CPS secrecy strains relations with City Council

November 1, 2009

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

News last week that CPS Energy kept word of a massive cost-estimate increase to itself for more than a week has shaken the City Council's confidence so deeply that the utility now must make a Herculean effort to keep its nuclear expansion plans on track.

"A lot of us already had concerns," Councilman Justin Rodriguez said.

"I think it's fair to say this puts the entire project in jeopardy," he said, referring to the proposed addition of two nuclear reactors at the South Texas Project near Bay City.

Interim General Manager Steve Bartley insists CPS will win back the council's trust, and that he has always been a crusader at CPS for more openness.

But the damage from last week's debacle may have lasting repercussions. There are murmurs at City Hall about a management shake-up at CPS, and several council members are calling for more oversight of the city-owned utility.

To council members and others, a string of public flubs during the summer-long nuclear debate has exposed a closed culture at CPS more akin to that of a private corporation than a public power company.

Whether it was stumbling in its early community outreach efforts, the insistence on closed-door meetings with the council and its own board of trustees, or confusion over its recently proposed 9.5 percent base rate increase, CPS has frequently disappointed, several council members say

But none of these incidents has strained their relationship more than the recent failure to disclose the existence of a preliminary cost estimate from contractor Toshiba Inc. that is $4 billion higher than the utility wants.

That estimate, which Mayor Juliín Castro learned about Monday night, derailed the council's planned vote on Thursday to borrow $400 million for nuclear financing.

The vote now is expected to take place in January.

Bartley said the estimate is so preliminary as to be almost meaningless and should never have been publicly divulged. But the episode has shaken the faith of even some of the nuclear project's strongest proponents on the council.

"They told us all along it was $13 billion," said Councilwoman Elisa Chan, who noted the council did not even know there was a gap between Toshiba's estimate and CPS', much less the extent.

"This shows a lack of leadership. We're not talking about $400 million here - we're talking about $4 billion. They need to re-establish communication and trust before we can talk about spending any money at all."

A City Hall insider said Castro, out of public view, is livid that he did not learn of the cost estimate until an aide asked directly about it, and that he's fed up with the lack of timely and complete information.

In public, however, he's taking a more measured stance, in large part because Wall Street is watching.

"We need to maintain the integrity of the organization while correcting bureaucratic culture issues," Castro said Thursday. "But my confidence in the leadership has been tested."

Castro described CPS' culture as one "with a tendency toward less transparency than needs to be for a public utility, with less appreciation for the role of policymakers than there ought to be."

In interviews, a majority of the 11-member council said they're upset with the utility. And according to Castro, some have even suggested that a leadership change would be appropriate, but he disagrees.

"The general consensus is that there needs to be some changes," Councilman John Clamp said. "But we need to take a measured approach. I agree with the mayor."

Castro has asked board Chairwoman Aurora Geis for an internal investigation into last week's events. Depending on the results, the board could take disciplinary action, he said.

He also expressed disappointment that Bartley "seems more concerned that the information got out, than that material information that should have been disclosed to the board and council was not."

Promises of reform

Bartley has acknowledged that the utility has had communication and openness problems. He attributed this to a culture within the organization of managing problems internally.

"We take a lot of pride with that," he said.

He also promised the utility would do more to fully inform the board and council in the future.

"I have made a strong emphasis on my staff to make sure I am much better informed and we provide better information, more transparent information, to the council and to the board," he said. "We are in an ever-changing world that demands more accountability and more openness about major decisions like this that affect many people's lives."

This isn't the first time Bartley has uttered such words. He opened the utility's Oct. 5 work session with a lengthy statement promising that it would make an effort be more open and "err on the side of public disclosure."

This came after an open-meeting challenge from the San Antonio Express-News that caused the mayor to cancel a closed session between CPS and the council.

Just a week later, the utility was accused of muddying the rate increase issue by talking about a "5 percent bill increase" all summer, then letting the council know it would actually be voting for a 9.5 percent base rate increase.

In that case, Bartley has said, CPS was trying to simplify the issue for ratepayers by giving them the bottom line increase they would see on their bills.

Geis said she has had several discussions with Bartley about management sharing more information with the board since last week's revelations. However, she said she was not upset Bartley had not shared Toshiba's preliminary cost estimate with the trustees.

"The reality is that nothing has really changed, substantially changed," even though Toshiba has indicated this higher-than-expected cost estimate, she said. "It is not a given. It is nothing more than negotiation, and we had already given staff boundaries to negotiate in."

That's not the way it looks from City Hall.

"They have changed - substantially," said Councilman Reed Williams, a former oil-refinery executive viewed as an influential behind-the-scenes voice in the nuclear debate. "This is putting the genie back into the bottle."

Clamp and Councilwoman Jennifer Ramos are pushing for a council committee to more closely oversee the city's utilities, including CPS Energy.

Geis had not heard of the proposal but said such a committee could create complications with the rating agencies that judge the utility's credit worthiness.

"CPS Energy (and) the board of trustees has a very good governance model," she said. "I, too, am a public citizen who volunteers, and the amount of time that I take to engage in these conversations in the eight years I have been on the board of CPS Energy is about 20 to 30 hours a week. I cannot imagine how council is going to take that amount of time to immerse themselves in these issues as well."

Right now, the board consists of the mayor and four members who each represent a quadrant of the city. Serving for a maximum of two five-year terms, the board self-selects new members, who then are ratified by the council.


The growing strain between the utility and policymakers is apparent to outsiders, too.

The council "has to have timely knowledge to make adequate, reflective decisions," said Richard Gambitta, a political scientist at the University of Texas at San Antonio. "You shouldn't have to ask a specific question. There should be a flow of information."

Gambitta said an element of distrust has now entered the relationship, "a feeling of betrayal that is going to be very difficult to repair."

The perception that CPS is not responsive to the council is not new.

Clamp, one of six to vote against the utility's request for a 5 percent rate increase last year, said he was disappointed then - and now - with how utility officials offer up information.

"There is a bit of arrogance between their board and the City Council," he said.

The council has until January to decide whether it is willing to grant the debt and rate increase needed to continue the nuclear project.

Bartley insists the proposed expansion of the nuclear South Texas Project is still a "good long-term solution" to meet the city's future energy needs. "But the number has to come down significantly."

Bartley will lead a team to Japan next week to discuss the situation with Toshiba, the general contractor. Fluor Corp., an international company with headquarters in Irving, will do most of the construction.

David Crane, CEO of NRG Energy, a partner in the nuclear project, also is going.

Crane said his company has known about the Toshiba cost issue since this summer. He confirmed that the Japanese contractor had estimated the cost for its portion of the project at $12 billion, as opposed to the $8 billion that CPS and NRG had been working with.

Crane also said the gap has already been reduced, but he declined to say by how much.

CPS Energy has estimated that building two reactors outside Bay City will cost $13 billion. Roughly $3 billion is the cost of financing, leaving $10 billion for construction, engineering and other costs.

Despite the political firestorm, Bartley remains bullish on the project and the ability of his team to negotiate with Toshiba and bring it in on cost.

"I believe that we have a very, very talented professional group at CPS Energy, and I believe that they have served this community well over the years," he said.

"From my perspective, (Toshiba) clearly knows what our direction is, and they can choose to work with us and get the number down, or they know that we will pursue other alternatives."

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