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After botched merger, Duke Energy has more to repair than broken nuclear plant in Florida

The reactor building, at left, at the Crystal River Nuclear Plant, seen as the morning sun peeks through the clouds last year in Crystal River. The two large cooling towers seen at right, though commonly associated with nuclear facilities, are actually part of the coal-burning operations. Duke Energy, newly merged with Progress Energy, needs to decide what it’s going to do with the plant.

WILL VRAGOVIC | Times (2011)

The reactor building, at left, at the Crystal River Nuclear Plant, seen as the morning sun peeks through the clouds last year in Crystal River. The two large cooling towers seen at right, though commonly associated with nuclear facilities, are actually part of the coal-burning operations. Duke Energy, newly merged with Progress Energy, needs to decide what it’s going to do with the plant.

A perennially passive Florida regulator squares off Monday against the nation's largest electricity producer and owner of the aging Crystal River 3 nuclear power plant north of Tampa Bay. The issue? The fate of CR3, broken since late 2009.

At the heart of the Florida Public Service Commission's hearing: Can CR3 be safely fixed at reasonable cost and start generating electricity again? Or is its concrete containment vessel so damaged and now so brittle that we all may be best served by Duke Energy closing CR3 for good?

There are some key, hard-hitting questions the timid PSC should be asking Duke about a broken nuke plant that may cost billions to fix. I'm skeptical that the commission will even pose many of those questions. And those that are posed will be deflected by Duke — a giant utility more combative than Progress Energy.

First, let's set the bigger scene.

In normal times, Monday's status update would pass largely ignored. PSC regulators are often wimps, bullied by state legislative overseers who are slaves to campaign contributions from rich utilities.

Florida PSC leaders may claim they follow the letter of regulatory rules, but they've lost much of the spirit to act in the public interest of clearly beleaguered Floridians. Especially those Floridians already paying Duke a premium for electricity.

But these times are far from normal. In what is perhaps the most manipulative merger in recent U.S. corporate history, Duke Energy last month finalized its purchase of North Carolina peer Progress Energy. The takeover makes CR3 Duke's problem now.

There's a good reason Friday's Wall Street Journal ran this headline: Lingering Mistrust Will Haunt Duke Merger. "Nearly everyone involved in this Southern Gothic drama — directors, executives, regulators, and Wall Street — no longer trusts each other." And that, the Journal states, "will haunt the utility."

From the start of the proposed super-merger, Duke promised Progress Energy that its CEO, Bill Johnson, would become chief executive of the resulting power company.

Bizarrely, Johnson instead was tossed out on the same day the merger was completed last month, mere hours after formally becoming CEO of the new Duke Energy.

Replacing Johnson as CEO of the new Duke Energy is Jim Rogers, longtime CEO of the old Duke.

The underhanded style and Machiavellian tone of the corporate coup produced an instant backlash. Rogers had to explain Duke's actions at length under oath before upset North Carolina regulators.

North Carolina's attorney general started an investigation. Several lawsuits accuse Duke of sucker punching Progress Energy and misleading investors in the deal.

There's even some talk that Duke will have to sacrifice Rogers as part of the ultimate price of fixing this fiasco. But Rogers is politically powerful, having played a key role in bringing the Democratic National Convention and President Obama to Charlotte just weeks from now.

In addition to Johnson's ousting, several top Progress Energy executives have resigned either in protest of the handling of the merger or because they feel Duke will not treat them fairly in the future.

The management turmoil continued last week. Progress Energy Florida announced Wednesday that president Vinny Dolan, 57, would resign this year even though he's held the position for only three years.

Which brings us to Monday's long-scheduled hearing by the Florida PSC. The agency had no influence in the messy merger to date. But where it should have some clout is in its alleged oversight of what is now Duke's job of handling CR3.

After all, both Rogers and Duke's top directors blame Johnson's poor handling of the botched repairs to CR3 as a big reason for the loss of confidence in Johnson becoming their new CEO.

On Monday, Rogers will appear for the first time before the Florida PSC. He will comment in a separate meeting before the scheduled review of CR3's future. Rogers is supposed to discuss how Duke's purchase of Progress Energy will affect 1.6 million Florida customers, especially on the matter of future electricity rates.

Once Rogers is done, another PSC hearing begins with a team from Duke on whether to repair or retire CR3. Nobody's expecting a final answer yet.

Duke has chosen (but not identified) an outside engineering firm to repair the plant, but more information is still being gathered.

Also likely to be discussed is NEIL, short for Nuclear Electric Insurance Limited, which provides insurance to nuclear plants.

As the owner of damaged CR3, Duke wants NEIL to honor the plant's insurance policy and cover some of the $1 billion-plus price tag for repairs. NEIL has not yet indicated whether it will honor that policy because Progress Energy's own botched repairs aggravated the damages to CR3 and might have been avoided.

Bottom line? CR3's troubles are hardly the only repairs Duke must undertake. Rebuilding trust may take longer than the company thinks.

Robert Trigaux can be reached at trigaux@tampabay.com.

Five questions the PSC should ask Duke about Crystal River 3

1. After a series of botched repairs, is it still really worth spending billions more to try to fix the nuclear power plant? After all, it's nearing the end of its 40-year life. And the Nuclear Regulatory Commission just shelved plans to grant any 20-year license extensions, including CR3's, until it satisfies a federal appeals court that nuclear waste can be safely stored while a national repository is built. If you decide against fixing CR3, what are your plans to retire the plant? Will you promptly start the long process to decommission the plant or merely mothball the plant and delay the necessary steps to finalize the closing of a plant that contains substantial nuclear waste?

3. What exactly was this "serious event" that occurred at Crystal River 3 in May that Duke director Ann Gray cited last month before North Carolina regulators? That was a new and potentially disturbing revelation, first mentioned in a letter from the Nuclear Electric Insurance Ltd., that Duke officials were not asked to elaborate upon during the North Carolina hearings. Well, Duke, you're in Florida now and we want details on that "serious event."

4. If CR3 does not operate again, how would you make up the large amount of lost electricity from the nuclear plant? Building natural gas plants seem to make the most sense but that raises issues. Where would you put them? And Florida's already heavily dependent on natural gas as a fuel to generate electricity. How much is too much?

5. After this merger debacle, how can Florida regulators and Florida customers be assured you will do what you say at CR3? Duke is, after all, a new player in Florida and the early impression here is poor. And the Duke-Progress Energy merger isn't the only recent incident to raise questions about Duke's ethics. In Indiana, where Duke already operates, the utility has spent much of this summer trying to persuade state regulators to dismiss charges of fraud, concealment and mismanagement over its handling of a power plant known as Edwardsport, one of the most costly construction projects in Indiana history. That track record is not exactly a raging endorsement for Duke managing the future of CR3.

After botched merger, Duke Energy has more to repair than broken nuclear plant in Florida 08/11/12 [Last modified: Wednesday, August 15, 2012 11:56am]
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