- The Florida Supreme Court ruled 6-1 last week that the Public Service Commission overstepped its authority when it allowed the state's largest utility to invest in natural gas production and use ratepayer money to cover the cost, the Miami Herald reports.
- In December 2014, the PSC approved FPL to invest $191 million in a joint venture with PetroQuest Energy to drill for gas in Oklahoma's Woodford Shale region. Last June, regulators allowed the utility to boost that investment up to $500 million a year in a bid to lock in low gas prices and keep rates stable.
- FPL's investments wound up losing about $6 million for customers last year, and the utility lowered its long-term benefit projections by more than $50 million. FPL defended the project to the newspaper, saying such investments keep the "costs down for customers over the long term."
With natural gas accounting for more than 70% of FPL's generation, the price of the commodity has a big impact on customer bills.
In an effort to reduce volatility and lock in low prices at the wellhead, FPL asked regulators in 2014 to allow it to be the first electric utility in the country to invest directly in gas production, pushing a $750 million joint venture with PetroQuest Energy to finance drilling from existing gas wells.
Regulators scaled that request back, approving a $191 million investment in the first year before giving the nod to an expansion of the program last June. But allowing the utility to charge electric ratepayers up to $500 million annually in gas drilling costs was a step too far, the Florida Supreme Court said last week.
In a decision written by Justice Ricky Polston, the court determined state regulators had overstepped in approving FPL's plan to hedge fuel costs. While state law allows electric utilities to recover costs from the generation, transmission and distribution of electricity, "the exploration, drilling and production of fuel falls outside the purview of an electric utility as defined by the Legislature."
"The recovery as fuel costs paid by FPL’s customers in its utility rates were considered by the PSC to be a long-term physical hedge," the court determined. "Treating these activities as a hedge requires FPL’s end-user consumers to guarantee the capital investment and operations of a speculative oil and gas venture without the Florida Legislature’s authority. Accordingly, we reverse."
The hedge against gas price increases didn't pay off for FPL in the first year of its project, when low gas prices and reduced production resulted in a $5.8 million loss. But the utility defended the underlying logic of the investment, as it did after the court ruling Thursday.
“At FPL, we are always looking for opportunities to improve the value we provide our customers and keep their electric bills low," FPL spokeswoman Sarah Gatewood told the Herald. "Our typical customer bill is the lowest in Florida and among the lowest in the nation, and that does not happen by accident – instead, it’s the direct result of our forward-thinking strategy and long-term investments like the Woodford project that help keep costs down for customers over the long term.”
FPL did not comment on whether it will pursue legislative changes to allow it to finance such investments in the future, but the state Office of Public Counsel said customers will likely see some refunds in the meantime.
Whether electric utilities are producing it or not, their consumption of natural gas for generation is expected to rise significantly in Florida. Between now and 2018, the state expects to add 3.8 GW of gas-fired capacity from just three power plants.