FL PSC Approves Nuclear Humpty Dumpty Settlement

This blog was written by Sara Barczak, former Regional Advocacy Director with the Southern Alliance for Clean Energy.

Guest Blog | February 24, 2012 | Energy Policy, Nuclear

Nuclear power proponents have long billed the atom-splitting energy technology as reliable, cheap power. But if you take a look at Progress Energy Florida’s (PEF) existing and proposed nuclear projects you’d likely come to a much different conclusion. The Florida Public Service Commission just approved a settlement agreement filed by PEF that is intended to mitigate short-term costs stemming from the company’s critically damaged and shut-down “Humpty Dumpty” Crystal River Unit 3 (CR3) nuclear reactor and its proposed two Levy County nuclear reactors.

In short, the agreement provides Progress customers with a $288 million refund over several years for the cost of replacement power due to the lengthy outage at Crystal River, while in the short-term, curtailing the amount PEF can recover from customers for the proposed Levy nuclear reactors – a project the company hasn’t even committed to completing. As a party to the Commission’s CR3 docket, SACE was provided an opportunity to sign on to the agreement, but declined to do so because of our serious concerns about the risks posed to utility customers.

The Crystal River reactor has been plagued with problems ever since PEF self-managed a steam generation replacement project in September 2009. The replacement project was intended to last 3 months, until PEF informed the Commission that it had cracked the containment structure during the detensioning phase of the project. PEF subsequently announced that the CR3 reactor would be repaired and back in service by the 3rd quarter of 2010…then by the 4th quarter of 2010…and then by the first quarter of 2011. On March 15, 2011 PEF informed the Commission that it had cracked the reactor again during the retensioning process and subsequently told the Commission that it estimated repair costs of $1.3 billion and a return to service in 2014. Shortly thereafter, the Humpty Dumpty Crystal River reactor suffered yet another crack on July 26, 2011.

While dealing with the significant costs associated with repair of Crystal River, the company is struggling to control costs on two proposed Toshiba-Westinghouse AP1000 reactors in Levy County that it has yet committed to actually build. Despite SACE’s objections, the proposal gained a determination of need for the Levy reactors in 2008. Since then the Levy project certainly hasn’t been the poster child for the so-called nuclear renaissance  — the proposal has suffered serious delays and cost estimates that have risen exponentially.

Customer bills for instance, were expected to increase by $16/mo. in 2016; $26/mo. in 2017 and a whopping $49/mo. in 2020. Initially, Progress expected the proposed reactors to cost $4-6 billion each, coming online beginning in 2016. Just a few years later, the estimated costs have skyrocketed to over $22 billion and the online date, if the reactors ever even come online, has bumped back to 2021 and 2022. And the Office of Public Counsel believes that PEF may not intend to complete the reactors until 2027, if at all. The company has spent over $1 billion dollars on the Levy nuclear reactors and has yet to commit to build them. And the company is entitled to recover all its preconstruction and carrying costs from its customers before even a kilowatt of electricity is produced. In fact, even if the project is never completed PEF can recover all its construction costs from customers courtesy of the 2006 anti-consumer “early cost recovery” state law…essentially a nuclear tax scheme.

FL YES student network at Progress Energy HQ October 2011

SACE has worked to protect Florida families and businesses in Commission proceedings that determine if the early recovered costs passed onto customers are reasonable and prudent. SACE had been involved in 2009, 2010, and most recently in the 2011 nuclear cost recovery docket. One of our key arguments against recovery of costs is that PEF has not made a commitment to build the reactors, but is rather spending customer money on the federal licensing process to preserve “an option” to build the reactors sometime in the future. This directly contradicts the intent of the statute and the Commission’s own “intent to build standard” standard.

The now-approved settlement agreement, while providing short-term rate relief to PEF customers, leaves ratepayers open to enormous rate impacts in a few years. Here are several reasons why SACE opposes the settlement agreement (read our full comments given at the hearing earlier this week here or view the broadcast here, in which no public commenters supported the agreement):

  • While the agreement provides a replacement power cost refund over 3 years of $288 million to PEF customers (due to the CR3 outage) – it comes packaged with a base rate increase of $150 million and it precludes the parties from challenging up to $1.9 billion (yes, billion) fuel and replacement power costs from 2009 to 2016. Instead, we strongly believe that the company and the Commission must consider ramping-up energy efficiency as a low cost way to reduce those fuel and replacement power costs customer will have to bear.
  • The insurer, the Nuclear Electric Insurance Limited (NEIL), has paid out $136 million for repairs to the Humpty Dumpty Crystal River reactor but stopped making payments last year. The repair of the reactor is expected to cost well over $1 billion. Shouldn’t the Commission and PEF customers know how much NEIL is willing to pay, if anything, towards further repair costs before the company commences construction?
  • Progress continues to analyze cost and engineering options and answers aren’t expected for at least a couple of months, according to Progress president and CEO Bill Johnson. Yet the company is being incented to commence construction by the end of 2012 or pay more in fuel and replacement power refunds to customers. That’s a very ambitious deadline fraught with all kinds of repercussions for PEF customers if the repair efforts fail once again. This agreement could lead to throwing a lot of good customer money after bad.
  • PEF hasn’t committed to actually building the Levy Co. reactors. Having customers pay for the company just to maintain the “option” at a later date to build reactors is unfair to today’s customers – and runs counter to the Commission’s “intent to build” standard. The agreement allows the company to collect another $350 million from customers, presumably for pursuing their Nuclear Regulatory Commission license (without any prudency review) for reactors it hasn’t committed to build? In fact, the agreement contemplates that the company will cancel its engineering and procurement contracts as well, further demonstrating the unlikelihood of project completion.

It’s clear that through this agreement, PEF is strategically retreating from any commitment to build the Levy reactors–an indication that the so-called nuclear renaissance has finally hit economic reality.

The PEF nuclear portfolio and the Commission’s inability to protect consumers from the utility’s follies and mistakes has already created significant rate impacts for PEF customers, impacts that will only worsen in years to come. And as the famous nursery rhyme reminds us all, no one could put Humpty Dumpty back together again. And certainly not the Florida Public Service Commission.

SACE consultant George Cavros contributed to this blog.

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