Duke advances Florida gas project; coal and nukes on the hit list

Duke Energy Florida on Aug. 1 filed a revised settlement agreement with the Florida Public Service Commission (FPSC) that covers a way to account for the decision to permanently retire the idled Crystal River Unit 3 nuclear facility.

Developed collaboratively with the Office of Public Counsel and other consumer advocates, the revised settlement agreement 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. Duke Energy Florida, formerly known as Progress Energy Florida, is a unit of Duke Energy (NYSE: DUK).

“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.

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 never-built 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 to-be-retired Crystal River 1 and 2 coal units, subject to limited prudence reviews.
  • Extending the company’s current base rate freeze an additional two years, through the end of 2018.

Duke Energy Florida will write-off $295m associated with CR3 and $65m related to the wholesale allocation of investments in the Levy nuclear project, as well as accelerate the recovery of $135m in cash flows related to CR3.

The revised settlement agreement is subject to review and approval of the FPSC, which is expected by the end of 2013.

Duke decided to shut CR3 instead of fix it

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 $835m 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: the company’s previous decision to retire CR3; the acceptance of the mediator’s proposal resolving NEIL coverage; the costs of the CR3 repairs from February 2012 to the present; and 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.

Levy costs also covered by this deal

In 2008, Duke Energy Florida announced plans to construct two 1,100-MW 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 terminate the EPC agreement for the Levy 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,” Duke said. “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 said it 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 on the short-term margin for continued operation

Crystal River 1 and 2 consist of approximately 875 MW 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 (MATS). The coal-fired Crystal River 4 and 5 are newer, bigger and fairly recently got new emissions controls installed, so they are not part of the retirement decisionmaking.

If the company decides to retire Crystal River 1 and 2 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.

The Florida Department of Environmental Protection on July 8 issued a final air permit approval for a Duke Energy Florida test burn program, to be completed by the end of this year, at Crystal River Units 1 and 2.

Said the DEP approval: “The test burn program will involve the temporary installation, testing, and operation of new coal blends, equipment, and process. The coal blending of Powder River Basin (PRB) with Western Bituminous (WB) will be done offsite to reduce fugitive emissions impacts. As part of the test burn program, Units 1 and 2 will have additional temporary post combustion controls such as hydrated lime injection and activated carbon injection upstream to the electrostatic precipitator. This authorization is only for a test lasting no more than ninety days in duration to determine whether this fuel blend along with post combustion controls reduces overall emissions impact.”

The test burn program is an attempt to reduce overall emissions such as particulate matter, acid gases, and mercury to determine the potential for units 1 and 2 to comply with MATS during the 2015-2020 timeframe.

The Crystal River plant has traditionally been fired with Central Appalachia coal. U.S. Energy Information Administration data shows that the plant got its coal in the first part of this year from suppliers that include B&W ResourcesArch Coal SalesJames River CoalBlackhawk Mining and Alpha Natural Resources.

The utility has decided that installing emission controls at Crystal River 1 and 2 is not the most cost-effective option. If these test burns are successful, it may be possible to extend Crystal River 1 and 2 operations to the 2018-2020 timeframe while still being in compliance with MATS.

Here are net capacity, plus projected capacity factors and coal burn figures for Crystal River Units 1 and 2 in 2013, as filed by the company with the Florida commission.

  • Unit 1, 376 MW, 11.4% capacity factor, 165,226 tons of coal burn; and
  • Unit 2, 497 MW, 24% capacity factor, 459,548 tons of coal burn.

Duke clearing way for new gas-fired capacity to be added

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 MW 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.

Duke Energy Florida also can petition the FPSC to approve up to 1,800 MW of additional generation with an in-service date in 2018.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.