Duke-Progress merger puts restart of Florida reactor in doubt

Thu Jul 12, 2012 5:58am IST

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* Damaged Crystal River reactor in Florida shut since 2009

* Duke board ordered independent look at repair costs

* Insurance coverage not resolved, in mediation

By Eileen O'Grady

July 11 (Reuters) - The likelihood that the damaged Crystal River nuclear reactor in Florida will produce another megawatt of electricity appears to have dimmed following the merger of owner, Progress Energy, with Duke Energy, and the surprise exit of Progress' top executive Bill Johnson, according to testimony by Duke's chief executive Jim Rogers this week.

Charlotte, North Carolina-based Duke Energy became the largest electric utility and second-largest nuclear operator in the nation this week when it acquired Raleigh, N.C.-based Progress Energy in a deal valued at $18 billion.

Crystal River's prolonged shutdown and issues at other Progress-owned nuclear units played a role in Johnson's exit, the man who had been slated to lead the merged company, according to the testimony.

On Tuesday, Duke's Rogers told a special hearing called by the North Carolina Utilities Commission to look into Johnson's unexpected departure that Duke's board members had lost confidence in Johnson's management style.

Duke board members voted to oust Johnson from the job of chief executive of the merged company just hours after the deal was completed.

Johnson's departure may now put the restart of Crystal River in doubt as he had been a strong proponent of repairing it.

Crystal River "is one area we had great concern about," Rogers said, citing insight gained from Duke director James Rhodes, the retired chief executive of the Institute of Nuclear Power Operations (INPO), a nuclear industry group that promotes safety and reliability.

Progress' Florida unit, the state's second largest utility, has been struggling since 2009 to return the 838-megawatt Crystal River reactor to service after cracks began to be found in the containment building's 42-inch (107 cm) thick walls.

A series of mistakes when the building wall was opened and during initial repair work forced the utility to evaluate whether it would make more sense to pursue a complicated repair job or to shut the reactor permanently.

Rogers told North Carolina regulators that the board became concerned that Progress' assessment of the risk and its estimate of the cost to repair the damaged reactor building were not realistic and ordered an independent analysis.

"We had expressed clearly to them that we really needed, as a new board, to consider whether to retire or replace," Rogers said.

In quarterly earnings calls, Johnson expressed his desire to try to return Crystal River to service sometime in 2014 at an estimated cost of $1.3 billion, saying Progress planned to make a presentation to the new Duke board after the merger.

On July 2, the same day Duke completed the merger, Progress told its state regulators it had moved forward to select a company to repair Crystal River "should the choice to repair (the reactor building) be made," in a status filing.

Rogers also revealed that ongoing talks with Nuclear Electric Insurance Limited (NEIL), an industry-sponsored insurance fund, on Crystal River claims had not been resolved, but had shifted into a mediation phase. According to Progress filings, NEIL stopped making payments in May 2011.

An official with Florida's Office of Public Counsel, an agency that represents consumers interests in state utility proceedings, said he was "gravely concerned" about Rogers' comments regarding Crystal River's future.

The agency believed that Johnson, as CEO of the merged company, "would diligently pursue all reasonable avenues of repairing and successfully returning (Crystal River) to service for the benefit of Florida customers," said Charles Rehwinkel, deputy public counsel, in a statement.

"We further expected that Duke, under Johnson's leadership, would aggressively pursue collection of the full amount of coverage for repair and replacement power costs under the NEIL insurance policy that Florida customers have paid the premiums for over the past 30 or so years," he added.

As of March 31, Progress had spent $506 million to replace lost generation from Crystal River and $279 million on repairs. It has recovered $162 million in replacement power costs and $143 million in repair costs from NEIL, according to filings.

Rogers also said Duke board members expressed concern about a "lack of sufficient improvement" at Progress' Brunswick reactors which have been under increased safety monitoring by the U.S. Nuclear Regulatory Commission.

An NRC spokesman said problems that have led to increased scrutiny at the plants operated by Progress were unrelated.

"We've seen no indication that the overall management of the Progress nuclear fleet is deficient," said Roger Hannah of the NRC regional office in Atlanta.

Rogers told the North Carolina commission Duke will "pour money" into Progress' operating reactors to "bring them back to excellence."

He made no such commitment for Crystal River.

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