December 6, 2009

By Tracy Idell Hamilton and Anton Caputo
San Antonio Express-News

CPS Energy’s partner in the nuclear deal quietly tipped off Mayor Julián Castro in late October that the project could be significantly more expensive than the utility’s public pronouncements.

NRG Energy said last week it did so to try to limit the damage it feared could occur to the nuclear project when a higher estimate came out at an analysts’ meeting in November.

By then, the City Council already would have voted to spend $400 million on a deal that could cost billions more than it was told.

The leak, the source of which has remained secret until now, touched off a cascade of events that damaged the credibility of the utility, led to high-level executive resignations at CPS Energy and heavy pressure on two trustees to resign and put the nuclear deal on life support.

Details of the debacle are said to be spelled out in the report of an internal investigation into why the higher cost estimate was kept from the CPS Energy board and the City Council. The final version of that report will be turned over to the board Monday, but it’s unclear when the public will see it.

In the report’s absence, rumors have cropped up – and even were alluded to in the CPS Energy board room – that NRG was trying to scare San Antonio out of the deal by making the higher cost estimate public and that Castro, who sits on the five-member CPS board, aided in the effort by meeting with NRG privately.

How the report will portray the mayor’s actions is unknown, but Castro said the persistent whispers prompted him to address the matter Friday by divulging the source of his information and his contacts with NRG.

"Rumors that … my office has done something untoward are completely inaccurate," Castro said, adding that if the report isn’t released publicly Monday, he will release the section that addressed his role himself.

At issue is why NRG tipped off the mayor’s office while CPS executives were keeping knowledge of contractor Toshiba Inc.’s higher cost estimates from their own board.

"We wanted to make sure the mayor’s office knew what was happening before the analysts," NRG spokesman David Knox said Friday.

Not telling the board

NRG did that through Frank Burney, a longtime City Hall lobbyist and attorney who represents NRG in San Antonio. Burney, who supported Castro in his mayoral bid this year, alerted Castro’s office in late October that CPS Energy’s cost estimate was significantly lower than Toshiba’s.

Knox said NRG officials already had told the CPS nuclear team that Toshiba’s number would be shared at the upcoming analysts’ meeting Nov. 19, which would be reported by the media.

At that meeting, NRG officials said Toshiba’s latest estimated price was $12.3 billion, which put it $4 billion above what CPS had figured in its estimate.

Castro confirmed Knox’s account, saying the internal investigation report includes e-mail from NRG that suggests CPS Energy should share the higher figure with its board since it likely would be made public.

Burney urged Castro’s chief of staff, Robbie Greenblum, to ask CPS interim General Manager Steve Bartley about the higher cost estimate. Later that evening, at the Oct. 26 board meeting, Greenblum did so.

Bartley acknowledged a significant gap between Toshiba and CPS’ estimates, but still he didn’t share it with the board.

The next day, the San Antonio Express-News received a tip from a different source that Toshiba’s cost estimate was as much as $4 billion more than the number CPS had been using publicly. Within hours, the mayor announced the City Council would delay its vote, scheduled just two days later, on borrowing $400 million.

Bartley never publicly acknowledged a specific estimate amount.

Since the summer, CPS had been telling the public that the nuclear project would cost $13 billion, making it the most cost-effective way to meet San Antonio’s future energy needs.

Bartley, who resigned Nov. 25, contended the higher estimate just was a negotiating ploy by Toshiba and didn’t need to be shared with the board, a view the mayor’s office disputes.

"It was material information," Greenblum said Friday. "Whether they thought they could get the number down or not, this was material."

Board member Stephen Hennigan, one of two trustees Castro wants off the board, has said he’s suspicious of NRG’s motives, noting that the for-profit energy giant’s interests may not align with CPS’.

Last month, Hennigan grilled CPS executives at a board meeting over how they could trust their partners in the nuclear deal.

The complicated web of corporate interests, he said, puts CPS in the position of cooperating with NRG to persuade Toshiba to bring its price down, while, at the same time, NRG and Toshiba are partners in a company called Nuclear Innovation North America, which technically owns NRG’s stake in the nuclear project.

"As a board member, is it my job to be skeptical of the actions of a so-called partner," Hennigan said Saturday. "And I am skeptical of their intentions."

Hennigan, who has declined to step down, wants the report made public as soon as possible. His comments, coupled with Castro’s attempts to push him and board Chairwoman Aurora Geis out, have fueled speculation that the mayor had inappropriate meetings with NRG — and the report apparently says as much.

Castro, who says CPS needs fresh board leadership to foster a new era of transparency at the utility, dismissed the notion.

He said that as mayor, it was his job to meet CPS’ partner, which he did twice. Castro, who took office in June, described them as meet-and-greet-type meetings, not negotiations. Cost estimates weren’t discussed, he said.

He also acknowledged a phone call to NRG CEO David Crane after the higher figure had been made public.

Too big to ignore

When he finally did learn of Toshiba’s cost estimate, Castro said the $4 billion gap was too much for a public official to ignore.

"However you come around to it, this was information we needed to know to make a policy decision," he said.

Hennigan said he agrees with the mayor’s reaction to NRG’s tip, but wouldn’t comment on the meetings between the mayor and NRG.

"It makes complete sense," he said, "how the mayor had to deal with the situation because of a failure of CPS management team to communicate with the board."

Castro said that had the board gotten the information in the summer, when Toshiba first gave it to CPS, or even in mid-October, when an e-mail with the higher figure was sent to executives, "we could have perhaps managed it in a way to continue going forward."

Knox, too, dismissed the idea that NRG leaked the figure to Castro to get CPS Energy out of the deal.

"If this was going to have a bad impact on the deal, (having San Antonio learn about the higher costs from the analysts’ meeting) was going to be worse," he said.

Knox did acknowledge NRG made an effort to cultivate a relationship with the mayor’s office. It was clear, he said, that Castro’s support would be pivotal to the success of the nuclear deal.

NRG long has said it can build the two nuclear reactors at the South Texas Project in Bay City with or without CPS, though it prefers to remain partners.

More than CPS Energy’s participation, though, Knox said, what NRG really needs is stability, "and this is not something that is helping the stability of the project."

Whether NRG will have to pursue its nuclear ambitions without CPS’ help won’t be known until January. That’s when CPS is supposed to take the latest estimate from Toshiba, add its own costs and come out with a new public cost estimate for San Antonio’s participation.

At that time, the utility’s board and the City Council will decide whether San Antonio stays in the deal. If not, it will likely have to find buyers for its half of the ownership.