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Amendment could add $1 billion pricetag to energy bill

A week after the sponsor of the Senate energy bill, Sen. Andy Gardner, R-Winter Park, promised that this year's energy bill would not raise electric rates to customers, an amendment filed late Friday would change all that.

The potential pricetag: $1.1 billion for Florida Power & Light customers. The amendment, filed by Sen. Bill Montford, D-Tallahassee, moments before the amendment deadline, 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."

Translation: the legislature would order the utilty regulators to impose the added cost to utility bills; the PSC would just decide how much. The bill before the Senate Agriculture Committee is designed to encourage renewable energy development in Florida and includes many provisions sought by Agriculture Commissioner Adam Putnam.

If legislators agree to tack the amendment onto the bill, it could allow FPL -- or any other eligible utility -- to avoid a prolonged and contested rate hearing like the contentious debate of 2009 and 2010 in which the PSC voted unanimously to reject FPL's $1.1 billion rate increase request. Today, 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.

Rate cases are not popular for the utility monopolies. When regulators conduct a rate case, they consider a broad array of factors when deciding whether a utility will be allowed to raise rates to modernize or construct power plants or pay for the projects through revenue growth. 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. 

Who would this amendment help? 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 in Broward County. In return, the company predicts, it will produce more than $20 million in new tax revenue to local governments, create 650 construction jobs and save customers $425 million to $838 million.

FPL argues that it must modernize the Port Everglades plant because there will be an additional need for natural gas beginning in 2016. (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 and wants to maintain that margin.)

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."

FPL said in its documents that it "has a substantial concern" that the electricity load in Miami-Dade and Broward exceeds the available capacity and the company must either import more electricity or build more generation. There is no emphasis in the filing on putting additional resources into encouraging energy conservation.

The proposal, FPL states, is to build a "modern, highly efficient, state-of-the-art combined cycle natural gas unit with about 1,277 MW (summer) of generation for commercial operation beginning in June 2016."

 Update: FPL spokesman Mark Bubriski offered these counterpoints at 7 p.m.:

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,
Mark

 

Comments

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debbie

Not on your life! Happy to pay more for clean energy but, the CEO of FP&L needs his salary cut by 90% first.

Forbes
CEO Compensation
#92 Lewis Hay III
04.22.09, 06:00 PM EDT

Total Compensation
$13.94 mil

5-Year Compensation Total
$58.54 mil

Lewis Hay III has been CEO of FPL Group (FPL) for 8 years. Mr. Hay III has been with the company for 10 years. The 53 year old executive ranks 7 within Utilities

Education
College: Lehigh University BSEE '77
Graduate School: Carnegie Mellon University MSIA '82

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