Jan 29, 2010

Reuters News

HOUSTON, Jan 29 (Reuters) – NRG Energy Inc (NRG.N) CEO David Crane said on Friday the company would not pursue construction of two nuclear reactors in Texas if the project loses a federal loan guarantee due to a dispute with partner CPS Energy.

A Texas state judge on Friday ruled CPS may withdraw its financial support from the $10 billion project, but cannot expect to retain its 50 percent ownership stake, according to a court transcript.

"If you want to be in the play, you have to pay, or you can’t stay," Judge Larry Noll said. "You will eventually lose your equity share."

The judge directed the parties to negotiate a settlement addressing project ownership and withdrawal.

The dispute could be the second setback for new nuclear reactors in the United States, after FPL Group Inc (FPL.N) said this month it would halt billions of dollars in capital expenditures, including reevaluating development of two new reactors, after getting a negative rate case ruling.

In December, CPS, a municipal utility owned by San Antonio, sued NRG for $32 billion, alleging NRG misled utility officials on the estimated cost of the reactors, among other things.

CPS is a 50-50 partner with Nuclear Innovation North America, a partnership between NRG and Toshiba Corp (6502.T), to build the two reactors in South Texas. The utility has spent more than $300 million on the nuclear expansion project.

Before the judge’s ruling Friday, Crane told analysts and investors in a conference call that suspending the project could cause NRG to take a pretax write-off of $400 million.

Even with Friday’s ruling, prospects for construction of South Texas Project units 3 and 4 remain uncertain should CPS withdraw completely from the project.

Crane said the nuclear project remains economically viable. "So long as there is a real possibility that we can secure a federal loan guarantee, we will continue to exert every effort to resolve the dispute with CPS fairly and in a timely manner," Crane said.

NRG, however, will not move forward "unless we see a clear path forward to success," Crane said.

NRG spokesman Dave Knox said Friday’s ruling "gives CPS clarity on their rights if they withdraw."

If the parties can negotiate a settlement, "we can get that clear path to success," Knox said.

CPS officials agreed that the ruling helped define the utility’s rights. "Now we want an equitable solution at the negotiating table," said Jelynne LeBlanc-Burley, acting general manager of CPS Energy, in a statement.

Crane said before the CPS dispute, he thought the South Texas project was among front runners to get "the all-critical" federal loan guarantee. But now, Crane said, he did not believe the Department of Energy would risk any of the $18.5 billion loan guarantee fund on a troubled project.

CPS and NRG each applied for a loan guarantee for their respective shares of the project.

"We have reason to believe that the DOE sees a fierce dispute between the equal partners … as an extremely high obstacle to them committing a loan to the project," Crane told investors.

(Reporting by Scott DiSavino and Eileen O’Grady; Editing by David Gregorio)