Progress Energy no longer thinks its insurer will "voluntarily pay" the full cost of repairing the broken Crystal River nuclear plant, a conclusion that will likely delay the reactor's return to service and potentially cost tens of millions of dollars in additional replacement power.
Progress had predicted the plant would come back online in 2014, at a cost of $2.5 billion for repairs and for making up for the lost electricity. But on Thursday, the company noted that the Nuclear Electric Insurance Limited had stopped paying claims in the first half of last year and still hasn't decided whether to cover the rest of the tab. Progress thinks the insurer should pay up; it's just not likely to happen soon.
It's not "probable that NEIL would voluntarily pay the full coverage amounts we believe they owe under the applicable insurance policies," Mark Mulhern, Progress' chief financial officer, said during a teleconference.
Charles Rehwinkel, deputy state public counsel, said the insurance company has essentially forced Progress to take the case to an arbitrator, and that will take months to sort through the details.
"It is virtually certain that 2014 will not happen," said Rehwinkel, who represents consumers before the Public Service Commission. "I think NEIL, they're faced with a claim that is far beyond anything they've contemplated they would ever have."
Rehwinkel said the best option for customers is for Progress to pursue repair of the nuclear plant because if they give up on it, "NEIL will be off the hook and won't pay."
The containment wall that houses the reactor cracked in 2009 as Progress Energy replaced steam generators at the Crystal River plant in Citrus County. It cracked two more times during repairs, creating one of the most costly nuclear plant accidents in U.S. history. Progress has had to purchase hundreds of millions of dollars of power to help replace what the plant would have been generating.
Mulhern and Progress chairman and CEO Bill Johnson said they remain optimistic that they will receive all of the insurance money due under the policy to repair the nuclear plant. Progress' policy allows up to $2.5 billion in repair costs per incident and $490 million in replacement power costs.
"We are in a process with them on the biggest and most complex claim they've ever had," Johnson told investors on Thursday. "We're still working positively and engaged with them."
Johnson said Progress continues to develop an engineering plan to repair the plant and expects to complete that process sometime during the second quarter of this year.
Progress will have to hurry as the clock is ticking on its move to repair the 36-year-old plant.
If the utility decides to repair Crystal River, it must begin the work before the end of the year, according to a settlement agreement Progress reached with the public counsel last month. If Progress does not meet that deadline, the company would add $100 million to the $288 million it has already pledged to refund customers.
If NEIL ultimately does not cover the repair costs, Progress would have few options other than to pass the billions of dollars on to customers or investors. The financial reality could force the company to permanently shut down or "decommission" its only nuclear power plant in Florida. In that scenario, the company has said it would need another major power source and would likely build a natural gas plant as an alternative.
During the earnings call, investors questioned Johnson and Mulhern about the appeal options if NEIL did not cover the repair costs and whether it would simply be better to close the plant.
"We have to get to a higher level of engineering and repair options," Johnson responded. "Sometime in the second quarter we will be at that spot."
The financial issues with Crystal River took a toll on Progress late last year with the settlement agreement dragging down the utility's earnings. Progress reported a $76 million loss in the fourth quarter.
For the full year, Progress' earnings totaled $575 million compared with $856 million the year earlier.
Johnson hopes to strengthen the company with the continued effort to merge with its neighboring North Carolina power company, Duke Energy. The two utilities said they hope a new proposal for the merger will satisfy federal regulators' concerns that the merger will adversely affect competition.
Ivan Penn can be reached at email@example.com or (727) 892-2332.