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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)

January 30, 2010

By ELIZABETH SOUDER
esouder(at)dallasnews.com
The Dallas Morning News

Texas’ prospects for leading the nuclear power renaissance turned bleak Friday.

The chief executive of NRG Energy, Texas’ second-largest power generator, said he’s willing to drop plans to build two new reactors in South Texas if the company cannot come to a favorable agreement with San Antonio utility CPS Energy.

A court ruling on Friday could allow the partners to continue to negotiate, but after months of soap-opera intrigue, rumors and finger-pointing between the companies, it’s unclear whether they can work together.

NRG could find itself scrambling for another investor and hoping to find one in time to win federal loan guarantees that could be handed out any day. The lack of an investor or loan guarantee would kill the nukes.

"We absolutely will not agree to any resolution that we cannot afford," NRG chief executive David Crane said on a conference call with analysts. "We will not throw good money after bad."

The project isn’t dead yet. Crane said Tokyo Electric Power Co. is interested in buying a stake in the expansion. Other investors could be found.

But anti-nuke activists were already dancing on the South Texas Project’s grave.

"We may be witnessing the early throes of a nuclear project death!" Karen Hadden, director of the Sustainable Energy and Economic Development Coalition, wrote in an e-mail Friday to members.

In 2005, shortly after NRG bought a 44 percent stake in the South Texas Project, executives saw a "once-in-a-lifetime opportunity" to expand, Crane said. With the federal government offering loan guarantees for new reactor projects, Crane said NRG, with some partners, could afford to build them.

But both investment partners and loan guarantees are critical.

"I think that the idea that anyone would take the full risk of developing a new nuclear project, totally on their balance sheet, is a foolish thing to do, even if you have a balance sheet as big as Exxon Mobil’s," Crane said.

The South Texas Project already has two reactors. NRG operates the plant and owns 44 percent, CPS owns 40 percent, and Austin Energy owns 16 percent.

In October 2007, NRG and CPS signed a deal to jointly build two new reactors. Austin chose not to invest in an expansion.

Meanwhile, NRG officials have been negotiating with equipment makers and construction and engineering firms to set the price of the project and to share the risk.

By last autumn, NRG said, its contractors were offering around $12.1 billion, and NRG executives felt confident they could squeeze that below $10 billion.

That’s higher than NRG’s earlier estimate of $8.6 billion. The price difference led to concern among San Antonio officials, who began to wonder whether CPS could exit the deal.

"We at NRG did not appreciate that CPS signed the deal, commenced funding … without ever obtaining the City Council’s endorsement of the deal," NRG’s Crane said.

CPS sued NRG and asked the court to rule on whether CPS would retain its investment in the project if it stopped financing the expansion.

State District Judge Larry Noll in San Antonio ruled on Friday that a party may stop participating in the project and still retain the equity stake it had contributed.

That was a favorable ruling for San Antonio, after NRG stated the city would lose its investment if it walked.

But the judge issued a warning to the city: "If you want to be in the play, you have to pay or you can’t stay. You will eventually lose your equity share."

CPS spokeswoman Theresa Cortez said the company hasn’t decided if it will exit the project. Staff still must recommend to the board whether to invest in the deal, and the board must bring the recommendation to the City Council.

But NRG chief executive Crane said it will be hard to continue working with CPS.

"When you develop a project like this, you have to be able to look the person in the eyes and on some level trust them. That just doesn’t seem to exist right now," he said.

He said if NRG shuts down the project, it will take a $400 million charge.

And the legal dispute between CPS and NRG isn’t over. CPS has also sued NRG for $32 billion, which includes the value of the South Texas Plan property and punitive damages.

January 26, 2010

Scott Stroud
San Antonio Express News

The air blowing overhead in the brightly lit courtroom made it hard to hear at times. Overhead projectors illuminated PowerPoint presentations on both sides of the room up front. There were microphones and laptops, too, some plugged into outlets along the walls.

And yet, with all the electricity thrumming through, nothing burned up CPS ratepayer dollars faster than the dozen-plus lawyers squabbling over the tattered relationship between CPS Energy and NRG Energy Inc., its co-owner in the floundering attempt to build two new nuclear plants at the South Texas Project.

Relationships being what they are, the most consistent comparison made since the dispute broke into the open late last year has been divorce. It seemed too easy at first, but then on Monday, Jelynne LeBlanc-Burley, the new interim general manager at CPS, wondered why my colleague, Anton Caputo, and I sat on the NRG side of the courtroom.

I always thought bride’s side-groom’s side traditions were for weddings instead of divorces, but there you go. And the more you think about what has happened here, the more unavoidable the parallel becomes.

As with an ugly divorce, this matter now lies in the hands of the lawyers, which is not a good place for it to be. It’s there in part because neither side took seriously the possibility that the deal might fall apart.

Blame-laying is rampant now, negotiations have been sluggish, and grandstanding is commonplace. There are no children in the drama, only San Antonio ratepayers, whose energy bills ultimately will underwrite this nonsense.

The part of the rakish rogue has been played convincingly by NRG, which often seems too slick for its own good. If CPS is correct in its claim that NRG negotiated to sell part of the nuclear project to Toshiba, which also happened to be the main contractor, without telling CPS, that dalliance looks unseemly at best.

That may be when the sex appeal of CPS’ considerable dowry wore off. It also might’ve dawned on NRG during CPS’ effort to sell the public on nuclear expansion last year that suddenly the conversation wasn’t so scintillating.

The latest slickness comes from NRG President and CEO David Crane, who met with San Antonio business leaders last week and then thanked them in a letter he released to the newspaper. I’m all for transparency, but the letter, which outlined NRG’s legal arguments briefly, fits my definition of grandstanding.

It’s the kind you write when you’re losing, and that appears to be NRG’s legal status at the moment. Judge Larry Noll didn’t buy their claim that CPS should forfeit its interest in the property because he found nothing to indicate that in the contract. He’s shown no interest in all the times CPS executives told the rest of us that they would lose the millions they’d invested if they walked away, saying he only cares about what’s in the contract.

That’s good news for CPS, which has made any number of statements contradicting its legal position, but it still doesn’t clean up the mess.

As for the divorce, it’s easy to say there should have been a prenuptial agreement here, which is true as far as it goes. But this was no California celebrity marriage. It’s a billion-dollar deal that affects us all more than a little bit. The lack of vigilance by CPS on the front end remains appalling.

The whole thing reminds me why I’ve never much cared for divorce court: The proceedings are often tawdry, both sides seem like losers, and you always end up wondering what will happen to the children – or, in this case, the ratepayers of San Antonio.

jstroud(at)express-news.net

January 26, 2010

By Anton Caputo
San Antonio Express-News

Nuclear Innovation North America looked to score a quick knockout Monday as the massive nuclear lawsuit filed by CPS Energy got under way.

408th District Court Judge Larry Noll was expected to announce Tuesday whether the tactic worked.

NINA, which is being sued by CPS over the teetering proposal to build two more reactors at the South Texas Project, asked Noll for a summary judgment, a move that would give NINA a victory in the first phase of the case.

NINA, which is a partnership between NRG Energy and Toshiba, contends that CPS should lose the roughly $350 million it has invested in the project and its ownership rights if it withdraws. Its attorneys argued an abbreviated version of the case Monday.

"It is pretty clear that NRG is intent on trying to convince a judge that our customers should lose all of their investment," said CPS acting General Manager Jelynne LeBlanc-Burley, adding that she still holds out hope for a settlement.

CPS is suing NINA for $32 billion, claiming the company pulled CPS into the deal by making fraudulent claims and then orchestrated a misinformation campaign through the media to force CPS out. The claims of fraud and conspiracy will be argued in a yet-to-be scheduled second phase of the trial.

The first phase, which began Monday, focuses on the two agreements that govern the partnership. Attorneys on both sides argued those contracts clearly favor their clients’ position.

CPS attorney Ricardo Cedillo argued that the agreements support the contention that CPS should be compensated for its investment in the project and its ownership stake if it withdraws.

Cedillo said the agreements state that the partners are tenants in common with a 50 percent stake each. This form of ownership, under state law, guarantees CPS’ "undivided interest" in the project even if it withdraws, he said.

This, Cedillo told the court, could lead to some kind of diluted interest for CPS if NINA continues with the project, and eventually to a partition of some sort where CPS is compensated for the value of its stake.

Currently, the project is worth at least $2 billion because of the engineering, permitting work and infrastructure, CPS claims.

In NINA’s case, attorney Greg Coleman argued that the agreements show that a partner that pulls out gets nothing. This leaves the remaining partner with the choice to pull out as well or carry on and take on all the risk and potential gain.

"That’s how project financing works," Coleman said. "When you make a gamble … that money is on the table and it remains on the table."

NINA has also asked for a change of venue to move the trial out of Bexar County.

Attorney Lamont Jefferson argued that a Bexar County jury is not appropriate to hear the case involving the municipally owned utility because "it’s like a parent trying to discipline its misbehaving children in public."

For Immediate Release:
January 22, 2010

Contact:
Karen Hadden, SEED Coalition, 512-797-8481

State Representative Lon Burnam Asks Tough Questions of Compact Commission

Austin, TX Today State Representative Lon Burnam (District 90, Ft. Worth) called on the Texas Low-Level Radioactive Waste Disposal Compact Commission to answer tough questions regarding their proposed rule that would open Texas up to becoming the nation’s radioactive waste dump. The Compact includes only the states of Texas and Vermont, but the draft import/export rule that is prime on today’s agenda essentially invites with open arms radioactive waste from the rest of the country and possibly the world. The waste would go to a site in Andrews County in West Texas that is owned by Waste Control Specialists (WCS).

“Turning Texas into the nation’s radioactive dumping ground so that WCS can make billions of dollars is irresponsible, especially since it will endanger public health and vital groundwater resources for thousands of years to come” said Representative Burnam. “Strong controls must be adopted now.”

“The Compact was formed to manage low-level radioactive waste generated in the Compact states, Texas and Vermont, so why is the Commission developing rules to import waste from around the country?” asked Representative Burnam, as he began with ten hard-hitting questions regarding the draft rule.

Texas and Vermont, the only two Compact parties, have expressed a need to dispose of at least 6 million cubic feet of radioactive waste in the next 50 years. Yet this volume, estimated by the Texas Compact Commission, is nearly three times more than the capacity of the site.

“If the Commission develops a rule for import, isn’t the Commission making the explicit assumption that the capacity of the site will be expanded and that the license will be amended for expansion? How can the Commission make such an assumption without a technical review of the site?” inquired Representative Burnam. He expressed concerns as to how the Commission can reconcile the discrepancy between Texas and Vermont’s estimated disposal needs and the stated capacity of site.

The State of Texas becomes liable for radioactive waste as soon as it comes across the border into our state and nuclear energy expert Dr. Arjun Makhijani has stated that increased environmental impacts would result from importing radioactive waste from outside of the Compact. Leaks from the dump site could lead to health threatening radioactive contamination. With significant potential impacts the rule should be considered a ‘major environmental rule’ and Burnam inquired as to why the Commission has not deemed it so, and then asked, “Why does the Commission not discuss the liability implications for Texas resulting from the import rule?”

Representative Burnam and safe energy advocates are calling on the Compact Commission to exercise its power and authority to protect and promote the “health, safety and welfare” of Texans as the law requires. The Commission should not allow waste to be imported from outside Texas and Vermont and should prevent Texas becoming the nation’s radioactive waste dumping ground.

The Compact meeting will be streamed live at: www.house.state.tx.us/fx/av/live/extlivecmte24.ram
Representative Burnam’s ten questions, SEED Coalition’s Comments on the draft rule, and supporting expert analysis are available online at www.nukefreetexas.org. SEED Coalition’s comments are endorsed by Public Citizen, Environment Texas, Nuclear Information and Resource Service, WE CAN, No Bonds for Billionaires and the South Texas Association for Responsible Energy.