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Duke Energy's customers face a potential $500 million bill

Here's the latest fallout from the state's eight-year-old nuclear advance fee: Duke Energy customers may have to pay another half billion dollars for the Levy County nuclear plant.

You remember Levy. That's the failed project for which customers already have to pay $1.5 billion. The one that will never be built.

Now comes news that Westinghouse Electric Co. is suing Duke for canceling the Levy project. The Pennsylvania company is demanding $512 million for engineering and design work.

Duke says it doesn't owe a dime and actually wants a refund of $54 million for work it says Westinghouse never did.

Neither company would discuss the matter with the Tampa Bay Times, citing the pending litigation in federal courts in North Carolina and Pennsylvania.

Charles Rehwinkel, deputy state public counsel, who represents consumers before the Public Service Commission, said Westinghouse's claim is an attempt to take advantage of the nuclear advance fee.

The law gives utilities broad ability to charge customers for nuclear projects without forcing them to give anything in return. Rehwinkel suggests that with its suit Westinghouse is not really targeting Duke, its well-heeled client and the nation's largest utility. Rather, he said, it is targeting utility customers.

"This is a shameful, cynical effort by Toshiba/Westinghouse to leverage the (advance fee) to soak already hurting ratepayers for another $500 million," Rehwinkel said.

• • •

The Legislature was not trying to be ironic in 2006, when it promised that the advance fee would get new nuclear facilities built both faster and cheaper.

Only a few critics noticed that while the law forced customers to pay for new plants before they were built, it did not require a utility to actually build anything. And while it was charging but not building, a utility could be making a nice profit.

Duke, and its predecessor company, Progress Energy Florida, accomplished that very feat.

In short, the advance fee demands from utilities little in the way of accountability. So longtime critics say a Westinghouse victory in court all but assures customers — not Duke — would have to foot the bill.

"It is part of the risk to which the Legislature exposed Florida customers by passing such an open-ended piece of legislation," said Peter Bradford, a former U.S. Nuclear Regulatory Commission member. "The law basically says once the commission approves the need for the plant all prudent costs are passed onto the customers."

And that's where legally-speaking Westinghouse might be less to blame than Rehwinkel argues.

"I'm not sure that it's fair to cast Westinghouse as the bad guy here, if there's a termination clause that they are entitled to $512 million," said Jake Linford, an assistant professor of intellectual property and contract law at Florida State University Law School.

• • •

In December 2008, Duke signed a contract with Westinghouse to build two AP1000 nuclear reactors in Levy County.

Just four months later, Westinghouse says the utility ordered a partial suspension of the Levy project that lasted until summer 2013. Despite the suspension, the utility asked the contractor to continue with its work.

"Duke continued to testify before the (Florida Public Service Commission) that it intended to complete the project," Westinghouse states in its complaint.

And Westinghouse says it continued to do its work.

In June 2013, Duke told Westinghouse during a meeting in Pennsylvania that it intended to terminate their contract for engineering, procurement and construction to build two nuclear reactors in Levy County, according to the lawsuit.

On Aug. 1, Duke publicly announced it was canceling Levy, and officially ended the contract with Westinghouse in January.

By then, it had run up a tab of $1.5 billion in expenses and financing charges it will pass on to customers.

Last month, Westinghouse sent Duke an invoice for an additional $512 million for "Termination Costs and the Agreement Termination Fee, not including equipment disposition costs, charges for services … or any other costs associated with prior agreed change orders."

If Westinghouse prevails, Duke customers could be forced to pay that penalty on top of the $1.5 billion they are already being charged for Levy. And all of that is on top of another $1.7 billion in expenses related to Progress Energy's botched attempt to upgrade the existing Crystal River nuclear plant. Progress permanently shut down that plant in February 2013.

For now, state regulators see the dispute as one for the courts.

"This issue concerns litigation which is outside the commission process," said Bev De­Mello, a Public Service Commission spokeswoman. "We will monitor the progress of the case. We will address any petitions on this issue if or when they are filed with the commission."

The way the advance fee law is written, the PSC won't have much ability to avoid passing any additional costs onto customers, said Mark Cooper, a senior research fellow at the Institute for Energy and the Environment at the Vermont Law School.

"There's not a whole lot of leverage on the side of the commission to stop the cost recovery," he said, "nor is there any incentive on Duke's part."

Ivan Penn can be reached at ipenn@tampabay.com or (727) 892-2332.

Duke Energy's customers face a potential $500 million bill 04/04/14 [Last modified: Friday, April 4, 2014 11:31pm]
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