DEP, Utilities Float Deal To Curb Air Pollution

DEP, Utilities Float Deal To Curb Air Pollution

Mar 17, 2004

TALLAHASSEE - Environmental regulators have struck a creative deal to reduce air pollution from Florida's dirtiest power plants.

Skeptical consumer groups, however, are warning lawmakers and others that whenever something seems too good to be true, it usually is.

House Bill 1631, pushed by the Florida Department of Environmental Protection, calls for Florida Power and Light and Progress Energy Corp. to spend $1.6 billion on new pollution control equipment at coal and oil-fired power plants.

Planned improvements at Progress Energy's Crystal River plant would reduce by 50 percent emissions of sulfur dioxide and nitrogen oxides, according to Progress spokesman Aaron Perlut. Crystal River's smokestacks belch more smog-forming nitrogen oxides than any other plant in the state, and it ranks 16th in the nation in pollution from sulfur dioxide.

"This is going to be a huge leap forward in clean air for the state," said Allen Bedwell, deputy secretary of the Department of Environmental Protection. "This will ensure clean air for at least another decade."

Under the proposal, the utilities agree to install $1.6 billion in new pollution control equipment by 2011. In return, they want to be able to freeze their base rates for five years, and their fuel cost adjustments for seven years.

In most other areas of commerce, a rate freeze would be viewed as desirable for consumers. But utility costs routinely fluctuate. Consumer advocates say electric base rates have been decreasing in recent years as utilities add more customers per mile of line, increasing efficiency.

Moreover, utilities are a regulated industry whose profit margins are set by law. In the past five years, Florida Power had to give back $600 million in rate reductions to consumers after the state Public Counsel's Office challenged its rates. Progress had to return $125 million in a rate case during the same period. The utilities also had to pay customers $41 million in revenue sharing.

The Public Service Commission, in a recent letter to the bill's Senate sponsor, Nancy Argenziano, R-Dunnellon, said there would be no more rate reductions if the bill passes.

"However, it is uncertain whether additional rate reductions would take place in absence of this legislation," the PSC letter added.

The freeze in fuel adjustments comes at a time when energy costs are at their highest level in years. That point was made both by business lobbyists and legislators during the bill's first committee hearing Monday night.

"fuel costs were not at an all-time high, would we even be hearing this bill?" asked Rep. Dwight Ransel, D-Wellborn.

Mike Twomey, a lawyer who has represented consumers in utility matters, said there is another hidden cost in the bill. Both utilities project their fuel costs a year in advance and then build those costs into the rate base. If the company underestimates its fuel costs, it's allowed to recover the under-payment the next year.

For instance, Progress Energy underestimated its fuel charges last year by $210 million. Twomey said if the bill passes, ratepayers will not only pay that amount this year, but for seven more years, whether fuel costs rise or fall.

"I don't object to clean air; I just object to the price of it," Twomey said. "These companies want to get not just the cost of doing the cleanup, but they want to get a premium for themselves."

The bill provides that if actual fuel charges vary by 10 percent or more from the frozen adjustment charge, the utilities must go to the PSC for an adjustment in what they charge.

The rate freeze also will allow the utilities to collect for new power generation units in the next five to seven years. Perlut points out that the utility would be entitled to recover the costs of the new generators from ratepayers under the present system.

"This provides price stability," Perlut said. "It's just a legislative decision as to whether they want to reap these emission improvements [more quickly] under the DEP bill."

Environmental groups are generally in favor of the bill, although some said more pollution protections could have been demanded. Steven Smith, executive director of the Southern Alliance for Clean Energy, said North Carolina and Connecticut have either passed or are about to pass bills that go further in their pollution reduction requirements for power plants.

"There is a lot of money in that rate structure they've set up," Smith said, "and I think we ought to get the best reductions we can."

Bedwell, the DEP deputy secretary, said the agency got the best deal it could. Utilities are not required by federal law to make the expensive pollution control improvements because the Clean Air Act grandfathered in older power plants.