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TEPCO mulls stake in NRG Texas nuclear plant

* Japanese firm confirms interest in new Texas reactors

* NRG-CPS Energy lawsuit complicates ownership question

HOUSTON, Jan 27 (Reuters) - A Japanese electric utility is mulling a stake in a Texas nuclear plant under development by NRG Energy Inc NRG.N, which is a leading contender for billions of dollars in federal loan guarantees.

Tokyo Electric Power Co Inc 9501.T, operator of the world's largest nuclear plant in Japan, is considering taking a stake in the $10 billion-plus project to be built in South Texas by 2016, said a spokesman for the Japanese utility.

TEPCO’s interest surfaced just as NRG’s nuclear development unit and San Antonio utility CPS Energy prepared to square off in court in a dispute over CPS’ right to reduce its ownership share or withdraw from the project.

A U.S. nuclear energy resurgence is viewed as important in reducing the power industry’s emissions of carbon dioxide, a greenhouse gas that causes global warming. No nuclear reactors have been started in the U.S. since the 1979 Three Mile Island nuclear plant accident.

The Obama administration has identified NRG’s South Texas Project expansion as one of four finalists expected to share in an $18.5 billion loan guarantee program designed to revive the nuclear industry.

TEPCO, which operates the advanced nuclear design chosen by NRG, has been a consultant on the South Texas expansion since 2007.

A TEPCO spokesman confirmed Asia’s largest utility’s interest in the Texas project this week.

“It is true that we are mulling cooperation, including the issue of stakes, beyond the current consulting on nuclear power technology,” said Manabu Takeyama. “But there is nothing concrete decided at this moment.”

Takeyama declined to comment on the trial between NRG and CPS which began in state court in San Antonio this week.

CPS Energy is a 50-50 partner with Nuclear Innovation North America (NINA), a partnership between NRG and Toshiba Corp 6502.T, in the plan to build two new reactors in Texas.

The partnership dispute between NRG and CPS becomes more important if TEPCO wants to invest in the project because U.S. law limits foreign ownership in nuclear plants.

Rising cost projections of up to $17 billion created friction between the San Antonio utility and the city’s elected leaders resulting in the utility’s decision to halve its level of investment and the lawsuit.

NRG has said in court filings that CPS may withdraw from the project but cannot exercise continuing management.

In a statement, NRG Chief Executive Officer David Crane cited TEPCO’s consulting role but declined to comment on its additional interest in the project.

If the trial drags out for six months or longer, it could hurt NRG’s effort to participate in the next generation of nuclear power in the U.S, said analyst Lasan Johong of RBC Capital Markets in New York.

Without a negotiated settlement or quick legal resolution, the Energy Department may issue conditional loan commitments to other projects, Johong said, leaving NRG without the federal support company officials have said is crucial to keeping the project moving forward.

“I hope common sense prevails and people don’t end up dragging this out unnecessarily,” Johong said. (Additional reporting by Chikako Mogi in Tokyo; Editing by Marguerita Choy)

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