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Crystal River Crack: The Moral Hazard of Private Utility Companies

About fourteen months ago, I wrote about the Florida Containment Dome Crackers who had the bright idea that they could save $15 million while refurbishing the steam generators at the Crystal River nuclear power plant in 2009. They wound up cracking the containment dome because they had no clue on managing this complex project: it was the managing engineering contract they decided to bypass to save money. Yesterday, Duke Energy, the successor to Progress Energy (more on that change in a bit), finally announced that they will no longer pursue the repairs and that the plant will be closed. The math has only gotten worse since my earlier report. Now the overall cost estimate for the repairs, replacement energy while the plant is down and construction of a new gas power plant is up to $3 billion from the earlier $2.5 billion estimate. Of those costs, insurance will pay $835 million and Duke’s customers will pay the rest. Most depressing of all is that the Tampa Bay Times’ Ivan Penn, who has been the go-to source on this story since its start, reports that Duke will pocket $100 million of the $1.3 billion expended to date on the “upgrade” to the plant. Clearly, the regulatory environment in Florida enables private companies posing as public utilities to feed their addiction to public funds without consequence for bad decisions. In fact, Duke has now been rewarded with $100 million when their predecessor only sought to pocket $15 million. Rate-payers will be stuck with a bill for over $2 billion, some of which it appears to me Duke will be allowed to pocket while building the replacement plant.

Meanwhile, Citrus County, where the plant is located, is looking at 600 lost jobs and a huge blow to its tax base (the replacement gas plant will be on the Atlantic coast instead of the Gulf coast where Citrus County is located):

Shutting the plant would drop Duke Energy’s tax bill, which was $35 million, to at most $13 million, an executive of Duke subsidiary Progress Energy Florida told the county last month.

That shortfall, equal to a fourth of the county’s general fund, could have dire consequences for schools, safety and public services in this expanse of forests and strip malls less than 80 miles north of Tampa.

The locals see tough times ahead:

In the midst of the Crystal River fiasco, Progress Energy entered into a merger agreement with Duke Energy. Despite Duke being the larger entity, the original merger agreement called for Progress CEO Bill Johnson to be head of the new combined company. The deal closed in July of last year, but Johnson’s tenure as CEO lasted only a few hours. From behind the Wall Street Journal paywall: Read more

Many years ago, Jim got a BA in Radiation Biophysics from the University of Kansas. He then got a PhD in Molecular Biology from UCLA and did postdoctoral research in yeast genetics at UC Berkeley and mouse retroviruses at Stanford. He joined biosys in Palo Alto, producing insect parasitic nematodes for pest control. In the early 1990’s, he moved to Gainesville, FL and founded a company that eventually became Entomos. He left the firm as it reorganized into Pasteuria Biosciences and chose not to found a new firm due a clash of values with venture capital investors, who generally lack all values. Upon leaving, he chose to be a stay at home dad, gentleman farmer, cook and horse wrangler. He discovered the online world through commenting at Glenn Greenwald’s blog in the Salon days and was involved in the briefly successful Chris Dodd move to block the bill to renew FISA. He then went on to blog at Firedoglake and served a brief stint as evening editor there. When the Emptywheel blog moved out of Firedoglake back to standalone status, Jim tagged along and blogged on anthrax, viruses, John Galt, Pakistan and Afghanistan. He is now a mostly lapsed blogger looking for a work-around to the depressing realization that pointing out the details of government malfeasance and elite immunity has approximately zero effect.