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Fitch: Duke Decision to Retire Crystal River 3 Has No Immediate Impact on Ratings

  Fitch: Duke Decision to Retire Crystal River 3 Has No Immediate Impact on
  Ratings

Business Wire

NEW YORK -- February 5, 2013

Duke Energy Corp.'s (DUK) decision to retire the Crystal River 3 nuclear unit
(CR 3), owned by subsidiary Progress Energy Florida (PEF), has no immediate
impact on PEF's ratings and Rating Outlook (Issuer Default Rating 'BBB+' with
a Negative Outlook), according to Fitch Ratings.

While Fitch considers the retirement decision to be constructive due to the
rising repair cost estimates, construction risks and low gas price
environment, a number of uncertainties remain including the regulatory
treatment of the sunk costs, the type and cost of replacement power and PEF's
ability to manage costs during a rate freeze that extends through 2016. CR3
has been out of service since September 2009 and out of rate base since Jan.
1, 2013.

A rate settlement agreement approved by the Florida Public Service Commission
(FPSC) establishes a framework for the treatment of CR3 costs. Under a
retirement scenario the settlement permits PEF to seek recovery of CR3's
embedded cost in 2017 at a reduced return on equity (ROE) equal to 70% of the
company's prevailing authorized ROE. Importantly, the agreement also allows
the recovery of on-going replacement power costs.

The unrecovered investment is approximately $1.6 billion, which includes the
$375 million depreciated original cost plus the steam generator and
containment repair costs, nuclear uprate, nuclear fuel and material and
supplies that have yet to be approved for recovery and subject to review by
the FPSC. The revenue requirement is in excess of $200 million.

Separately, DUK announced it had reached a settlement with its insurance
carrier, the Nuclear Electric Insurance Limited (NEIL), through a mediation
process. The settlement provides for recovery of an additional $530 million,
which will ultimately be flowed back to rate payers. NEIL previously paid PEF
$305 million.

The ability to control costs during the rate freeze period and to improve
credit metrics will be the key rating driver in the near-term. Credit metrics
have been trending downward over the past two years, but should stabilize in
2013 due to a $150 million tariff increase implemented Jan. 1, 2013.
EBITDA/interest and Debt/EBITDA are expected to approximate 5.0x and 3.75x,
respectively, which Is moderately weaker than its peer group.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011);

--'Recovery Ratings and Notching Criteria for Utilities' (May 3, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693750

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Primary Analyst:
Robert Hornick, +1-212-908-0523
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Philip Smyth, +1-212-908-0331
Senior Director
or
Committee Chairperson:
Glen Grabelsky, +1-212-908-0577
Managing Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com
 
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