UPDATE 1-Austin won't join NRG Texas nuclear project

(Adds NRG comment, background)

HOUSTON, Feb 8 (Reuters) - The municipal utility serving the city of Austin will recommend the Texas capital not join NRG Energy Inc (NRG.N: Quote, Profile, Research, Stock Buzz) as a partner in seeking a license for two new nuclear reactors in Texas, the utility said on Friday.

A consultant hired by the Austin utility said the cost of the two-unit expansion, estimated at between $6 billion and $7 billion, and the construction schedule were overly optimistic and represent an "unacceptable degree" of risk.

The consultant said the project could cost an additional $1 billion and require two extra years to build, according to an Austin Energy release.

Princeton, New Jersey-based NRG, the second-largest power producer in Texas, in September filed for a permit for two 1,350-megawatt General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz) advanced boiling water reactors (ABWR) to be built at the South Texas Project (STP) nuclear plant 90 miles (145 km) southwest of Houston.

NRG filed the first complete request in nearly three decades to construct new reactors with the Nuclear Regulatory Commission. NRG wants to take advantage of financial incentives offered in the Energy Policy Act of 2005.

The Texas power market, which saw a glut of natural gas-fired power plants built in the late 1990s, needs more generation to meet growing electric demand and to avoid reliability problems. Texas has attracted more interest in new reactors than any other state, according to the Nuclear Energy Institute.

Austin Energy owns 16 percent of STP's existing two units, but the utility has had a rocky history with the plant in previous years. At one point, the city launched legal action to try to leave the partnership.

NRG owns 44 percent of STP and CPS Energy, San Antonio's municipal utility, owns 40 percent.