NC Commission Must Assess Duke CEO Rogers’ Revelations about Merger Costs – NC WARN News Release
- July 13th, 2012
Billions in nuclear repairs or retirement would harm Carolinas ratepayers; all this should have been disclosed prior to Commission approval of the merger
Statement by Executive Director Jim Warren:
Durham, NC – Whether the Duke-Progress merger stands or falls – and no matter who is to blame or who leads the corporation – electricity customers in North Carolina will be harmed by the multi-billion dollar Crystal River mistake and the millions or billions Duke CEO Jim Rogers says he will “pour” into correcting problems at other Progress nuclear power plants. The broken nuclear containment at Crystal River is a hugely expensive error regardless of whether repair or decommissioning is attempted, and Duke should have disclosed the new information, along with cost estimates for the other needed nuclear upgrades, prior to the merger’s closing.
As an active intervener since the outset of the merger case, NC WARN today filed a motion urging the NC Utilities Commission to investigate those two particular areas because of their direct impacts on North Carolina ratepayers. It was odd that commissioners didn’t question Rogers about the cost or nature of the nuclear problems, and the impacts on customers.
Despite a host of accusations and concerns about the CEO shuffle, the core issue at stake is that, by law, public benefits of the merger must clearly outweigh the costs. That central issue is increasingly in grave doubt, and now it is even more important that the Commission agree to unseal the 15-plus secret deals Duke made to gain merger approval, so the public can determine if there is any net public benefit, thus whether the merger can legally be affirmed.
Throughout the blizzard of finger-pointing and harm to workers and others, Chairman Finley’s statement to The Tampa Bay Times after Tuesday’s hearing remains poignant: “Obviously, Crystal River was discussed at great length today as the rationale for what they [Duke] did.”
If Crystal River and other deficient nuclear plants were indeed the two key factors in ousting Johnson, they were important enough to disclose to the utilities commission, public, and investors as Duke began to understand them.
In mid-June NC WARN moved for the Commission to consider a credible and now-validated allegation that Duke possessed new information proving Bill Johnson had understated the severity of Crystal River. At its June 25 hearing, the Commission declined to allow us to cross-examine Duke-Progress about Crystal River, or Progress’ $24 billion Levy nuclear mistake. Nor did the Commission explore those problems themselves.
Now, the Commission must keep NC ratepayer interests at the fore. NC WARN is sympathetic to Florida customers too; giant corporations should not be allowed to force families and businesses to bail out their blunders, but that’s what will happen unless regulators ensure that those who made the mistakes pay for them.
CRYSTAL RIVER AT $3 BILLION-PLUS?
Despite attempts to fog this point, much DID change at Crystal River after the merger was initiated and after last September’s Commission hearing, as repair attempts caused further containment cracks that Progress tried to keep quiet. Also, the insurance company balked after the Tampa Bay Times reported that Progress had been vigorously warned not to attempt the short-cut steam generator replacement in-house, but instead to hire experienced contractors.
Johnson had little basis for repair estimates he floated during serial investor conference calls last year – and Progress to this day has not filed an engineer’s repair plan with the NRC. But even if he had been correct, the debacle is at least a $2.7 billion mistake when replacement power is included – and likely to be much higher if the unprecedented repair is attempted.
Duke’s new study was reportedly in the hands of the Duke Energy Board by June 25. From Rogers’ testimony Tuesday, it is clear that Duke began receiving results from the analysis weeks earlier, and that the findings were a key element in the board’s justification for removing Johnson. That study is likely to include a more realistic cost estimate, and its interim results should have been presented to the Commission in May as a material change in the merger.
NC WARN strongly recommends that the Commission obtain this and all related reports on Crystal River – and not allow Duke to claim the public should not see them – to determine both the extent of mismanagement and the cost estimates for the alternatives.
To be clear: If Rogers’ option of plant “retirement” is attempted, that’s much more than turning off lights and locking the doors. The most recent nuclear plant decommissioned, the smaller Haddam Neck nuclear plant in Connecticut, cost $1.2 billion in 1996 dollars, nearly double its original decommissioning estimate and more than twice the amount of money in the Crystal River decommissioning trust fund at the end of 2010.
In addition to the highly uncertain costs of decommissioning the plant (the industry remains unsettled about decommissioning methodology) it is likely that Duke Energy would be required to spend millions annually, for decades or longer, in order to manage the radioactive site and secure the storage of spent reactor fuel.
The Commission must determine Duke’s estimates for short and long-term decommissioning.
HOW NC CUSTOMERS ARE HURT BY FLORIDA MISTAKES
There are at least two key ways that NC customers get hurt by all the nuclear plant mistakes.
At a minimum, Crystal River’s costs and the blow to corporate credibility will lower Duke Energy’s bond ratings and increase the cost of borrowing for all capital projects company-wide. This will make ongoing borrowing rates higher and large capital projects in North Carolina more expensive, especially if Duke Energy carries out its current ambitious plans to constantly build power plants and export power out of region. All this will add pressure for more rate increases.
Another way these costs effect North Carolina ratepayers is through payments from the various operating companies to the holding company in order to meet shareholder expectations of dividends. With Crystal River significantly reducing Progress Energy Florida’s contribution to the holding company for an indefinite number of years, along with Duke’s costly fiasco with the Edwardsport plant in Indiana, ratepayers from North Carolina and other Duke Energy states will be pressed to make up the difference.
FIXING NUCLEAR PLANTS IN THE CAROLINAS
Jim Rogers could drop millions just painting the Progress nuclear plants.
Surely he was aware of the persistent and widely reported safety and operational problems at Progress’ Carolinas plants since long before a merger was contemplated. And surely Duke long ago conducted a financial assessment of the correctional plan Rogers spoke of Tuesday. What is the time frame for completing the corrections?
Major renovations and upgrades at nuclear plants cannot be deferred, and the costs could be in the hundreds of millions or even billions of dollars. These unexpected costs could easily negate the forecasted fuel savings from the merger, especially because the upgrades need to occur long before the five-year period over which purported merger savings would pass to the public.
The Commission should examine all information on the need for these major investments to determine the impacts on ratepayers, and whether these major investments should have been disclosed as part of the merger docket.
No matter what Duke does now, ratepayers will be soaked for a long time – and our state economy damaged. The Commission needs to fully and carefully explore the implications.
Along with these direct financial considerations, the public and the Commission must ask if the merger, under any conditions, is worth the price of granting such a dubious energy empire an unprecedented level of control over our economic, energy and environmental future.