Duke will complete the NRC licensing process, but the answer to the question whether or when it will build the nuclear power station comes in several parts spread over two states.
Update December 21, 2016 – NRC Issues New Reactor Licenses to Duke Energy for William States Lee III Site in South Carolina (link)
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Sometime later this year the NRC will issue a combined operating license (COL) to the William States Lee III nuclear power plant which references twin Westinghouse 1150 MW AP1000 nuclear reactors.
Way back at the beginning of the so-called “nuclear renaissance” in 2007 Duke Energy (NYSE-DUK)) started down a long and expensive road to obtain permission from the NRC to build Units 1 & 2 at the Cherokee, South Carolina site. Despite some deliberate downtime, and second thoughts along the way, the utility now has the finish line in sight.
Duke CEO Lynn Good has said in speeches to business groups that once the utility gets the license from the NRC, it will still have to decide “how and whether it makes sense to build nuclear.”
Even if Duke started this year, it could take six-to-ten years before either unit entered revenue service.
“There are all kinds of considerations,” Good says. The utility, as a publicly traded firm, has to take them into account as a “prudent investor.”
With a market capitalization of $55 billion, the estimated $12 billion the two units could cost would be just over 20% of the total value of the giant utility. That’s pretty close to a “bet the company” decision which makes prudence a key factor in assessing the need for the project.
Several key factors will impact the decision. The first group of factors are actually somewhat complex since Duke’s service areas for electricity, which includes its merger with Progress, covers parts of both North and South Carolina as well as parts of Florida.
The two Carolinas are not on the same page for a number of regulatory policies. The most important factors are whether Duke would be allowed to recover the cost of construction from rate payers, while the reactors are being built, and how the allowed costs would be handled by each state PUC. It’s really complicated and a process that is wide open to interventions by anti-nuclear groups and consumer advocates and business interests.
South Carolina allows the cost recovery practice which is facilitating the construction of two Westinghouse AP1000 reactors at SCANA’s V.C. Summer Station.
In North Carolina the North Carolina Utility Commission (NCUC) ruled in 2009 that the Lee Nuclear Station project should be maintained as an option for meeting future electricity demand. The NCUC has ruled on a year-by-year basis how much money Duke can spend on the project. Almost all expenditures so far have been for site design and environmental reviews and licensing costs.
Specific expenditures incurred will be reviewed later to determine reasonableness and prudence, and the current order does not increase the probability that any specific cost will be allowed. It’s kind of a “decide as you go” method that pushes risk on to the utility to comply with PUC requirements that could change over time.
What this means is that Duke does not have a full-on green light to follow the same practice in North Carolina that SCANA benefits from in South Carolina. Think of it as more of a yellow caution light like the one railroad engineers see when they get a signal to proceed slowly into the block or railroad track ahead.
Legislation enacted in 2008, which set the basis for the 2009 ruling, supports the construction of nuclear plants, in North Carolina or nearby states, by establishing a utility’s ability to have incurred costs reviewed by the North Carolina Utilities Commission (NCUC) periodically and added to the rate base in a general rate case even if that facility is not yet complete.
Additionally, the NCUC is given the ability to review and find prudent the activities associated with developing a nuclear plant, but not any specific costs of development. Got that? It’s call second guessing and it can keep awake at night even the most skilled and experienced CEO and CFO.
Key Elements of Approval in North Carolina
- A certificate for construction of a nuclear plant may not be issued unless the NCUC determines that energy efficiency, demand-side management, renewable energy, combined heat and power or any combination of these resources would not establish or maintain a more cost-effective and reliable generation system. In other words, the nuclear plant has to be cost competitive with other energy sources in terms of the price of electricity eventually charged to customers.
- Expenditures that have been reviewed and approved by the NCUC during construction can be recovered through rates in a general rate case without further review by the commission. Construction does not have to be complete for approved, incurred costs to be added to the rate base during a general rate case. This is the same approach that is used in South Carolina.
- The NCUC can pre-approve costs of constructing a facility located out-of-state that will serve North Carolina customers after an application for a construction certificate has been filed, but not necessarily approved, in the host state. This means once Duke filed with the NRC for its COL it could start to recover the costs of the application which are considerable. The agency charges license applicants nearly $300/hr for engineering time and the meter can run up to $100 million or more.
The NCUC now has the authority to rule on the prudence of a utility incurring project development costs for a potential new nuclear plant in or out of state without actually ruling on the prudence of specific actions or costs. This is an oversight role, but it also opens the door to anti-nuclear groups and other interveners such as consumer and industry groups that don’t want to pay the rate increases associated with building the reactors.
Even if Duke manages to get over all of these hurdles, it still has to convince the same type of public utility commission in South Carolina that there is a justified economic need for the reactors. Given that SCANA is already building two of them, there would have to be a significant increase in electricity demand in Duke’s service area to convince the South Carolina body that it should agree the utility can go ahead with the project. This approval is especially important since the reactors will be located near Gaffney, SC, just over the border from North Carolina.
Status of Duke’s Nuclear Fleet
Duke has six nuclear plants that it operates in its multi-state service area. All were built in the 1970s and ‘80s. They represent about 40% of the electricity the utility provides to its customers. Duke acquired several nuclear reactors as part of the its merger with Progress Energy in 2012. Once of them is the crippled and now permanently closed Crystal River reactor which sustained damage to its containment structure during the replacement of a steam generator. Progress was later ordered by the Florida PUC to refund $288 million to its customers for the cost of replacement power.
Duke Energy says it will build a $1.5-billion, 1,640-MW natural gas-fired power plant on a Citrus County, Fla., site adjacent to its damaged Crystal River nuclear facility. Global warming aside, public utility commissions mostly look at costs and rates. It going to be tough going for Duke to beat those kinds of numbers if and when it decides to move forward with the Lee project.
That said Duke CEO Good says that nuclear energy will continue to be part of the utility’s energy mix for the foreseeable future. The hurdles set up by the PUCs in North and South Carolina do not appear to deter Duke. On its Nuclear Information web site the utility says;
“In order to continue offering reliable electricity around the clock to our customers, Duke Energy remains committed to pursuing new nuclear generation. Duke Energy submitted combined construction and operating license (COL) applications to the NRC for the proposed Lee Nuclear Station in Cherokee County, S.C. and the Levy County site in Florida. The COLs are for advanced reactor designs that reflect enhanced plant safety and operations.”
Prospects for Levy County Dim for Now
Duke decided in 2013 to cancel construction of the Levy County project or at least put way on the back burner. Duke Energy terminated the engineering, procurement and construction (EPC) agreement for the Levy nuclear project, as part of a settlement with Florida consumer advocates.
Progress Energy was planning, at the time of the Duke merger, to build two AP1000 reactors at the Levy County site on Florida’s west coast. However, the $3 billion costs of upgrading the regional grid to carry the power to customers gave the utility pause when added to the $14 billion to two reactors were estimated to cost.
Where things stand for now Duke will still seek an NRC COL for the Levy project. Unlike the Lee plant, the NRC does not have an estimate of when that decision will take place.
R. Alexander “Alex” Glenn, president of Duke Energy Florida, said at the time (2013) the utility plans to continue pursuing the operating license for the Levy project from the NRC because the process is almost complete.
And Florida’s PUC agrees with Duke’s approach to the project.
“We want them to continue to get that license,” says J.R. Kelly, the state public counsel, who represents consumers before the PSC.
“To give up now, it doesn’t make sense, then you’re just throwing all that money down the toilet. Basically, if any additional money is spent on that license, it’s on Duke’s dime.”
According to the Tampa Tribune Duke will simultaneously seek to sell off equipment it has acquired for the project to reduce the debt customers must pay for what was spent. If it ever decided to proceed to build the reactors, 10 years or more in the future, whatever equipment it has on hand now would be obsolete.
Florida has a policy in place to allow a utility to recover costs of construction while a nuclear power plant is being built. The Florida legislature has considered, but not passed, bills to revoke that law. Consumer groups, and advocacy organizations like the AARP which represents Florida’s aged population, have fought to get Duke to refund the money Progress spent on the Levy project so far.
According to the Orlando Sentinel, Westinghouse Electric Co. took $54.1 million for the parts ordered by Progress for the Levy project, but the firm never manufactured them because the project was canceled. These are called “long lead time” components and can include things like the giant reactor coolant pumps that keep the plant running at the right temperature. It’s not clear exactly what Duke ordered from Westinghouse at this price.
Duke Energy, which acquired Progress in 2012, is now suing Westinghouse for a refund. The litigation will likely take years to resolve in federal court. Duke says that the $1.5 billion Progress spent in Levy County went toward design work and site planning. Florida’s public counsel says Duke should refund customers the $54 million now and not later regardless of whether it recovers the money from Westinghouse in court.
Why did the power company pay Westinghouse before the parts were delivered? “I have no idea,” said Public Counsel J.R. Kelly. “But that should be Duke’s problem — not the rate payers’.”
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