Trustees of San Antonio's electric utility Tuesday voted to continue investing in a nuclear power project in south Texas, but plan to shrink their ownership stake by as much as half.

CPS Energy, the nation's largest municipally owned energy company, is a partner in a proposal by NRG Energy Inc. (NRG) to build two new reactors at an existing nuclear power plant in Bay City, Texas. The project is considered a front-runner amid a wave of new proposals to restart U.S. nuclear development. Yet partners are critical to the Texas reactors' success since the project is estimated to cost $13 billion.

CPS Energy remains committed to the project, with the trustees voting unanimously to issue $400 million in bonds to continue to fund its development. The five-member board, however, wants to shrink the utility's stake, passing a resolution to reduce its ownership in the project to 20% to 25%, from 40%. The plan requires the backing of the San Antonio City Council since the city owns the utility. A vote is expected Oct. 29.

Shrinking CPS Energy's stake in what's known as the South Texas project has the support of San Antonio Mayor Julian Castro. CPS Energy should match its stake in the project with the power needs of its customers and eliminate the risks that come with selling excess supplies, said Jaime Castillo, a spokesman for the mayor's office.

Originally, CPS Energy was planning to use about 20% of the power from the new reactors to meet the growing demand of its own territory and then sell the other 20% to other suppliers.

NRG Energy already is marketing a 20% stake in the project, expecting to announce a partner by the end of the year. A spokesman for the company said there's been strong interest and would expect demand for an additional stake if CPS Energy reduces its ownership stake.

The project's current ownership structure has Nuclear Innovation North America, a joint venture between NRG Energy and Toshiba Corp. (6502.TO), owning half and CPS Energy owning half. The 20% stake NRG Energy is currently marketing would reduce the holdings of Nuclear Innovation and CPS energy to 40% each.

Brandon Blossman, an analyst at Tudor, Pickering, Holt & Co. in Houston, said NRG Energy's proposal in south Texas is arguably the best in the country. But even top projects face the uncertainties of climate change legislation and a huge increase in U.S. natural gas reserves, primarily from newly accessible rock formations known as shales, that have injected doubt into a once robust outlook for power prices.

NRG Energy may find the number of likely partners limited. Paul Fremont, an analyst at Jefferies & Co., said only a certain number of companies, such as municipal utilities, will invest in a project that provides large amounts of power for decades ahead. Austin Energy - a municipal utility that owns part of the existing South Texas plant - turned down NRG Energy earlier this year, while retailers that supply most of the power to consumers in Texas' deregulated market often are more short term in focus.

-By Mark Peters, Dow Jones Newswires; 212-416-2457; mark.peters@dowjones.com