Pull plug on Florida nuclear tax

This guest post, originally published here by the Tampa Bay Times, was written by Mark Cooper, an economic analyst with the Vermont Law School’s Institute for Energy and the Environment. He is the author of  the recently released report, “Public Risk, Private Profit, Ratepayer Cost, Utility Imprudence.” To engage more on this issue, click here, or to learn more about Florida’s new nuclear reactor proposals, click here

Florida is one of just three states that made the mistake of allowing utilities to bill consumers in advance for the construction of nuclear reactors. Now, both chambers of the Legislature are considering measures that would correct this error to varying degrees.

Florida’s lawmakers will do consumers a huge favor if they pull the plug on what is referred to as “advance cost recovery” or “the nuclear tax.”

The plain truth is that Sunshine State residents are facing billions of dollars in charges for four nuclear reactors that are unlikely to ever be built. Utilities, state lawmakers and the Public Service Commission have known for years that additional nuclear reactors for Florida were both unneeded and far too expensive to justify. I know that is true — I am one of the experts who testified to those facts before the Florida PSC in July 2009 and August 2010.

If new nuclear reactors make no sense, why are any are under construction?

All of the reactors being built today are in the tiny handful of states that unwisely shifted nuclear construction risk onto the shoulders of ratepayers. Three-quarters of the reactors that were proposed during the nuclear renaissance were to be in states that did not have advanced cost recovery. Not one of those projects is moving forward.

In contrast, every one of the reactor construction projects that entered into an engineering, procurement and construction project is in a state such as Florida that has “advanced cost recovery” financing where ratepayers are left holding the bag.

The handful of utilities that rushed to sign contracts to build new reactors did not do so because they thought they had an economically attractive product. They did so because they were given a sweetheart deal by their state legislatures that shifted all of the risk of nuclear reactor construction onto ratepayers, while guaranteeing the utility advanced cost recovery and a huge increase in profit by adding a massive amount to their rate base.

Unfortunately, guaranteed advanced cost recovery is too great an incentive, and regulation has been so weakened that imprudent choices have not been avoided up to this point. This is how distorted the situation is today: Utilities can’t afford not to pick the pockets of ratepayers. They would be giving up “free money” if they did so.

What about the hundreds of millions of dollars Florida consumers have already flushed down the drain of nuclear power? When should you walk away from $1 billion or $2 billion in sunk costs? When continuing down the wrong path will waste $5 billion or $10 billion more.

It’s hard to admit it when so much money has been wasted, but prudent economic decisions require us to keep “sunk costs” from clouding our evaluation of future spending. My economic analysis shows that even though all of the sunk costs must be paid off, due to the advanced cost recovery statutes, ratepayers would be better off if the ongoing projects are cancelled and more cost-effective alternatives are pursued.

It’s been manifestly evident for at least four years that rising energy efficiency and changing consumer habits have resulted in a dramatic reduction in the growth of demand for electric power in Florida. A variety of cheaper fuel sources — including natural gas and renewables — have turned nuclear power into a white elephant. This was already evident four years ago when I first demonstrated to regulators in Florida that the construction of the Levy and Turkey Point reactors should be abandoned.

Since then all ongoing nuclear reactor projects have been bedeviled with uncontrollably rising costs for planning, construction and safety, while the cost of alternative energy sources has been falling.

Florida’s advanced cost recovery statute of 2006 has failed ratepayers utterly and outright repeal would be in order. Short of that step, “advanced cost recovery” for Florida’s current projects should be narrowly limited to licensing costs, with separate (and independent and transparent) reviews of reactor preconstruction and construction costs.

Even with such reforms in place, utilities should be required to go with lowest-cost fuel, rather than pouring hundreds of millions of dollars down the costly rat hole of nuclear power.

Short of outright right repeal or top-to-bottom reform, Florida lawmakers can expect to see more ratepayer outrage that will eventually be felt at the ballot box.

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