A $1 billion settlement negotiated by CPS Energy and Nuclear Innovation North America (NINA) last week ended a bitter legal dispute between the companies and could allow the proposed nuclear expansion of the South Texas Project (STP) near Bay City, Texas, to proceed.

The settlement reached on Feb. 17 between the utility owned by the city of San Antonio and the nuclear development company jointly owned by NRG Energy and Toshiba Corp. would reduce CPS Energy’s ownership stake in STP Units 3 and 4 to 7.625%, while allowing NINA to increase its stake to 92.375%. It would also allow NINA to assume full management of the project.

But the agreement remains subject to final documentation and approval from the CPS Energy Board of Trustees—and it is unclear when that will take place. The board on Monday delayed approval of the settlement agreement until final details are hashed out, reported the San Antonio Express-News. It is unknown when the next CPS board meeting will be scheduled.

The settlement was reached one day after President Barack Obama offered to conditionally guarantee $8.33 billion in loans for Southern Co.’s project to build two new reactors at Plant Vogtle in Georgia—the first, long-awaited nuclear loan guarantee. The STP expansion project, which entails building two advanced boiling water reactors (ABWRs)—was one of four projects shortlisted for DOE loan guarantees. Other contenders include Scana Corp.’s Summer plant in South Carolina and UniStar’s Calvert Cliffs plant in Maryland.

Last week, NINA CEO Steve Winn said in a statement that the settlement with CPS Energy returned the project to contention for a loan guarantee while ensuring that the parties had no conflicts preventing new partners from joining the project.

Under the agreement, CPS Energy will work with NINA and the DOE to support NINA’s application. NINA also agreed to pay CPS Energy $80 million, in two $40 million payments, after the project is approved for DOE loan guarantees. Over the next four years, NINA will also contribute a total of $10 million to Residential Energy Assistance Partnership, a nonprofit partnership of CPS Energy, Bexar County, and the City of San Antonio. The company will also pay development costs incurred at the project after Jan. 31, 2010.

A combined operating license for the new STP units from the Nuclear Regulatory Commission (NRC) is expected in 2012. Unit 3 is now anticipated to come online in 2016, and Unit 4 in 2017.

The dispute between CPS Energy and its 50-50 partner in the STP expansion, NINA, began last fall, when Toshiba gave CPS Energy a substantially higher preliminary cost estimate to build the two new units at the STP plant—reportedly $4 billion more than CPS Energy’s preliminary total project cost of $13 billion.

In early December 2009, the utility filed a petition with a Bexar County court to define the liability both parties faced if they pulled out of the project near Bay City, Texas. CPS Energy said in its filing it had invested nearly $300 million in the project’s engineering and planning—even though a permit to build and operate the reactors won’t be granted until 2012. The “value of participation and related rights in and improvement to the project site” are worth more than $2 billion, CPS said.

The lawsuit escalated just before Christmas Day when NRG Energy sued CPS Energy, claiming the utility should forfeit its $300 million investment thus far and lose all value in the project. CPS then amended its filing, claiming NRG, NINA, and Toshiba failed to disclose critical cost information and disparaged CPS to hurt the utility’s ability to sell part of its stake in the nuclear project.

Earlier this month, CPS Energy said it had received the contractually mandated cost estimate for the proposed project from Toshiba—but it stressed it would make no decisions on the project until “rigorous analysis” of price and methodology was completed. Then in January, the municipally owned utility dropped Toshiba from its $32 billion lawsuit stemming from the dispute to keep the case from being shifted to federal court.

“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, who added that the utility’s share of the finished project meant 200 MW more of electricity—about a third of the municipality’s future electricity needs by 2020. “It accounts for our investment to date and the value of the site with land and water rights.”

CPS Energy and NINA both acknowledged that a Feb. 12 meeting organized by Public Utility Commission Chair Barry Smitherman was integral to the parties coming to an agreement, as the project impacts the residents of Matagorda County and Texas as a whole.

Sources: CPS Energy, NINA, POWERnews, San Antonio Express-News