In a tersely worded opinion, an intermediate appellate court in Florida has affirmed a lower court’s dismissal of a ratepayer challenge to statutes enacted in 2006 authorizing utilities to recover pre-operational costs of nuclear (and combined cycle gas) plants. Smalley v. Duke Energy Florida, Inc.,Case No. 2D13-4746 (Fl. 2d DCA December 31, 2014).
The statutes provide that once a utility obtains a certificate of need for a nuclear or combined cycle gas plant, the utility may recover prudently incurred costs of developing the plant, including a rate of return on capital investments, even though the plant has not begun commercial operation or will never operate. Fla. Statutes §§ 366.93, 403.519 (2012).
Customers of Duke’s Progress Energy Florida (PEF) subsidiary and of Florida Power & Light Company (FPL) sued in state court, claiming that the statutes violated the provision in Article I, Section 10 of the US Constitution barring states from enacting laws impairing contracts, and seeking refunds of monies paid to the utilities under the statutes. Specifically, they alleged that the statutes impaired their contractual relationship with the utilities by requiring them to pay amounts in excess of the cost of electricity they have consumed. They also contended that any public purpose justifying the impairment was negated by the fact that the statutes authorized the utilities to recover pre-construction costs plus a rate of return even though they elected not to build, complete or operate the plants.
The costs to which the customers objected apparently relate to PEF’s two Levy County nuclear units, which were canceled in 2013, and to FPL’s Turkey Point Unit 6 and 7 nuclear plants, for which FPL continues to seek NRC approvals.[1]
In affirming the dismissal, the appeals court stated that “A determination that a statute is facially unconstitutional means that no set of circumstances exists under which the statute would be valid.” According to the court, the plaintiffs had utterly failed to meet that burden since they did not argue that in the event a utility is precluded from completing a power plant due to factors beyond its control, the public purpose for the legislation, which is to encourage new nuclear plants, is defeated. Transferring risk for proposed nuclear projects to encourage utilities to invest in them is a policy best addressed by the legislature, the court ruled.
The decision is not surprising, both because of Florida’s favorable regulatory climate generally and the plaintiffs’ apparent lack of sophistication. In addition, given the overwhelmingly unfavorable economics of new nuclear plant development in the US, cost recovery statutes are unlikely to have much effect on encouraging utilities to invest in those plants. Nonetheless, utilities continue to face significant risks in investing in large-scale, long lead time infrastructure projects, and decisions and policies that recognize those risks are always welcomed by the industry.
[1] FPL’s public position is that it is “creating the option” to build these plants. See http://www.fpl.com/environment/nuclear/tp67_overview.shtml.