Dispute Spurs NRG Energy To Reassess Nuclear Plan

One of the leading projects to restart nuclear power development in the U.S.
could collapse as a partnership between NRG Energy Inc. (NRG) and San
Antonio's electric utility sours.

A joint venture between NRG Energy and Toshiba Corp. (6502.TO) raised doubts
Friday about its plans to build with utility CPS Energy two reactors at an
existing plant in southern Texas. NRG Energy Chief Executive David Crane
said the company would exit the project and suffer a $400 million write-off
if a clash with CPS isn't resolved.

CPS sued NRG Energy and Toshiba last month as the city-owned utility
considered reducing its stake or completely withdrawing from the project. A
Texas district judge provided some guidance to the sides in a ruling Friday,
while urging them to restart negotiations.

"Every day this goes on, other people are making progress [on nuclear
development] and we're not," Crane said, speaking with investors during a
conference call.

Halting the project would strike a blow to a federal push to build the first
new reactors in a generation. The Texas project was the first in more than
30 years to file for a construction and operating license with federal
regulators, and is a leading candidate for federal loan guarantees. Nuclear
power continues to gain support in Washington amid a clamor from Republican
lawmakers, with President Barack Obama highlighting the need for new
reactors in his state of the union address this week.

Crane said the federal loan guarantees for the Texas project are stalled by
the dispute. He didn't put a timeline on the company's decision, but
acknowledged NRG Energy is competing against other projects for the
guarantees and other benefits available to first movers.

NRG Energy's shares saw little movement on the possibility it could exit the
so-called nuclear renaissance, recently trading down 2.2% to $24.18.
Analysts at Credit Suisse in a note to clients wrote the possible $400
million charge shouldn't affect a share buy-back plan or key credit metrics.
They added it doesn't appear investors have been pricing into NRG shares any
value from the planned project.

"The new nuclear build is in no way incorporated into our earnings
estimates, valuation or positive thesis on NRG," wrote Angie Storozynski, an
analyst at Macquarie Capital in a note to clients.

CPS in its suit claims that if it exits the project, it should be able to
retain its stake or be compensated for it. The utility currently owns a 50%
share of the partnership, which the utility values at more than $2 billion.
NRG Energy has argued that CPS under their contract would forfeit its stake
by withdrawing from the project.

District Court Judge Larry Noll in a hearing Friday ruled CPS wouldn't lose
its stake if it leaves the project. But he added the city-owned utility
can't expect to keep its interest if it stops funding the development of the
reactors.

"If you want to be in the play, you have to pay or you can't stay. You will
eventually lose your equity share," according to a transcript of Noll's
remarks.

Both sides declared the ruling a victory and said they remain interested in
reaching a negotiated settlement. But Crane said earlier in the day during
the conference call that CPS and NRG Energy remain far apart.

The souring of the partnership between CPS and Nuclear Innovation North
America LLC, the nuclear-development company 88%-owned by NRG and 12%-owned
by Toshiba, began last fall as rising construction cost estimates and
falling electricity demand drove San Antonio elected officials to rethink
the $9 billion to $12 billion project. Then came the lawsuit in December,
which includes claims of fraud and conspiracy for which CPS is seeking $30
billion in damages. The court is taking up these issues separately.

Crane on Friday apologized for not foreseeing the political aspect of the
partnership with CPS. He said NRG Energy and Toshiba will continue to pursue
the project for now, but won't proceed alone if CPS exits. They would have
to bring on new partners to move forward.

The two sides agreed before the dispute to each sell a 10% stake in the
project, but uncertainty around CPS's involvement has stymied these efforts.
Tokyo Electric Power Co. (9501.TO) has said it's considering purchasing a
stake in the project and remains interested.

Princeton, N.J.-based NRG Energy owns power plants with more than 24,000
megawatts of generation, including a portion of the existing south Texas
nuclear power plant. CPS Energy, which is the largest municipally owned
energy company in the U.S., also is part owner of the plant.

-By Mark Peters, Dow Jones Newswires; 212-416-2457 [email protected]