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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.

January 4, 2010

CPS Energy and Nuclear Innovation North America will meet Monday in an attempt to settle the $32 billion lawsuit over their proposed nuclear project.

The negotiation session was brokered by Mayor Julián Castro, who requested via letter that they meet "around the clock, if need be" at the Westin River Walk Hotel before the suit goes to trial Jan. 25.

"I think it’s better to try to get in the room and settle the differences," Castro said.

Castro, who sits on the CPS board, sent the letter Monday to NRG Energy, NINA, Toshiba Corp. and CPS.

"We’ll be there," said CPS acting General Manager Jelynne LeBlanc-Burley. "We look forward to sitting down at the table."

An NRG spokesman said that a high-level NINA executive would attend. NINA is a partnership between NRG and Toshiba, the main construction contractor.

"From NRG and NINA’s perspective, we always have favored negotiation to litigation," said NRG President David Crane in a statement.

CPS and NRG have been working for several years on a proposal to build two more nuclear reactors at the South Texas Project outside of Bay City.

The expansion, particularly San Antonio’s part, has become more tenuous in recent months as news of high cost estimates have shaken the public’s and City Council’s faith in the project and the utility.

CPS filed suit Dec. 6, originally asking the court to clarify its rights if it pulled out of the deal.

The suit became nasty Dec. 23 when NINA responded that CPS was in breach of contract and should lose the hundreds of millions of dollars it has invested. CPS shot back hours later with the $32 billion claim, charging that NRG and Toshiba had lured CPS into the project through "fraudulent, defamatory and illegal conduct" and had then tried to push CPS out.

January 04, 2010

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

The CPS Energy board of trustees will interview four finalists Monday to replace Chairwoman Aurora Geis, who agreed to resign after a communications breakdown between the utility’s nuclear team and the board that has left the proposed project in shambles.

The finalists were culled from 15 applicants to represent the northwestern quadrant of the utility’s service area. The four were announced at Monday afternoon’s board meeting:

— Nancy R. Kudla, retired from dNovus RDI

— Charles E. Foster, retired from AT&T

— Gary Cram, president of CRAM Roofing

— Brian Herman, vice president for research at the University of Texas Health Science Center.

The board hopes to pick the new member next Monday or Tuesday. If so, the City Council could ratify the selection two days later.

Mayor Julián Castro pushed for Geis to resign last month after it was revealed that a nuclear expansion project’s cost estimate billions of dollars more than what the utility’s management had told the public was kept from the board.

Two high-level executives of the nuclear development team also resigned, and one was reassigned.

"I am very impressed with the group," Geis said about the applicants.

Kudla, a former Air Force officer, was part of the first female class of graduates from the U.S. Air Force Academy. She launched dNovus RDI, a technology company, in 1989 and sold it in 2008 for $38 million.

In the past year, she and her husband started a charitable foundation, and Kudla said she has the time to devote to CPS.

Calling herself "an average citizen" on energy issues, Kudla said she’s been studying the topic in the weeks since a handful of community members asked her to consider applying for the position.

In addition to her 19 years as an entrepreneur, Kudla said she’s always taken a keen interest in governance issues when she’s served on boards, including a presidential appointment to the one that oversees the Air Force Academy.

"I’m a big-time governance gal," she said. "A public entity has a different kind of nature than a traditional business, and I suspect somewhere along the way CPS may have strayed from there."

Foster is a former group president at AT&T. He comes recommended by former AT&T CEO Ed Whitacre and John Montford, who expressed an interest in the CPS position before taking a job under his former boss, Whitacre, who is now chairman and CEO of General Motors.

Foster couldn’t be immediately reached for comment.

He and Kudla were the two finalists on every current board members’ list of top choices.

Cram founded his roofing company 23 years ago and still oversees its daily operations. A former board member of the Greater San Antonio Chamber of Commerce, Cram said he believed in public service. Acknowledging the time commitment required, he said he was up to the task.

"I think that people need to be involved in our community," he said. "I think CPS is a great organization and someone needs to step up and deal with the issues at hand."

Herman, who moved to San Antonio in 1998, said he, too, was interested in making the city a better place. While he runs his own research lab and oversees and coordinates all research at UTHSC and its partners, Herman is also a San Antonio Housing Authority board member.

"Energy and water are critical to the success of this community," he said, adding he’d bring a scientific and business background to the position.

January 8, 2010

Scott Stroud
San Antonio-Express News

Through much of last year, it was easy to think CPS Energy officials were terrible at politics but good at business.

Turns out they weren’t so hot at that, either.

That’s the upshot of the latest batch of information to emerge in the fight over San Antonio’s energy future. At the end of the day, we may discover basic business sense has been lacking at the city-owned utility for quite some time.

New leadership is in place now, and acting General Manager Jelynne LeBlanc-Burley deserves a chance to sort things out. Her initial tactics appear to come from the good-offense-is-good-defense school of battle.

Under the circumstances, that kind of smoke screen might be the best strategy. But what you learn from the legal missiles fired back and forth between CPS and its nuclear-expansion partners – NINA Texas, NRG and Toshiba – is truly astonishing.

Think of it this way: If you were putting $300 million of your own money up to keep a project viable while you decided whether to invest in it more deeply, wouldn’t you want to know how much you’d get back if you opted out? And wouldn’t you try to get that in writing?

Not CPS.

According to the city and CPS’ own legal briefs, 1997 and 2007 agreements between the utility and its partners in the plan to build two new nuclear plants at the South Texas Project "are either silent or ambiguous with respect to ownership rights" if one of the partners withdraws.

CPS’ partners beg to differ, by the way. They think the agreements are clear and that CPS loses the money if it withdraws.

All of this might explain why CPS officials have been hazy about whether the $300 million would be lost if they walked away. Less clear is why CPS officials have said for months there would be "offramps" available if Mayor Julián Castro and the City Council chose not to pursue the expansion.

Knowing what we know now, it’s plausible to think CPS officials had no interest in off-ramps, but they probably shouldn’t have been talking about them.

Castro, who wasn’t a party to the original agreements, is doing the right thing in pushing for a settlement. The leverage CPS has is the ability to drag out the legal fight for so long that the whole deal falls apart. So the other side has a reason to negotiate.

But unless there’s a settlement in negotiations, which are scheduled to begin Monday, the utility’s best hope will be for a sympathetic jury to buy its portrayal of itself as the victim of a conspiracy to shove it out of the deal altogether.

Any attempt to sell a CPS-as-victim scenario to a jury of local ratepayers would be fun to watch, but let’s not rule it out just yet. The disputed agreements haven’t been made public, and CPS claims it can prove its partners sabotaged the project.

So there’s a lot we don’t know here, but that extends to CPS’ financial situation as well. Officials still haven’t released basic information such as the salaries of the utility’s top 20 employees or recent audits of its books, which means we don’t have a good handle on how viable it is.

And given what we’ve learned about CPS’ business skills so far, that’s alarming in its own right.

jstroud(at)express-news.net

January 9, 2010

By Anton Caputo and Tracy Idell Hamilton
San AntonioExpress-News

Last month, CPS Energy was adamant that the agreements governing its proposed nuclear project were "silent or ambiguous" about what happened if one of the partners pulled out of the multibillion-dollar deal.

Now the municipally owned utility appears to have changed its plan of attack, arguing that the agreements are in fact "unambiguous" on this crucial point: CPS gets to keep its share of the nuclear deal — even if it stops paying.

The utility is asking the court to order the sale of the project and split the proceeds, force partner Nuclear Innovation North America to buy CPS Energy’s share or give CPS a year to sell. It’s still seeking $32 billion in damages.

The utility’s latest salvo in its lawsuit against NINA comes as its highest-level executives prepare to meet with NINA on Monday morning in a mediation brokered by Mayor Julián Castro.

Also Monday, the CPS Energy Board of Trustees will interview four candidates to replace Chairwoman Aurora Geis, who was urged to resign by the mayor in the wake of an internal investigation that found a high cost estimate was kept from the board and the public.

The report shook the public’s and City Council’s faith in the project, prompting CPS to file a lawsuit asking a judge to clarify the rights of any party that wished to withdraw from the project.

When NINA responded by asserting that CPS Energy had effectively withdrawn from the deal and so forfeited its rights, CPS upped the ante with the $32 billion suit, charging NINA with fraud and malicious intent.

NINA is a partnership between NRG Energy and Toshiba Inc., the contractor in the proposed project.

Acting General Manager Jelynne LeBlanc-Burley said the utility hadn’t changed tack in its legal argument and that CPS Energy still wants clarification from a judge on its rights.

"Generally our position has been that the documents are unclear as to what the party does if they choose to withdraw and that is what we’re asking the judge to clarify," LeBlanc-Burley said.

The utility wants to know what happens to the roughly $350 million it has poured into the project, plus its half of the value of the nuclear reactor site. CPS claims the site, along with existing water rights and infrastructure, is worth more than $2 billion.

Despite the amped-up rhetoric, the parties say they hope Monday’s talks will lead to a solution.

"We remain focused on negotiation, not litigation," NRG spokesman David Knox said.

LeBlanc-Burley agreed a negotiated settlement was preferable to a legal battle.

"Our position is to and will always be to protect the ratepayers," she said.

Castro, who also sits on the utility’s board, offered a brief statement Friday: "I’m hopeful that Monday’s talks will produce an agreement that respects CPS Energy’s past investment in the project and acknowledges the utility’s land and water rights going forward."

On Monday, the board will interview the four finalists to replace Geis.

The candidates are: Nancy Kudla, an entrepreneur who founded the technology company, dNovus RDI; Charles Foster, a former group president at AT&T; Gary Cram, founder and president of CRAM Roofing; and Brian Herman, vice president for research at the University of Texas Health Science Center.

The utility’s board expects to make its choice Monday or Tuesday. The City Council could ratify the decision Thursday.