RPT-UPDATE 2-Texas judge warns CPS in Texas nuclear dispute

* Texas judge directs parties to negotiate withdrawal

* NRG not to pursue new reactors without loan guarantee

* NRG sees possible $400 million pretax write-off
(Adds further comments from Crane, Knox and LeBlanc-Burley,
paragraphs 10-18)

HOUSTON, Jan 29 (BestGrowthStock) – NRG Energy Inc (NRG.N: ) CEO
David Crane said on Friday the company would not pursue
construction of two nuclear reactors in Texas if the project
loses a federal loan guarantee due to a dispute with partner
CPS Energy.

A Texas state judge on Friday ruled CPS may withdraw its
financial support from the $10 billion project, but cannot
expect to retain its 50 percent ownership stake, according to a
court transcript.

“If you want to be in the play, you have to pay, or you
can’t stay,” Judge Larry Noll said. “You will eventually lose
your equity share.”

The judge directed the parties to negotiate a settlement
addressing project ownership and withdrawal.

The dispute could be the second setback for new nuclear
reactors in the United States, after FPL Group Inc (FPL.N: ) said
this month it would halt billions of dollars in capital
expenditures, including reevaluating development of two new
reactors, after getting a negative rate case ruling.

In December, CPS, a municipal utility owned by San Antonio,
sued NRG for $32 billion, alleging NRG misled utility officials
on the estimated cost of the reactors, among other things.

CPS is a 50-50 partner with Nuclear Innovation North
America, a partnership between NRG and Toshiba Corp (6502.T: ),
to build the two reactors in South Texas. The utility has spent
more than $300 million on the nuclear expansion project.

Before the judge’s ruling Friday, Crane told analysts and
investors in a conference call that suspending the project
could cause NRG to take a pretax write-off of $400 million.

Even with Friday’s ruling, prospects for construction of
South Texas Project units 3 and 4 remain uncertain should CPS
withdraw completely from the project.

Crane said the nuclear project remains economically viable.
“So long as there is a real possibility that we can secure a
federal loan guarantee, we will continue to exert every effort
to resolve the dispute with CPS fairly and in a timely manner,”
Crane said.

NRG, however, will not move forward “unless we see a clear
path forward to success,” Crane said.

NRG spokesman Dave Knox said Friday’s ruling “gives CPS
clarity on their rights if they withdraw.”

If the parties can negotiate a settlement, “we can get that
clear path to success,” Knox said.

CPS officials agreed that the ruling helped define the
utility’s rights. “Now we want an equitable solution at the
negotiating table,” said Jelynne LeBlanc-Burley, acting general
manager of CPS Energy, in a statement.

Crane said before the CPS dispute, he thought the South
Texas project was among front runners to get “the all-critical”
federal loan guarantee. But now, Crane said, he did not believe
the Department of Energy would risk any of the $18.5 billion
loan guarantee fund on a troubled project.

CPS and NRG each applied for a loan guarantee for their
respective shares of the project.

“We have reason to believe that the DOE sees a fierce
dispute between the equal partners … as an extremely high
obstacle to them committing a loan to the project,” Crane told
investors.

Stock Market Money

(Reporting by Scott DiSavino and Eileen O’Grady; Editing by
David Gregorio)

RPT-UPDATE 2-Texas judge warns CPS in Texas nuclear dispute