The Florida Public Service Commission on Nov. 17 approved Duke Energy Florida’s (DEF) petition for a financing order, allowing DEF to issue a “securitization bond” to recover costs associated with the retirement earlier this decade of the nuclear Crystal River Unit 3 (CR3).
The bonds, expected to garner a top credit rating, will save customers hundreds of millions of dollars, the PSC said. The bonds could reduce the customer burden by nearly $708 million, resulting in an estimated $2.93 monthly 1,000 kWh bill charge compared to the traditional rate base recovery method.
“The Florida legislature provided us with a unique way to lower customer costs for nuclear plant retirement, which could potentially be expensive,” said PSC Chairman Art Graham. “With their lower interest rates, bonds will help pay for CR3’s retirement and also minimize the costs for customers.”
DEF plans to offer the Nuclear Asset Recovery Bonds to investors via a public offering registered with the Securities and Exchange Commission, which is typical of utility securitizations. Saber Partners – the PSC’s financial advisor on this bond transaction – also assisted the commission on the nation’s first “hurricane recovery securitization” for Florida Power & Light. The bonds are anticipated to be issued in the first quarter of 2016.
On July 27, DEF filed its plan with the PSC to assess customer fees for up to 20 years and sell this income stream to a “special purpose entity” that will use the fees as collateral for bonds. The nuclear asset recovery charge will be paid by all existing and future customers receiving transmission or distribution services from DEF. The funds DEF receives will be used to recover the amount of the CR3 regulatory asset.
Parties that agreed on the issues, approved by the PSC on Oct. 14, for the final financing order include DEF, the Office of Public Counsel, Florida Industrial Power Users Group, PCS Phosphate, and the Florida Retail Federation.
DEF, which is a unit of Duke Energy (NYSE: DUK), serves approximately 1.7 million retail customers in Florida.
In February 2013, Duke Energy announced its decision to retire CR3, located on Florida’s Gulf Coast about 85 miles north of Tampa. While replacing two 500-ton steam generators during a scheduled maintenance and refueling outage in 2009, engineers discovered a delamination, or separation of concrete, within the containment building. Crews repaired the damage, but additional delamination was discovered in two different areas of the containment building in 2011. Duke Energy then determined that retiring the unit, instead of continuing to pursue a first-of-its-kind repair to the containment building, was in the best interests of customers and shareholders.
CR3 had gone into service in 1977, generating on average 860 MW. It is co-located with four coal-fired units at the Crystal River Energy Complex. The four coal-fired units produce 2,290 MW, with two of the coal units to be retired later this decade for clean-air reasons.
Duke Energy said in its Aug. 7 quarterly Form 10-Q filing at the SEC that the planned Citrus County combined-cycle project, to be located next to the Crystal River site, should be operating in 2018. The Form 10-Q said: “On October 2, 2014, the [Florida Public Service Commission] granted Duke Energy Florida a Determination of Need for the construction of a 1,640 MW combined-cycle natural gas plant in Citrus County, Florida. On May 5, 2015, the Florida Department of Environmental Protection approved Duke Energy Florida’s Site Certification Application. The facility is expected to be commercially available in 2018 at an estimated cost of $1.5 billion, including [allowance for funds used during construction]. Additional environmental and governmental approvals will be sought for the Citrus County project.”