Yes, Duke Energy will kill the $24.7 billion nuclear plant it planned to build in Levy County, but here are some additional details. (Yes, before Ivan Penn reports them!)
Duke Energy Florida has just filed a revised settlement agreement with the Florida Public Service Commission (FPSC) that the company says “provides long-term clarity for Florida customers, the company and other key stakeholders.”
The revised settlement agreement, developed collaboratively with the Office of Public Counsel and other consumer advocates, contains provisions related to the Crystal River 3 nuclear plant (CR3), the proposed Levy nuclear project, the Crystal River 1 and 2 coal units, and future generation needs in Florida.
Major components of the revised settlement agreement include:
- Addressing issues related to the company’s decision to retire CR3, CR3 costs to be recovered in customer rates and the acceptance of the Nuclear Electric Insurance Limited (NEIL) mediator’s proposal.
- Terminating the engineering, procurement and construction (EPC) agreement for the Levy nuclear project.
- Establishing a framework for Duke Energy Florida to construct or acquire natural gas-fired generation.
- Allowing recovery of investments in CR3, the Levy nuclear project and the Crystal River 1 and 2 coal units, subject to limited prudence reviews as outlined in the agreement.
- Extending the company’s current base rate freeze an additional two years, through the end of 2018.
Additionally, Duke Energy Florida will write-off $295 million associated with CR3 and $65 million related to the wholesale allocation of investments in the Levy nuclear project, as well as accelerate the recovery of $135 million in cash flows related to CR3.
As a result, Duke Energy will recognize pretax charges of approximately $360 million in the second quarter of 2013. These non-cash charges will be treated as special items and, therefore, excluded from Duke Energy’s adjusted diluted earnings per share.
The revised settlement agreement is subject to review and approval of the FPSC, which is expected by the end of 2013.
“The revised agreement represents an effective balance between moderating rate impacts to customers, providing clarity on recovery of past investments and allowing us to move forward with planning for Florida’s energy future,” said Alex Glenn, Duke Energy state president – Florida.
Let’s go over the details of the settlement agreement step-by-step.
Crystal River 3 nuclear plant
In February 2013, Duke Energy decided to retire CR3 rather than attempt a complex and costly first-of-a-kind repair. The company also announced resolution of its insurance coverage claims related to CR3 through a mediation process with NEIL.
Under the terms of the mediator’s proposal, customers and the CR3 joint owners receive the benefit of $835 million in insurance proceeds. This is the largest claim payout in the history of NEIL.
The FPSC currently has an open regulatory proceeding to review several issues, including: (1) the company’s previous decision to retire CR3; (2) the acceptance of the mediator’s proposal resolving NEIL coverage; (3) the costs of the CR3 repairs from February 2012 to the present; and (4) the components of the CR3 investment balance that are eligible for recovery beginning in 2017.
The revised settlement agreement, if approved, resolves the current pending regulatory docket before the FPSC.
Proposed Levy nuclear project
In 2008, Duke Energy Florida announced plans to construct two 1,100 megawatt nuclear units in Levy County.
Duke Energy’s EPC agreement was based on the ability to obtain the Nuclear Regulatory Commission’s (NRC) combined construction and operating license (COL) by Jan. 1, 2014. As a result of delays by the NRC in issuing COLs 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 EPC agreement for the proposed Levy nuclear project.
Although the proposed Levy nuclear project is no longer an option for meeting energy needs within the originally scheduled timeframe, Duke Energy Florida continues to regard the Levy site as a viable option for future nuclear generation and understands the importance of fuel diversity in creating a sustainable energy future. Because of this, the company will continue to pursue the COL outside of the nuclear cost recovery clause.
“We continue to believe that a balanced energy portfolio, including renewable energy, energy efficiency, and state-of-the-art cleaner power plants are critical to securing Florida’s energy future, and nuclear energy should remain an option to meet Florida’s future energy needs,” Glenn said.
The revised settlement agreement provides for the recovery of costs related to the Levy project.
The company will make a final decision on new nuclear generation in Florida in the future based on, among other factors, energy needs, project costs, carbon regulation, natural gas prices, existing or future legislative provisions for cost recovery, and the requirements of the NRC’s COL.
Crystal River 1 and 2
The Crystal River 1 and 2 units consist of approximately 875 megawatts of unscrubbed coal capacity. The company is evaluating the potential retirement of both units due to compliance issues with environmental regulations, such as the mercury and air toxics standards.
If the company decides to retire these units prior to their normal retirement date of 2020, the settlement allows Duke Energy Florida to continue recovering annual depreciation in customer rates through the end of 2020, and recover any remaining net book value of the units in 2021 through the Capacity Cost Recovery Clause.
As indicated by the company’s 10-year site plan, Duke Energy Florida projects a significant need for additional generation in service by 2018 to replace CR3 and the possible closing of Crystal River 1 and 2 before 2018.
The company is evaluating various sites in Florida, including Citrus County, south of the Levy County site, for a new state-of-the-art, clean-burning natural gas-fired plant.
The revised settlement agreement contains provisions that allow the company to construct, acquire or add to existing generation of up to 1,150 megawatts of gas-fired generation with an in-service date prior to the end of 2017. Prudently incurred costs are recoverable without a general rate case.
Additionally, Duke Energy Florida can petition the FPSC to approve up to 1,800 megawatts of additional generation with an in-service date in 2018. If approved, the company can establish a Generation Base Rate Adjustment without a general rate case to recover prudently incurred investments for this generation.
Duke Energy Florida will also agree to extend its current general base rate freeze for an additional two years through the end of 2018 as long as the company’s return on equity does not drop below 9.5 percent.