Before the Court: SACE Protecting Consumers by Challenging Florida Nuclear Tax

This blog was written by Sara Barczak, former Regional Advocacy Director with the Southern Alliance for Clean Energy.

Guest Blog | October 22, 2012 | Energy Policy, Nuclear

In early October, Southern Alliance for Clean Energy appeared before the Florida Supreme Court to support our argument that Section 366.93, Fla.Stat., which has been dubbed Florida’s “Nuclear Tax,” is not only extremely unfair to Florida Power & Light (FPL) and Progress Energy of Florida (PEF) customers, but more importantly that this early cost recovery statute is unconstitutional and that the Florida Public Service Commission (PSC) has been exercising unbridled discretion in applying the law. Because of significant public and media attention paid to this issue, the Court considered this a “high profile case.”

SACE filed the appeal of the PSC’s Final Order in the 2011 Nuclear Cost Recovery Docket because: (1) the PSC Order was arbitrary and unsupported by the evidence that was considered at the evidentiary hearing in August 2011, and as a result should be overturned by the Court; and (2) Section 366.93, Fla. Stat., is an unconstitutional delegation of legislative authority. We knew that this was truly a David and Goliath battle and were not surprised when a very interesting and lively legal debate ensued. During oral arguments, the Justices asked tough questions of not only our attorney, Gary A. Davis, but also those representing other interests including the PSC, FPL and PEF. Not surprisingly, the two utilities were represented by former Florida Supreme Court Justices.

A key point to recognize is that the nuclear cost recovery statute is a radical departure from conventional ratemaking procedures for electric utilities. This statute not only shifts the risks of new nuclear reactor construction from utility shareholders to Florida ratepayers — including small businesses, municipalities and retirees — but further allows FPL and PEF to bill them for billions of dollars long before even one kilowatt of electricity is generated, if the reactors are ever even built. This amounts to a blank check for the utilities, who have admitted that they would never build these risky plants if they had to rely on their own financing.

As the basis for our constitutional challenge, SACE argues that the nuclear cost recovery statute, Section 366.93, Fla. Stat., which was passed in 2006 as an amendment to a larger state energy bill to incentivize development of additional nuclear power generation in Florida, fails to set out sufficient standards or criteria to guide the PSC when determining issues relating to early cost recovery. Therefore, it allows for an unconstitutional delegation of legislative power to the PSC, in violation of Article II, Section 3 of the Florida Constitution. As a result, the PSC has been exercising unbridled discretion in applying the law, as evidenced by the fact that the PSC has not, to date, rejected a single penny of requested cost recovery from either FPL or PEF, now totaling well over $1 billion with no end in sight.

Given that this is a rare instance where advance recovery of utility expenditures is permitted, thereby drastically altering principles of traditional utility ratemaking, we believe that § 366.93, Fla. Stat. should contain even more specific, objective standards and criteria than what is normally applied to utility expenditures in order to ensure that the charges for these nuclear projects being incurred by ratepayers are fair, just and reasonable, as required by law. See § 366.03, Fla. Stat. (providing that “All rates and charges made, demanded, or received by any public utility for any service rendered, or to be rendered by it, and each rule and regulation of such public utility, shall be fair and reasonable”).

Not surprisingly, FPL and PEF disagree with our assertions, but none of the statutes or cases they cited present a situation such as the one at hand, where traditional principles of utility ratemaking have been turned on their head, and all of the financial risk for siting, designing, licensing and constructing a nuclear power plant has been shifted to a utility’s ratepayers through advanced cost recovery. In this instance, the subjective notion of “prudence,” without specific objective standards that serve as ratepayer safeguards, is simply not enough to ensure that FPL and PEF ratepayers are not subjected to unfair, unjust and unreasonable costs as required by statute.

The realities of these proposed reactor projects have changed considerably since they were first proposed. In 2012 Progress pushed out projected in-service dates for its proposed two Levy Co. reactors from 2021/2022 to 2024/2025; that’s a delay of eight years beyond the originally proposed start date. Similarly, in 2011 FPL pushed out projected in service dates to 2022/2023 for its proposed two Turkey Point reactors near Miami — a delay of four years. Of course, the cost of these delays is in the billions of dollars, with Progress in 2012 stating a total project cost of approximately $24 billion, as compared to the $14.1 billion number it originally gave to the PSC when requesting a determination of need back in 2008. Similarly, FPL’s project cost estimate has increased by about $1 billion dollars from the time of its determination of need, with FPL now stating a range of approximately $13-$19 billion. And neither utility can rule out further delay and additional costs.

SACE has been actively engaged in the annual cost recovery docket since 2009, and it takes this type of committed engagement to piece together and fully understand all that has gone awry before the Florida PSC regarding nuclear cost recovery. In its Final Order following the 2010 nuclear cost recovery docket, the PSC found that a utility “must continue to demonstrate its intent to build the nuclear power plant for which it seeks advance recovery of costs to be in compliance with” the nuclear cost recovery statute. This is an example of the PSC improperly making law, rather than applying what the state legislature has said is the law. However, it did provide us the opportunity to later gauge whether the PSC would adhere to the “rules” it was making up along the way since the statute itself didn’t provide any.

After the 2010 Final Order was issued, a key development occurred. During the 2011 evidentiary hearing before the PSC, neither FPL nor PEF demonstrated the requisite intent to build their respective proposed new nuclear reactors, and thus are not in compliance with the nuclear cost recovery statute and should not have been awarded any cost recovery pertaining to these proposed new reactors by the PSC in the 2011 nuclear cost recovery docket. Rather, the evidence demonstrated that both utilities instead resorted to an “option creation” approach, where, by their own admission, no final decision to actually construct these proposed new nuclear reactors had been made by either utility. Instead, the utilities are focused solely on attempting to obtain a Combined Operating License (COL) from the Nuclear Regulatory Commission (NRC), which would only allow them to create the option to build these proposed new nuclear reactors if the utilities decide in the future that doing so would benefit their shareholders and bottom lines. As part of this “option creation” approach, all construction-related activities that would demonstrate an actual intent to build have been cancelled or delayed.

It is simply unfair for the PSC to continue allowing FPL and Progress to pick the pockets of Florida ratepayers for billions of dollars for these proposed new nuclear reactors, when the utilities themselves have not demonstrated that they actually intend to build the reactors. If the utilities ultimately decide not to build the reactors, ratepayers will not receive a refund. In these tough economic times, the PSC needs to look at protecting the hard earned money of ratepayers, not just the bottom-line of big power companies. But that’s not what the PSC has been doing. In fact, the utilities continuously fail to demonstrate the long-term feasibility of these expensive, risky nuclear reactor projects as construction costs rise while costs of natural gas and alternative energy sources continue to fall, and all along the PSC turns a blind eye.

Regardless of the State Legislature’s aim back in 2006 when they passed this misguided legislation, the reality today is that the PSC is not simply implementing the law, it is impermissibly making law through each successive cost recovery docket because of the lack of forward-looking, objective standards in the statute to balance ratepayer and utility interests. SACE has been witness to this year-after-year during the cost recovery dockets. Moreover, Florida’s consumers/ratepayers — consisting of Florida businesses, families, senior citizens, those on fixed-incomes, industries and municipalities — are all suffering without hope for an improved situation in the future; in fact, it will only get worse as the “nuclear tax” increases. We don’t believe the Legislature ever intended for the PSC to have blinders on when evaluating the utilities’ annual cost recovery requests or that the goal was just to ensure that a utility could get a federal license to build and operate new reactors. Thus, SACE has asked the Court to find that Section 366.93 is an unconstitutional delegation of legislative authority.

Whether our arguments prevail before the Court remains to be seen but we are proud to have taken this challenge this far in a sincere effort to demand better protections for Florida’s citizens and businesses. However, in the Court of Public Opinion, as summarized in a recent blog post, it’s clear that Florida’s “nuclear tax” is considered a golden-ticket for the big power companies, nuclear power proponents and the industry they tout. In sharp contrast, the “nuclear tax” is considered to be a real loser for consumers by many, including municipalities across Florida, a bi-partisan group of state lawmakers (some of whom originally voted for the law and now realize the serious negative impacts it has caused and have worked since to repeal it) and the Florida AARP.

For additional detailed information on SACE’s arguments, please read our Initial Brief filed with the Court in April 2012 (appendix here) and our Reply Brief from June. Briefs and other documents in the case docket, SC11-2465, can be found here. The video archive of our Oral Argument before the Florida Supreme Court is viewable here.

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