December 16, 2009

By Anton Caputo
San Antonio Express-News

CPS Energy needs to make a decision about its nuclear plans in a matter of weeks or risk putting the project in jeopardy, an NRG Energy executive said Tuesday.

Steve Winn, head of NRG’s nuclear development joint venture with Toshiba Inc., said a lawsuit filed by CPS Energy last week over the nuclear project, coupled with San Antonio’s indecision, could risk federal loan guarantees needed to build two reactors.

While the proposed expansion of the South Texas Project has topped the Energy Department’s list for loan guarantees, the delays on San Antonio’s part have put it "squarely in second place," Winn told the San Antonio Express-News Editorial Board after he met with the city-owned utility.

CPS Energy and NRG are partners in the project. The Energy Department is considering backing a total of four nuclear projects.

A fall to third place could put the proposed deal out of the running altogether. That’s because the top two projects might use most or all of the $18.5 billion in loan guarantees, he said.

"The time frame for it to become critical is measured in weeks," Winn said. "The difference between second and third is potentially the difference between the project being valuable and zero."

Winn’s comments come as CPS Energy and the City Council mull the fate of the nuclear deal and prepare to make a decision in mid-January.

Locally, faith in the project has been shaken by the revelation in October that CPS Energy kept an estimate under wraps from contractor Toshiba that is as much as $4 billion higher than CPS had told the public.

Toshiba is supposed to present its latest cost estimate to CPS Energy by the end of the year. The utility will use that number to calculate its own cost estimate, which it will reveal to the public. The difference between the two estimates involves owner costs that include licensing fees and contingency plans.

CPS sued Nuclear Innovation North America – NRG’s joint venture with Toshiba – last week to position itself to pull out of the deal if the cost estimate is too high.

Utility executives told the public this summer that the project could be built for $10 billion, or $13 billion after financing, and that it could be done with bill increases of no more than 5 percent every other year.

Because of the ways bills are calculated, that would equate to base-rate increases of about 9.5 percent a year, utility officials said.

To meet that pledge, Toshiba’s portion of the project needs to cost $8 billion. That’s much lower than the $12 billion estimate from Toshiba that CPS executives had kept from its board and the City Council. That estimate became public when it was leaked to the mayor’s office and the Express-News.

The ensuing scandal led to the resignations of two high-level executives and the recent announcement that board Chairwoman Aurora Geis will step down.

In its lawsuit, CPS Energy asked the court to clarify its rights if it decides to pull out of the project. It already has spent about $375 million on planning and engineering.

Acting CPS General Manager Jelynne LeBlanc-Burley wouldn’t comment on Tuesday’s settlement discussion with Winn.

"Our indecision is related to the project estimate," she said. "If I were Steve Winn, I’d be talking to his partner (Toshiba) a little bit about sharpening its pencil."

The nuclear project’s timeline calls for construction to begin in 2012, assuming the federal government grants a permit.

Winn said it will take about $800 million to keep the project on track in 2010. Half of the money is supposed to come from CPS. And if either partner quits making payments for 90 days, "they lose their share in the project," he said.

LeBlanc-Burley said CPS Energy still is making its payments.

Ultimately, Winn said NRG doesn’t want to take over CPS’ share and never has.

"Even if we had an interest, we don’t have the money for that," he said. "Our approach has always been, let’s find partners, because this is big."

Winn said he’d like CPS Energy to "keep funding the project in the short term" while it decides what to do with its half.

LeBlanc-Burley said the utility was looking at all of its options.

"I think both parties agree that a business solution is beneficial to both," she said.

Staff Writer Tracy Idell Hamilton contributed to this report.