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Committee postpones amendment on electric rates

A Senate committee postponed a vote on plan to restructure the way electricity customers pay for new power plants when the author of a late-appearing amendment, Sen. Bill Montford, D-Tallahassee, withdrew it.

The amendment, proposed to be tucked into a clean energy bill, would make it easier for Florida's electric companies to raise rates to pay for modernizing or building their power plants. Florida Power & Light currently has a proposal before state regulators to allow it to spend $1.1 billion to modernize its Port Everglades power plant.

"There's been a lot of mischaracterization and that has caused some confusion,'' said Mike Sole, lobbyist with Florida Power & Light, after the Senate Agriculture Committee postponed a vote on the  amendment.

The proposal would allow utility companies to bypass the traditional rate case before the Public Service Commission for certain construction projects, and instead receive an "incremental adjustment to base rates."

The process would require the state Public Service Commission to add the cost of construction for the power plants to utility bills without a full rate-case review. Currently, companies must undergo the broad scrutiny of either a full or limited rate case to recover the construction costs of their improvement projects. 

Sole, a former secretary for the Department of Environmental Regulation, argues it will ultimately save customers money because it streamlines the oversight process and will avoid the $4 million cost of putting on a rate case. "There still will be rate cases,'' he said. "The question is, should we mandate rate cases?"

But Jon Moyle, a lawyer and lobbyist for the Florida Industrial Power Users Group, disagreed that the new method will save customers money because it would "limit the ability of the commission to consider all relevant things."

"We see the amendment as a one way street to a rate increase,'' he said, noting that it will prevent regulators from exploring all expenses and revenues, especially those the companies wants to keep out of the limelight. "When you're asking for $1 billion, the $3-5 million in rate case expenses -- that's worth it."

During the 2009-10 rate case, for example, Moyle successfully forced the commission to examine the FPL's executive compensation package, use of private airplanes and helicopters and other costs. The PSC ultimately rejected FPL's request for a $1 billion rate increase that year.

Sole said that if the PSC agrees there is a need for the new plants, it will pass along the cost to customers anyway. "The controversy is with all these other issues,'' he said.

Moyle said the other issues won't get the attention they deserve because this will "make rate cases very few and far between."

The bill next moves to the budget committee and Sole left open the possibility that FPL will continue to pursue the amendment. "I still think it's a smart proposal,'' he said. "This proposal legitimately saves customers money, and it saves taxpayers money.''

Update: FPL spokesman Mark Bubriski offered these counterpoints to our our post from this morning:

Paragraph #2: "filed ... moments before the amendment deadline"
This is very misleading:

*         Fails to mention that the "deadline" you're referring to was only for amendments to be heard by the Committee on Agriculture in its meeting today

*         There's clearly plenty of time for additional amendments to be filed, and Senator Montford actually withdrew the amendment this morning to ensure interested parties had ample time to review it

Paragraph #3: "Translation: the legislature would order the utilty (sic) regulators to impose the added cost to utility bills; the PSC would just decide how much"

This is false:

*         The amendment does NOT reduce the oversight authority or responsibility of the Florida Public Service Commission (PSC) in any way, shape or form. It provides the same consumer safeguards as currently exist

*         It would simply eliminate the requirement to conduct a redundant proceeding  as long as the utility completes construction of a new high-efficiency power plant in line with the original estimate as reviewed and approved by the PSC through the required need determination proceeding

*         And in the event that a utility's construction costs exceed the original approved estimate, the amendment ensures that none of those costs are passed on to customers without further PSC review and subsequent approval

Paragraph #4: "[The bill] could allow FPL - or any other eligible utility - to avoid a prolonged and contested rate proceeding"
Not accurate and very misleading:

*         Ignores the fact that the estimate is subject to a contested proceeding and that any costs incurred above the estimate would be subject to an additional hearing before being included in customer rates

*         Ignores the fact that "prolonged and contested rate proceedings" are exceedingly expensive for everyone involved, including taxpayers and utility customers

*         Also, the amendment has no effect on rate hearings specifically. It allows for the PSC to focus regulatory hearings on the core issues

Paragraph #4: "FPL and Progress Energy already have the PSC pass on their costs for planning nuclear power plants and for fuel without having to go through a base rate review"
Technically accurate but highly misleading:

*         The PSC conducts an annual rigorous review and approval process of both nuclear planning costs and all fuel costs regardless of type

*         Utilities are only permitted to recover costs if it proves to the PSC that they were incurred prudently

Paragraph #5: "When legislators require the PSC to allow the utility giants to automatically charge customers these costs, they also allow the companies to avoid the detailed scrutiny."
Paragraph #7: The PSC has not yet decided that the project is needed, or the costs warranted. If it does agree there's a need, the amendment would then automatically approve of the "adjustment."

These claims are false.

*         When an electric utility determines that it needs to build or modernize a new power plant, it develops a detailed proposal with a timeline and budget that undergoes a rigorous, multi-agency review and approval process prior to construction taking place. This would not change

*         Ignores the fact that the estimate is subject to a contested proceeding before the PSC and that any costs incurred above the estimate would be subject to an additional hearing before being included in customer rates

*         Further, a utility may be required to go through a prudence hearing prior to commercial operation to ensure all expenses are justifiable

*         In addition to certifying that there is a need for the power, the PSC also requires an RFP to demonstrate that the company's cost estimates to build are the lowest-cost option, but it may grant an exception if they deem that the company's proposal cannot be beat because of special circumstances, such as in Port Everglades where there is existing transmission and other infrastructure in place, etc.

Paragraph #6: "In November last year, FPL asked the PSC to raise its base rates $1.1 billion to pay for the modernization of its Port Everglades power plant"
This is inaccurate in at least four ways:

*         FPL didn't ask the PSC to raise base rates at all. The November filing was a petition for the PSC to determine that FPL has a need for the Port Everglades modernization project in 2016

*         The project must receive the need determination from the PSC and siting approval from the Department of Environmental Protection. Then FPL would build it, and after it enters service, then it would it be included in base rates like other power plants. Currently, the law requires the PSC to hold a second redundant proceeding to approve cost recovery, even if the utility completes construction of a plant in line with the plan and budget that the PSC approved through the need determination proceeding

*         The Port Everglades Energy Center would not increase base rates anywhere close to $1.1 billion. That's the estimated amount that FPL will have to spend to build the plant, prior to it entering service and being included in base rates

*         The proposed plant's advanced efficiency would significantly reduce fuel consumption, which directly saves customers on their fuel charge - the "$425 million to $838 million" figure you cite is actually a net savings (after paying for  construction costs)  of the Port Everglades modernization, compared to what costs to customers would be if FPL were to instead, return to service the old Port Everglades units, or alternately, build a new combined cycle unit at a new "greenfield" site

Paragraph #7: "The company now operates with a 20 percent reserve margin, the filing notes, meaning that has the ability to generate 20 percent more power than is used by customers"
This is extremely misleading:

*         Reserve margins are maintained to ensure reliability of electric service throughout the industry and required by regulators everywhere

*         A utility maintains a reserve margin to ensure it can provide reliable power to its customers, particularly in event of the higher-than-expected demand for electricity that can occur on very hot or very cold days. Without a substantial reserve margin, no utility (including FPL) would be able to provide reliable electric service to customers

*         In 1999, the PSC agreed that FPL should base its resource planning process on maintaining a minimum reserve margin of 20 percent above projected peak load

*         By virtue of its size, FPL provides a significant portion of the state's reserve margin, which is extremely important for reliability in the state as a whole

Please contact us if you have questions about this or other matters.

Thank you,