12. Nuclear Decommissioning Costs

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Nuclear Decommissioning Costs. Estimated site-specific nuclear decommissioning costs, including the cost of decommissioning plant components not subject to radioactive contamination, total approximately $1.9 billion in 1999 dollars, based on decommissioning studies completed in 1999 (studies are completed every five years). This includes costs related to Duke Energy’s 12.5% ownership in the Catawba Nuclear Station. The other joint owners of the Catawba Nuclear Station are responsible for decommissioning costs related to their ownership interests in the station. Both the NCUC and the PSCSC have allowed Duke Energy to recover estimated decommissioning costs through retail rates over the expected remaining service periods of Duke Energy’s nuclear stations.

The operating licenses for Duke Energy’s nuclear units are subject to extension. In 2000, Duke Energy was granted a license renewal for the Oconee Nuclear Station. The service period extension of the Oconee Nuclear Station will not impact depreciation or nuclear decommissioning rates until the next depreciation and decommissioning studies are completed and new rates can be approved by the NCUC and the PSCSC. Applications to renew the operating licenses for Duke Energy’s other nuclear units were filed with the Nuclear Regulatory Commission (NRC) in June 2001. Duke Energy’s nuclear units are currently licensed as follows:

		Operating Licenses for Nuclear Units
		Unit		Expiration Year
		McGuire 1		2021
		McGuire 2		2023
		Catawba 1		2024
		Catawba 2		2026
		Oconee 1 and 2		2033
		Oconee 3		2034

During 2002, Duke Energy expensed approximately $59 million and contributed $56 million of cash to external funds for decommissioning costs, and accrued an additional $9 million to the internal reserve. During 2001, Duke Energy expensed approximately $57 million, and contributed a corresponding amount of cash to external funds for decommissioning costs, and accrued an additional $8 million to the internal reserve. Nuclear units are currently depreciated at an annual rate of 4.7%, of which 1.61% is for decommissioning. The balance of the external funds was $708 million as of December 31, 2002 and $716 million as of December 31, 2001. These amounts are reflected in the Consolidated Balance Sheets as Nuclear Decommissioning Trust Funds (asset) and Nuclear Decommissioning Costs Externally Funded (liability). The balance of the internal reserve was $248 million as of December 31, 2002 and $239 million as of December 31, 2001. These amounts are reflected in the Consolidated Balance Sheets as Accumulated Depreciation and Amortization.

The external decommissioning trust fund is invested primarily in domestic and international equity securities, fixed-rate, fixed-income securities and cash and cash equivalents. Per NRC and Internal Revenue Service mandates, these funds may be used only for activities related to nuclear decommissioning. Those investments are exposed to price fluctuations in equity markets and changes in interest rates. Because the accounting for nuclear decommissioning recognizes that costs are recovered through Franchised Electric’s rates, fluctuations in equity prices or interest rates do not affect consolidated results of operations or cash flows. Management believes that the decommissioning costs being recovered through rates, when coupled with expected fund earnings, are sufficient to provide for the cost of decommissioning. (See discussion of SFAS No. 143 under the New Accounting Standards section of Note 1 for a discussion of accounting for asset retirement obligations.)

A provision in the Energy Policy Act of 1992 established a fund for the decontamination and decommissioning of the DOE’s uranium enrichment plants (the D&D Fund). Licensees are subject to an annual assessment for 15 years based on their pro rata share of past enrichment services. Lawsuits filed by Duke Energy and other utilities challenging the constitutionality of the D&D Fund have been dismissed. The annual assessment is recorded in the Consolidated Statements of Income as Fuel Used in Electric Generation. Duke Energy has paid $107 million into the fund, including $11 million during 2002. The remaining liability and regulatory assets of $44 million as of December 31, 2002 and $53 million as of December 31, 2001 are reflected in the Consolidated Balance Sheets as Deferred Credits and Other Liabilities, and Regulatory Assets and Deferred Debits.

Spent Nuclear Fuel. Under provisions of the Nuclear Waste Policy Act of 1982, Duke Energy contracted with the DOE for the disposal of spent nuclear fuel. The DOE failed to begin accepting spent nuclear fuel on January 31, 1998, the date specified by the Nuclear Waste Policy Act and in Duke Energy’s contract with the DOE. In 1998, Duke Energy filed a claim with the U.S. Court of Federal Claims against the DOE related to the DOE’s failure to accept commercial spent nuclear fuel by the required date. Damages claimed in the lawsuit are based upon Duke Energy’s costs incurred as a result of the DOE’s partial material breach of its contract, including the cost of securing additional spent fuel storage capacity. Duke Energy will continue to safely manage its spent nuclear fuel until the DOE accepts it. Payments made to the DOE for disposal costs are based on nuclear output and are included in the Consolidated Statements of Income as Fuel Used in Electric Generation.

©Copyright 2003

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