TEXT-Fitch on Duke Energy ratings and Crystal River 3 nuclear unit

Tue Feb 5, 2013 4:33pm EST

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Feb 5 - Duke Energy Corp.'s (DUK) decision to retire the Crystal
River 3 nuclear unit (CR 3), owned by subsidiary Progress Energy Florida (PEF),
has no immediate impact on PEF's ratings and Rating Outlook(Issuer Default
Rating 'BBB+' with a Negative Outlook), according to Fitch Ratings.

While Fitch considers the retirement decision to be constructive due to the
rising repair cost estimates, construction risks and low gas price environment,
a number of uncertainties remain including the regulatory treatment of the sunk
costs, the type and cost of replacement power and PEF's ability to manage costs
during a rate freeze that extends through 2016. CR3 has been out of service
since September 2009 and out of rate base since Jan. 1, 2013.

A rate settlement agreement approved by the Florida Public Service Commission
(FPSC) establishes a framework for the treatment of CR3 costs. Under a
retirement scenario the settlement permits PEF to seek recovery of CR3's
embedded cost in 2017 at a reduced return on equity (ROE) equal to 70% of the
company's prevailing authorized ROE. Importantly, the agreement also allows the
recovery of on-going replacement power costs.

The unrecovered investment is approximately $1.6 billion, which includes the
$375 million depreciated original cost plus the steam generator and containment
repair costs, nuclear uprate, nuclear fuel and material and supplies that have
yet to be approved for recovery and subject to review by the FPSC. The revenue
requirement is in excess of $200 million.

Separately, DUK announced it had reached a settlement with its insurance
carrier, the Nuclear Electric Insurance Limited (NEIL), through a mediation
process. The settlement provides for recovery of an additional $530 million,
which will ultimately be flowed back to rate payers. NEIL previously paid PEF
$305 million.

The ability to control costs during the rate freeze period and to improve credit
metrics will be the key rating driver in the near-term. Credit metrics have been
trending downward over the past two years, but should stabilize in 2013 due to a
$150 million tariff increase implemented Jan. 1, 2013. EBITDA/interest and
Debt/EBITDA are expected to approximate 5.0x and 3.75x, respectively, which Is
moderately weaker than its peer group.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011);
--'Recovery Ratings and Notching Criteria for Utilities' (May 3, 2012).

Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
Recovery Ratings and Notching Criteria for Utilities
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