Nuclear advance fee case in front of Florida Supreme Court has big implications

Published Oct. 1, 2012

Should you be forced to pay in advance for a product you may never get? And if you don't get what you paid for, should you get a refund?

The Florida Supreme Court will address those questions at a hearing Thursday.

The issue: A state law forces utility customers to pay for proposed nuclear power plants before they go into operation.

The objection: Nothing forces utilities to actually build the plants or offer a refund if they don't. And no matter what, utilities get to pocket some of their customers' money.

Utilities including Progress Energy Florida say the so-called advance fee is the only practical way to finance new nuclear plants. Without the fee, the $24 billion Levy County nuclear plant won't get built, and the state will have to develop a new strategy for keeping everyone's lights on.

In other words, the case could decide the future of the state's energy policy.

• • •

The legal battle amounts to David versus three Goliaths.

On one side is the Southern Alliance for Clean Energy, a Tennessee-based environmental group that generally opposes the construction of new nuclear plants in favor of less risky and less costly alternatives such as energy efficiency. The group sued the state's two largest utilities, Progress Energy and Florida Power & Light, and the state Public Service Commission, which is charged with protecting consumers' interests.

At the center of the lawsuit is the Nuclear Cost Recovery Clause, which state lawmakers passed in 2006 when Florida's booming economy was projected to show huge increases in demand for electricity. Relying on fossil fuel plants seemed risky, given the vagaries of foreign fuel sources and growing environment concerns. But nuclear plants have huge up-front costs, which discourage private financing. No plant had been built in the United States in 30 years.

The state saw the advance fee as a way to resolve the financing problem. Forcing customers to pay as nuclear projects are built would provide a steady and ongoing funding source. That would limit the risk for outside investors, making nuclear plants a more attractive investment.

About a dozen states have similar laws. Florida's is viewed as far more open-ended, as it does not limit how much utilities can collect, as long as the expenses are reasonable and justifiable.

The Southern Alliance makes a two-pronged argument. The Legislature, it says, failed to give the Public Service Commission clear guidance on how to implement the advance fee. That omission improperly left the PSC with the role of enacting the law. The PSC should only administer laws, not be left with "unbridled discretion" to charge customers, the Southern Alliance says.

Moreover, the Southern Alliance argues, Progress Energy is not committed to building the Levy plant, so it should not be allowed to collect money in advance.

Follow trends affecting the local economy

Follow trends affecting the local economy

Subscribe to our free Business by the Bay newsletter

We’ll break down the latest business and consumer news and insights you need to know every Wednesday.

You’re all signed up!

Want more of our free, weekly newsletters in your inbox? Let’s get started.

Explore all your options

"Why are we paying this money to utilities for nuclear reactors that are never going to get built?" Stephen Smith, executive director of Southern Alliance, asked Florida Agriculture Commissioner Adam Putnam during a public forum at St. Petersburg College last month. Putnam is the state's point person on energy matters.

Smith said the advance fee is "socializing the risk and privatizing the profits."

Progress spokeswoman Suzanne Grant said the Southern Alliance case "has no merit" and Progress will vigorously defend its position.

"The state Legislature approved the statute to promote new, carbon-free nuclear generation as an important part of a diverse fuel mix that's in the best interests of consumers," Grant said.

The PSC argues that Florida law clearly shows which companies can collect the money and what the requirements are to collect it.

"In accordance with the statute and rule, the commission allowed FPL and Progress to recover the costs prudently incurred for the siting, design, and licensing necessary to construct their nuclear reactors," the commission wrote. "The record shows that both FPL and Progress intend to build their nuclear power plants."

But statements from Progress and its new parent company, Duke Energy, about plans for the Levy project have indicated to many that the utility is not 100 percent committed to building the plant.

For instance, Duke Energy CEO Jim Rogers told the PSC in August that no decision would be made on whether to build the plant until the federal operating license was secured in about two years. But about a month later, Duke's executive vice president for power generation, Jeff Lyash, left no wiggle room when he told the same PSC that the company was building the plant and that it would come online in 2024.

"I'm confident in the schedule and numbers," Lyash said.

• • •

The arguments at Thursday's hearing will be over in about an hour, with each side getting about 30 minutes. It is unclear when the justices will release their decision.

For Progress customers, the ruling could be worth $24 billion.

When the advance fee law was passed in 2006, Progress projected that the Levy County nuclear plant would cost $4 billion to $6 billion. The cost then jumped to $10 billion in 2007 and $17 billion in 2008. The current estimate is $24 billion, which would make it by far the most expensive nuclear plant ever built.

To fund the plant, Progress' 1.6 million Florida customers could see their bills rise an average $20 a month per 1,000 kilowatts of usage by 2018 and as much as $50 a month to help fund the project, before it produces a kilowatt of power.

Everyone agrees that no advance fee equals no nuclear plant. So if the Supreme Court scuttles the fee, the Levy plant won't be built.

The Southern Alliance has also asked the Supreme Court to order that Progress refund the more than $1 billion already spent on the plant.

For Arjun Makhijani, a nuclear and electrical engineer who studies the economics of building power plants, the open-ended nature of the advance fee law makes it clear the Supreme Court should shoot it down.

"In this case, the Legislature is imposing a tax on the electricity bill with no accountability," Makhijani said. "The company doesn't ever have to deliver the plant."

"It's really worse than a tax," Makhijani said. "It's a punishment. I just don't understand how any Legislature could get away with this."

Proponents of the fee say those challenging it are doing little more than playing politics.

Rather than an "advance fee," the fee's proponents prefer to call it "pay-as-you-go" funding. The idea is, like with credit cards, consumers avoid interest when they pay off bills each month.

"I don't want to put a power plant on a credit card," said Jerry Paul, a nuclear engineer and a lawyer who was a member of the House of Representatives just before the nuclear plant fee was passed.

Paul said nuclear remains the best primary source of electricity, even with its substantial up-front cost. The Supreme Court case, Paul said, is nothing more than environmentalists standing in opposition to nuclear plants.

• • •

The case isn't just about the Levy County plant. The decision, either way, will have a profound impact on how the state generates power in the future.

Florida already sits at a crossroads when it comes to energy policy, and nuclear in particular. The state's aging nuclear plants provide 9 percent of the state's electricity. If not replaced with other reactors, they will need a substitute — perhaps sooner rather than later.

The Crystal River nuclear plant, for instance, broke in 2009 and has sat idle ever since. The troubles at the plant — cracks in the concrete containment wall that house the reactor — may force Progress to shut it down for good. Before it broke, the plant produced about 20 percent of Progress' electricity in Florida.

Commissioner Putnam believes, as do many other Florida leaders, that nuclear energy remains a necessary part of the mix.

Putnam's refrain nowadays emphasizes an "all of the above" approach to energy policy, meaning multiple alternative sources should be considered. He insists that the state needs to develop a solid plan "so you don't have wild fluctuations in policy or one that picks winners and losers."

"I do think nuclear is an important part," Putnam said at the St. Petersburg College forum. "You have an extraordinary dependency on natural gas."

Natural gas plants produce about 62 percent of the state's electricity, and the figure continues to rise as prices fall.

Critics see two problems with Florida's current energy policy, or lack thereof.

First, they say, the state picked a winner when it approved the advance fee: Nuclear plants are too expensive to build without it.

And nuclear energy — with its enormous costs, great earnings potential for utility stockholders and prodigious levels of electricity generation — tends to crowd out opportunities for alternative energy sources.

Renewable sources such as wind and solar lack the necessary economic push — their own version of the Nuclear Cost Recovery Clause — that would make them viable in Florida. (New coal plants are unlikely due to pollution concerns.)

Makhijani, the nuclear engineer, said nuclear power is last century's technology. By the time utilities bring new nuclear plants online, he said, newer power sources will become the focus of electricity generation.

"Nuclear is going to be an obsolete technology," Makhijani said. "This is a mid 20th century technology. We ought to be thinking differently about electricity."

The state's public march toward construction of new nuclear plants sharply contrasts with the open retreat from nuclear by others who see it as too expensive.

In August, Chicago-based Exelon Corp. announced plans to halt its application for two new reactors in Texas because such plants are no longer economical.

In September, the London Financial Times quoted Jeff Immelt, CEO of General Electric, which makes products for nuclear plants, as saying that the low price of natural gas is making nuclear energy less attractive, "and at some point, economics rule."

For its part, the Legislature is waiting to see what the court decides.

"We are monitoring the legal challenge to the advanced cost recovery policy," said Rep. Will Weatherford, the incoming speaker of the House, "and will weigh our options after the Supreme Court's decision."

Times researcher Carolyn Edds contributed to this report. Ivan Penn can be reached at or (727) 892-2332.