February 17, 2010

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

CPS Energy expects to announce a settlement today in its $32 billion lawsuit against its partner in a proposed nuclear project, Nuclear Innovation North America.

Utility officials confirmed they are planning to make an announcement this afternoon, barring any last-minute breakdown in negotiations.

A settlement could put the proposed expansion of the South Texas Project back in the forefront for federal loan guarantees that both partners say are crucial to its fate.

The project once was considered a front-runner for the taxpayer-backed guarantees, but its chances diminished in the wake of rising cost estimates, shrinking political support and high-stakes litigation.

On Tuesday, the Obama administration announced the first of the loan guarantees, pledging $8 billion for two new reactors to be built at an existing nuclear power plant in Burke, Ga.

The settlement also could clarify whether CPS plans to stay in the project or withdraw, allowing NINA to find new partners.

CPS acting General Manager Jelynne LeBlanc-Burley declined to comment.

"We’re still finalizing the details," spokeswoman Lisa Lewis said. "But we hope to have more to share tomorrow."

NRG spokesman David Knox wouldn’t comment on the settlement announcement, but earlier in the day issued a statement that the parties were working hard to come to an agreement that could push the project back into contention for the loan guarantees.

NRG owns most of NINA.

In the wake of CPS’ lawsuit, NRG CEO David Crane had said NRG would back out of the project if the loan guarantees didn’t come through.

CPS and NRG, along with Austin Energy, are partners in the two existing nuclear reactors outside Bay City. Austin Energy chose not to take part in the two-reactor expansion, citing cost and risk.

In August, at Mayor Julián Castro’s prodding, CPS agreed to sell about half its stake in the proposed expansion.

Before those efforts began, however, news that the utility’s nuclear development team kept a significantly higher cost estimate from its board exploded into public view, upending a planned vote by the City Council to pump another $400 million into the project.

The expansion had been sold to the council and the public as a $10 billion deal, with another $3 billion in financing costs. The higher estimate kept hidden by executives was as much as $4 billion more.

CPS already has spent about $370 million on engineering and permitting and still is shelling out about $1 million a day to keep from going into default.

In December, it asked a judge to clarify its rights if it were to pull out of the deal, including the fate of the $370 million and half of the site and infrastructure, which CPS says has a value of at least $1 billion.

NRG and NINA argued that if CPS walked away, it would forfeit everything. A state judge disagreed, but sent the parties back to the table to work out the value of CPS’ investment should it choose to bow out of the project.

Negotiations, which recently moved to Austin, where they were mediated by the chairman of the Public Utilities Commission, have centered on how much that ownership is worth, in either a dollar value or a percentage of the project.

Chairman Barry Smitherman said he stepped in to help break the impasse, with the full backing of Gov. Rick Perry, because it was important for the state to get nuclear going again.