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Florida Utilities Can Recover Nuclear Costs, Court Says

May 2 (Bloomberg) -- A Florida law allowing utilities owned by Duke Energy Corp. and NextEra Energy Inc. to charge customers in advance for nuclear power projects that may not get built is constitutional, the state Supreme Court ruled.

The high court in Tallahassee today rejected arguments that the law was an improper delegation of power to the five-member Florida Public Service Commission, which in November 2011 approved utilities’ plans to charge customers $282 million in nuclear project costs in 2011 and 2012.

The court, which adjudicates disputes involving electric, gas and phone rates, also rejected a claim by the Southern Alliance for Clean Energy, a Knoxville, Tennessee-based environmental group, that the decision to allow the charges was improper.

“Authorizing recovery of preconstruction costs through customer rates in order to promote utility company investment in new nuclear power plants, even though those plants might never be built, is a policy decision for the Legislature, not this court,” the justices said in a 21-page opinion.

The ruling came about an hour before the state Legislature passed a bill that would change the law to make it more difficult for utilities to recover advance costs for nuclear projects. NextEra’s Florida Power & Light and Duke Energy oppose the bill.

“Our position on the bill has not changed,” Sterling Ivey, a Duke Energy spokesman, said in a statement. “We remain opposed to the bill, even as amended and passed. The process in current law is working and additional legislation or state law is not needed, which was confirmed today by the Florida Supreme Court.”

Shift Risk

The Florida Legislature in 2006 passed a law that allows utility companies to shift risk associated with nuclear projects to customers -- including expenses for siting and obtaining licenses. The Public Service Commission decides approved costs.

“The Legislature made that policy determination, that they want to encourage investment in nuclear plants,” Samantha Cibula, counsel for the Public Service Commission, told the Florida Supreme Court at oral arguments in Tallahassee Oct. 4.

How Much

Under the law, after receiving approval to build or expand nuclear capability, utilities must seek approval annually from the commission to charge customers. The regulatory panel annually compares the previous year’s projected costs with the current year’s costs and costs for subsequent years, deciding how much can be passed to consumers under the law.

The Public Service Commission in November 2011 approved an order authorizing Florida Power & Light Co. and Duke’s Progress Energy Florida to recover planning and construction costs totaling $282 million.

Erik Hofmeyer, a Florida Power & Light spokesman, said today that the company “completely agrees with the court’s decision that the Florida Public Service Commission properly administered the law.”

Hofmeyer said that while the bill passed today wouldn’t have an effect on recently completed upgrades, the company does have “serious concerns regarding its impacts.”

In the past three years, the commission has approved more than $1 billion in advance cost recovery for the two utilities.

Order Challenged

In December, Southern Alliance challenged the November order, arguing the record was arbitrary and the costs shouldn’t have been approved.

“Today is kind of a mixed day for us,” Stephen A. Smith, executive director of the Florida Alliance for Clean Energy, said today in a conference call with reporters. “We are disappointed that the he court did not exercise more authority here in this critical issue.”

Smith said the Legislature’s “modest” changes in the law “address elements of some of our concerns about the nuclear cost recovery nuclear tax issue.”

The Public Service Commission argued that Southern Alliance was asking the high court to reconsider the commission’s findings of fact.

“This is something the court simply cannot do,” the commission said.

In appealing the awards, Southern Alliance also challenged the advance recovery of construction capital costs, calling it an unconstitutional delegation of legislative authority because it doesn’t enumerate specific standards for the agency to follow.

‘Blank Check’

“The commission, an administrative agency, has been granted the authority to declare what the law is regards to nuclear cost recovery in the state of Florida,” Southern Alliance said in court papers. That has had “the dramatic effect of transferring all risk for proposed nuclear projects of Florida utilities away from utility shareholders and onto the utility’s ratepayers, giving the utilities a blank check to risk billions of dollars of the ratepayers’ money on speculative projects that would not be financed by the private sector.”

Progress Energy said in court papers that the commission had found by a preponderance of the evidence that the company intended to build two new reactors in Levy County, a rural area north of Tampa on Florida’s Gulf Coast. The reactors are set to be completed by 2024 and 2025.

“SACE’s hollow arguments are a thinly veiled attempt to make this case a referendum on the wisdom of nuclear power,” Progress Energy said in its brief, which was submitted by Stephen Grimes, a former justice on the state high court. “The Legislature has already made that choice.”

‘Political Question’

During oral arguments, Justice Fred Lewis told Southern Alliance that the decision was “a political question for the Legislature.”

Former Supreme Court Justice Raoul Cantero defended the law on behalf of Florida Power & Light. He said the case was filed because Southern Alliance didn’t like the underlying policy of promoting nuclear power plants, including upgrades at his client’s facility at Turkey Point near Miami. New reactors there are expected to be completed by 2022 and 2023.

“Their beef should be with the Legislature if they feel that it was not good policy to have incentives to build nuclear power plants,” he said.

The case is Southern Alliance for Clean Energy v. Graham, SC12-1987, Florida Supreme Court (Tallahassee).

To contact the reporter on this story: Christine Jordan Sexton in the Florida Supreme Court in Tallahassee at christinesextonwork@hotmail.com

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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