If power plant costs drop, do electric rates fall?
Wake up and good morning. Maybe I'm sipping too much eggnog but is it possible that the recession can translate into lower (or at least not-so-high) electricity rates next year? According to USA Today, a new study coming out today from Cambridge Energy Research Associates -- you know, the energy consulting firm whose Daniel Yergin wrote "The Prize" about the search for oil -- claims that after years of steep increases, costs to build power plants and transmission lines have started to fall. And that, the report concludes, promises to temper electricity rate increases for consumers.
Here in Tampa Bay, we care because electricity p rices are set to rise dramatically next month and again later in 2009. A big reason for that increase is the pre-paying consumers will do to cover the upfront costs of building a new nuclear power plant in Levy County, north of the Tampa Bay area, by Progress Energy Corp. (The photo is of Progress Energy's existing nuclear power plant -- the cylindrical building in the foreground -- at the Crystal River energy complex in Citrus County, courtesy of the Orlando Sentinel. The proposed Levy County nuclear power plant is shown in the rendering from Progress Energy.)
Anyone who has listened to Progress Energy Florida chief Jeff Lyash will know he has consistently cited the rapidly rising prices of steel and concrete among other basic materials used in abundance to build a nuke plant. St. Petersburg Times reporter Asjylyn Loder has chronicled the rising costs of building nuclear plants here in 2007 and again here in 2008.
If the recession is starting to push down those material costs, can a rate easing follow? USA Today quotes Larry Makovich, a managing director of Cambridge Energy Research Associates, saying the nation is poised to build the biggest wave of plants in a generation to meet rising electricity demand, and capital costs make up 50 percent of utility rates. And, adds Candida Scott, CERA's senior director of cost and technology, construction costs have dipped 5 percent the past year and will likely drop an additional 7 percent to 10 percent next year.
It's too early to tell what will happen to rates but there is a new variable that Progress Energy Florida is just starting to confront. A political backlash is brewing in the state fueled by consumers squeezed by the nasty recession, rising unemployment and populist legislators increasingly eager to minimize the near-term impact of rising electricity rates. Florida has one of the more liberal laws allowing utilities to raise electricity rates in advance of major nuclear power plant construction so that ratepayers, rather than the utility, pay for more of the immense upfront expenses. That may have been a legislative mistake, admits state Sen. Mike Fasano in a St. Petersburg Times story last week. So far, Lyash, in a letter responding to Fasano, is sticking to his guns. But it would not be a surprise to see some compromise emerge on rates given these difficult economic times.
-- Robert Trigaux, Times Business Columnist