Duke Energy COL for Levy County Nuclear Plant Still Alive Outside Cost Recovery

We've been watching the wires pretty closely every since we caught wind of a potential announcement by Duke Energy about the proposed nuclear project in Levy County, Florida. So far, several outlets have incorrectly reported that the project has been permanently shelved.

It's too bad those reporters didn't bother reading the fine print of the Duke Energy press release concerning a wide-ranging settlement with the Florida Public Service Commission (PSC) that went out about an hour ago (Bold emphasis mine):

In 2008, Duke Energy Florida announced plans to construct two 1,100-megawatt nuclear units in Levy County, Fla.

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.

So, what we're looking at is a delay, not a cancellation, and regulatory preparation for a potential new plant will continue. Here's hoping that detail gets back into the coverage this evening.

Read More

Why Building Too Much Natural Gas Capacity to Generate Electricity Could Come Back to Haunt Florida

NEI VP Richard Myers

About a week ago, the Tampa Bay Times published an analysis by Ivan Penn claiming that ratepayers in Florida would be better served if Duke Energy built a natural gas plant in place of a proposed nuclear energy facility in Levy County. Over the weekend, that same paper published a letter to the editor by NEI's Richard Myers taking issue with that conclusion:

Nuclear plants offer benefits

The May 12 article "Levy nuclear plant more costly than a natural gas facility" fails to account for the economic and environmental benefits the two nuclear plants would bring to Florida. Progress Energy Florida, now Duke Energy Florida, determined in 2008 that the Levy nuclear plants would benefit the state by providing fuel diversity and price stability for consumers while avoiding air emissions.

In 2012, Florida generated 68 percent of its electricity from natural gas, a significant increase from 47 percent in 2008. Floridians may recall that in 2008 and 2009, the state endured its highest-ever electricity costs when natural gas prices were hitting all-time highs. Five years later, Florida relies even more on natural gas.

Just like a diversified financial portfolio is important for investors, so is a diversified energy portfolio for consumers. By relying ever more heavily on natural gas, Florida is putting itself in an increasingly vulnerable position if and when natural gas prices change.

Further, if natural gas plants are built instead of the two Levy nuclear plants, the gas plants will consume nearly 8 trillion cubic feet of natural gas and emit more than 500 million metric tons of carbon dioxide over 60 years.

The Levy nuclear plants will help Florida manage and balance any future that includes changes in carbon regulations and natural gas fuel costs, and an overreliance on any one form of electricity generation.

Richard Myers
Vice President
Nuclear Energy Institute

This isn't the first time Richard has addressed this issue. Back in January, he took issue with a piece in the Wall Street Journal that concluded that the natural gas boomlet we're currently experiencing might undo nuclear energy. The key takeaway here: nothing is forever, and that goes double for natural gas prices.

Read More

Sensible Nuclear Outcomes in Florida and India

The processes may have been a little sloppy, but if the outcomes are good, so be it.

First, in Florida:

The Florida Supreme Court rejected on Thursday the challenge to a controversial law that allows electric utilities to collect money from their customers for nuclear-power plants that won't be built for years — if ever.

The unanimous ruling, in a challenge filed by the Southern Alliance for Clean Energy, found that the 2006 law did not violate the Florida Constitution by shifting too much decision-making power to the state Public Service Commission. Also, it upheld PSC decisions that allowed Florida Power & Light and what was then known as Progress Energy Florida to collect $282 million in nuclear-project charges from their customers in 2012 alone.

Reporter Jim Saunders sounds a little unhappy with the court ruling himself, doesn’t he? But so what if He gets the facts right. This is another case where anti-nuclear types took a grain of possibility (that the state breached the constitution by ceding authority to the Public Service Commission) and built it into a boulder. Unfortunately, it’s still a grain. The court also said that since the legislature wrote the law, it is up to that body to determine the PSC’s authority, not the courts.

That’s one good Florida outcome. At the same time, the legislature contemplated repealing the bill, but instead made a couple of minor adjustments:

In the short term, Duke Energy can keep collecting the "advance fee" money already approved for the Levy County nuclear plant.

But, in the future, it will get a little harder for the utility to charge customers more.

The Florida Senate with a 40-0 vote Thursday gave final approval to a bill that adds tougher guidelines for use of the advance fee. The bill, SB 1472, now goes to the governor.

Those final guidelines:

In particular, the bill lawmakers passed states that if a utility cannot demonstrate that it plans to complete the construction of the nuclear plant, it will no longer be allowed to collect money. The utility has 10 years after it gets its federal license to begin construction or lose access to the fee.

And it must prove the plant is both economically "feasible" and "reasonable" to continue moving forward with the projects. The existing law required only that the plants be "feasible."

I guess that qualifies as a “little harder.” This is unalloyed good news for Florida Gas & Light and Progress Energy Florida (now Duke Energy). And the Southern Alliance?

"Today is kind of a mixed day for us," said Stephen Smith, executive director of the Southern Alliance for Clean Energy[.]

Ah well. They’ll try another way another day. Why is cost recovery important? It allows expensive projects to proceed by lowering interest rates on needed loans (because the collected money reduces risk to a lender). In the end, that savings is passed along to ratepayers.

(To be fair, Duke is not happy with the legislative result, either.

Additionally, our position on (the legislation) has not changed," Sterling Ivey, a Duke spokesman, said. "We remain opposed to the bill, even as amended and passed. The process in current law is working and additional legislation or state requirements are not needed, which was confirmed today by the Florida Supreme Court."

It was working fine as is, though the outcome this time might have been much worse. Ivey is right, though; the better approach would have been to leave the original legislation alone.)

---

In India, the seemingly endless haggling to get the Kudankulum facility up and running. Though the court case is quite different, it also involves litigating fear, not actual harm:

Opponents of a nuclear reactor in the southern Indian state of Tamil Nadu received a setback Monday when the Supreme Court rejected a petition to halt the commissioning of the plant over safety concerns.

But the protest groups are holding out hope that the judgment, which hasn’t yet been published in full, will enable them to continue their campaign against the Kudankulum Nuclear Power Plant.

Protesters had asked the Supreme Court to close the plant until extra safety measures had been put in place, saying that its technology was out of date and it would jeopardize the lives and livelihoods of thousands of people living in its vicinity.

But the court dismissed the petition and cleared the reactor for operation, more than two decades since it was first conceived in an Indo-Russian pact in 1988. The court said sufficient safeguards were in place at Kudankulam and that it was in the national interest to have the plant operational.

I’ve followed this case a bit and can only say that from an American perspective, it was built on a foundation of sand and powered by  fear of an Indian Fukushima Daiichi. Also from an American perspectives, bits like this are puzzling:

“Ideally we wanted them to stop the commissioning but they have gone ahead with a conditional order,” said G. Sunderrajan, an environmentalist who brought the petition to the Supreme Court in September 2012.

“Before commissioning, the Nuclear Power Corporation of India needs to satisfy [for] the court about 17 safety areas,” Mr. Sunderrajan said, adding that there he’s confident that campaigners would get another chance in court. “There is always a tab to pull the decision back,” he said. It wasn’t immediately clear what the 17 safety conditions were or how they would be policed.

If there are 17 safety conditions, one would expect them to be known to someone. I wonder if Sunderrajan got the number wrong or the Wall street Journal bloggers (Joanna Sugden and Aditi Malhotra)  just threw their hands up and went with it. I expect there are many more safety issues than seventeen and that the utility worked through them. Also, 17 or no, it appears the court doesn’t need them satisfied or is satisfied.

The problem with filing a court case charging that nuclear energy facilities are unsafe is that they are never inherently unsafe. What you end up litigating are your own fears, which are tough to set down in a fact set.

Bottom line: nuclear energy proceeds in India.

Read More

Guest Post: Nuclear Energy and the Value of CWIP

Bottom of containment vessel for new reactor at Plant Vogtle

The following guest post was written by NEI's Mitch Singer.

Jeff McMahon bases his argument against nuclear cost recovery “Editors Rebel Against Ratepayer Financing For Nuclear Plants,” on the sole premise that because natural gas is inexpensive at this point in time it will remain so for decades. Therefore, energy companies should rely solely on one source of electricity generation. Ignoring the old adage of not putting your eggs in one basket is as relevant in generation choices as it is in financial investments.

Energy companies evaluate a variety of factors to determine their generating mix and plan not in years, but rather decades ahead. Public utility commissioners do the same. They conduct an extensive analysis of the state’s demand growth commonly known as a “determination of needs” that looks at all methods of generation to see which ones are most suitable. Commissioners are also obligated to make sure there is diversification in the state’s generating portfolio, balance economic and environmental concerns and try to keep costs down.

Florida, for example, receives 62 percent of its electricity from natural gas and an overall 86 percent from fossil fuels. Natural gas may be low now, but history has proven on many occasions that low natural gas prices in the U.S. are not sustainable. Within the last month we’ve seen the price of natural gas spike to more than $30 per million BTU on the spot market in New England due to frigid weather and a shortage of natural gas pipeline capacity. So what did New England do to mitigate the impact? It imported significant amounts of electricity from the Indian Point nuclear plant in New York.

Here in lies the value of nuclear energy as it provides a stable, low-operating cost baseload source of electricity that offers a myriad of economic and environmental benefits. Nuclear cost recovery, commonly known as construction work in progress (CWIP), allows a utility to recover financing costs and return on equity. By doing so, a utility avoids paying “interest on interest” that would occur if all costs are held until the plant goes into service. 

In Georgia, where Southern Co. and Georgia Power are building two new reactors at Plant Vogtle, just this past week the Georgia Public Service Commission (PSC) approved the latest cost and schedule reports. One PSC staff member put the reasoning succinctly, saying the project “remains more economically viable than any other (fuel) resource, including a natural gas-fired alternative.”

In Georgia, CWIP is expected to save Southern Company’s ratepayers $300 million in financing costs during construction. CWIP also will reduce the in-service cost of the plant by $2 billion, saving customers additional financing costs over its expected 60-year life. The utility also has improved cash flows through CWIP that support stronger financial ratings, which result in lower interest costs for the project and all other utility investments over the long term. CWIP is allowed by public utilities and the Federal Energy Regulatory Commission to support the construction of baseload electricity plants and transmission lines for a simple reason: because it saves money for consumers and gets necessary infrastructure constructed.

New nuclear power plants also act as a macro-economic catalyst. The reliable, low-cost electricity provided by nuclear plants operates at close to 90 percent capacity. Thus, nuclear’s forward price and supply stability provide a high level of confidence in attracting capital formation to start new businesses and expand existing businesses, which results in job formation and expanded tax revenues. The Plant Vogtle project is about one-third completed and has already generated almost 5,000 jobs during the construction period and there will be about 700 permanent, high-paying jobs associated with the two new reactors when they’re completed by the end of this decade. In addition the average nuclear plant generates approximately $470 million a year in total output for the local community and about $40 million per year in total labor income. Nuclear also bring the environmental benefit of being the largest source of emission-free electricity.

Natural gas may be the preferred generation choice of today. But as Roman conquerors were warned during the celebrations of their triumphs; all glory is fleeting.

Read More

Crystal River: End Days of Nuclear Energy?

Crystal River

When you hear that a nuclear power facility is closing, you may wonder if the end is nigh and all other facilities will close willy-nilly in rapid succession. Well, it could happen, just as anything could happen, but it seems far more likely that other factors play a role and are unique to the plant itself.

Following a comprehensive analysis, Progress Energy Florida, a subsidiary of Duke Energy, announced today that it will retire the Crystal River Nuclear Plant (CR3) in Citrus County, Fla. The plant has been safely shut down and offline since late 2009.

There’s no question this is not happy news. But Progress Energy Florida has been pretty straightforward about the whys and wherefores of it:

The company’s decision comes after a comprehensive, months-long engineering analysis of the damaged [Crystal River] containment structure. The nuclear unit, which began operating in 1977, had been shut down in the fall of 2009 for refueling and replacement of its steam generators when a delamination, or crack, occurred in the outer layer of the containment building’s concrete wall.

The process of repairing the damage and restoring the unit to service resulted in additional delaminations in other sections of the containment structure in 2011.

During the ensuing months, Progress Energy – and, more recently, Duke Energy – evaluated the ability to successfully repair the unit, the risks associated with any repair and the repair scope as well as the likely costs and schedule.

A report completed in late 2012 confirmed that repairing the plant was a viable option but that the nature and potential scope of repairs brought increased risks that could raise the cost dramatically and extend the schedule.

Of course, it’s regrettable. The press release notes that Progress will build a new gas-fired plant and has four coal units in the same county as Crystal River. That’s not as good a carbon emissions profile as there was with Crystal River running, but that’s how it goes. The economics of energy currently favors natural gas facilities, which at least better than building a new coal facility.
---
And Crystal River will never reopen, right? Sometimes, to paraphrase Stephen King, they come back.

The company intends to use the SAFSTOR option for decommissioning. Generally, this involves placing the facility into a safe storage configuration, requiring limited staffing to monitor plant conditions, until the eventual dismantling and decontamination activities occur, usually in 40 to 60 years.

That’s a lot of years, in which many decisions will be made down in Florida. Admittedly, it is more likely that a uncompleted reactor, such as TVA’s Bellefonte in Alabama, will be revived for completion than that Crystal River will be fully repaired and switched back on. But the future holds surprises, as it always has, and it doesn’t hurt to have alternative energy options at the ready.
---
But, what we know for sure:

Crystal River is closing, the reasons are easy to grasp, and they are unique to the plant. Even San Onofre, which has also been closed for technical reasons (steam generator problems there), is quite different in specifics and probable outcome. So – unfortunate, yes; a dire pox upon the industry, not so much.
---
PS: this post is based on Duke’s own press release, which we tend to avoid here (this one had some corp-speak in it, not a lot), but boy, has the Florida press been having fun with this news – and not very responsibly, I must say.


For example, here is the Tampa Bay Times’ view of Crystal River prior to the announcement of its closing:

It's time for Duke Energy to acknowledge that the broken Crystal River nuclear plant is not worth fixing and announce plans to permanently shut it down.

With Duke/Progress having decided to do this, the response from the newspaper?

On Tuesday came the announcement that [Crystal River] will never reopen.
The 1.6 million customers the plant once served will pay dearly for their utility's mistake, maybe $3 billion when the cost of building a new power plant is included. So will Citrus County and the city of Crystal River. Those governments, and their local economies, will take a thumping. Some of the 600 workers at the plant may lose their jobs.

I won’t go into the specifics offered here except to say they seem grossly oversimplified – there will be some insurance consideration here. I think we can let the finger pointing – Duke can take care of itself – remain a local issue. You really can’t win for losing in Tampa Bay, though. Yeesh!

Read More

A Little Now, A Lot Later–Florida and Cost Recovery

Michael Waldron, who is director of nuclear communications at Florida Power & Light, takes an unusually pugnacious tone in this op-ed in the Miami Sun-Sentinel. He is defending the concept of cost recovery, a process by which a company can levy a small surcharge on ratepayers to improve or build reactors. In this case, FPL is using this to upgrade their reactors at Turkey Point and do some early work on two more potential reactors there:

Over the past several years, Florida's nuclear cost recovery statute has allowed FPL to upgrade our existing nuclear plants and add over 500 new megawatts of clean, cost-effective power-generation to our fleet.  To put this in perspective, this is about the same amount of electricity generated by a medium-sized nuclear power plant without having to build one.

Waldron says that FPL is saving a lot of money for its customers – for itself, too, of course, but that also benefits customers:

For example, the 400 new megawatts we have already added will save our customers roughly $7.5 million a month on fuel costs going forward.  Over the lifetime of the units, these upgrades are expected to save customers approximately $3.8 billion. These projects would not have been possible without Florida's nuclear cost recovery statute.

Waldron is answering Stephen Smith of the Southern Alliance for Clean Energy, an anti-nuclear group. Smith’s argument is actually a – little – strange. Aside from just generally not thinking nuclear energy represents a worthwhile investment, Smith links cost recovery to socialism and rapacious capitalism. There’s a ton of risk associated with it and it’ll be a financial bonanza. His argument is actually kind of wacky.

But this law now socializes costs and all the risk of reactor construction by shifting it to customers. Meanwhile it privatizes all the reward to big power company shareholders, such as FPL — even though they shoulder no risk. FPL has recently requested an 11.25 percent return for its shareholders as part of a base rate increase. The FPL project, if ever completed, is estimated to cost upwards of $20 billion. Clearly an 11.25 percent return on $20 billion is a sweet return for FPL shareholders for a risk-free investment.

This might be the part that actually made Waldron put up his dukes, because it’s not exactly what is happening. He explains this:

Under the law, FPL is only reimbursed for amounts that we have already spent IF these expenses are deemed prudent through an independent evaluation by the Florida Public Service Commission.  In practice, this means that during the licensing phase, customers pay only for licensing activities; during construction, FPL must borrow the money and customers pay only for financing charges, not the construction itself; and, it is only after the plant is in operation that customers would pay for the charges incurred during construction.

Waldron doesn’t point out that paying interest charges early reduces the overall cost of the project – as when you double pay on your credit card. Cost recovery can be used for any large capital projects – it works especially when the outcome benefits the commonweal, as it does here.

Florida is always going to be a somewhat prickly environment when it comes to even small surcharges because so many people there live on fixed incomes. I cannot fault that – and maybe it’s a better angle from which to make an argument about cost recovery, especially in Florida. But Waldron’s aggressive response to Smith seems exactly correct – Smith isn’t giving cost recovery its due and Waldron says so.

Read More

The Nuclear Reactor on Crystal River

Crystal River 3

No one wants drilling rigs to topple into the ocean. Or coal mines to leak toxic and/or explosive gases into tunnels. Or windmills to wipe out populations of bats. There are risks to virtually any human endeavor, of course, and there are benefits to balance against them, but the goal is always to minimize risk and maximize benefits. If the risk can be close to zero and the benefits considerable, that’s of course ideal if difficult to achieve.

I know all of this is obvious, but it’s nice occasionally to see it reaffirmed publically.

“The review found that the current repair plan appears to be technically feasible,” said Alex Glenn, incoming president of Progress Energy Florida, a subsidiary of Duke Energy, “but significant risks and technical issues still need to be resolved, including the ultimate scope of any repair work.

Glenn is talking about a crack in a containment dome at Progress Energy’s Crystal River 3 facility in Florida. Progress (which is now part of Duke Energy) wanted to figure out how much it would cost to fix the problem and hired an outside company, Zapata Consulting, to review the situation.
The cost? A fair amount.

The Zapata report estimated the repair cost at approximately $1.49 billion. Progress Energy's prior assessment indicated expected repair cost of $900 million to $1.3 billion, with the costs trending up.”

And if Zapata is correct, trending up is what those costs are doing. As with many reports, Zapata offered scenarios to estimate how much the process would cost if it went extremely well and if it went very badly.

Under the worst-case scenario, Zapata estimated that the cost could be $3.43 billion with a 96-month schedule.

That’s a lot of money and we would be naïve to think that Progress Energy will not consider its options. Crystal River 3 has been operating since 1977 and has paid its way.

“We have not made a final decision on whether to repair or retire CR3,” Glenn said in a statement on Monday. “The decision and schedule will be driven by the final analysis. We will carefully analyze and settle each finding as we continue to evaluate the technical and licensing implications, estimated costs and the time required to make the repair. We will proceed with a repair option only if there is a high degree of confidence that the repair can be successfully completed and licensed within the final estimated costs and schedule.”

The shuttering of any nuclear energy facility means the loss of a lot of carbon emission free baseload electricity generation – 860 megawatts in this case, with an uprate pending if it returns to service. And it may yet return to service – Progress Energy will figure out what’s best for its customers.

But if Progress Energy decides to retire the reactor, that’s that. No company runs unsafe nuclear reactors; and no company can afford to lose money. There’s just no upside.

Read More