Aug 11 - McClatchy-Tribune Business News Formerly Knight Ridder/Tribune Business News - Dave Flessner Chattanooga Times/Free Press, Tenn.

With power demand growing in the Tennessee Valley, TVA officials say they are looking at adding nuclear reactors in both Tennessee and Alabama and possibly buying some distressed natural gas plants from other producers in the South.

But TVA leaders insist that in adding new power generation sources they won't repeat the utility's costly mistakes of the past.

"In the past, we had too many units being built at one time and, as my mother used to say, we bit off more than we could chew," TVA President Tom Kilgore said in an interview Wednesday with editors of the Chattanooga Times Free Press. "This time, we're looking at adding new units one at a time."

A generation ago, TVA launched the nation's biggest nuclear plant construction program with plans for 17 reactors. Only five of those units ever were completed, and the last one ended up taking 22 years to finish and cost more than five times its original projection.

TVA completed America's last new commercial nuclear reactor in 1996 when the Unit 1 reactor at the Watts Bar Nuclear Plant near Spring City, Tenn., was activated. In the next year, TVA plans to spend $20 million for an engineering study to determine the feasibility of finishing the second reactor at Watts Bar by 2014. The utility also has entered into an agreement with the Southern Co. to pursue building two next-generation nuclear reactors at the site of the abandoned Bellefonte plant in Hollywood, Ala., perhaps as soon as 2015. In the meantime, TVA officials said they also may use the $90 million budgeted next year in a new generation fund to buy a natural gas plant. Although the fuel costs for such plants sometimes are above TVA's rates, gas plants can be used to meet peak demands and some of the facilities now are in financial trouble and may be bought at deep discounts, Mr. Kilgore said.

On the hottest days this summer, TVA is buying up to 20 percent of its power from other sources. This summer's heat wave, combined with economic growth in the Tennessee Valley, has pushed TVA's load demand to record highs, including 13 of the utility's top 20 power peaks.

"We've really got a problem, and that's kind of what we have to face as a board," TVA Chairman Bill Sansom said.

TVA estimates its power demand is growing nearly 2 percent, or about 600 megawatts, a year. At such a pace, the utility must build the equivalent of a new reactor every other year.

"Watts Bar is likely to be the next one for us," Mr. Sansom said. "If you see our shortage, it's clear that TVA needs that power."

The TVA chairman said preliminary estimates indicate that finishing the Unit 2 reactor at Watts Bar will cost about $2.5 billion. But once finished, the unit could be run with only about 125 more employees than the number now employed at Watts Bar. Nuclear fuel costs are only one-fourth as much as those of coal-fired plants and, at current prices, only about 7 percent that of the fuel costs for natural gas plants.

Mr. Kilgore said TVA will have to replace the original controls and switches on the Unit 2 reactor after suspending work there more than a decade ago.

"But the long lead-time items, including the reactor vessel, steam generators and other major pieces of equipment, are already in place," he said.

The Watts Bar unit could be the last nuclear reactor of its type finished in the United States.

TVA is among a dozen utilities looking at building new reactors under a new and more streamlined regulatory review and construction process. At Bellefonte, TVA has joined with NuStart Energy Development LLC to seek a license by October 2007 to build a new Westinghouse AP-1000 plant with two 1,100-megawatt reactors.

NuStart President Marilyn Kray said Thursday that initial site studies have reaffirmed that Bellefonte is well suited for the new plant. She said NuStart should submit a construction and operating license application next year. The Nuclear Regulatory Commission has promised to review the application within three years to allow construction to begin on the new plant by 2010, pending approval of the Westinghouse design and the financial backing of utility owners.

"When you see the demand for power continuing to increase and more concerns about air pollution and global warming caused by fossil fuel plants, then I think it's pretty clear that nuclear needs to be part of our future energy mix," Ms. Kray said.

Mr. Kilgore said the partnership at Bellefonte would allow Southern Co. to take advantage of some of the new loan guarantees and production tax credits available for private companies.

Mr. Sansom said T VA uniquely is positioned to make long-term investments in new nuclear generation because of its government ownership.

"TVA is in a great place not to have to worry so much about quarterly results for shareholders that we shouldn't have to worry so much about it," he said.

E-mail Dave Flessner at dflessner@timesfreepress.com