Misconduct allegations could jeopardize Crystal River nuclear plant settlement

Published July 21, 2012

Whether former Progress Energy CEO Bill Johnson misled Duke Energy about the seriousness of the repair at the busted Crystal River nuclear plant may reopen a billion dollar question:

Who's going to get stuck with the repair bill?

Back in January, a settlement between Progress Energy and Florida regulators allowed the utility to avoid public hearings into its botched upgrade to the Crystal River nuclear power plant, and its customers would have to pay for much of the fix.

The "who pays" question seemed closed — until two weeks ago, when Johnson's tenure as CEO of the newly merged Duke Energy and Progress Energy giant lasted less than a day.

The new company's board replaced Johnson with Duke's former CEO Jim Rogers. Rogers, in testimony before the North Carolina Utilities Commission this week, said the board lost confidence in Johnson, in large part because of a "lack of transparency'' about the situation at Crystal River.

The troubles at the plant were highlighted by a secret report commissioned by Duke and presented to board members on June 25, a week before the merger closed and Johnson was ousted.

As North Carolina regulators aggressively look into the situation, with more hearings scheduled for next week, and Florida regulators continue to passively observe, the January settlement may become less settled.

"Do Mr. Rogers' comments concern us?" asked J.R. Kelly, the state public counsel, who represented consumers during the settlement negotiations. "Yes they do. They cause us concern as to whether Progress and the officials were being forthright with us."

The Florida PSC has requested a copy of Duke's secret report, said Cindy Muir, a commission spokeswoman, but has not received it yet.

If the report and the ongoing inquiries indicate Progress misled its merger partner about Crystal River, state officials may conclude the utility also misled them about the nuclear plant in negotiations that preceded the January settlement.

If so, could the settlement be undone? Could the repair burden — currently estimated at as much as $1.3 billion — be shifted back to the utility?

"You would need a legal basis to ask the PSC to set aside its previous order," Kelly said. "It would take some type of fraud or deception or something like that on the part of Progress for us to go in and ask the PSC to rescind an order. We have not fully researched that."

• • •

Progress Energy and the public counsel's office announced the settlement agreement in January. It was a broad agreement that focused on several of Progress' nuclear concerns.

The No. 1 problem was the Crystal River nuclear plant. In October 2009, during a project to replace old steam generators, the 42-inch thick concrete building that surrounds the nuclear reactor cracked.

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An attempt to repair the first crack led to more cracks and expenses for repairs and related costs topping $2 billion.

The settlement resolved how the utility and its customers would share in the repair costs. As part of the deal, Progress would refund customers $288 million of the replacement power costs and another $100 million if certain benchmarks were not met.

The parties also agreed to limit the amount Progress could charge customers in advance for the proposed $24 billion Levy County nuclear plant, which the utility is considering but not committed to building.

Kelly saw the decision to settle the case as a necessary evil to ensure that his office secured something for consumers. Presenting the case to the PSC would have carried risks. As Kelly pointed out, even strong cases aren't guaranteed winners.

Meanwhile, Progress saw the settlement as a big win. At least enough of a win for the utility to recommend that a top executive vice president credited for helping negotiate the deal receive a $305,000 bonus.

John R. McArthur, an executive vice president who left the company after the merger and Johnson's ouster, "played a significant role in negotiating a favorable regulatory settlement in Florida to increase base rates through 2016," according to a compensation filing with the Securities and Exchange Commission.

McArthur resolved "substantial portions of the prudence case for the Crystal River 3 Nuclear Plant" among other things, the document stated.

His reward: $305,000, in addition to his $500,000 annual salary.

Jeff Brooks, a Progress spokesman, said the bonus compensation is part of the utility's "management incentive compensation plan," which is "designed to increase accountability . . . to align their compensation with performance."

Brooks added that the award is "to promote annual performance objectives for the entire company, not just for Florida. Not just for one issue but certainly across the entire company."

The extra pay outraged utility critics.

"What? He's not paid enough?" asked Jim Warren, executive director of environmental watchdog NC WARN, which has been raising questions about Crystal River and other issues leading up to the merger. "I find it bizarre. It sounds like a commission."

Added Susan Glickman, a lobbyist for environmental group the Southern Alliance for Clean Energy (SACE): "That a Progress Energy employee would be rewarded for ushering in that kind of arrangement is upsetting. That's unbelievable."

SACE, which acts as an official voice on environmental issues and consumers before the Florida PSC, opposed the settlement agreement and did not sign it.

Part of the trouble, Glickman said, was that the agreement codified that customers had to pay for hundreds of millions of dollars related to the broken Crystal River plant, even though records show Progress broke it.

In addition, she said, the settlement included hundreds of millions more in expenses related to the proposed $24 billion Levy County nuclear plant that customers are paying for, though it may never get built.

There were no commitments in the agreement to less expensive measures, such as energy efficiency and renewables like solar, and no proposed courses of action other than repairing an old, broken nuclear plant for billions of dollars or building a new one for billions more, Glickman said.

SACE, doubtful the state PSC or the Legislature will ever side with consumers over the utilities, has taken its case to the Florida Supreme Court.

"We need regulators and policy makers that are going to force better decisions," Glickman said. "Everyone is turning a blind eye to this bad behavior until it explodes."

Ivan Penn can be reached at or (727) 892-2332.