It has been a great disappointment but not a surprise to watch the veil of utility regulation pulled back in Florida. The Florida Public Service Commission is the state agency entrusted with regulating Florida’s largest electric utilities. This responsibility requires that they balance the desire of the regulated utilities to maximize their shareholders profit with the critical need to protect customers from escalating bills due to fuel price spikes and soaring construction costs for new power plants. This public trust requires the commissioners to maintain the highest standard of independence from influence by the utilities they are asked to regulate.
The System is Broken
The Commission’s independence, and freedom from influence, has publicly been called into question with revelations of inappropriate private communication between the Commission and the very industry it regulates. Private conversations between the Commission and electric utility representatives about matters before the Commission are illegal. The spotlight has been on attendance by Commission staff members at parties of utility executives and the exchange of secret Blackberry PIN numbers, intended to circumvent public records laws.
Yet, past Commission decisions are evidence of a symbiotic relationship between the Commission and the utilities they purport to regulate. The Commission has consistently accommodated the utilities’ quest for more profit. Much of that policy has been advanced by the “revolving door” hiring of commissioners and staff by the industry they once regulated. Commission policy has consistently disregarded the public interest in favor of protecting the profits of big power interests. Reforms have been proposed, but little action taken.
Follow the Money to an Inefficient World
All you have to do is follow the money to follow utility policy. The state’s utilities earn their profits by moving power plants and transmission lines into the rate base, but don’t earn anything from energy efficiency. In fact, efficiency encourages customers to buy less of what they’re selling – electricity. This is in turn drives lower demand, which eliminates the need for the construction of highly profitable power plants. Unfortunately, the Commission has accommodated the “build at all cost” approach, and enabled an inefficient energy use environment that ensures utility profits well into the future.
Commission Resists Lowering Customer Bills in Favor of Utility Profits
For instance, the Commission has consistently ignored the national consensus that investing in energy efficiency implementation is the fastest and most cost-effective way to slash customer’s electricity bills and reduce CO2 emissions in the electricity sector. Seventeen states have recognized that energy efficiency benefits their customers and have already set goals to meet at least 1 % of their annual energy needs through smarter use of electricity. In a state reeling from rate increases, lower bills through utility-sponsored energy efficiency programs would be a welcome reprieve.
Statewide, 2006 average residential bills were 41 % higher than in 2000. That’s before the big spike in fuel costs temporarily drove rates up. Now that natural gas prices have dropped back down, FPL and Progress Energy are set to lock in the higher rates by offsetting the fuel cost savings with base rate hikes – these rate hikes won’t go away, ever. Moreover, both companies have also proposed nuclear reactor construction that is already increasing customer bills, on top of other rate increases – with no end in sight.
SACE, along with its partner, NRDC recently intervened in the Commission’s 10-year utility efficiency goal setting hearing. We advocated for increased utility-sponsored energy efficiency that would lower bills and protect customers from soaring rate increases. This position was consistent with recent amendments to Florida law that require the Commission to take a more expansive view of energy efficiency.
The largest Florida utilities, led by FPL, argued that our request for an annual energy savings goal was “radical.” FPL actually proposes slashing its efficiency goals by 30% next year to 0.07% in 2010 and 0.15% in 2011. At a recently concluded efficiency goal setting hearing, all the state’s largest utilities offered goals from zero to 1.7% over a ten year period – or 5 to 10 times less energy efficiency achieved by the nations leading states and utilities!
Utilities Cry “Lost Revenue”
The utilities have manipulated the Commission efficiency goal setting process in favor of appallingly low goals since 1994 by arguing that customer savings is a “cost” that reduces utility revenue. They employ a “cost-effectiveness” test that counts customer savings as a cost and thus labels any efficiency measures that meaningfully reduces customer energy use as NOT cost effective, calling it lost revenue for utilities. In fact, FPL Witness James Dean,former Director of the PSC’s Office of Strategic Analysis and Governmental Affairs, estimated that a 1% annual energy savings goal would cost the investor-owned utilities $3.8 billion dollars in lost revenues over ten years.
This cost-effectiveness test, called the Rate Impact Measure (RIM) test, has long ago been dropped by states that lead in energy efficiency – in fact, Florida is the only state which considers consumer savings due to energy efficiency to be a cost that needs to be avoided even if that means higher overall costs for the system as a whole. A decision on the utility efficiency goals for the 2010 -2019 time period is set for October 27th, with a staff recommendation due by October 15th. The question still remains, will the Commission continue to promote a state of inefficiency where utilities reap big profits at the expense of consumers, or will they stand up for consumers they represent and demand programs which reduce consumer bills?
The Quest for Costly Plants
In addition to the efficiency goals and pending rate hikes, the Commission will also decide whether to allow FPL and Progress to recover early costs on four nuclear reactors that combined are expected to cost customers approximately $35 billion. By the reckoning of SACE and NRDC analysts, Florida utilities could avoid the unnecessary generation of about 20,000 gigawatt-hours of energy by 2019. That’s roughly the equivalent of cutting out the need to build two nuclear reactors.
In fact, SACE presented evidence at the recent nuclear cost recover hearing that the decrease in customer demand coupled with increased reactor construction costs and likely renewable energy requirements, removes the fundamental assumptions on which the Commission based its approval for the new units. What’s more astonishing is that neither FPL nor Progress Energy has completed a detailed economic feasibility analysis prior to asking the Commissioners to allow them to recover their costs from customers. A Commission decision is set for October 16th, with Staff recommendation due on October 7th. Will the Commission continue down the path of “build at any cost,” or will it deny early cost recovery so that consumers won’t be on the hook for the failure of speculative projects in the changing market?
There are many matters before the PSC, but whether its efficiency goals, nuclear cost recovery or rate increases, the utilities are able to get away with business as usual because of their ability to hire former commissioners and staff to influence their former employer.
Advocacy on Customer’s Dime Against Customer Interests
For example, FPL hired James Dean, former Director the Office of Strategic Analysis and Governmental Affairs office, to testify that the utilities efficiency goals are reasonable and to label the SACE and NRDC witnesses’ proposed annual 1% efficiency goals as “extreme.” As a twenty year veteran of the Commission, Mr. Dean enjoyed a special cordiality not extended to SACE and NRDC witnesses. Adding insult to injury, FPL will likely pass on its cost for attorneys and expert fees (including Mr. Dean’s fee) to FPL customers as reasonable and prudent expense of doing business. Yes, FPL customers are paying the fees of former PSC employees to advocate for positions that hurt them.
In 2007, the clean energy community advocated for revenue decoupling, a pro-efficiency utility reform measure, that removes utility disincentives for utility-sponsored efficiency. You would think that Florida utilities would be receptive to the outreach. Think again. The utilities shot the idea down. The resistance was led by another PSC- alumna, Susan Clark. Again, Ms. Clark’s services were likely passed along to ratepayers as part of the utilities’ prudent expense of participation. Ms. Clark, a public service commissioner from 1991 to 2000, is also a lobbyist for FPL on the pending rate hike.
Another former Commissioner, Terry Deason, a public service commissioner from 1991 to 2006, is also is lobbying for the rate increase. Deason’s term overlapped with current commissioners Katrina McMurrian, Lisa Edgar and Matthew Carter. He just happens to be a consultant with Clark’s law firm.
Yet, utility influence doesn’t end with hiring former commissioners and staff people to work the PSC. Jorge Chamizo, who was the chief adviser for the commission’s chairman as recently as 2004, is a registered state lobbyist for the utility. The legislature is another venue where the public interest gets buried by industry clout with more than 100 lobbyists registered for the large utilities.
Like other major companies, FPL and other utilities enjoy plethora of tools to gain access to legislators and promote its point of view. It attempts to sway Florida’s Legislature and executive branch, spending $3.7 million on lobbyists in Tallahassee from January 2006 through March 2009. The money went to 22 firms employing heavyweights that include former U.S. Sen. Connie Mack and Brian Ballard, an associate of Gov. Crist. That type of spending has produced laws that shift financial risk to customers by allowing utilities to get recovery of their nuclear construction costs from customers long before a watt of electricity is ever produced, to laws that preclude local municipalities from objecting to power plant expansions located in their home town.
Industry influence also pays off when it’s time to pick new commissioners. The PSC finalists are picked by the nominating committee comprised primarily of legislators. State law requires the nominating council to screen the candidates and send three names for each opening to the governor. The legislators can be influenced on their selection by utility campaign contribution or the phalanx of utility lobbyists that call Tallahassee home.
Legislators are correct to call for Public Service Commission reform. Until utility money and influence is extricated from utility regulation, Florida consumers will continue to be dealt policies that protect the utility interests and provide only lip service to the public interests. The Commission has some big decisions on its plate in the next several weeks.
If Commissioners want to protect the public, whose interests they are appointed to protect, rather than the utilities they regulate, a good place to start would be to mandate meaningful energy efficiency goals for the state’s largest utility companies to help consumers lower their bills. Another meaningful step would be to stop the rush to build costly nuclear reactors until the economics makes sense for Florida customers. It still remains to be seen if business as usual will continue to reign at the Commission – or whether they will put the “public” back in Public Service Commission.
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