before owners issue full notice to proceed.

Robert K. Temple, Esq.
Deputy General Counsel, CPS Energy

To the Editor:

Kevin McCarty in his article “Facing a Long-term Memory Loss” (October 2008) praises “the banking industry” and the “pioneering banks” who took “some key steps” to overcome a stodgy image. He says “They made things fun and lively, promoting diversity, collaboration and career development.”

They sure did. Among the leaders: Lehman Brothers and Bear Sterns. Among their “fun and lively” innovations were bundled mortgage debt sold and resold, plus other new and “fun” financial instruments that nobody really understood, followed by eventual collapse of much of the banking industry.

Once upon a time, those “stodgy” banking firms concentrated on sound lending practices and limited leverage. But that was before they decided—free from any external regulation—to have “fun” instead. Watching my own investments evaporate, though, is not nearly as much “fun” for me.

And I doubt that any of us wants to see that kind of “fun” going on in the electric utility industry.

R. L. Nailen, P. E.
Life Fellow IEEE

Kevin McCarty replies: Our intention of referencing pioneering retail banks in the article was not meant to condone aggressive positions many commercial and investment banks took with regard to their tolerance for risk and lack of controls, which ultimately contributed towards the current credit crisis. Rather, the reference was intended to highlight certain players in the retail banking industry (Umpqua Bank, ING DIRECT, BECU, to name a few) that re-imaged and re-branded themselves to attract young, talented employees who often selected Wall Street’s investment banking fast-pace and cash-cachet to start their careers. Like energy utilities, banking is a mature, highly regulated industry—which unfortunately can often carry a perception of being slow to change. But if retail banks can change, energy utilities can change. Combined with the awareness of Millennials’ desire to preserve the Earth and work with cutting-edge technology, forward-thinking leaders can glean insight from retail banks to plan initiatives to develop the vibrant, rich, diverse environments with a mission of sustainability that today’s younger generations prefer.