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Duke CEO faces questions on Crystal River project

By on August 14, 2012

Duke Energy’s chief executive officer went before Florida regulators Tuesday to try to allay concerns about a merger last month with Progress Energy — but major questions remain about how the utility will deal with an idled nuclear power plant at Crystal River, reports Jim Saunders of the News Service of Florida.

CEO Jim Rogers, whose company is now the parent of Progress Energy Florida, told the state Public Service Commission that the merger should ultimately help reduce long-term costs for consumers. He said moving into the large Florida market was “one of the things that made the merger attractive from the beginning.”

“The combined company will become stronger, more efficient, better at our core mission,” Rogers said.

But the CEO’s introductory meeting with regulators was dominated by talk about the Crystal River plant that has been shut down since 2009, when a containment building was damaged during a project to replace a steam generator. Early last year, as the plant was getting prepared to operate again, additional damage was discovered in a different part of the building.

Duke is going through a complicated process of trying to determine whether to repair the plant or shutter it permanently. Initially, repair costs were estimated at $900 million to $1.3 billion, but Rogers said those numbers are “trending up” as engineering work and investigations continue.

Major questions center on how much money — if any — an insurer will provide for the repairs, amid questions about whether Progress botched earlier work. Officials from Duke, its Florida subsidiary and the insurer, Nuclear Electric Insurance Limited, have been in negotiations and will enter non-binding mediation this fall.

“The issue is not whether they will (pay), in my mind, it is how much they will pay,” Rogers said.

The insurer’s decision could help drive how much of the cost gets passed along to customers if the utility decides to repair the plant. Progress Energy Florida and representatives of consumers and business groups reached a wide-ranging settlement early this year that includes financial incentives for the utility to decide by Jan. 1 whether to repair the plant or shut it down permanently.

State Public Counsel J.R. Kelly, whose office represents consumers in utility issues, said he doesn’t know whether Duke will be able to make a decision by the end of the year. He said the decision likely will involve a number of factors, including the amount of insurance payments and finalizing engineering work.

Jon Moyle, an attorney for the Florida Industrial Power Users Group, a business coalition that intervenes in utility cases, pointed to the importance of the insurance issues.

“That’s a key component that we’re spending time looking at very closely,” Moyle said during a briefing that the PSC held on the Crystal River issue after Rogers’ appearance.

North Carolina-based Duke finalized its merger early last month with Progress, creating the largest utility in the country. The transition, however, has been shadowed by a controversy about the Duke board’s quick decision to oust former Progress CEO Bill Johnson as the top executive of the newly merged company and replace him with Rogers.

North Carolina regulators have been highly critical of the board’s decision, saying they had been led to believe during the merger that Johnson would be CEO and Rogers would serve as executive chairman. Rogers had served as Duke CEO.

The Florida Public Service Commission, however, largely stayed away Tuesday from the boardroom controversy. Instead, they asked Rogers about issues such as Crystal River and how the newly merged company would interact with regulators.

“We’re not here to tell you how to run your company,” Commissioner Julie Brown told Rogers. “But we are here to know how you run your company.”

Progress Energy Florida also will be going through a major change in the coming months, after President Vincent Dolan announced last week that he plans to retire by the end of the year. General Counsel R. Alexander “Alex” Glenn will replace Dolan, and both of them joined Rogers in answering the commission’s questions Tuesday.

Rogers expressed support for the wide-ranging settlement agreement that Progress Energy Florida reached early this year with consumer and business representatives — and which was approved by the PSC.

Along with trying to set a timetable for making a decision about the Crystal River repairs, the settlement will allow the utility to raise base electric rates by $150 million and collect $350 million over a five-year period for two potential nuclear reactors in Levy County. Also, however, it requires Progress Energy Florida to refund $288 million to customers in what are known as “replacement power costs,” which relate to the need to buy or generate electricity elsewhere to make up for lost production at the idled Crystal River plant.

But Sen. Charlie Dean, an Inverness Republican who attended part of Rogers’ presentation, said his constituents have questions about Crystal River and the money they have paid for the Levy County project. Progress does not plan to build reactors in Levy County for at least another decade and might not ever build the project, but customers have been required to pay for initial costs such as licensing.

“We are having an assessment placed against us and the customers,” said Dean, whose sprawling, largely rural district has a large number of Progress customers. “Someone needs to answer, where’s our money? What’s going to happen to it?”

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