Duke Energy to Shut Crystal River Reactor in Florida

Duke Energy Corp., the largest U.S. utility owner, will permanently shut its Crystal River nuclear power plant in Florida after deciding the risks and costs associated with repairing it outweighed the benefits.

Duke will seek $1.65 billion from Florida customers for its failed investments in the reactor, the Charlotte, North Carolina-based company said in a filing today. The cost recovery can begin in 2017 and last 20 years under a settlement approved by state regulators last year.

Shutting the plant “is probably a prudent decision,” Nathan Judge, a London-based analyst for Atlantic Equities LLP who rates the shares the equivalent of hold, said today in a phone interview. “Having said that, it leaves ratepayers with about a $1.6 billion bill and that’s going to increase scrutiny on Duke’s operations in Florida and its rates.”

Duke acquired the 36-year-old reactor when it bought Progress Energy Inc. last year. Duke’s board said a lack of timely information about the reactor played a role in its decision to oust Bill Johnson, the former head of Progress, hours after he became chief executive officer of the combined companies. The leadership switch prompted investigations by North Carolina regulators and the state’s attorney general.

The 860-megawatt reactor has been shut since 2009, when a crack was discovered while it was being refueled and its steam generator replaced. More cracks occurred in 2011 when the company was trying to repair the damage. A company report last year concluded fixing the reactor may cost $1.49 billion and as much as $3.43 billion in a worst-case scenario.

Insurance Payment

Duke rose 0.8 percent to $68.88 at the close in New York. The shares have gained 8 percent this year.

The plant closing doesn’t affect Duke’s debt rating, Dimitri Nikas, a New York-based credit analyst for Standard & Poor’s, said today in a note to clients. Its recovery of about $1.6 billion of abandoned investment in the plant is “well defined” under the 2012 settlement with Florida officials, he wrote.

Nuclear Electric Insurance Ltd., the industry-formed insurer of U.S. reactors, will pay a record $835 million as part of a settlement with Duke, including $305 million already paid.

Duke’s Progress Energy Florida will record a cost of about $195 million in the fourth quarter from closing the plant, located 72 miles (115 kilometers) north of Tampa. Progress Energy Florida serves more than 1.6 million customers in the state.

Decommissioning Fund

Duke may build natural gas-fueled power generation to replace the reactor’s output. Sites in Citrus County, where the reactor employs 600 people, are under consideration, the company said. Four coal-fired units at the site will continue to operate as planned, with the expected retirement of two of them in 2015 to 2018.

The reactor’s decommissioning fund should be sufficient to pay for dismantling it, Duke said in the filing. The company plans to remove the fuel and monitor the reactor for as long as 60 years before scrapping it, allowing radioactive decay within the plant and reducing the volume of radioactive material when it’s taken apart.

“We believe the decision to retire the nuclear plant is in the best overall interests of our customers, investors, the state of Florida and our company,” Duke Chairman and CEO Jim Rogers said in a statement today. “The decision was very difficult, but it is the right choice.”

(Updates with closing share price sixth paragraph, comment from S&P credit analyst in seventh.)
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