Duke Energy Cleared Of Paying Big Tab In Nuclear Plant Dispute

Dec 24, 2016

In a dispute involving an ill-fated plan to build nuclear reactors in Levy County, a federal judge last week said Duke Energy is not required to pay hundreds of millions of dollars to a company that designs and constructs nuclear plants.

Westinghouse Electric Co. initially sought to require Duke to pay $512.6 million for terminating a contract for the Levy County project, though Westinghouse later reduced that total by about $130 million. But U.S. District Judge Max Cogburn Jr. ruled Thursday that Duke is only required to pay a $30 million termination fee and about $4.25 million in interest.

Duke said in 2013 that it was shelving plans to build the Levy County project, which had been started by predecessor company Progress Energy before a merger. The project was controversial, at least in part because of a 2006 state law that allowed the utility to collect pre-construction costs from customers each year without any guarantee the reactors would be built.

Cogburn, who is a federal judge in North Carolina, where Duke is based, issued a 29-page ruling that said the case focused on the Levy project and the utility's involvement in an industry consortium that backed Westinghouse efforts to develop a "cutting edge" type of nuclear plant.

Progress Energy entered into the consortium with two other utilities in 2007 to financially back the development of what is known as Westinghouse's AP1000 Standard Plant design. In 2008, Progress entered a separate agreement with Westinghouse to design and build two reactors in Levy County --- a project that was expected to use the AP1000 design.

Cogburn wrote that Progress, as early as 2010, informed Westinghouse that it was contemplating the possible termination of the Levy County contract. After the merger, Duke in 2013 ended the Levy County contract. Cogburn wrote that the decision stemmed, in part, from legislative changes that affected the ability of utilities to collect nuclear-project costs from customers.

The judge wrote that Duke also left the consortium backing the Westinghouse power-plant design. After the Levy contract ended, Westinghouse sent an invoice for $482.6 million in termination costs and the $30 million fee. The $482.6 million portion was later reduced to $352 million.

But in his ruling, Cogburn said that the $352 million in costs were tied to the consortium-backed effort to develop the AP1000 type of plant. As a result, he said Duke is not obligated to pay the amount because of the termination of the separate Levy County contract.

"In sum, Duke lawfully exited from a consortium of domestic power companies that backed Westinghouse in seeking approval of its AP1000 Standard Plant design," the judge wrote. "When Duke thereinafter terminated a separate agreement to build an AP1000 Standard Plant in Florida, Westinghouse attempted to recoup those development costs under the design-build contract at issue here by inclusion of Duke's share of development costs in its termination invoice. … (The) court concludes that Westinghouse's inclusion of those development costs in the invoice at issue here --- no matter how equitable that inclusion may seem --- was beyond the terms of the contract."

Though it pulled back in 2013 from building the Levy County reactors, Duke this year received federal approval of key licenses for the project. Duke has left open the possibility that it could pursue the project in the future.