Washington — The Federal Energy Regulatory Commission has cleared Duke Energy Carolinas to recover roughly $258 million in costs associated with the cancelled Lee Nuclear Station project in South Carolina under an amortization plan that veers from the commission's normal policy.
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The proposed cost recovery methods were "a reasonable compromise that provide savings to the wholesale customers ... and result in a reasonable sharing of the cancelled" project's costs among those customers, FERC said in a Wednesday order (ER19-2468).
The requested recovery of 50% of prudently incurred costs for the nuclear project's development will be collected through wholesale formula rates of 14 power purchase agreements between DEC and its affected wholesale customers. Those customers include electric cooperatives and municipal utilities with service territories within the Duke subsidiary's balancing authority area.
Extensive negotiations produced a settlement with the affected wholesale customers that allowed each customer to select either a 12-year amortization period for their 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 has "recognized that, under 'unusual circumstances,' agreements that do not conform to Opinion No. 295's 'life of the plant' amortization period requirement can be proper so long as the result is 'a reasonable sharing of costs,'" the Wednesday order said.
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 26 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.
NUCLEAR CONSTRUCTION 'UNTENABLE'
Lee Units 1 and 2 were proposed to be built in Cherokee County, South Carolina, and 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'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 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 the total Lee development costs for which it sought to recover half its cost to $516.5 million, including $247.6 million in allowance for funds used during construction, $189.4 million in labor and related overhead, $119.7 million in other direct costs and $1.3 million for engineering and licensing support from the AP1000 Group.
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