By Anton Caputo and Tracy Idell Hamilton
San Antonio Express-News

CPS Energy knew a year ago that contractor Toshiba Inc. wanted at least $4 billion more than San Antonio was willing to pay for the nuclear expansion, according to several sources close to the deal.

Despite this, utility officials used a much lower figure as they pitched the project at public meetings during the summer, arguing that nuclear was the most cost-effective way for San Antonio to meet its future energy needs.

They took the same message to elected officials who were to vote on a $400 million bond issue and rate increases to finance the multibillion-dollar expansion of the South Texas Project near Bay City.

The response of City Council members and CPS Energy trustees to the 2008 estimate was muted Saturday. "Nothing can surprise me anymore," Councilwoman Elisa Chan said.

But several officials said the revelation only deepens their mistrust of the city-owned utility's leadership.

"It concerns me greatly that neither the council nor the board was informed," said Mayor Julián Castro, who acknowledged he, too, recently learned of the existence of the 2008 high estimate.

Those who've been fighting the proposed nuclear deal for months, warning it would cost much more than CPS Energy was promising, were more pointed.

"That means at the district meetings and the public forums they held all summer, CPS was lying to the public," said Karen Hadden of the SEED Coalition, an Austin-based environmental advocacy group. "This is a massive deception."

At issue is how much Toshiba will charge for building two nuclear reactors. Since June CPS Energy has estimated the total cost of the project at $13 billion.

This number, the San Antonio Express-News has learned, breaks down in this way: About $8 billion to Toshiba, $1 billion for owner costs, $1 billion for contingencies and $3 billion for financing.

At that price, utility officials say, nuclear beats out all other energy alternatives and can be built while limiting bill increases to about 5 percent every other year for a decade. That would translate into a 9.5 percent base rate increase, which the council would have to approve.

In mid-October, Toshiba provided CPS with its latest estimate — more than $12 billion — a $4 billion gap that makes the project unaffordable. When the mayor and council learned of it because of a leak, they immediately canceled a vote on financing.

Now they're hearing Toshiba's number was that high as early as 2008.

CPS interim General Manager Steve Bartley said he was in the dark about the 2008 cost estimate until recently.

"I have not been aware of any '08 estimate from Toshiba until just recently," he said. "And that is a subject of an investigation that I am not going to go into."

He declined to comment further.

That investigation was prompted by news that the October estimate from Toshiba was kept from the CPS board and the council.

CPS Energy's internal auditor has been investigating who knew what, and when. Already, two senior executives — members of the nuclear development team — have been placed on administrative leave.

The Express-News learned the probe has broadened to include the 2008 estimate as well.

While CPS officials never have publicly confirmed the $12 billion figure, either in October or last week, executives from NRG Energy, which is partnering with CPS Energy in the deal, have said Toshiba presented them with a preliminary price estimate of $12.3 billion in July.

Sources with direct knowledge of the deal told the Express-News that the Japanese contractor released an "assessment in cost" in November 2008 higher than that.

Bartley has said CPS Energy views Toshiba's higher figures as a negotiating ploy, and that the utility never would agree to move forward with the project at that price. He's also said those numbers never were meant to be public.

Investigation due

Councilman John Clamp, while sympathetic to Bartley's explanation, said he was less concerned about the higher amount than the fact Bartley said he wasn't familiar with it until recently.

"That's a big problem," Clamp said. "If you're part of the negotiating team, it would seem to me you'd need to know the parameters of what you're negotiating."

City Manager Sheryl Sculley said she wasn't familiar with the 2008 number, nor, she said, was city Finance Director Ben Gorzell, who serves as the liaison between the city and CPS Energy.

Sculley also said that, according to Gorzell, Toshiba's estimates didn't appear to be incorporated in the city-commissioned report that confirmed nuclear was the most cost-effective option for San Antonio. That report was conducted by The Brattle Group.

Clamp, Chan and Castro all questioned whether the higher cost estimates might invalidate their consultant's work.

But the Brattle report now is a secondary concern for Castro. He wants answers and has asked that results of the investigation be presented at Monday's CPS board meeting. The session is scheduled for 2 p.m. in the company's headquarters at 145 Navarro St.

Castro said he wants the board to make a recommendation to CEO Milton Lee, who handed over day-to-day operations to Bartley in 2007, about what should be done in the wake of the investigation's findings.

CPS board chairwoman Aurora Geis said the trustees likely would go directly into a closed-door session Monday, and that because the results of the investigation likely would include personnel matters, she was unsure of how much could be divulged to the public.

She said some public presentation would be made Monday or perhaps Tuesday.

Castro said he would press to make the investigation's findings public. Only a full airing of events will help restore the public's confidence in CPS Energy, he said.

"Even if the details of the individual personnel issues belong in executive session," said Castro, "the general investigation findings do not."