Duke Energy 2013 Annual Report Download - page 136

118
PART II
DUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. •
DUKE ENERGY PROGRESS, INC. • DUKE ENERGY FLORIDA, INC. • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
addressed four principal matters: (i) the Crystal River Unit 3 delamination
prudence review then pending before the FPSC, (ii) certain customer rate
matters, (iii) Duke Energy Florida’s proposed Levy cost recovery, and (iv) cost of
removal reserve.
On October 17, 2013, the FPSC approved a settlement agreement
(the 2013 Settlement) between Duke Energy Florida, OPC, and other customer
advocates. The 2013 Settlement replaces and supplants the 2012 Settlement
and substantially resolves additional issues, including (i) matters related to
Crystal River Unit 3, (ii) Levy, (iii) Crystal River 1 and 2 coal units, and (iv)
future generation needs in Florida.
Refer to the remaining sections below for further discussion of these
settlement agreements.
Crystal River Unit 3
In September 2009, Crystal River Unit 3 began an outage for normal
refueling and maintenance as well as an uprate project to increase its
generating capability and to replace two steam generators. During preparations
to replace the steam generators, workers discovered a delamination, or
separation, within the concrete at the periphery of the containment building,
which resulted in an extension of the outage. The concrete delamination was
caused by redistribution of stresses in the containment wall that occurred
when an opening was created to accommodate the replacement of the unit’s
steam generators. In March 2011, work to return the plant to service was
suspended after monitoring equipment identied a new delamination. The
second delamination occurred in a different section of the outer wall after repair
work was completed and during the late stages of retensioning the containment
building. Crystal River Unit 3 remained out of service while Duke Energy Florida
conducted an engineering analysis and review of the second delamination and
evaluated possible repair options.
Subsequent to March 2011, monitoring equipment detected additional
changes and further damage in the partially tensioned containment building.
Duke Energy Florida developed a repair plan, which had a preliminary cost
estimate of $900 million to $1.3 billion.
On February 5, 2013, following the completion of a comprehensive
analysis and an independent review by Zapata Incorporated, which estimated
repair costs to be between $1.49 billion and $3.43 billion depending on the
repair scope selected, Duke Energy Florida announced its intention to retire
Crystal River Unit 3. Duke Energy Florida concluded it did not have a high degree
of condence the repair could be successfully completed and licensed within
estimated costs and schedule, and that it was in the best interests of Duke
Energy Florida’s customers and joint owners, and Duke Energy’s investors to
retire the unit. On February 20, 2013, Duke Energy Florida led with the NRC
a certication of permanent cessation of power operations and permanent
removal of fuel from the reactor vessel. In December 2013, Duke Energy Florida
led an updated site-specic decommissioning study and plan with the NRC
and FPSC. The study resulted in a decommissioning cost estimate of $1,180
million, including amounts applicable to joint owners, under the safe storage
(SAFSTOR) option. Duke Energy Florida’s decommissioning study assumes
Crystal River Unit 3 will be in SAFSTOR conguration, requiring limited stafng
to monitor plant conditions, until the eventual dismantling and decontamination
activities occur in 60 years. This decommissioning approach is currently utilized
at a number of retired domestic nuclear power plants and is one of three
generally accepted approaches to decommissioning approved by the NRC.
Duke Energy Florida maintains insurance coverage through Nuclear
Electric Insurance Limited’s (NEIL) accidental property damage program on an
actual cash value basis. The NEIL coverage generally does not include property
damage to or resulting from the containment structure. However, coverage does
apply to decontamination and debris removal if required following an accident to
ensure public health and safety or if property damage results from a terrorism
event.
Duke Energy Florida worked with NEIL for recovery of applicable repair
costs and associated replacement power costs throughout the duration of the
Crystal River Unit 3 outage. On April 25, 2013, NEIL paid Duke Energy Florida
$530 million related to the Crystal River Unit 3 delaminations. Duke Energy
Florida has received a total of $835 million in insurance proceeds from NEIL
related to the Crystal River Unit 3 delaminations. Duke Energy Florida recorded a
regulatory liability of $490 million upon receipt of the April 2013 NEIL settlement
proceeds. This amount is being refunded to retail customers through Duke
Energy Florida’s fuel clause. Proceeds received from NEIL and the related
refunds to retail customers are presented in Operating Activities on Duke Energy
Florida’s Statements of Cash Flows.
The 2013 Settlement resolves substantially all remaining issues in the
FPSC proceeding related to the review of Duke Energy Florida’s decision to retire
Crystal River Unit 3, the mediated resolution of insurance claims with NEIL,
and the costs spent to repair Crystal River Unit 3; the uprate project; and the
components of the regulatory asset to be recovered in rates beginning no later
than 2017 via a separate base rate component.
As a result of retiring the unit, Duke Energy Florida is required to refund
$100 million to retail customers through its fuel clause in accordance with the
2012 Settlement (retirement decision refund). Duke Energy Florida recorded
a Regulatory liability in the third quarter of 2012 related to these replacement
power obligations.
Duke Energy Florida has reclassied all Crystal River Unit 3 investments,
including property, plant and equipment, nuclear fuel, inventory, and other
assets to a regulatory asset. The 2012 Settlement authorized Duke Energy
Florida to defer the retail portion of all Crystal River Unit 3-related costs
incurred subsequent to retirement including, but not limited to, operations
and maintenance and property tax costs in a regulatory asset. A regulatory
liability must also be established to capture the difference between (i) actual
incurred operations and maintenance and property tax costs in a given year
and, (ii) the amount included in customer rates as established in Duke Energy
Florida’s most recent fully litigated base rate proceeding, effective 2010.
Beginning in February 2013, the retail portion of operations and maintenance
costs, payroll taxes, property taxes, and depreciation associated with Crystal
River Unit 3 were deferred to a regulatory asset. Duke Energy Florida deferred
$134 million of these costs to Regulatory assets through December 31, 2013.
The 2013 Settlement terminates the regulatory asset and/or liability treatment
for operation and maintenance and property tax expenses incurred after
December 31, 2013.
Duke Energy Florida agreed to forego recovery of $295 million of Crystal
River Unit 3 regulatory assets in accordance with the 2013 Settlement. This
excludes amounts related to the uprate project. Duke Energy Florida recorded a
$295 million pretax charge in the second quarter of 2013 for this matter. This
amount is included in Impairment charges on Duke Energy Florida’s Statements
of Operations and Comprehensive Income.
Duke Energy Florida is allowed to accelerate cash recovery of
approximately $130 million of the Crystal River Unit 3 regulatory asset from
retail customers from 2014 through 2016 through its fuel clause. Duke Energy
Florida will begin recovery of the remaining Crystal River Unit 3 regulatory asset,
up to a cap of $1,466 million from retail customers upon the earlier of (i) full
recovery of the uncollected Levy investment or (ii) the rst billing period of
January 2017. Recovery will continue 240 months from inception of collection of
the regulatory asset in base rates. The Crystal River Unit 3 base rate component