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January 20, 2010

By Anton Caputo
San Antonio Express-News

A federal court judge Wednesday ordered a stop to all activity in the $32 billion nuclear lawsuit while he decides if the case belongs under federal jurisdiction.

Judge Xavier Rodriguez of the U.S. District Court for the Western District of Texas is expected to rule today on whether a citizens group that is trying to intervene has standing to get the case moved to federal court.

Until then, the opponents in the suit – CPS Energy and NRG Energy – have had to halt depositions they were conducting for a trial that was set to start Monday in state court.

The citizens group, the Ratepayer Protection Coalition, argues CPS has violated the coalition’s constitutional rights, which would make this a federal case.

The constitutional violation, the coalition argues, stems from CPS not being honest with the public during its presentations on the project, which "denied their First Amendment right to have an informed dialogue and a decision by their elected representatives."

"I believe the taxpayer needs to be granted some kind of representation in this case because they are not getting that from CPS," said coalition attorney Karen Seal.

This is the second attempt to move the case to federal court; Toshiba Inc., which was a party to the suit, tried last week.

That prompted CPS to drop the Japanese company from the lawsuit over the weekend. CPS attorneys said hearing the case in federal court could cause substantial delays.

CPS attorney Michael Moore said he expected the case to be remanded to state court, with the trial beginning on schedule.

"CPS Energy continues to believe that it is in its customers’ best interests for the case to be heard in a Texas state court on a quick timeline," said CPS General Counsel Carolyn Shellman.

The suit stems from the proposed multibillion-dollar expansion of the nuclear South Texas Project. CPS is partnering with Nuclear Innovation North America – which is a partnership between NRG and Toshiba – on the project.

CPS is asking a court to clarify its rights should it decide to pull out of the deal. It is also suing NRG and NINA for at least $32 billion, charging them with making false claims to lure CPS into the project and then distributing bogus information in the media to push it out.

NRG and NINA deny the allegations.

December 30, 2009

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

Nuclear Innovation North America argued in court Wednesday that CPS Energy had refused to pay its portion of January’s development costs for the nuclear deal, a move that could kill the project.

But later Wednesday, CPS said it would pay its share of January’s costs, eliminating one of the many legal points of contention between the partners.

"Our sole goal today was to ensure the ability of the STP expansion to continue past Jan. 1, and their decision accomplishes that goal," NRG spokesman Dave Knox said.

NINA is owned by NRG and Toshiba Inc.

The development came just hours after NINA tried to force the issue in court but failed when a Bexar County judge denied its request to force CPS to pay its portion of January’s costs.

NINA officials argued that failure to pay would stall the project, making it worthless and causing the partners to lose their investment. CPS has spent $300 million on the project’s engineering and licensing, a number that will rise to $375 million by February, acting General Manager Jelynne LeBlanc-Burley said.

Wednesday’s salvo was the first in a $32 billion lawsuit filed by CPS earlier this month over the proposal to build two more nuclear reactors at the South Texas Project outside of Bay City.

In its filings and through attorney Ricardo Cedillo, CPS argues that NINA lied to the city-owned utility in order to lure it into the project, and then undertook a "campaign of media misinformation, public threats and disclosure of confidential Project information" to push it out and take control.

Cedillo also alleged that NRG had a "sweetheart deal" with Toshiba, where Toshiba paid NRG roughly $150 million for the right to be the project’s contractor. The two companies then worked together to publicize high cost estimates in the press, Cedillo said, to sour the public and San Antonio City Council on the deal.

"They wouldn’t be the first slick guys from Wall Street that have ever pulled that off," Cedillo said.

NINA attorney Lamont Jefferson characterized the argument as a "vast conspiracy theory" with no evidence. He countered that NRG would have had to foresee that CPS executives would withhold the higher cost estimate from its board and that the resulting bad publicity would cause a political scandal in San Antonio.

An internal CPS investigation into why the cost estimate was withheld has caused two high-level resignations at CPS and prompted the board chairwoman to announce her resignation.

"His theory is we knew all of this is going to happen in advance and that we asked Toshiba, ‘Please, please give us a high cost estimate,’" Jefferson said.

Another point of contention is what happens to a partner’s stake if it pulls out of the project. CPS has not decided to do so, LeBlanc-Burley said, but wants clarification from the court in case it does.

She said that the utility is open to negotiations with NINA outside of the courtroom.

"I still maintain that a business solution is the best option for us, but we haven’t been able to get them to the table," she said.

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.

December 24, 2009

By Anton Caputo
San Antonio Express-News

CPS Energy and its partner traded high-dollar blows Wednesday in the growing legal battle over the nuclear project.

Nuclear Innovation North America, CPS Energy’s partner, claimed San Antonio’s utility was in breach of contract and should lose the hundreds of millions it invested if it didn’t agree soon to keep funding the deal.

NINA, which is a nuclear development joint venture between NRG Energy and Toshiba Inc., made the accusations in a response late Wednesday afternoon to a lawsuit CPS filed earlier this month.

Hours later, CPS shot back with new allegations against NINA, NRG and Toshiba, the project contractor.

In court documents, CPS claimed the companies engaged in "fraudulent, defamatory and illegal conduct" to "manipulate project costs for their collective benefit."

CPS asked the court to award it at least $32 billion in damages.

"The message I want to send NRG and NINA is that we are not suckers," CPS Acting General Manager Jelynne LeBlanc-Burley said Wednesday night. "A business solution will benefit both, the sooner we get out of the courts the better. But make no mistake, I am not afraid of having this issue resolved in the courts."

NRG spokesman David Knox said the company hadn’t had enough time Wednesday night to comment on CPS’ allegations.

NINA President Steve Winn said earlier in the day that his company also preferred to settle the lawsuit quickly out of court so it could continue with the development of two proposed reactors at the South Texas Project.

"I think there are probably 20 different ways where there might be a solution that allows the project to go forward and the appropriate long-term decisions to be made by CPS," Winn said. "Our goal right now is to get to a negotiated outcome as quickly as we can."

CPS’ new allegations included the charge that NRG and Toshiba formed their partnership without disclosing their full financial relationship.

The city-owned utility also accused NINA, NRG and Toshiba of a "conspiracy" by luring CPS into the project to help finance it and then "engaging in a coordinated public effort to disseminate false information about CPS Energy for the purpose of ousting CPS Energy."

"His (Winn’s) history has been spent on Wall Street, and I don’t want him to get the impression he can come to San Antonio, Texas, come to Commerce Street, and sell this community a bill of goods," LeBlanc-Burley said.

In its lawsuit, CPS asked the court to clarify its rights if it pulls out of the project.

Winn said the agreements between the companies are clear and "that they (CPS) lose everything." NINA claims CPS has "blocked the approval of several pending purchase orders" that are critical of the project and taken other steps to stall the project.

NINA also contended San Antonio’s indecision on whether it will stay in the project put it in jeopardy. It asked the court to declare CPS actually has withdrawn from the project, which CPS denied, and no longer had any ownership or the ability to recover the approximately $300 million it spent.

NINA also charged that CPS’ "ongoing vacillation" put the project’s federal loan guarantees at risk. Such loan guarantees are thought to be crucial for nuclear projects because of the billions of dollars needed and the fact that the federal government hasn’t issued a permit to build a nuclear plant since the 1970s.

The federal government approved $18.5 billion in loan guarantees, and, according to recent statements from Vice President Joe Biden’s office, planned to issue those guarantees to two projects.

The South Texas Project is on a short list of four that could receive the guarantees. But Winn said it had fallen from first to second because of the delays, and soon could fall to third.

That move, he said, could prove fatal.

"If we don’t resolve this soon, we may not need to resolve it at all," Winn said.

LeBlanc-Burley said that CPS was in contact with the Energy Department’s loan guarantee office multiple times since Dec. 15 and informed it of CPS’ timetable, which called for making a decision by mid-January.

"Understanding that schedule, they have not indicated that we have placed any consideration at risk," she said.

CPS spent or approved spending about $375 million on the project so far. If it stays in, that number would jump to $1.2 billion before the scheduled 2012 construction begins. The ultimate cost of the project was still unknown and won’t be set until then.

Toshiba was expected to deliver an official cost estimate next week. LeBlanc-Burley said her staff would vet the estimate and present it to the public in mid-January when it makes a recommendation about San Antonio’s role in the nuclear expansion.

CPS’ board and the City Council would have the final say.

A preliminary cost update recently obtained by the San Antonio Express-News put the total cost of the project at $18.2 billion. That was about $5 billion more than the utility said the project would cost at community meetings this summer.

LeBlanc-Burley said that the number was an informal estimate provided to the board for planning purposes and not the official number.

She also said she believed the nuclear project is a valuable asset, but it might not be right for San Antonio.

"This particular deal remains to be seen," she said. "This particular project will be evaluated on its merits, and it may not be the best opportunity for this community."

December 10, 2009

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

Outgoing CPS Energy Chairwoman Aurora Geis said Wednesday she doesn’t think the public grasps the utility’s financial straits, which could result in rate increases totaling 40 percent over the next decade.

With that in mind, she said the experience of a top-notch, seasoned business leader will be critical to help steer the city-owned utility through its financial difficulties.

She said she’s willing to step down quickly if such a person can be tapped as her replacement.

Geis, who announced her resignation Tuesday, spoke as speculation mounted about who would take her place on the five-member board. A discussion of the replacement will take place at Monday’s board meeting, she said.

In a closed-door session Wednesday, the City Council bandied about the names of three potential replacements.

They’re former state Sen. John Montford, a senior vice president at AT&T executive; USAA Executive Vice President Wayne Peacock; and Wayne Alexander, also a former AT&T executive, now chairman of the board at Port San Antonio.

Another possibility, Valero CEO Bill Klesse, already was approached but apparently has declined, several sources said.

Geis said she’s heard all three names, as well as Ed Kelley, a development consultant and retired CEO of USAA Real Estate Co.; Joe Krier, former Greater San Antonio Chamber of Commerce president; and Nancy Kudla, a graduate of the U.S. Air Force Academy who launched a technology company, dNovus RDI, in 1989 and sold it a year ago to KForce Government Holdings Inc. for $38 million.

Mayor Julián Castro, who also sits on the utility’s board, wouldn’t confirm any of the names, saying only that he and the board were considering "several well-qualified men and women for the position."

Geis’ replacement must come from the northwest quadrant of the city. Councilmen Justin Rodriguez and Reed Williams, whose districts are in that area, are helping vet the candidates.

All vacancies on the board, excluding the mayor, are filled by majority vote of the remaining members, according to the utility’s governing documents. The nominee then is submitted to the City Council for ratification.

Rodriguez said he understood that a special council meeting will be called for Tuesday, the day after the CPS Energy board meets and potentially agrees on a nominee.

Geis wouldn’t divulge her preference but said the list contained people of the caliber the utility needs.

"With these particular individuals, the public record of their service in the community speaks for itself," she said.

Crisis ahead

She warned of a crisis at the utility if the City Council isn’t willing to raise rates and approve large amounts of borrowing.

"The tsunami that’s coming is the capital crisis," she said.

Geis’ sobering words weren’t a surprise to Councilman John Clamp, who said he thinks the city needs to go over the utility’s capital plan line by line.

"We’ve got some major issues coming down to council that quite frankly overshadow nuclear energy," he said. "That’s part of a discussion that we have to have in major way quickly."

The impending financial problems could put the utility’s stellar credit rating at risk, which could add millions more to the cost of future debt.

CPS Energy’s capital plan calls for about $8 billion in investment in the next decade. The nuclear project would account for $2.6 billion.

That figure has been thrown into doubt by high cost estimates, the revelation of which touched off a controversy that enveloped the utility’s board and staff.

The balance of the capital plan includes finishing a coal plant scheduled to open next year, building four natural gas peaking nits, making environmental upgrades to existing coal plants and work on the transmission and distribution grid.

But even if CPS drops the nuclear project, Geis pointed out, something has to be done to replace aging natural gas plants in the next couple of decades.

CPS Energy had planned on asking the council for permission to borrow $400 million in January to continue the proposed nuclear project it might build with NRG Energy. But with San Antonio’s participation in the project now up in the air, that bond issue may not occur.

Either way, Geis said CPS will ask the council early next year for an additional debt issuance as large as $550 million for non-nuclear projects.

Geis, who’s leaving after a tumultuous couple months because of the uproar over nuclear cost estimates, challenged council members to make energy issues a priority and spend the time to understand them as the difficult political battles over rate increases unfold.

"City Council must support CPS Energy and the bond issuances and rate increases so that the financial stability of the utility does not deteriorate," she said.

As originally published, this story contained an error.