Today's economics lesson: How Floridians pay for this state's backward energy policy in three easy steps. First, Duke Energy customers are paying $3 billion for nuclear plants that are broken or never will be built. Second, Duke wants utility regulators to slash modest energy efficiency programs, contending it costs too much to conserve power. Third, Duke argues it would be cheaper to charge customers another $1.9 billion to build and expand its power plants than to buy another company's under-used plants at discount prices.
Add it up, and it's clear that Duke Energy and the other utilities have an unfair advantage in Tallahassee that won't change until a new governor makes it his mission to give consumers a fairer shake. Until then, Floridians will keep paying for the utilities' iron grip on the Legislature and the Public Service Commission, which regulates utilities and whose members are appointed by the governor.
It was the Legislature that wrote the 2006 law that lets utilities bill customers in advance for nuclear projects, regardless of whether they ever generate power. It was the PSC that approved a one-sided 2013 settlement with Duke over closing the damaged Crystal River nuclear plant and abandoning plans to build a nuclear plant in Levy County. And it is the PSC that this month will listen to Duke's argument that it needs to build or expand plants to meet consumer demand and replace the abandoned nuclear projects. It was assumed when the nuclear mess was settled that Duke would need to generate more power, but it was not anticipated that so-called merchant electric plants that sell power to investor-owned utilities might be bought at sale prices.
As Tampa Bay Times staff writer Ivan Penn reported Sunday, the owners of three merchant plants want the PSC to reject Duke Energy's building spree. They suggest Duke buy power from them or buy their plants. It's no surprise that Duke doesn't like that idea. Who wants to buy a used car, even one with low miles, when you can buy a new one and somebody else pays for it?
To be sure, Duke can argue it is playing by the rules. It says it needs these projects in part to comply with the PSC order requiring utilities to have a minimum power reserve of 20 percent. Yet much of the nation requires reserves of 15 percent, which Duke would come very close to meeting over the next three years without more capacity. The PSC also allows a guaranteed rate of return of roughly 10 percent on new power plant construction, which means Duke could profit by as much as $190 million. Duke says its purchase of merchant plants would not meet federal approval without the addition of expensive transmission facilities. The reality is Duke has every reason to seek to build its own projects for financial gain and no incentive to buy existing plants.
In the short run, the PSC should not rubber-stamp Duke's request to build or expand its power plants. There may be a better way for ratepayers. The PSC also should closely examine Duke's estimate that demand for power will increase by a modest 1.4 percent a year over the next decade. What if demand is flat or declines as it has over the last decade? Does it make sense for ratepayers to pay so dearly so Duke can meet generous reserve requirements?
In the long run, the governor, the Legislature and the PSC should craft a smarter energy policy that emphasizes renewable power, conservation and competition. That would be a policy that is fairer to consumers and not so generous to monopolies with piles of campaign cash, armies of lobbyists and lawyers, and guaranteed profit margins.