1. Business

Utilities will ask PSC for permission to gut energy-saving goals

Florida's largest electric utilities say energy-saving programs are not cost efficient and solar power is not reliable. They say the solution for the state's energy needs is building more power plants.
Published Jul. 20, 2014

Florida's big public utilities spend very little on energy conservation. On Monday, they will ask state regulators for permission to spend even less.

The state's energy future depends almost exclusively on construction of expensive new power plants, the utilities argued in preparation for the Public Service Commission hearing and in their previous public statements.

The utilities see little merit in any other strategy.

Solar energy? Not reliable. Increased efforts to encourage use of energy efficient appliances and building practices? Not "cost effective." Studies that show it is cheaper to conserve power than to generate it? Misleading.

Given the pattern of recent decisions, there's a good chance the PSC will approve the requests from Duke Energy, Tampa Electric Co. and Florida Power & Light to gut conservation goals.

Ratepayers alarmed at that prospect will have no opportunity to object at Monday's hearing. The proceedings will be too ''technical,'' the PSC said.

The stakes are high. For the utilities, there's the prospect of big, guaranteed returns on investments in new plants. Those returns would come from the pockets of utility customers. They, according to economist Shawn LeMond, "are going to get hosed."

• • •

For both utilities and their customers, the arithmetic is pretty simple.

Customers know that if they use less electricity, their power bills go down. If collectively they use a lot less electricity, utilities won't have to build as many new power plants. If utilities don't build new plants, consumers don't have to pay for them.

Use less power, spend less money.

For Florida's public utilities, though, that kind of thinking doesn't add up. Utilities make money by building more plants and selling more power.

For a long time, they — and their customers — flourished under that model. Efficient power generation required expensive plants, generally coal and more recently natural gas and nuclear. Governments would give the utility a monopoly service area in return for regulated rates. This served everyone over the decades, because power demand grew along with the population and the economy. Utilities could count on making money by building more power plants and selling more power.

A range of technologies new and old — solar power, highly efficient appliances, thicker insulation — threaten utility company profits. Over the last 10 years, per capita electricity use in Florida fell nearly 12 percent.

The recession played a role, but now, even as Florida's economy and population are growing again, power demand is not.

More than ever, consumers and companies squeeze every penny. Example: Tampa-based First Housing Development Corp. of Florida installed an air-conditioning monitoring system, highly efficient LED lighting and a 150 kilowatt solar array. It expects to cut its electric bill from $36,000 a year to $6,000.

That's good news for First Housing. Bad news for Tampa Electric.

"Customer growth has slowed in recent years," said Cherie Jacobs, spokeswoman for Tampa Electric, which cites lagging demand for delaying construction of a gas plant one year until 2020. "Customer usage has dropped, and that's for two reasons: One is the economy has caused customers to use electricity more wisely, and two, appliances are more energy efficient."

LeMond, a North Carolina economist and consultant who reviews Duke Energy's operations, called the regulated electricity utility model that states like Florida still employ a "dinosaur."

"It's a business model that's broken," he said. "Short term, consumers are going to get hosed. Long term the utilities are going to get hosed."

Even the utilities know it. What the rest of the world admiringly calls renewable energy and ''conservation,'' the utilities call "disruptive'' technologies.

"The financial risks created by disruptive challenges include declining utility revenues, increasing costs, and lower profitability, particularly over the long-term," according to a report written for the Edison Electric Institute, which represents all U.S. investor-owned utilities.

Utilities, however, are not going to just give up. They continue to fight to maintain their slice of the energy pie.

Case in point: Monday's hearing in Tallahassee.

• • •

The state's utilities will ask the PSC for permission to slash their already meager energy conservation programs.

Duke Energy once planned to conserve 333 gigawatt hours in 2019. On Monday, it will ask to lower that to 21.

Tampa Electric's proposal: 39 gigawatt hours to 17.

Florida Power & Light: 229 to 4.

Utilities argue that with historically low natural gas prices, it is cheaper to generate electricity than to subsidize efforts to save it. The Tampa Bay Times asked all three utilities for evidence to support their position. The utilities said they do not have that type of comparison.

Also, the utilities themselves often argue in other contexts that, natural gas prices are unlikely to stay so low.

The utilities point out that conservation is not free. Duke and Tampa Electric customers pay for the "free'' energy checks the utilities offer, the costs built into their bills. The same goes for rebates on energy efficient appliances and air conditioners and insulation.

"There are costs to conserving energy," Tampa Electric's Jacobs said. "We can't ask customers to conserve more energy through programs that aren't cost effective."

On top of that, utilities said, federal programs such as "Energy Star'' efficiency labels on appliances also contribute.

"… it means that 100 percent of customers are subject to governmental requirements to install higher-efficiency end-uses, rather than just those that a utility could induce through one of its … programs," stated FPL executive Thomas Koch, in written testimony to state regulators.

The utilities also emphasize that while demand has been flat lately, they predict it will rise dramatically over the next decade. Duke, which forecasts a 25 percent increase, plans to build $1.7 billion in new plants. FPL hopes to build an $18 billion nuclear plant.

Alys Daly, an FPL spokeswoman, said that if less expensive options are available "… our customers shouldn't overpay to save energy."

Strip away the utilities' voluminous public filings and explanations, critics say, and you'll get to the real reason power companies want to eschew saving energy and build more plants.

"If they can't grow, they die,'' LeMond said.

• • •

Martin Kushler doesn't buy the claim that building new plants is cheaper than saving energy.

Kushler, a senior fellow with the American Council for an Energy-Efficient Economy, said efficiency programs are cheap. Based on what's happened in 20 other states, he said, such programs cost 2.8 cents to save a kilowatt hour, compared to a new natural gas plant that will cost 7 to 8 cents to generate a kilowatt hour.

Those figures are comparable to separate reports from the U.S. Department of Energy that list the cost of energy efficiency at 2 to 3 cents a kilowatt hour and new natural gas generation at 6 to 7 cents.

"There is no economic justification" for reducing conservation goals, Kushler said. "The argument that efficiency is not cost effective is blatantly false.''

Florida utilities say pretty much the same thing about Kushler's numbers.

"FPL does not use misleading 'cents-per-kwh' calculations for comparing generation and (conservation) resources because they are essentially meaningless — and, quite frankly, irresponsible — to try to use as a metric for deciding which resource option is best for a utility's system," FPL's Daly told the Times. "Neither the PSC nor any other Florida utility makes resource decisions based on this metric.''

Duke and Tampa Electric support that position.

Their stance leaves Kushler wondering, "What on earth is going on down there" in Florida?

• • •

Perhaps a better question is: What's not going on?

If other states have indeed found a way to save energy at less cost than generating it, it's because they have policies aimed at doing just that.

Vermont, for instance, pays manufacturers to offer high efficiency products at lower prices. A compact florescent light bulb that costs $1.25 here costs 99 cents in Vermont.

Policies like that, big and small, mean Vermont now meets 2.12 percent of its annual energy needs by saving electricity rather than producing it.

In Florida, the number is 0.25 percent.

If Florida could duplicate Vermont's level of savings, according to a Times analysis, customers could save big bucks. Take, for instance, a $1.5 billion natural gas plant Duke wants to build. For the same money, Vermont-like energy savings programs could conserve about the same amount of power.

By not building the plant, Duke customers would avoid paying to fuel it, a price tag that over 30 years would reach $9 billion at today's prices.

Utility rates will go up whether the $1.5 billion gets spent on a new plant or on energy conservation. But using less power and not paying the $9 billion fuel charge would mean a lower electric bill, said Jim Lazar, an economist and senior adviser for the Regulatory Assistance Project, which advises regulators and policymakers.

"If they follow the energy efficiency path, a few years from now, people's electric rates would be 2 percent higher but their bills would be 10 percent lower," Lazar said.

Mark Cooper, a senior research fellow at Vermont Law School's Institute for Energy and the Environment, put it this way: "Could energy efficiency offset (the cost of a new plant and its fuel)? The answer is absolutely."

Rather than focus on conservation and renewable energy, Cooper said the utilities want to maintain control with centralized power and continue to bolster profits.

"What they're doing is entrenching an approach that is 50 years old and obsolete," he said. "This is a no-brainer: Stop building the damn plants."

• • •

History provides a quirk in Florida's energy policy that has the effect of favoring building plants over conserving energy.

The surprise freeze on Dec. 25, 1989, left millions of Floridians without power just as they were cooking their Christmas turkeys. The rolling blackouts and brownouts shocked the public.

At the time, utilities maintained a power reserve of 5 percent, a level the freeze showed to be inadequate.

Today, Florida utilities are required to have a 20 percent reserve. Much of the rest of the nation sets the figure at 15 percent. The difference is enough electricity to power as many as a million homes. Customers have to pay for that extra capacity and utilities profit from it.

"This 20 percent reserve margin has been reviewed, accepted, and approved by the commission each year in the (10-year site plan) process, as well as in various need proceedings for new generating plants," said Nicole LeBeau, a Duke spokeswoman. "At a high level, these include an acknowledgement that Florida … must have sufficient reliability to stand alone."

Critics note that the utilities haven't stopped building power plants once they reach the 20 percent reserve level. This December, for instance, Duke Energy will have 38 percent excess capacity.

LeMond, the economist, said Florida utilities are taking advantage of consumers by pressing for reserves they don't need.

"That's incredibly inefficient," LeMond said. "For them to be asking for more capacity, it's a desperation move … It's insanity. It's a corporate save-my-ass maneuver."

The Southern Alliance for Clean Energy, an environmental organization, has called on state regulators to develop a more comprehensive strategy for meeting the state's energy needs.

"Reliability is a legitimate reason to have a reserve margin," said Stephen Smith, the Southern Alliance's executive director. "But there's a real need for some independent expert analysis."

• • •

In a filing with the PSC, the Sierra Club said the commissioners erred in denying the public the right to testify at Monday's hearing. "Floridians want clean energy solutions like energy efficiency and will see real benefits when companies like Duke Energy improve their energy savings," the Sierra Club said.

In another filing, the Sierra Club defines the hearing as "… the commission's best chance to manage the growing costs and risks in Florida's electric system. Saving energy through energy efficiency is the fastest, cheapest, and safest way to meet Florida's electricity demand, and there is still great untapped energy savings potential in Florida."

PSC commissioner Ronald Brise seems to define the stakes much more narrowly.

"Given the technical nature of this goal-setting procedure and no legislative directive to take public testimony, I do not find it necessary to hold a public hearing," he wrote. He suggested the public submit comments in writing.

Kushler said it's up to state leaders to prevent the utility rush to build more plants.

"Given their druthers," Kushler said, the utilities "would much rather build the power plant and spend the billions of dollars to earn the rate of return. It's a failure of state policy if they allow them to do that."

Contact Ivan Penn at ipenn or (727) 892-2332. Follow @Consumers_Edge.


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