Electric Politics

President Obama recently visited Florida to announce multimillion-dollar Smart Grid Investment Grants to several utilities. The grant will help fund a $578 million project to "green" Florida's energy infrastructure, including the deployment of 2.6 million "smart meters" and 9,000 "intelligent distribution devices" to consumers, and the installment of advanced monitoring devices in over 270 electrical substations. The effort to deploy federal resources in the Sunshine State for the purpose of alternative energy, however, may end up being a poor use of federal funds if the locals who regulate the local utilities continue to run a short-sighted, politically motivated, counterproductive strategy.

As the president pushes ahead with his politically contentious strategy of deficit-financed funding for smart energy investments, the Florida Public Service Commission (PSC) is fending off requests from Florida utilities to change electricity rates--increases necessary to help pay for the cost to build an intelligent energy grid and to use cleaner fuels in the future.

If the PSC's commitment to low rates today continues to outweigh the needs of tomorrow, the federal money that President Obama brought to the state may likely go to waste.

How, where and when Americans get their electricity generated is changing. Shifting to new methods of generating electricity will occur through a combination of science and technological innovation, shifting tax incentives. However, green energy doesn't grow on trees, and utility companies such as Progress Energy, TECO and Florida Power and Light need the additional resources to meet the growing demand of its customers. Transforming states' energy infrastructure comes at a cost, and new technologies are expensive. Although the Sunshine State is well positioned to develop solar power, which will increase its energy self-reliance, attaining clean energy infrastructure will also require new generation plants and new transmission infrastructure. If consumers and politicians want it, someone is going to need to pay for it. Therein lies the rub.

The Florida PSC's resistance to rate hikes that will lead to a greener infrastructure seems to be in direct conflict with the president's goal of doubling alternate energy production in the next three years. This is a crystal clear illustration of the need for change in the way that electricity is regulated. Many voters are rightly fearful of politicized energy policy from Washington. But state regulators playing local politics by seeking short-term, popular choices instead of making tough choices are the biggest political threat to 21st century energy policy. If the PSC's commitment to low rates today continues to outweigh the needs of tomorrow, the federal money that President Obama brought to the state may likely go to waste.

The transition to a smart power grid capable of managing alternative energy sources and efficiency will also require some cooperation between Florida's Utility Commission and the power companies. Florida's commissioners, currently acting like bad politicians, need to learn that being a commission of "no more costs" will leave them as the commission of "no new ideas." As Republicans demonstrated in 1994 and President Obama demonstrated in 2008, offering new ideas can be a winning political strategy. But, like typical politicians, the PSC commissioners seem to want to avoid the near-term reality that is necessary to obtain the long-term gain. They are looking for a political freebie and the choice is another obvious one: go after the electricity provider.

There is nothing wrong with the PSC taking a hard line against a utility; in fact it is part of the PSC's mission--as long as it is seeking to meet a policy objective of adequate energy production at a fair price--but not if it is to meet only the objective of political popularity. Pursuing the politically desirable near-term policy while ignoring the long-term responsibility is never a good strategy.

My state of California always thinks it has a lesson to teach other states and that it sets a good example for others to emulate. This may be a good opportunity for Florida to learn from a bad example and avoid some unfortunate and inevitable economic consequences. California's deliberate political manipulation of the regulation of electricity markets in the 1990s taught us a hard lesson with brown-outs, electricity shortages, high prices, volatile markets and no investment in infrastructure. Florida seems poised to repeat the California fiasco. At a time of financial strain, Florida is discouraging investment in infrastructure, forfeiting jobs and sacrificing economic growth opportunities.

If the PSC persists in practicing "old" politics in the face of voters' and ratepayers' clear mandate for change, the change to "green" may be the pasture to which those commissioners should be sent.

Bill Thomas is a visiting fellow at AEI.

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Bill
Thomas
  • Bill Thomas, a former chairman of the House Ways and Means Committee, served in the U.S. House of Representatives from 1978 to 2007. During his six-year chairmanship, he guided the enactment of $2 trillion in tax relief, including the Economic Growth and Tax Reconciliation Act of 2001, which reduced all ordinary income tax rates; the Jobs and Growth Tax Reconciliation Act of 2003, which reduced the tax rate on dividends and capital gains; and the Job Creation Act of 2004, which provided significant reforms for corporate tax policy.
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    Email: bill.thomas@aei.org

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