January 30, 2010
By ELIZABETH SOUDER
The Dallas Morning News
Texas’ prospects for leading the nuclear power renaissance turned bleak Friday.
The chief executive of NRG Energy, Texas’ second-largest power generator, said he’s willing to drop plans to build two new reactors in South Texas if the company cannot come to a favorable agreement with San Antonio utility CPS Energy.
A court ruling on Friday could allow the partners to continue to negotiate, but after months of soap-opera intrigue, rumors and finger-pointing between the companies, it’s unclear whether they can work together.
NRG could find itself scrambling for another investor and hoping to find one in time to win federal loan guarantees that could be handed out any day. The lack of an investor or loan guarantee would kill the nukes.
"We absolutely will not agree to any resolution that we cannot afford," NRG chief executive David Crane said on a conference call with analysts. "We will not throw good money after bad."
The project isn’t dead yet. Crane said Tokyo Electric Power Co. is interested in buying a stake in the expansion. Other investors could be found.
But anti-nuke activists were already dancing on the South Texas Project’s grave.
"We may be witnessing the early throes of a nuclear project death!" Karen Hadden, director of the Sustainable Energy and Economic Development Coalition, wrote in an e-mail Friday to members.
In 2005, shortly after NRG bought a 44 percent stake in the South Texas Project, executives saw a "once-in-a-lifetime opportunity" to expand, Crane said. With the federal government offering loan guarantees for new reactor projects, Crane said NRG, with some partners, could afford to build them.
But both investment partners and loan guarantees are critical.
"I think that the idea that anyone would take the full risk of developing a new nuclear project, totally on their balance sheet, is a foolish thing to do, even if you have a balance sheet as big as Exxon Mobil’s," Crane said.
The South Texas Project already has two reactors. NRG operates the plant and owns 44 percent, CPS owns 40 percent, and Austin Energy owns 16 percent.
In October 2007, NRG and CPS signed a deal to jointly build two new reactors. Austin chose not to invest in an expansion.
Meanwhile, NRG officials have been negotiating with equipment makers and construction and engineering firms to set the price of the project and to share the risk.
By last autumn, NRG said, its contractors were offering around $12.1 billion, and NRG executives felt confident they could squeeze that below $10 billion.
That’s higher than NRG’s earlier estimate of $8.6 billion. The price difference led to concern among San Antonio officials, who began to wonder whether CPS could exit the deal.
"We at NRG did not appreciate that CPS signed the deal, commenced funding … without ever obtaining the City Council’s endorsement of the deal," NRG’s Crane said.
CPS sued NRG and asked the court to rule on whether CPS would retain its investment in the project if it stopped financing the expansion.
State District Judge Larry Noll in San Antonio ruled on Friday that a party may stop participating in the project and still retain the equity stake it had contributed.
That was a favorable ruling for San Antonio, after NRG stated the city would lose its investment if it walked.
But the judge issued a warning to the city: "If you want to be in the play, you have to pay or you can’t stay. You will eventually lose your equity share."
CPS spokeswoman Theresa Cortez said the company hasn’t decided if it will exit the project. Staff still must recommend to the board whether to invest in the deal, and the board must bring the recommendation to the City Council.
But NRG chief executive Crane said it will be hard to continue working with CPS.
"When you develop a project like this, you have to be able to look the person in the eyes and on some level trust them. That just doesn’t seem to exist right now," he said.
He said if NRG shuts down the project, it will take a $400 million charge.
And the legal dispute between CPS and NRG isn’t over. CPS has also sued NRG for $32 billion, which includes the value of the South Texas Plan property and punitive damages.
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