Archives

PUR Guide 2012 Fully Updated Version

Available NOW!

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Florida Ends Surcharge Funding Mechanism for the Levy Units

Signaling the end of a long-fought battle over cost responsibility for a now-abandoned nuclear plant construction project, the Florida Public Service Commission has endorsed a proposed settlement which in essence terminates any further ratepayer obligation for the incomplete units but also prevents customers from receiving refunds for contributions already made toward the project, which will never actually produce any power.

At issue was Duke Energy Florida’s (DEF’s) Levy County nuclear facility. The project had first been advocated by Duke Energy’s predecessor, Progress Energy Florida (PEF), but Duke Energy took over the project upon their merger in 2011. Subsequently, however, with the project’s price tag continuing to spiral upward and with the completion date moved back to 2026 at the earliest, DEF decided in 2013 to cease further work on the units. Since that time, there had been ongoing argument between the utility and consumer advocacy groups as to who should pay the remaining costs of the project.

After Florida passed a law in 2006 promoting new nuclear energy as a clean, emission-free source of electricity, PEF notified the commission that it had identified a parcel of land in Levy County suitable for the installation of two new reactors. Given the site’s proximity to the utility’s existing Crystal River 3 nuclear power plant, PEF had reasoned that there would be synergies in operation and economies of scale in constructing the Levy units there.

Progress Energy Florida announced final plans for the Levy facility in early 2008, projecting a total cost of about $5 billion and a completion date of 2016. In approving the proposal later in 2008, the commission also permitted PEF to start charging its customers an extra amount to pay for the Levy work up front, as that work progressed. But, as the cost estimates grew and delays in commercial operation became inevitable, opposition to the Levy units began to mount as well.

By 2013, the price tag for the Levy plant had risen more than threefold while the expected completion date stretched another decade. At the same time in 2013, problems developed at the Crystal River 3 facility, with the costs of associated repairs coming in at more than $1 billion. When combined with slowing growth in demand and historically low natural gas prices that made gas-fired generation far more attractive than nuclear power, DEF decided it was time to pull the plug on the Levy project and turn its attention to other sources of generation instead, especially solar.

Although not contesting the utility’s decision to abandon the Levy facility, a number of consumer groups did decry DEF’s request to recover from ratepayers the $150 million remaining in costs incurred on the work done so far. They alleged that since the units will never be used and useful in service, it was up to DEF and its shareholders to foot the bill for the project. Eventually, all parties reached consensus that DEF and its investors must absorb that last $150 million. Their settlement also provides that by January 1, 2019, the utility must remove from rate base the value of the land on which the Levy assets were sited.

The commission estimated that by reducing rate base accordingly and by eliminating the Levy rider from customer bills, consumers are expected to see savings of as much as $2.50 per 1,000 kilowatt-hours of usage. However, the commission acknowledged that the agreement sets forth no terms mandating return of the $800 million that customers have already paid for the work. Moreover, the commission admitted that while consumers will benefit from elimination of the Levy surcharge, that reduction will be shortlived because their bills overall will still rise under the settlement.

The commission explained that the stipulation allows DEF to raise its rates from 2019 to 2021 by anywhere from one to three percent to account for an unexpected increase in power plant fuel costs. Although the commission insisted that the fuel-related increase was not the same as an increase in base rates, the billing effect will be similar. As to base rates, the commission remarked that the agreement reflects a two-year moratorium on any base rate increase requests. But after that time the utility can pursue an increase to be effective in 2021 that covers DEF’s new expenditures on solar facilities.

The company disclosed in the settlement that in conjunction with its change in focus away from nuclear generation, it intends to develop multiple solar power facilities instead. That is, DEF said, it already has plans for about 700 megawatts (MW) of utility-scale solar units over the next four years, at a rate of about 175 MW per year. According to DEF, it anticipates total investments in solar developments to be as much as $6 billion, in recognition that it has fallen behind most other electric utilities in the state in terms of utilization of solar power.

Besides solar projects, the company told the commission that it expects to also invest in battery storage technologies, electric vehicle applications, and grid modernization programs. While many of the terms in the proffered settlement were devoted to the end of the Levy County project and the launch of DEF’s solar power initiative in its place, the agreement also included certain limits on the utility’s recovery of its Crystal River 3 repair costs. The commission reported that some $28 million in such costs has already been recouped from customers and that the parties had stipulated that the first $295 million of the remaining plant balance of almost $1.5 billion must be borne solely by DEF and its shareholders. The commission stated that the negotiating parties, cognizant of the utility’s upcoming solar expenditures, had worked to mitigate the rate effect of the customer portion of the Crystal River 3 costs.

Thus, the commission said, the proposed settlement called for a minimum 20-year amortization period for recovering from ratepayers those repair costs not shouldered by the company. In accepting the proposed settlement, the commission pointed out that it had the backing of not only the utility and consumer advocates, but environmental groups and representatives from the business community as well. The commission commended the utility for being able to bring together parties with positions so disparate from its own in negotiating terms acceptable to all. Re Duke Energy Florida, LLC, Docket No. 2017-0183-EI, Oct. 25, 2017 (Fla.P.S.C.).