Wednesday, July 25, 2012

$2.5 Billion To Repair Crystal River Nuclear Plant Aggravates Duke-Progress Energy Merger Drama

Personalities and leadership styles are drawing most of the attention in the extraordinary drama playing out in hearings of the North Carolina Utilities Commission in Raleigh about the firing of Duke CEO-for-a-day Bill Johnson.  As a result of the intense focus on the people at the heart of the merger soap opera, an example of a nuclear plant causing big costs for shareholders, consumers, or both may get lost.

The Crystal River nuclear plant in Florida has not operated since 2009, when cracks were seen in a containment building.  The price tag to bring it back on line climbed, as more was learned about its problems.

At this point, the best estimate of repair and replacement power costs is a painful $2.5 billion. It is a painful number that drives home the special risks of nuclear ownership.

The repair costs for Crystal River could build more than 2,500 megawatts of new natural gas generation, more than two times the generating capacity of the nuclear plant.

Most consumers and business people would readily take brand new natural gas plants that amount to more than twice the size of an old nuclear plant with a history of operational problems.

By any calculation, $2.5 billion is a lot of money and risk to accept.  But that is what Duke did, when it agreed to buy Progress Energy, the owner of the Crystal River plant.

Bill Johnson testified that Duke began to have buyers remorse about the merger, in part over the Crystal River plant, and that his insistence that the merger be completed sowed his board room firing on his first day at work after the merger closed.

But while Duke bought Progress Energy and the Crystal River Plants, the consumers in Florida remain monopoly generation customers with no choice to buy or not.  They cannot fire Duke or the Crystal River plant.

Utility regulators in Florida, not the market or competition, will decide how much of the $2.5 billion bill consumers will pay.  Thank goodness that those days are over in Pennsylvania, since the Commonwealth enacted in 1996 its electricity competition law that ended state-sanctioned generation monopolies and freed electricity consumers to hire and fire their electricity suppliers.

1 comment:

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