Hey, That's Our Nuke, Too

Last month's news that a New Jersey energy outfit would buy Houston-based Texas Genco for $5.8 million came and went with barely a ripple in Austin. But within days of the mid-November announcement of the pending sale, former Mayor Pro Tem Jackie Goodman sounded an alarm at the City Council. Then she sounded a second alarm, and the council took note: Texas Genco's sale of assets would include its 44% share of the South Texas (Nuclear) Project, and hey, that's our nuke, too.

Which raises several questions: What effect will the sale have on Austin's 16% ownership of the South Texas plant? Is it too late for the city to throw itself into the discussion before the Nuclear Regulatory Commission reviews the deal in January? And third, why did Austin Energy have to be prodded into briefing the council on the pending sale? The answers could be forthcoming today, in a private briefing between Austin Energy officials, council members, and city attorneys.

The prospective buyer, NRG Energy, expects to close the deal in the first quarter of 2006, according to reports. Goodman believes it's imperative that the city get involved in the regulatory review process on behalf of local ratepayers to establish that NRG has the financial resources to keep the nuke up and running. That's a fair request given that NRG only recently emerged from bankruptcy.

The sale also is providing a casebook study in how investors – not consumers – are benefiting from a deregulated industry. This is the second time Texas Genco has been bought and "flipped" in just over a year, leaving one Austin follower of nuke issues to question the judiciousness of flipping nuclear power plants like so much real estate. The four equity funds involved in the flip – Texas Pacific Group, the Blackstone Group, Kohlberg Kravis Roberts, and Hellman & Friedman – stand to make a cool $4.9 million profit from the sale, according to The New York Times.

As Goodman noted in one of two letters to council members, city officials have an obligation to ratepayers to investigate the financial wherewithal of NRG. Should the South Texas plant have to shut down for any reason, Goodman said, NRG would not only be responsible for shouldering the cost of repairs, but also for finding replacement power in the interim.

"Without substantial capital reserves or a rate base," Goodman wrote, it could be that "NRG will not have the resources, or could even default – leaving 56% of the STNP share owners with 100% of the cost responsibilities." Goodman asked that the council perform due diligence by requesting the Nuclear Regulatory Authority to ask for financial reassurance from NRG – "before they take on 44% of the nuclear plant we in Austin rely on."