Utilities nationwide could share the financial pain of the idled Crystal River nuclear plant

The crippled Crystal River nuclear plant is now America's headache.

The bill to fix it and pay for replacement power may top $5 billion. The problem?

The company that insures all 104 U.S. nuclear power plants has just $3.6 billion on hand to pay for claims.

Broken nuclear plants in California, Texas and Michigan will vie for some of that money. But Crystal River alone represents such a financial threat that the insurance company, Nuclear Electric Insurance Ltd., may demand that its member utilities pony up more money.

And it could be a lot more — and quickly. NEIL is allowed to raise as much as $2 billion from its members in just 20 days, said insurance rating and information agency A.M. Best Co. Inc., in a recent report on the insurer.

NEIL has remained mum on how it will proceed, but it has acknowledged that the damaged Crystal River plant is one of the industry's "high-visibility events" along with, among others, Japan's Fukushima Daiichi nuclear disaster. It is also the largest claim in NEIL's more than 30-year history.

"The Crystal River . . . damage clearly is a significant matter for Progress Energy, and is a potentially material claim for NEIL," the Bermuda-based insurer noted. The company added that there remains "substantive financial uncertainty stemming from the ongoing review of the Crystal River claim."

Mark Cooper, senior research fellow for economic analysis at the Institute for Energy and the Environment at Vermont Law School, viewed NEIL's assessment as ominous. He said Crystal River's troubles could force rate increases for utilities and their customers across the country over a botched maintenance project that he believes could have been avoided.

"This is exactly," Cooper said, "what a fiasco looks like."

• • •

At stake is the future of Progress Energy Florida's sole nuclear plant.

Progress and its new parent company, Duke Energy, must decide whether to repair the plant or permanently shut down the reactor.

Repairing the plant could cost as much as $3.5 billion for construction work and $300 million a year for related costs such as purchasing alternative electricity while Crystal River remains off line. That could push the total cost above $5 billion.

So far, NEIL has paid just under $300 million. The insurer stopped paying after questions arose about how Progress Energy handled the 2009 replacement of old steam generators inside the nuclear plant's 42-inch thick concrete containment wall. The Tampa Bay Times documented how the wall cracked after Progress chose a do-it-yourself approach to save about $15 million rather than use the two companies that handled all similar projects in the nation. An attempt to repair the crack and bring the plant back online resulted in more cracks.

Progress Energy wants NEIL to pay the bulk of the tab. The insurance policy allows for a payment up to $2.25 billion for damage to the plant, plus up to an extra $490 million for replacement power while the plant is idled.

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Progress, however, argues that the cracks resulted from two separate problems, which could increase the insurance payout to as much as $5.4 billion.

NEIL and the utility are entering nonbinding negotiations over the price. If those talks fail, the parties would move to a more formal and binding negotiation process early next year.

Officials at NEIL declined to comment about the Crystal River plant, the negotiations with Duke Energy or its general policies and procedures. "It is NEIL's policy not to comment on member insurance claims," Ken Manne, NEIL's vice president and general counsel, wrote in a statement to the Times.

Suzanne Grant, a Progress Energy Florida spokeswoman, said finding a resolution to the troubles at the Crystal River nuclear plant remains "a high priority for our company. . . . We remain committed to the safest and best decision on behalf of everyone who depends on us.''

"We continue to work with our insurer, NEIL, regarding coverage for this first-of-a-kind event," Grant said.

Margaret Harding, an energy consultant and proponent of the nuclear industry, said other nuclear plant owners will support covering the Crystal River plant's damages if it is proven that Progress Energy did not cause the problem.

The power companies are "going to want to make sure that Progress — and now Duke — and NEIL are being responsible," Harding said. "I think NEIL is appropriately saying, 'Make your case, show this was an accident.' "

Harding said even some Duke Energy employees have questioned whether it was an accident or whether Progress was at fault and caused the damage.

"That's the question I've heard from some of the folks at Duke."

Duke declined to comment about Harding's assertion.

"We don't respond to unsubstantiated claims and rumors," said Grant, the utility spokeswoman.

Duke Energy became so troubled about Crystal River that the utility cited the broken plant as one of the reasons the company fired former Progress Energy CEO Bill Johnson just hours after he took control of the merged companies on July 2. The utility's board members said they had a "loss of confidence" in Johnson in part because of the handling of the nuclear fleet.

Johnson's termination prompted an investigation by the North Carolina Utilities Commission, during which Duke officials repeatedly pointed to Crystal River as a major source of contention.

"Obviously, Crystal River was discussed at great length . . . as the rationale for what they did," Edward Finley, chairman of the North Carolina commission, said after a hearing on the issue.

Arnie Gundersen, a nuclear engineer who serves as an expert witness on utility matters before state and federal regulators, said he cannot see NEIL paying the full tab for repairs or replacement power on the plant.

"I don't think they want to establish the precedent," Gundersen said, "of paying for one member's screw-up."

• • •

Bermuda-based NEIL has already made moves to mitigate the financial uncertainty caused by the damaged Crystal River plant.

As a mutual insurance company, NEIL's members agree to cover each other in the event of a catastrophe. NEIL, which formed in 1980 in response to the Three Mile Island disaster and later merged with an older nuclear insurer, Nuclear Mutual Limited, can draw on the owners of all 104 nuclear plants in the United States.

"In general, the utilities look at it as, 'we're all in this together,' " said Harding, the energy consultant. "A problem anywhere is a problem everywhere."

As a result of the troubles at Crystal River, NEIL suspended annual distributions to all its members for 2012 and 2013. The distributions are paid to NEIL's members after the insurer reaches a comfortable reserve — generally about $3.5 billion. The money is distributed to the members based on the premiums they pay each year.

Utilities, including Progress Energy Florida, often use those annual distributions to reduce customer rates. Because Progress Energy Florida has just one nuclear plant, its distributions are on the low end, about $1 million to $2 million.

But the move will cost much more for a utility such as Florida Power & Light in South Florida that pays higher premiums to cover the four reactors it operates in the state. Over the last five years, FPL received distributions as high as about $18 million a year.

FPL would not discuss its relationship with NEIL or the Crystal River nuclear plant.

"It would be inappropriate to comment about Progress Energy," said Erik Hofmeyer, a spokesman for Florida Power & Light, the state's largest utility.

The loss of the annual distributions aren't the only financial hits the other utilities might have to absorb.

NEIL could also charge the power companies hundreds of millions of dollars more to cover any shortfall the insurer faces from claims.

Every utility insured by NEIL agrees to pay as much as 10 percent of its annual premiums to cover claims that exceed NEIL's available cash. Those payments can reach a total of $2 billion, based on premiums power companies pay, A.M. Best stated in its report on NEIL.

Utility companies pass those costs onto their customers, making Crystal River's failed do-it-yourself maintenance project a nationwide responsibility.

For a company such as nuclear heavyweight Exelon Corp., which has 18 nuclear reactors, that assessment can reach as high as $180 million, in addition to the loss of the annual distributions, said Gundersen, the nuclear consultant.

Chicago-based Exelon, with $21.42 billion in annual revenues, could fairly easily come up with $180 million, Gundersen noted. But if the evidence shows Progress was negligent in how it handled the replacement of the steam generators, Exelon and other power companies would likely make it clear to NEIL that they oppose making any payment, he said.

"They're not going to take a $180 million hit," he said.

Exelon spokeswoman Krista Lopykinski declined to comment and referred inquiries to NEIL.

Crystal River could also become a headache for the companies that insure NEIL, called reinsurers. Those companies include Tampa-based Energy Insurance Mutual and Lloyd's, a global market where members join together to insure risk.

The Crystal River claim is unprecedented not only for NEIL, but also for those reinsurers. They could wind up having to pay hundreds of millions of dollars toward repairs.

And Crystal River isn't the only concern.

• • •

Most of the 104 reactors in the United States were built in the 1970s and early 1980s. A few date back to the 1960s.

They are starting to show their age, a fact that is adding additional pressure to NEIL's bottom line.

The insurance company is processing a claim by American Electric Power for turbine loss at its Cook nuclear power station in Bridgman, Mich. By the end of 2011, NEIL had already paid $400 million for that claim.

The insurer also faces "the meaningful" claim for the South Texas Nuclear Project, which suffered damage to a turbine generator. It is unclear how much that will cost the insurance company.

And now NEIL must ready itself for the troubles at California's San Onofre nuclear power station, where two generators have been offline since January. The plant has had trouble with steam generator tubes that house radioactive water.

The replacement power alone for San Onofre's out-of-service units reached $221 million through September, according to company earnings reports. It is unclear what the repair costs would add to that bill.

Adding in Crystal River, NEIL and its member utilities — and by extension their customers — are potentially looking at a huge financial hit.

"This," said Cooper, the economist, "is an ugly story."

Ivan Penn can be reached at ipenn@tampabay.com or (727) 892-2332.