Duke Energy discusses Crystal River 3 retirement

Duke Energy (NYSE: DUK) CEO Jim Rogers said Feb. 13 Crystal River 3 would have required a complex and first of its kind repair.

After having reached a settlement with its nuclear insurer, Duke recently announced it would retire the roughly 860-MW nuclear plant in Florida. The facility had been offline since fall of 2009 after cracks were discovered in the building in connection with steam generator replacement.

“As you all will recall, the 2012 regulatory settlement approved by the Florida Commission gives us the sole discretion and flexibility to retire this nuclear unit,” Rogers said during the recent quarterly earnings call.

“This was a difficult decision. It came after comprehensive analysis of cost, risk, and other factors involved in attempting a complex first-of-a-kind repair versus retiring and decommissioning the plant.”

Duke ultimately picked the latter and will look to replace the plant’s generation – probably with more natural gas units.

“The bottom line is, as we retire Crystal River 3 and we look out in the future, we see that Crystal River 1 and 2 [coal units] will be retired in the 2015-2017 time frame. So when you think about those retirements in a collective way, it is clear that we need additional capacity,” Rogers said.

And my judgment is that gas-fired combined-cycle plants is the best capacity,” Rogers said. The CEO expects gas to stay in the $4-to-$5/mmBtu price range “over a very long period of time.”

“Deciding how to best move forward with Crystal River 3 has been one of our top priorities since the [Progress Energy] merger closed last July,” Rogers said.

The Florida Public Service Commission is expected to review the retirement decision and the acceptance of the mediator’s proposal.

A PSC hearing on CR3 has now been set June 19. That hearing will center around the decision making progress used by Duke’s Progress Energy Florida utility in electing to retire the unit.

Both Duke Energy and its insurance carrier, Nuclear Electric Insurance Limited (NEIL), accepted the mediator’s proposal whereby NEIL will pay an additional $530m.

Along with the $305m NEIL has already paid, customers will receive $835m in total insurance proceeds, making it the largest claim payout in the history of NEIL.

So far Duke has spent $614m on replacement power costs associated with the CR3 outage.

“This is an unusual case in that it is plant hardware driving the decision,” said   Chris Vlahoplus, a partner at ScottMadden Consulting. “The only other case like it now is San Onofre who is dealing with faulty steam generators.  Working against it was the fact that it is a single unit which (as we said before) puts it on the bubble in better circumstances,” Vlahoplus said.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.