NRG Might Exit Nuclear Project

NRG Energy Inc. said it might be forced to take a $400 million charge and pull the plug on its nuclear-development efforts in Texas if it is unable to settle a dispute with its partner, a city-owned utility company in San Antonio.

The disclosure came prior to a state-court ruling Friday that advised NRG and CPS Energy to resume negotiations surrounding CPS's desire to withdraw from efforts to build two nuclear reactors at a South Texas site, near Bay City.

NRG Chief Executive David Crane, in a call with investors, said he spent last week in San Antonio trying to reach a settlement but the parties remain far apart. CPS has sued NRG, alleging unfair dealings and seeking $32 billion.

The rift between the parties underscores the political risks that remain part of nuclear-development efforts. Mr. Crane, in an interview Friday, said it was "ironic'' that his project is stumbling based on an "internecine squabble'' between the city-owned utility and the San Antonio elected officials just as "national politics are aligning'' to back nuclear power.

CPS General Counsel Carolyn Shellman said the utility is trying to "chart a path...that is financially responsible." She added that she hopes the two sides "can work out a reasonable solution."

President Barack Obama, in his State of the Union address, gave his clearest statement of support yet for construction of a fleet of new reactors able to reduce power-sector emissions. On Monday, Mr. Obama's budget is expected to propose tripling federal loan guarantees for nuclear projects.

The Texas project has been regarded as a frontrunner, one of only four thus far to make the short list for federal loan guarantees. It was the only proposal with a reactor design supplied and previously built elsewhere by its vendor.

Mr. Crane said Friday he accepted full blame for the difficulty. He said he didn't understand that CPS had invested hundreds of millions of dollars in the project "without having received San Antonio city council approval.''

Support for the project faltered late last year when it became clear to elected officials that project costs could top $10 billion, apparently more than they understood from earlier estimates.

People familiar with the companies' negotiations said that the two sides now are trying to find a way to allow CPS to withdraw without jeopardizing a federal loan guarantee, without which the project wouldn't be economically viable.

The utility has invested $370 million in the project and believes it is entitled to far more in compensation.

Negotiations have focused on finding a way to fairly compensate CPS, avoid more political fallout and find a way to substitute new investors so the project remains viable.

Texas Judge Larry Noll on Friday upheld CPS's right to cease funding the project without directly forfeiting its equity interest. But he warned, in essence, that the city couldn't hold NRG hostage.

"If you want to be in the play, you have to pay or you can't stay,'' he told CPS. "You will eventually lose your equity share.'' He advised the partners to go back to the negotiating table "and resolve this controversy and move forward for the betterment of this project and for the citizens...''

CPS's Ms. Shellman said the utility's board "hasn't made a final decision" on how to proceed. But it "needed to know the legal risks of withdrawing."

The people familiar with the discussions said that NRG hopes to find a way to get CPS to surrender its interest to NRG and a third, smaller partner, Toshiba Corp., which then would be free to bring in additional equity investors. Tokyo Electric Power Co. has expressed an interest in investing, Mr. Crane said in his investor call Friday.

Mr. Crane said he would hesitate to proceed with CPS as an active participant since "we would have to be sure they couldn't walk out of the project six months or 12 months from now.''

He added that there was "a total absence of trust between the two parties.''

The San Antonio city council was poised to approve a $400 million bond issuance in late October but held back when new numbers came to light that indicated the nuclear project could cost more than it expected. Like most municipal utilities, CPS has an appointed board that reports to elected city officials, whose approval is needed for rate changes or bond issuances.

A political ruckus ensued that led to the resignation of the utility's interim general manager and deputy general counsel.

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