Last Modified: Wednesday, January 2, 2013 at 11:11 p.m.
The crippled Crystal River nuclear plant, owned by Progress Energy, is now America’s headache.
A PHOTO ILLUSTRATION looking at the future of power delivery by Duke Energy — the parent company of Progress Energy — includes a photo of the two plants at the Crystal River power facility. The stacks to the left are from the coal-fired plant. The nuclear plant is the smaller building on the right. (ALAN YOUNGBLOOD | OCALA STAR BANNER PHOTO ILLUSTRATION (2012))
The bill to fix it and pay for replacement power may top $5 billion. The problem?
The company that insures all 104 U.S. nuclear power plants has just $3.6 billion on hand to pay for claims.
Broken nuclear plants in California, Texas and Michigan will vie for some of that money. But Crystal River alone represents such a financial threat that the insurance company, Nuclear Electric Insurance Ltd., may demand that its member utilities pony up more money.
And it could be a lot more — and quickly. NEIL is allowed to raise as much as $2 billion from its members in just 20 days, said insurance rating and information agency A.M. Best Co. Inc., in a recent report on the insurer.
NEIL has remained mum on how it will proceed, but it has acknowledged that the damaged Crystal River plant is one of the industry’s “high-visibility events” along with, among others, Japan’s Fukushima Daiichi nuclear disaster. It is also the largest claim in NEIL’s 30-year history.
“The Crystal River … damage clearly is a significant matter for Progress Energy, and is a potentially material claim for NEIL,” the Bermuda-based insurer noted. The company added that there remains “substantive financial uncertainty stemming from the ongoing review of the Crystal River claim.”
Mark Cooper, senior research fellow for economic analysis at the Institute for Energy and the Environment at Vermont Law School, viewed NEIL’s assessment as ominous. He said Crystal River’s troubles could force rate increases for utilities and their customers across the country over a botched maintenance project that he thinks could have been avoided.
“This is exactly,” Cooper said, “what a fiasco looks like.”
At stake is the future of Progress Energy Florida’s sole nuclear plant.
Progress Energy has approximately 89,600 customers in Polk County, including the cities of Frostproof, Lake Wales, Haines City, Davenport and Dundee and the phosphate mining industry in southwest Polk.
Progress and its new parent company, Duke Energy, must decide whether to repair the plant or permanently shut down the reactor.
Repairing the plant could cost as much as $3.5 billion for construction work and $300 million a year for related costs such as purchasing alternative electricity while Crystal River remains off line. That could push the total cost above $5 billion.
So far, NEIL has paid just less than $300 million. The insurer stopped paying after questions arose about how Progress Energy handled the 2009 replacement of old steam generators inside the nuclear plant’s 42-inch thick concrete containment wall.
The Tampa Bay Times documented how the wall cracked after Progress chose a do-it-yourself approach to save about $15 million rather than use the two companies that handled all similar projects in the nation. An attempt to repair the crack and bring the plant back online resulted in more cracks.
Progress Energy wants NEIL to pay the bulk of the tab. The insurance policy allows for a payment up to $2.25 billion for damage to the plant, plus up to an extra $490 million for replacement power while the plant is idled.
Progress, however, argues that the cracks resulted from two separate problems, which could increase the insurance payout up to $5.4 billion.
NEIL and the utility are entering nonbinding negotiations over the price. If those talks fail, the parties would move to a more formal and binding negotiation process.
Officials at NEIL declined to comment about the Crystal River plant, the negotiations with Duke Energy or its general policies and procedures.
Suzanne Grant, a Progress Energy Florida spokeswoman, said finding a resolution to the troubles at the Crystal River nuclear plant remains “a high priority for our company. … We remain committed to the safest and best decision on behalf of everyone who depends on us.”
“We continue to work with our insurer, NEIL, regarding coverage for this first-of-a-kind event,” Grant said.
Margaret Harding, an energy consultant and proponent of the nuclear industry, said other nuclear plant owners will support covering the Crystal River plant’s damages if it is proven that Progress Energy did not cause the problem.
The power companies are “going to want to make sure that Progress — and now Duke — and NEIL are being responsible,” Harding said. “I think NEIL is appropriately saying, ‘Make your case, show this was an accident.’?”
Harding said even some Duke Energy employees have questioned whether it was an accident or whether Progress was at fault and caused the damage.
“That’s the question I’ve heard from some of the folks at Duke.”
Duke declined to comment about Harding’s assertion.
Duke Energy became so troubled about Crystal River that the utility cited the broken plant as one of the reasons the company fired former Progress Energy CEO Bill Johnson just hours after he took control of the merged companies on July 2. The utility’s board members said they had a “loss of confidence” in Johnson in part because of the handling of the nuclear fleet.
Arnie Gundersen, a nuclear engineer who serves as an expert witness on utility matters before state and federal regulators, said he cannot see NEIL paying the full tab for repairs or replacement power on the plant.
“I don’t think they want to establish the precedent,” Gundersen said, “of paying for one member’s screwup.”
NEIL has already made moves to mitigate the financial uncertainty caused by the damaged Crystal River plant.
As a mutual insurance company, NEIL’s members agree to cover each other in the event of a catastrophe. NEIL, which formed in 1980 in response to the Three Mile Island disaster and later merged with an older nuclear insurer, Nuclear Mutual Limited, can draw on the owners of all 104 nuclear plants in the United States.
As a result of the troubles at Crystal River, NEIL suspended annual distributions to all its members for 2012 and 2013. The distributions are paid to NEIL’s members after the insurer reaches a comfortable reserve — generally about $3.5 billion.
Utilities, including Progress Energy Florida, often use those annual distributions to reduce customer rates. The loss of the annual distributions aren’t the only financial hits the other utilities might have to absorb. NEIL could also charge the power companies hundreds of millions more to cover any shortfall the insurer faces from claims.
Every utility insured by NEIL agrees to pay as much as 10 percent of its annual premiums to cover claims that exceed NEIL’s available cash. Those payments can reach a total of $2 billion, based on premiums power companies pay, A.M. Best stated in its report on NEIL.
Utility companies pass those costs onto their customers, making Crystal River’s failed do-it-yourself maintenance project a nationwide responsibility.
But if the evidence shows Progress was negligent in how it handled the replacement of the steam generators, other power companies would likely make it clear to NEIL that they oppose making any payment, Gundersen said.
“They’re not going to take a $180 million hit,” he said.
The Crystal River claim is unprecedented not only for NEIL, but also for reinsurers. They could wind up having to pay hundreds of millions of dollars toward repairs.
And Crystal River isn’t the only concern. Most of the 104 reactors in the United States were built in the 1970s and early 1980s. They are starting to show their age, a fact that is adding additional pressure to NEIL’s bottom line.
The insurance company is processing claims from American Electric Power’s nuclear station in Bridgman, Mich., the South Texas Nuclear Project and California’s San Onofre nuclear power station.
Adding in Crystal River, NEIL and its member utilities — and by extension their customers — are potentially looking at a huge financial hit.
” This,” said Cooper, the economist, “is an ugly story.”