The Federal Energy Regulatory Commission has cleared Duke Energy Carolinas LLC to recover about $258 million in costs associated with the canceled William States Lee III Nuclear Station project in South Carolina under an amortization plan that veers from the agency's normal policy.
The proposed cost recovery methods were "a reasonable compromise that provide savings to the wholesale customers … and result in a reasonable sharing of the canceled" project's costs among those customers, FERC said in a Sept. 25 order.
The requested recovery of 50% of prudently incurred costs for the nuclear project's development will be collected through the wholesale formula rates of 14 power purchase agreements between Duke Energy Carolinas, or DEC, and its affected wholesale customers. Those customers include electric cooperatives and municipal utilities with service territories within the Duke Energy Corp. subsidiary's balancing authority area.
In a filing submitted to FERC in July, DEC said it had reached an agreement with the wholesale customers in late June. A product of extensive negotiations, that settlement allowed each customer to select either a 12-year amortization period for its portion of the costs of the Lee project or a one-time payment to DEC for the full load-ratio share of the project's costs.
Commission policy generally dictates that cost recovery spans the life of the plant, which for the two-unit Lee facility would be 40 years, the length of the combined construction and operating license issued by the Nuclear Regulatory Commission in December 2016.
However, FERC in its Sept. 25 order said it has "recognized that, under 'unusual circumstances,' agreements that do not conform to [the] 'life of the plant' amortization period requirement can be proper so long as the result is 'a reasonable sharing of costs.'"
The commission agreed with DEC that the negotiated deal would significantly lessen the rate impact to DEC's electric cooperative and municipal utility wholesale customers.
DEC's July filing with FERC asserted that those choosing the 12-year amortization would see their wholesale capacity rate rise 1.43% in the first full year of amortization. The overall rate impact, DEC said, "is relatively small, and will decrease the amount of carrying costs wholesale customers will pay compared with" a 40-year amortization schedule.
The one-time payment avoids the carrying costs paid over the 12-year amortization period as well as deferred tax-asset costs. "Just as the 12-year amortization option is reasonable because it results in substantially lower charges to its customers than would result if DEC recovered these costs over the license life, the election of the one-time payment also results in substantially lower charges to wholesale customers," the filing said.
Lee units 1 and 2 were proposed to be built in Cherokee County, S.C. Plans to construct two Westinghouse AP1000 pressurized water reactors continued to be included in the utility's integrated resource plans through 2017 as a cost-effective solution to meet baseload energy needs.
But DEC has said a number of events occurred that made "construction of nuclear plants in the United States untenable in the near term." Chief among those events were Westinghouse Electric Co. LLC's filing for bankruptcy protection, cost overruns in the billions for AP1000 plants planned in Georgia and South Carolina, and a decision by the South Carolina project owners to cease construction.
By the time the decision was made to cancel the Lee project, DEC had spent $558 million on its development.
The utility did not seek cost recovery for a visitors' center and certain land purchases associated with the Lee nuclear project, bringing to $516.5 million the development costs for which DEC sought to recover half. (FERC docket ER19-2468)
Jasmin Melvin is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.
