December 30, 2009

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

CPS Energy and its nuclear-expansion partner were scheduled to face off in a Bexar County courtroom for the first time Wednesday over the $32 billion lawsuit spawned by their now-faltering deal.

Wednesday’s hearing in district court likely would be limited to setting dates for more sessions in January, when the partners will begin arguments in what has become an increasingly nasty legal battle.

Both sides ratcheted up the rhetoric Monday with another round of filings.

CPS Energy alleged its partner, Nuclear Innovation North America, lied to CPS to "induce" it to participate in the project, and then undertook a "campaign of media misinformation, public threats and disclosure of confidential Project information … to endanger CPS Energy’s ability to continue in the project."

The utility sought $32 billion in actual and punitive damages from its partner.

"I think it’s an appropriate response," CPS Energy acting General Manager Jelynne LeBlanc-Burley said Tuesday. "We’re trying to protect the resources of CPS and protect ratepayers."

NINA, which countered that CPS Energy is in breach of contract and so forfeits its stake in the project, responded to its partner’s accusations with a filing Monday demanding that the utility offer specifics.

"The petition is filled with silly conspiracy theories, unfounded accusations and personal attacks," NINA President Steve Winn said in a statement last week. "CPS has grabbed a spectacular headline, but the allegations in the suit will soon be proven frivolous."

About two hours after NINA’s Monday filing, CPS Energy submitted an amended complaint that asked the court to order the project’s sale and split the proceeds between the partners, or to cancel it but allow them to retain their interest in the site near Bay City.

Despite the cranked-up volume, LeBlanc-Burley said, CPS Energy was still open to a business solution – although she acknowledged earlier talks between the partners had broken down and had not resumed.

The utility filed the $32 billion lawsuit in the face of what LeBlanc-Burley called a "very aggressive, highly escalated" response by NINA to CPS’ first filing on Dec. 7, which she characterized as simply seeking clarification about what would happen to either party’s share should it decide to withdraw from the project.

Officials with NRG Energy, which makes up 88 percent of NINA – contractor Toshiba Inc. makes up the other 12 percent – also said they’d still prefer to settle the matter out of court.

"We have always said that we do not feel that the courtroom is the location to come up with mutually agreeable solutions. That has to be done in discussion," NRG spokesman Dave Knox said Tuesday. "That said, we didn’t ask to bring it to the courtroom. It is there and we are going to defend ourselves vigorously."

Both parties asked the court to expedite the process, given the high stakes involved.

The U.S. Energy Department was expected to award its first loan guarantees to one of four nuclear projects in the next few days. Both CPS and NRG said the deal is not viable without the guarantees.

Winn contended that the expansion of the South Texas Project was considered first in line for a portion of the $18.5 billion available, but that the recent instability at CPS hurt it chances of securing the guarantees – to the point that it may receive nothing at all, effectively killing the project.

And while news reports suggested another project, proposed by the Southern Co., could receive the first approval for loan guarantees this week, LeBlanc-Burley said the Energy Department hadn’t given CPS any indication it could lose out altogether.

NINA’s Dec. 23 filing suggested CPS Energy had stopped, or at least had signaled that it would stop, making payments it was contractually obligated to make. NINA lawyers said that means CPS effectively withdrew from the project.

But LeBlanc-Burley said CPS Energy kept up its obligations and planned to continue doing so.

The lawsuit revealed hints that tension among the partners had been brewing for some time.

According to the pleadings, a final agreement among the parties, supposed to be finalized in February, remained unsigned and unexecuted, leaving the partners to rely on a pair of previous pacts.