Fla. PSC approves Levy, Crystal River nuke settlement for Duke

Thursday, October 17, 2013 5:55 PM ET Exclusive
Fla. PSC approves Levy, Crystal River nuke settlement for
Duke

By Matthew Bandyk

Florida regulators on Oct. 17 approved a settlement for Duke Energy Florida Inc. that officially ends an effort to build the proposed Levy County
nuclear plant and resolves questions around who has to pay for the abandoned Crystal River nuclear plant, allowing the Duke Energy Corp.
subsidiary to collect roughly $1.8 billion from ratepayers despite the fact that neither plant will ever produce any power.

The mood at the hearing, held before the Florida Public Service Commission made a 4-1 decision in favor of the settlement, was somber, even among
supporters of the agreement.

"This is not a net benefit to customers. This is a truly tragic situation. There are no winners here," Jeff Wright, testifying on behalf of the Florida Retail
Federation, said at the hearing, which began Oct. 16.

"It kind of feels like a tied football game. Nobody walked away happy from this," John Moyle, an attorney for the Florida Industrial Power Users Group,
said.

Both of those groups were part of the discussions with Duke that led to the wide-ranging settlement agreement, which was unveiled in August. The
need for the settlement came from Duke's decision not to repair but to instead retire the Crystal River plant, which was seriously damaged by previous
owner Progress Energy Inc. — since acquired by Duke — when it cut a hole in the plant in an attempt to replace its steam generators. While Fitch
Ratings has estimated that retiring the plant leaves behind somewhere around $1.6 billion in stranded costs, Duke now believes that the full
amount for Crystal River is $1.8 billion, mostly driven by spending on a project to boost capacity at the plant that did not happen, according to Duke
spokesman Sterling Ivey.

The settlement allows Duke to recover up to $1.46 billion for Crystal River. The parties to the settlement "extinguish any and all of their rights to
contest [Duke Energy Florida]'s right to recover a return of and return on" this amount, according to the petition Duke filed for the settlement on Aug.

1. The company will write off $295 million and also return to customers $388 million to pay for replacement power during the time Crystal River was
   offline. Customers will also receive Duke's $835 million payout from the plant's insurer, Nuclear Electric Insurance Ltd., the largest payout in the
   history of the insurer.

"To the best of my knowledge, this settlement imposes more pain on Duke shareholders than has ever been imposed by any utility that has ever
suffered any major loss in Florida history, and perhaps in the rest of the U.S.," Wright said.

By spelling out exactly what Duke will be allowed to collect and what it must give up, the settlement avoids a potential drawn-out litigation process,
according to the supporters of the agreement. "Weeks, maybe months, maybe even years of appeals have been avoided by us coming together to
reach a settlement," Moyle said.

That argument appears to have persuaded a majority of the commissioners. "There is now a fence around the things that we can control," Florida
PSC Chairman Ronald Brisé said at the hearing moments before voting to approve the settlement. "With that, I believe that it is absolutely in the
public interest that we support this settlement today. It provides a certain level of certainty for a particular amount of time."

But others accused the settlement of unfairly saddling Duke customers with costs that came from mistakes that were not made by them. "I'm not
going to join in the chorus of 'Kumbayah' this morning," Florida state Rep. Dwight Dudley said in testimony at the hearing. "I don't know why
ratepayers are getting stuck in a major way. This should be on shareholders and investors, not ratepayers."

He said the damage to Crystal River was "plain negligence" and that the commission should consider investigating it instead of accepting that Duke
should be allowed to recover costs. "Closing the books on this without further investigation is outrageous," Dudley said.

In the days before the hearing, Dudley participated in a rally outside Duke's office in St. Petersburg, Fla., where demonstrators marched and held
signs with messages like "Duke gets the profits and customers get the shaft," the Tampa Tribune reported Oct. 12.

But according to Ivey, the settlement "will provide long-term certainty for customers and mitigate future rate increases." Rates will not go up as a direct
result of the settlement, he pointed out. Duke Energy Florida customers are already being charged $4.73 per 1,000 kWh for nuclear cost recovery,
with $3.45 of that going to pay down what Duke has already spent on the now-canceled Levy County project. These charges will not increase at least
through the end of 2018 under the terms of the settlement. The $3.45 charge will remain in place during this period as it pays down the remaining
unrecovered costs for Levy County, totaling just more than $300 million.

After 2018, customer rates for Crystal River could go up as Duke continues to collect the $1.46 billion. But "it is too early to tell what would happen to
the Crystal River rate" after 2018, Ivey said.

Levy County

The settlement also allows Duke to officially terminate its plans to build two new reactors at the Levy County site, a project long expected to be the
next new nuclear plant built in the U.S. following the two projects being constructed in Georgia and South Carolina.

Unlike Crystal River, Duke's decision to end development of Levy County was motivated mostly by outside political factors. "As a result of delays by the NRC issuing [combined operating licenses] for new nuclear plants, as well as increased uncertainty in cost recovery caused by recent legislative changes in Florida, Duke Energy will be terminating the [engineering, procurement and construction] agreement for the proposed Levy nuclear project," a Duke Energy Florida attorney said at the hearing.

That legislation was a bill passed by Florida lawmakers this spring that added new guidelines for how the commission can allow a developer of new nuclear plants to charge customers for the generation in advance. The legislation was pushed by environmental groups like the Southern Alliance for Clean Energy, who initially supported a more stringent version of the bill that would have explicitly disallowed a utility from charging its customers for a plant that is ultimately abandoned. This provision was removed from the bill during debate in the Legislature.

But the political pressure was strong enough to spook Duke away from the Levy County project. "There was a provision that required the commission to pay special attention to the Levy County project… that was removed at the last minute," George Cavros, an attorney for the Southern Alliance, said. "The company at least got a strong indicator from the Legislature how they felt about the project… and that might have indirectly led to the cancellation of the plant."

The bill required that until a utility receives a license from federal regulators for a new nuclear plant, it can only recover costs directly related to pursuing that license. But Duke "was already out in front" of the law, Cavros said. It had already signed a contract to build the plant.

Duke spent about $1 billion in total on the Levy County project, Ivey said, of which it has already collected about $677 million from customers through earlier approvals by the PSC. Under the settlement the remaining $323 million will be recovered through rates until 2018.

The utility will still pursue the license for Levy County in case it changes its mind in the future and decides to build new nuclear generation at the site.