Florida PSC approves Duke Energy agreement with customers on hook for $3.2 billion

TALLAHASSEE — State regulators on Thursday approved a controversial settlement agreement over who pays for Duke Energy's $5 billion in nuclear failures.

The Public Service Commission's 4 to 1 vote officially puts Duke's customers on the hook for up to $3.2 billion of the costs related to the now shuttered Crystal River nuclear plant and the canceled Levy County project.

Insurance will cover $835 million of the expenses, and Duke shareholders will pick up the rest.

Commissioner Eduardo Balbis was the lone vote against the agreement. He favored additional inquiry, citing insufficient expert testimony and a paucity of public documents regarding the insurance matters. He also wanted to know more about Duke Energy's decision to retire, rather than repair, the broken Crystal River plant.

"We have plenty of time to thoroughly review the critical issues in this case," Balbis said. "I think it is important that we get this information."

His plea fell on deaf ears.

Commission chairman Ronald Brise said his parents are among Duke's 1.7 million customers, and he understands the concerns customers have about the spending. But he said he believes the agreement was a good deal.

"It is a difficult situation across the board," Brise concluded Thursday afternoon. "This is not what anyone would have liked. But this provides the best resolution."

Added Commissioner Julie Brown: "There are no compelling alternatives. I think this is an opportunity to stop the bleeding. With the public interest in the forefront … this is the best alternative that we have."

Commissioners Lisa Edgar and Art Graham also voted in favor of the settlement.

It was a complex case, often described as a tragedy so large that it could have taken years to resolve without the kind of settlement reached between Duke and the state Office of Public Counsel, which represents consumers before the PSC.

Deputy public counsel Charles Rehwinkel said Duke was poised to appeal his requests for more documents, which could have dragged the case on for years.

"There was a lot of uncertainty and unknowing," Rehwinkel said. "I'm not saying this settlement is something that we … celebrated and had champagne over."

Some consumers urged the PSC to delay a decision on the settlement to provide time to hold hearings in Duke's Central Florida service area so commissioners could hear from ratepayers themselves.

Commissioners rejected the request, saying the law did not allow them to take testimony in this kind of case other than from expert witnesses. The commission, however, allowed consumers who traveled to Tallahassee for the first day of settlement hearings on Wednesday to speak for three minutes each.

Commissioners also said budgetary constraints prevented them from making such a trip other than when a utility is requesting a rate increase. In those cases, the law allows consumers to talk to the commission about the quality of service their utility delivers.

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The group "Stop Duke Rip-Off" sent an email to the PSC on Thursday offering donations it was receiving to help pay for the commissioners' trip to the community. The group had not immediately heard from the commission.

Rep. Dwight Dudley, D-St. Petersburg, said the PSC always seems to ignore the people in deference to the utilities, even with the decision to approve the settlement.

"In terms of being a watchdog for consumers, they have been absent," Dudley said. "If anything they've been a toothless lapdog.

"I don't see how they have benefited us, the public, in any way shape or form, which calls into question the value of the PSC in its current form," he said.

Duke's critics dubbed the Crystal River nuclear facility the "Humpty Dumpty" plant after cracks in the concrete led to its demise.

Duke spent hundreds of millions of dollars replacing the plant's old steam generators. The spending escalated after the utility cut into the 42-inch-thick concrete reactor containment building and it cracked.

Questions arose about why the utility decided to self manage the project, when every other utility that successfully completed similar upgrades had hired an outside contractor to oversee the work. Duke's plan for preparing and then cutting the wall also differed from the way it was done at other plants.

Attempts to repair the wall and bring the reactor back online led to more cracks. In February, Duke announced Crystal River's closure.

The upgrades, repairs and replacement power Duke was forced to purchase resulted in more than $3 billion in expenses.

At the same time, Duke was seeking a license to build two new reactors less than 10 miles north of the Crystal River plant in Levy County.

A law passed in 2006 enabled the utility to charge customers ahead of the plant coming online for siting, planning, development and financing charges. The "advance fee" or "pay-as-you-go" law shifted the risk of starting a nuclear project from investors to utility customers.

The initial price tag was $4 billion to $6 billion. It quickly escalated, eventually reaching more than $24 billion. Duke ended up spending about $1 billion and generated $300 million to $500 million in financing charges before scuttling the project earlier this year.

Dudley pointed to the so-called "advance fee" laws for nuclear as a major reason the costs got so out of control. The Legislature, Dudley said, needs to "sharpen the stake and drive it through the heart of the utilities when it comes to nuclear cost recovery."

Duke plans to try to sell components it purchased toward Levy to reduce customers' obligation, but it remains to be seen whether they'll find buyers.

Rehwinkel, the deputy public counsel, said a prime benefit of the settlement agreement is that the customers' tab for Levy can not rise any higher.

"The Levy project is dead," Rehwinkel said. "That was one of the things we thought was important — to exterminate the Levy project."

Sterling Ivey, a Duke spokesman, said the settlement provides long-term certainty and stabilizes rates for years.

"It is fair and represents a good value for our customers," Ivey said.

Customers will pay more, though. The average residential customer's monthly rate will increase by $8.24 on Jan. 1 to $124.30 per 1,000 kilowatt hours.

Expect even more charges to come.

As part of the settlement, Duke wants to pursue another as-yet-undisclosed power generating source to build or buy by 2017 and to build two natural gas plants in 2018 and 2020. They will have to prove that the extra power is needed before moving forward.

There also will be charges related to storage of the nuclear fuel left at the Crystal River site.

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