A UTILITY LOOK AT NUCLEAR POWER

• Jurisdiction: United States

Uranium Exploration and Development
(Apr 2006)
CHAPTER 1B
A UTILITY LOOK AT NUCLEAR POWER
Edward Fox
Vice President Communications, Environment and Safety
Arizona Public Service
Phoenix, Arizona

WILLIAM J. POST

William Post is Chairman of the Board of Arizona Public Service and Chairman of the Board and Chief Executive Officer of its parent company, Pinnacle West Capital Corporation. Post joined APS in 1973; became an officer in 1982; became President and CEO of APS and President of Pinnacle West in February 1997; and was named Chairman of the Board of both companies in February 2001.

EDWARD Z. FOX

Edward Z. Fox is Vice President Communications, Environment and Safety for Arizona Public Service (APS). Fox is responsible for all external and internal communications as well as environmental, health and safety compliance. He oversees the company's Technology Development group that identifies and helps bring to market technologies -- such as solar energy and fuel cells. He is responsible for corporate security, facility management and maintenance. An attorney, and the former Director of the Arizona Department of Environmental Quality (ADEQ), Fox has also served as an Assistant Attorney General in West Virginia.

Introductory Comments

• Pinnacle West, holding company for APS, investor-owned electric utility serving more than 1 million customers in Arizona, including part of Phoenix metro area

• APS growth 〉 3 times national average. Arizona will need nearly 7,200 megawatts of new capacity by 2015.

• APS operates Palo Verde nuclear station, nation's largest power producer for 14 years in a row.

• But like nearly every utility in the last 10 years we turned to natural gas for new capacity -- clean, few siting issues, added quickly and in small increments. Today we are 31% NG, 43% coal and 26% nuclear. But NG is 60% of our fuel costs.

• Fuel diversity, as recent events prove, is vital for economic, environmental and energy security reasons.

• Different fuel sources respond to diverse, often unconnected, economic and cultural factors.

º Coal responds to railroads, mining, environmental regulations.

º Natural gas -- heating demand and ability to build new pipelines and LNG terminals.

º Renewables -- like wind and solar are intermittent, others are limited in availability.

• Nuclear has a different set of drivers. Let's briefly look at those drivers and other facts.

Legacy Issues that Need to be Addressed

• Economic competitiveness with cheap coal and natural gas is an issue but changes if natural gas stays above $5 per MMbtu.

• Cost estimates in recent studies assume $1,500 per kilowatt, which sounds good until you realize that is not a guaranteed number and does not include utility-specific owner's costs such as licensing, permitting, siting, etc., which could add $250 to $500 per kilowatt (CERA). It also does not include interest during construction, which could add $210 to $320 (CERA).

• Financing future plants will be key. No CEO is going to bet his or her company on a new nuclear unit. There are companies big enough to absorb the failure of one new unit. APS, even with only one-third ownership, is not one of them.

º The energy act passed last year will help with loan guarantees for a few units.

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• Construction risk is a major financing concern, the legacy of cost overruns and delays in the 1980s. Reactor vendors and construction firms will need to provide some...