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December 4, 2009

By Scott Stroud
San Antonio Express-News

After word leaked out in October that building two new nuclear plants might cost as much as $4 billion more than had been publicly projected, Mayor Julián Castro expressed dismay at the city-owned utility’s penchant for secrecy.

"The CPS Energy culture needs to shift towards greater transparency," he said.

He was right, of course, but the culture isn’t shifting at breakneck speed. At this week’s CPS board meeting, copies of the investigative post-mortem on what actually happened were passed out to Castro and the other board members behind closed doors and then rounded up afterward.

All the public received was a three-page, five-whereas resolution outlining the fallout at the agency and not explaining the reasoning behind it much at all. The board-approved resolution described a "good faith belief" on the part of CPS executives that the revised estimate wasn’t formal. Everyone involved was absolved of "malicious intent."

That’s all well and good, but no explanation was offered for Steve Bartley’s resignation last week as interim general manager, nor that of Robert Temple as secretary to the board and a member of its nuclear team.

Temple’s departure was announced, but not explained, somewhere after the whereases. The reinstatement of two suspended executives, Michael Kotara and Jim Nesrsta, was explained – and I use the word loosely – in a single paragraph apiece.

The mayor has said more than once that he favors full disclosure, but he pulled back after he and other board members saw the first version. That’s likely because releasing it then would have given him a fair amount of heartburn.

On Thursday, however, Castro spokesman Jaime Castillo said the mayor supports making both versions of the CPS report public.

That should happen as quickly as possible. Until it does, the mayor’s push to oust CPS board Chairwoman Aurora Geis and board member Stephen Hennigan must be put on hold. To begin with, forcibly removing them from the board is legally problematic. Doing so before airing the results of the investigation would only compound the agency’s credibility problem.

As for Castro’s heartburn, the draft report criticizes him for meddling by meeting with NRG, CPS Energy’s partner on the nuclear project, outside the purview of the board. More problematic from the mayor’s perspective, the report chastises Castro’s chief of staff, Robbie Greenblum, for being less than forthcoming about how he learned of the higher cost estimate.

That caused a dustup because Greenblum, in his interview with the report’s authors, apparently hadn’t been asked that question. City Attorney Michael Bernard demanded that they reinterview Greenblum and draft a new version, which hasn’t been delivered to the board.

Perhaps sensing that the first draft might embarrass the mayor, Hennigan called for immediate full disclosure in a memo to fellow board members. The mayor has now moved to call his bluff, though he probably should have done so sooner.

Geis, meanwhile, has only added to the credibility problem at CPS, telling the Express-News this week that the mayor never asked her to resign. His office quickly produced a voicemail she left on his phone in which she discussed that very request.

All this leaves us with the same mess we’ve been in for quite some time: Trust in CPS is a shambles, the credibility problem seems to be spreading, and the shift to a culture of transparency can’t happen soon enough.

jstroud(at)express-news.net

December 8, 2009

By Tracy Idell Hamilton
San Antonio Express-News

Aurora Geis, the embattled chairwoman of CPS Energy’s board of trustees, agreed Tuesday to resign.

Geis, who has been under pressure to step down for weeks, said she would leave her seat as soon as soon as a qualified replacement was on board.

"I think this is a great opportunity for a candidate who is willing to serve," Geis said, adding that the process could take four or five weeks.

Geis’ replacement must come from the northwest quadrant of San Antonio, the area that Geis represents. People can apply for the volunteer position. The board chooses its member, but the City Council must ratify the choice.

Mayor Julián Castro, who asked Geis to step down, said he hopes the board can discuss a replacement as soon as Monday.

"I appreciate Aurora’s service on the board," And I look forward to taking up the issue of her successor on Dec. 14."

December 8, 2009

Greg Harman
San Antonio Current

It took some doing, and some help from his friends, but Mayor Julián Castro appears to have finally wrested a resignation from CPS Energy Board Chair Aurora Geis this week. Geis was repolishing her resignation Tuesday afternoon, while stating she felt strongly that she is leaving utility is on the right path despite the challenges that are ahead.

"The timing of it is not what I would have preferred because there is so much stability that needs to be put in place," Geis said. "But now the greater challenge that we face is identifying a candidate who will be willing to serve."

Unlike the newly former CPS GM Steve Bartley’s "effective immediately" exit, Geis will linger a bit until a replacement is found. Even as she has written and rewritten her departure letter, the full board has been discussing possible replacements for her.

These have included Valero CEO Bill Klesse, fresh from Mad Money’s Wall of Shame, now waging war on cap-and-trade; former SBC Pres Wayne Alexander, serving on the Port San Anto board, and Ed Kelly, retired USAA Real Estate boss.

Whoever steps into Geis’ slot will have to face down several immediate challenges, foremost being regaining the public’s trust after key members of CPS lied to the public about the anticipated cost of the planned expansion of the South Texas Plant nuclear complex for months. They’ll also have to help the board and staff figure out how to finance an additional $8 billion in capital over the next seven years; nail down a new strategic energy plan, which most likely will not include nuclear; manage potential lawsuit havoc with STP partner NRG Energy; prepare a new carbon strategy even as the U.S. EPA prepares to regulate the greenhouse gas as a pollutant under the Clean Air Act; and lure in a new CEO to replace deadwood Milton Lee at a significantly reduced salary.

As Geis says: "There are a lot of issues that have to be addressed."

And while Geis’ resignation is not in hand, as yet, less clear is the future of fellow Boardie Steve Hennigan, whose head Castro likewise covets. Geis says she will be urging her fellow Board member to stick it out, but Castro’s office says the call for Hennigan’s head remains.

December 7, 2009

By Anton Caputo
San Antonio Express-News

CPS Energy wants a court in Bexar County to clarify the utility’s rights if it chooses to pull out of the crumbling nuclear deal.

CPS filed a petition late Sunday with state District Court in Bexar County that "specifically requests defining the liability of both parties should either decide to withdraw from the project," utility officials said in a written statement.

The filing came the night before Steve Winn, CEO of partner Nuclear Innovation North America, traveled to San Antonio to discuss the project with CPS executives. New Jersey-based NRG Energy owns most of NINA.

That meeting was canceled.

"We are perplexed by CPS’ legal action, as we had come to San Antonio (on Monday) to discuss options for preserving the value of CPS’ investment," said NRG spokesman David Knox. "Over the past few weeks, we have repeatedly expressed our willingness to engage in a dialogue designed to protect that value while maintaining the forward momentum" of the planned expansion of the nuclear South Texas Project near Bay City.

"While we remain hopeful that we can reach a speedy and satisfactory outcome for all parties concerned, the fact that litigation has been initiated effectively limits our ability to communicate as partners in this important and valuable project."

Despite rumors to the contrary, Knox said NRG had no intention to file litigation.

There are two participation agreements between the partners. According to CPS’ court filing, neither agreement specifically addresses what happens if a partner in the nuclear project decides it wants out.

One was written in 1997, when the expansion was first discussed, but years before it was officially proposed. CPS was involved in this agreement because it owns 40 percent of the two reactors that have been in operation at STP since the late 1980s.

A supplemental agreement was written in 2007.

CPS Energy has invested nearly $300 million in the project’s engineering and planning so far, even though a permit to build and operate the reactors isn’t expected until 2012. Still, the utility believes that the "value of participation and related rights in and improvement to the project site" are worth more than $2 billion, according to the court filing.

"A real and substantial controversy exists because the participation agreements are silent or ambiguous with respect to the rights of these co-tenants in the event an owner opts to unilaterally withdraw," CPS argues in the petition.

CPS acting General Manager Jelynne LeBlanc-Burley said the court filing does not mean that CPS will definitely terminate its interest in the nuclear deal.

"It’s critical to get clarity on those rights," she said.

Mayor Julián Castro, who sits on the CPS board of trustees, called it a "relatively innocuous lawsuit" that simply seeks to bring clarity to the existing agreements. "We need to get that down."

The board was not asked to formally approve the lawsuit, he said, but trustees were made aware of it.

CPS is a 50-50 partner in the nuclear expansion project with NINA, and NRG Energy owns 88 percent of NINA. Toshiba Inc., the contractor for the expansion project, owns the rest.

The utility and the City Council are expected to make a decision in mid-January on whether they want to continue with the project or begin the process of getting out. The latter is thought likely after the debacle over why high cost estimates from Toshiba were kept from the utility’s board and the council.

The utility had told the public that the project would cost $13 billion. But it’s now clear that Toshiba had for many months been estimating at least part of the project $4 billion higher than CPS had.

CPS has asked the court to "expedite" its decision.

December 8, 2009

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

The night before CPS Energy publicly rolled out a $13 billion cost estimate for a nuclear expansion project last summer, a top executive was exasperated that the utility and its main contractor were billions of dollars apart.

Nonetheless, utility officials presented a price to the public some knew was $4 billion less than contractor Toshiba Inc. was asking for.

"Our project costs and rate projections are clearly understated," Mike Kotara, the utility’s vice president of energy development, wrote in an e-mail June 28. He was responding to word that Toshiba had said it couldn’t endorse CPS’ number.

A portion of that e-mail, along with more than a dozen others, was contained in a draft report of the investigation produced by CPS’ internal auditor, which was obtained Monday afternoon by the San Antonio Express-News.

A final version of the report was released Monday to the CPS board. It will be made public Wednesday after attorneys strike any information deemed proprietary.

The report’s conclusions support CPS management’s assertion that Toshiba’s "unofficial preliminary estimate" was only "a posturing/bargaining position."

Anxiety and anger

But the e-mails contained in the body of the report seem to tell a different story.

At the end of June and again in October, statements made by CPS nuclear officials indicate that they were anxious about getting Toshiba’s $12 billion cost estimate down and angry that partner NRG Energy said it would have to release that figure at its November analysts’ meeting.

Still, CPS executives working on the nuclear project seemed to be in agreement to keep the high cost numbers from their board.

"As far as I know, we had no intention of giving the board a new estimate for the project until we were done working on this, i.e., in January," CPS executive Jim Nesrsta wrote to an NRG official Oct. 22. "I think your discussion of incomplete cost estimates in public in November is a major problem."

The lack of disclosure ultimately felled CPS interim General Manager Steve Bartley, who resigned Nov. 25 in the wake of the report’s findings.

The auditor concluded that other executives on the nuclear team had, at worst, failed in their "responsibility of prompt disclosure."

In Bartley’s case, the report was more critical, saying "he should have recognized that news of a 50 (percent) increase in Toshiba’s cost estimate could have a devastating effect on the (City) council’s vote."

Board Chairwoman Aurora Geis said Bartley’s position held the ultimate responsibility.

"The interim general manager is accountable," she said Monday.

Robert Temple, who served as secretary of the board and vice president of nuclear development, is the only other executive to lose his job. His resignation is effective Dec. 15.

But the investigation found "no evidence of a failure to disclose material information" on Temple’s part.

Geis would not comment on why he was forced out.

Toshiba’s estimate

The first signs of trouble that would lead to the potential collapse of the nuclear project started with Toshiba’s 2008 cost estimate, which utility officials contend they didn’t officially receive until July of this year.

That’s because, while Toshiba was prepared to give the partners a cost estimate in late 2008, the world economy had just cratered, prompting CPS and NRG to ask for an estimate that took the financial downturn into account.

Toshiba instead said it would defer its estimate until 2009’s recalculation. In the meantime, CPS came up with its own estimate: $10 billion without financing.

In mid-June, a Toshiba executive sent an e-mail to Temple that it couldn’t "endorse" that amount. A week later, Kotara gave a progress report to the CPS board, offering up the $10 billion figure – $13 billion with financing. To hit that, Toshiba’s cost would have to be about $8 billion.

The board approved releasing that estimate June 29, kicking off CPS’ campaign to pitch the project at dozens of public meetings across the city.

A flurry of e-mails the night before, from a nuclear executive at the South Texas Project, John Bates of Nuclear Innovation North America and the CPS nuclear team reveal anxiety that Toshiba wouldn’t endorse CPS’ numbers and that it hadn’t signed a contract with its main subcontractor, Fluor Corp., because Fluor’s estimate was deemed too high.

NINA, a partnership between NRG Energy and Toshiba, owns 50 percent of the nuclear expansion project. CPS owns the other half.

In that e-mail chain, Kotara expressed disappointment that "we have come this far, and only now are learning of how wide the gap is between our estimate and Toshiba’s."

Temple and Nesrsta suggested that the figure was "just part of the negotiation." To which, Kotara replied: "That’s all well and good, but we should not have used an ‘optimistic number’ for our Long Range Resource Plan analysis."

Castro’s role

The report briefly touches on Mayor Julián Castro’s role in the controversy. While news of the higher estimate broke Oct. 27, a day after Castro said the estimate was leaked to his office, the report suggests he knew earlier.

He said his aide learned of the higher estimate from NRG attorney Frank Burney on Oct. 26, but the report says Castro had a conversation with Bartley on Oct. 19 in which Castro asked him, "Where are the numbers going?"

Bartley answered that "we could end up with $1 billion more," according to the report.

Castro said Monday that he was never asked by the auditor about that conversation, which he says was about whether San Antonio could afford the project, not Toshiba’s estimate. "I asked how far up the price could go and still be in the affordability range. He said up to $1 billion more."

Download CPS South Texas Project Investigation Report.