New Nukes in Florida a Win-Win

 | Apr 19, 2013 | 6:00 PM EDT  | Comments
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NextEra Energy (NEE) added approximately 500 megawatts worth of new nuclear power production to the energy grid in Florida -- all without building new plants. The added production to the regulated asset is good news for NextEra's shareholders and it's better news for Florida's consumers.

Here's why it's good news for investors. Florida is one of the states that shunned utility deregulation. As regulated entities, Florida utilities such as Next Era, Duke Energy (DUK) and TECO Energy (TE) are entitled to a prudent return on their investments, including investments in power plants.

Most shareholders want power plants regulated by the state. As regulated assets, generators may not over profit, but they will not lose their shirts. Just ask Exelon (EXC), Entergy (ETR) and Dominion Resources (D). They own deregulated generating assets and they are experiencing substantial market risks. It was so destabilizing for Dominion that they decided to retire a perfectly good plant.

That's the reason many southeastern states remained regulated. This includes Florida. Utilities like NextEra should earn a return on their power plants no matter what happens in international commodity markets.

NextEra's FPL unit owns four nuclear power plants in Florida. All four are economically regulated. Two units are located at FPL's St. Lucie Plant, near Ft. Pierce, Fla.

The first unit received its federal operating license in 1976. After a lengthy license extension process, the Nuclear Regulatory Commission extended St. Lucie's original license to 2036. St. Lucie's second unit received its license on 1983. The NRC extended its license in 2003 to expire on 2043.

FPL owns two other nuclear units at their Turkey Point Nuclear Generating station near Homestead, Fla. The first unit received its license on 1972. The license was extended in 2002 and it will expire in 2032. Turkey Point's second nuclear unit received its license in 1973. The NRC extended its license in 2002 to expire in 2033.

As background, to extend a plant's operating license requires a significant capital investment. The investment is needed to assure the NRC the plant remains a safe, economic and reliable operation for an extended period. That assurance requires owners to replace most of the plant's moving parts. So, while the outside and structures may look the same to casual observers, the internals or the "guts" of extended-license plants are essentially brand new.

In NextEra's case, the successful completion of their license extensions created winners at all levels.

  • The state won because they did not have to approve replacement plants. 
  • The state won because they kept a carbon-free and greenhouse gas-free asset in their portfolio.
  • The state's taxpayers won because these assets remained in the tax base and provided thousands of high paying jobs.
  • The state's consumers won because nuclear power can provide electricity at costs far lower than traditional fossil fuel alternatives.
  • Shareholder won because they were assured a fair return on investment.

FPL did not stop with license extensions. In the late 2000's NextEra decided to uprate all four plants. Uprating means altering the plants to produce more power from essentially the same assets. Uprating also means NextEra faced additional capital expenditures (and returns for shareholders).

According to the NRC, utilities have been uprating nuclear plants since the 1970s. To increase the power output of a reactor, typically more highly enriched uranium fuel and/or more fresh fuel is used. This enables the reactor to produce more thermal energy and therefore more steam driving a turbine generator to produce electricity. In order to accomplish this, licensees modify and replace components to accommodate higher power levels. This can involve major and costly modifications, including the replacement of the turbines, generators and main transformers.

NextEra is not the only nuclear utility uprating nuclear power assets. Since 1977, more than 140 uprates have been completed, resulting in an increase of approximately 6,440 megawatts. This is the equivalent of building six new nuclear power plants.

Currently underway are two other uprate projects. Exelon won approval to uprate their New York-based Nine Mile Point Nuclear Generating Station by 15%. Duke won approval to uprate their South Carolina-based Shearon Harris Nuclear Power Plant by 1.6%.

A waiting ling line is forming at the NRC to do even more. Currently, 17 other licensees have uprate applications before the NRC. If approved, 1,247 megawatts of additional capacity will be added to the nation's fleet.

The cost to uprate NextEra's four nuclear plants is approximately $3 billion, or $6 million a megawatt. All of those costs will go into the state's rate base. But because this new capacity is replacing costly and inefficient fossil-fueled generators, the net cost to Florida's consumers is near zero.

Shareholders win. Consumers win. The state wins. And best of all, there are no losers.

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