Oil and Gas

UPDATE 1-NRG unit, San Antonio settle nuclear dispute

* CPS Energy retains small stake in project

* Agreement to put project back in running for DOE loan

* NRG to pay CPS once project gains federal support

(Adds comment, detail, byline)

By Eileen O’Grady

HOUSTON, Feb 17 (Reuters) - NRG Energy Inc's NRG.N nuclear development unit and CPS Energy of San Antonio have settled an ownership dispute over the $10 billion development of two nuclear reactors in Texas, giving the project a second chance, the companies said on Wednesday.

CPS will reduce its stake in the two-unit nuclear expansion project to 7.625 percent from 50 percent for payments of more than $80 million.

Nuclear Innovation North America (NINA), a partnership between NRG and Toshiba Corp 6502.T, will retain a 92.375 percent ownership stake, assume full control and development costs going forward for the proposed South Texas Project units 3 and 4, according to a press release.

“With this agreement, we can continue developing one of the leading nuclear power projects in the country,” Steve Winn, NINA chief executive, said in a release.

The agreement, subject to CPS board action, will settle a lawsuit CPS brought late last year that NRG said threatened the project’s “once-in-a-lifetime” chance to obtain a federal loan guarantee. Without federal support, NRG officials said the project would be suspended, forcing NRG to take a $400 million write-off.

Winn said the settlement “will once again put us in contention for a Department of Energy loan guarantee and ensure we have no conflicts preventing new partners from joining the project.”

On Tuesday, President Barack Obama said Atlanta-based Southern Co SO.N would receive the first DOE loan commitment of $8.3 billion, nearly half the current loan pool of $18.5 billion, to build two new reactors in Georgia.

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

NRG spokesman Dave Knox on Tuesday said the positive settlement discussions, if successful, could put the South Texas Project expansion “clearly in lead position for the second loan guarantee.”

Both sides credited Texas Public Utility Commission Chairman Barry Smitherman with helping the parties reach a settlement, following a judge’s initial order to negotiate.

CPS joined NINA as a 50-50 partner in the plan to build two new reactors, but the relationship turned sour last fall after rising cost projections surfaced, creating friction between the utility and San Antonio’ elected leaders.

The utility decided to cut its participation to better match the city’s future power needs, then sued NRG to clarify its obligations to withdraw.

The settlement calls for NRG to pay CPS $80 million in two payments, but only after the project obtains federal loan backing. NRG will also contribute $10 million over four years to assist CPS Energy customers.

“This agreement extracts the maximum value for our community at this stage of the project’s development,” said CPS Energy Acting General Manager Jelynne LeBlanc Burley in a statement.