UPDATE 1-Duke Energy says Crystal River nuclear repair could exceed $3 bln

(Adds detail, comment)

HOUSTON, Oct 1 (Reuters) - Returning the damaged Crystal River nuclear unit in Florida to service could cost $3 billion and take eight years, according to an independent review of repair options commissioned by Duke Energy

as it pursued a merger with Progress Energy earlier this year, the utility said in a filing Monday.

The three-year shutdown of the 838-megawatt Crystal River reactor became an issue in the weeks before the merger was completed in July and played a role in the surprise ouster of Bill Johnson, the Progress executive who had been slated to lead the merged companies, executives and board members have said.

Progress Energy Florida supplied the Crystal River report prepared by Zapata to Florida regulators Monday, said incoming utility president Alex Glenn, adding that no decision has been made whether to fix Crystal River or to retire the unit.

Progress said the review found that a repair plan developed by Progress "appears to be technically feasible, but significant risks and technical issues" remain unresolved.

Zapata estimated that repair cost at $1.49 billion, above Progress Energy's estimate of $900 million to $1.3 billion.

Zapata also prepared an estimate for more extensive work based on other scenarios. A worst-case scenario that included eventual replacement of the plant's dome and containment building walls came in at $3.43 billion, with an eight-year time frame.

The reactor has been shut since 2009 due to serious cracks found in the containment building walls. Progress had said the unit might return to service in 2014 if repaired.

"We will proceed with a repair option only if there is a high degree of confidence that the repair can be successfully completed and licensed within the final estimated costs and schedule, and is in the best interests of our customers, joint owners and investors," Glenn said in a statement.

Charlotte, North Carolina-based Duke Energy became the largest electric utility and second-largest nuclear operator in the nation last month when it acquired Raleigh, North Carolina-based Progress Energy in an $18 billion merger.

Duke Chairman James Rogers has said the decision to repair or retire Crystal River may not be made before the end of 2012 as the utility had agreed to do in a settlement with Florida utility regulators earlier this year.

Under that pact, the utility would be able to pass along to customers the cost to replace Crystal River's output through 2016 if repair work began before the end of 2012. If repairs begin later, the utility agreed to refund replacement power costs up to $40 million in 2015 and $60 million in 2016.

If the Crystal River reactor is retired, also an expensive option, the utility will be able to recover its remaining investment in the plant from its 1.6 million customers, according to the settlement. Any insurance proceeds would be applied to replacement power costs first.

(Reporting by Eileen O'Grady in Houston; Editing by Chizu Nomiyama)

((eileen.ogrady@thomsonreuters.com)(+1 713 210 8522)(Reuters Messaging: eileen.ogrady.reuters.come@reuters.net))