Progress Energy 2010 Annual Report Download - page 46

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MANAGEMENT’S DISCUSSION AND ANALYSIS
goals and the resulting impact on ratepayers, and other
FPSC decisions. Uncertainty regarding PEF’s access to
capital on reasonable terms, PEF’s ability to secure joint
owners and increasing uncertainty surrounding carbon
regulation and its costs could be other factors to affect
the Levy schedule.
PEF signed the EPC agreement on December 31, 2008,
with Westinghouse Electric Company LLC and Stone
& Webster, Inc. for two Westinghouse AP1000 nuclear
units to be constructed at Levy. More than half of the
approximate $7.650 billion contract price is fixed or firm
with agreed upon escalation factors. The EPC agreement
includes various incentives, warranties, performance
guarantees, liquidated damage provisions and parent
guarantees designed to incent the contractor to perform
efficiently. For termination without cause, the EPC
agreement contains exit provisions with termination
fees, which may be significant, that vary based on the
termination circumstances. We executed an amendment
to the EPC agreement in 2010 due to the schedule shifts
previously discussed. Additionally, in light of the schedule
shifts in the Levy nuclear project, PEF may incur fees
and charges related to the disposition of outstanding
purchase orders on long lead time equipment for the Levy
nuclear project, which could be material. In June 2010,
PEF completed its long lead time equipment disposition
analysis฀ to฀ minimize฀ the฀ impact฀ associated฀ with฀ the฀
schedule shift. As a result of the analysis, PEF will
continue with selected components of the long lead time
equipment. Work has been suspended on the remaining
long lead time equipment items and PEF has been in
suspension negotiations with the selected equipment
vendors, which we anticipate concluding by the end of
the first quarter of 2011. In its April 30, 2010 nuclear cost-
recovery filing, PEF included for rate-making purposes
a point estimate of potential Levy disposition fees and
charges of $50 million, subject to true-up. However, the
amount of disposition fees and charges, if any, cannot be
determined until suspension negotiations are completed.
We cannot predict the outcome of this matter.
The total escalated cost for the two generating units
was estimated in PEF’s petition for the Determination of
Need for Levy to be approximately $14 billion. This total
cost estimate included land, plant components, financing
costs, construction, labor, regulatory fees and the initial
core for the two units. An additional $3 billion was
estimated for the necessary transmission equipment and
approximately 200 miles of transmission lines associated
with the project. PEF’s 2010 nuclear cost-recovery
filing included an updated analysis that demonstrated
continued feasibility of the Levy project with PEF’s
current estimated range of total escalated cost, including
transmission, of $17.2 billion to $22.5 billion. The filed
estimated cost range primarily reflects cost escalation
resulting from the schedule shifts. Many factors will
affect the total cost of the project and once PEF receives
the COL, it will further refine the project timeline and
budget. As previously discussed, we continue to evaluate
the Levy project on an ongoing basis.
In 2006, we announced that PEC selected a site at Harris
to evaluate for possible future nuclear expansion. We
selected the Westinghouse Electric AP1000 reactor
design as the technology upon which to base PEC’s
application submission. On February 19, 2008, PEC filed its
COL application with the NRC for two additional reactors
at Harris. On April 17, 2008, the NRC docketed the Harris
application. If we receive approval from the NRC and
applicable state agencies, and if the decisions to build are
made, a new plant would not be online until the middle of
the next decade (See “Energy Demand” above).
SPENT NUCLEAR FUEL MATTERS
The Nuclear Waste Policy Act of 1982 provides the
framework for development by the federal government of
interim storage and permanent disposal facilities for high-
level radioactive waste materials. The Nuclear Waste
Policy Act of 1982 promotes increased usage of interim
storage of spent nuclear fuel at existing nuclear plants.
We฀will฀continue฀to฀maximize฀the฀use฀of฀spent฀fuel฀storage฀
capability within our own facilities for as long as feasible.
With certain modifications and additional approvals by
the NRC, including the installation and/or expansion of
on-site dry cask storage facilities at Robinson, Brunswick
and CR3, the Utilities’ spent nuclear fuel storage facilities
will be sufficient to provide storage space for spent
fuel generated on their respective systems through the
expiration of the operating licenses, including any license
renewals, for their nuclear generating units. Harris has
sufficient storage capacity through the expiration of its
renewed operating licenses.
See Note 22D for discussion of the status of the Utilities’
contracts with the DOE for spent nuclear fuel storage.
Environmental Matters
We are subject to regulation by various federal, state
and local authorities in the areas of air quality, water
quality,฀ control฀ of฀ toxic฀ substances฀ and฀ hazardous฀
and solid wastes, and other environmental matters.